For the fiscal year ended
December 31, 2008 |
Commission file
number 1-5805 |
Delaware
(State
or other jurisdiction of
incorporation or organization) |
13-2624428
(I.R.S. employer identification no.) |
270 Park Avenue, New York, NY
(Address of principal executive
offices)
|
10017
(Zip code) |
Title of each class | Name of each exchange on which registered | |
Common stock
|
The New York Stock Exchange
|
|
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The London Stock Exchange
|
|
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The Tokyo Stock Exchange
|
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Depositary Shares each representing a one-fourth interest in a share of 6.15% Cumulative Preferred Stock, Series E
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The New York Stock Exchange
|
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Depositary Shares each representing a one-fourth interest in a share of 5.72% Cumulative Preferred Stock, Series F
|
The New York Stock Exchange
|
|
Depositary Shares each representing a one-fourth interest in a share of 5.49% Cumulative Preferred Stock, Series G
|
The New York Stock Exchange
|
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Depositary Shares each representing a one-four hundredth interest in a share of 8.625% Non-Cumulative Preferred
Stock, Series J
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The New York Stock Exchange
|
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Guarantee of 7.00% Capital Securities, Series J, of J.P. Morgan Chase Capital X
|
The New York Stock Exchange
|
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Guarantee of 5 7/8% Capital Securities, Series K, of J.P. Morgan Chase Capital XI
|
The New York Stock Exchange
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Guarantee of 6.25% Capital Securities, Series L, of J.P. Morgan Chase Capital XII
|
The New York Stock Exchange
|
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Guarantee of 6.20% Capital Securities, Series N, of J.P. Morgan Chase Capital XIV
|
The New York Stock Exchange
|
|
Guarantee of 6.35% Capital Securities, Series P, of J.P. Morgan Chase Capital XVI
|
The New York Stock Exchange
|
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Guarantee of 6.625% Capital Securities, Series S, of J.P. Morgan Chase Capital XIX
|
The New York Stock Exchange
|
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Guarantee of 6.875% Capital Securities, Series X, of J.P. Morgan Chase Capital XXIV
|
The New York Stock Exchange
|
|
Guarantee of Fixed-to-Floating Rate Capital Securities, Series Z, of JPMorgan Chase Capital XXVI
|
The New York Stock Exchange
|
|
Guarantee of 7.20% Preferred Securities of BANK ONE Capital VI
|
The New York Stock Exchange
|
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Guarantee of 7.8% Preferred Securities of Bear Stearns Capital Trust III
|
The New York Stock Exchange
|
|
JPMorgan
Market Participation Notes Linked to S&P
500
®
Index due March 31, 2009
|
The NYSE Alternext U.S. LLC
|
|
Capped Quarterly Observation Notes Linked to S&P 500
®
Index due July 7, 2009
|
The NYSE Alternext U.S. LLC
|
|
Capped Quarterly Observation Notes Linked to S&P 500
®
Index due September 21, 2009
|
The NYSE Alternext U.S. LLC
|
|
Consumer Price Indexed Securities due January 15, 2010
|
The NYSE Alternext U.S. LLC
|
|
Principal Protected Notes Linked to S&P 500
®
Index due September 30, 2010
|
The NYSE Alternext U.S. LLC
|
|
KEYnotes Exchange Traded Notes Linked to the First Trust Enhanced 130/30 Large Cap Index
|
NYSE Arca, Inc.
|
|
BearLinx
SM
Alerian MLP Select Index ETN
|
NYSE Arca, Inc.
|
|
Euro Floating Rate Global Notes due July 27, 2012
|
The NYSE Alternext U.S. LLC
|
|
Principal Protected Notes Linked to the Nasdaq-100 Index
®
Due December 22, 2009
|
The NYSE Alternext U.S. LLC
|
|
Principal Protected Notes Linked to the S&P 500
®
Index Due November 30, 2009
|
The NYSE Alternext U.S. LLC
|
|
Principal Protected Notes Linked to the Dow Jones Industrial Average
SM
due March 23, 2011
|
The NYSE Alternext U.S. LLC
|
|
Medium Term Notes Linked to a Basket of Three International Equity Indices Due August 2, 2010
|
The NYSE Alternext U.S. LLC
|
x Large accelerated filer | o Accelerated filer |
o Non-accelerated filer (Do not check if a smaller reporting company) |
o Smaller reporting company |
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JPMorgan Chase & Co. (JPMorgan Chase or the Firm) is a financial
holding company incorporated under Delaware law in 1968. JPMorgan
Chase is one of the largest banking institutions in the United States of
America (U.S.), with $2.2 trillion in assets, $166.9 billion in stockholders equity and operations in more than 60 countries.
JPMorgan Chases activities are organized, for management reporting
purposes, into six business segments, as well as Corporate/Private
Equity. The Firms wholesale businesses comprise the Investment
Bank, Commercial Banking, Treasury & Securities Services and Asset
Management segments. The Firms consumer businesses comprise the
Retail Financial Services and Card Services segments.
JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment.
Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, insurance
companies, mutual fund companies, credit card companies, mortgage
banking companies, trust companies, securities processing companies, automobile
financing companies, leasing companies,
e-commerce and other Internet-based companies, and a variety of
other financial services and advisory companies. JPMorgan Chases
businesses generally compete on the basis of the quality and range
of their products and services, transaction execution, innovation and
price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally;
with respect to others, the Firm competes on a regional basis. The Firms ability to compete also
depends upon its ability to attract and retain its professional and other personnel, and on its
reputation.
The Firm is subject to regulation under state and
federal laws in the U.S., as well as the
applicable laws of each of the various
jurisdictions outside the U.S. in which the Firm
does business.
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The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) provides a
framework for regulation of depository institutions
and their affiliates, including parent holding
companies, by their federal banking regulators.
As part of that framework, the FDICIA requires the relevant
federal banking regulator to take prompt
corrective action with respect to a depository
institution if that institution does not meet
certain capital adequacy standards.
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Our businesses have been, and in the future will continue to be, materially affected by economic
and market conditions, including factors such as the liquidity of the global financial markets; the
level and volatility of debt and equity prices, interest rates and currency and commodities prices;
investor sentiment; corporate or other scandals that reduce confidence in the financial markets;
inflation; the availability and cost of capital and credit; the occurrence of natural disasters,
acts of war or terrorism; and the degree to which U.S. or international economies are expanding or
experiencing recessionary pressures. These factors can affect, among other things, the activity
level of clients with respect to the size, number and timing of transactions involving our
investment and commercial banking businesses, including our underwriting and advisory businesses;
the realization of cash returns from our private equity and principal investments businesses; the
volume of transactions that we execute for our customers and, therefore, the revenue we receive
from commissions and spreads; the number or size of underwritings we manage on behalf of clients;
and the willingness of financial sponsors or other investors to participate in loan syndications or
underwritings managed by us.
Our liquidity is critical to our ability to operate our businesses, grow and be profitable. Some
potential conditions that could negatively affect our liquidity include illiquid or volatile
markets, diminished access to capital markets, unforeseen cash or capital requirements (including,
among others, commitments that may be triggered to special purpose entities (SPEs) or other
entities), difficulty or inability to sell assets, unforeseen
outflows of cash or collateral, and lack of market or customer
confidence in us or our prospects.
These conditions may be caused by events over which we have little or no control. The liquidity
crisis experienced in 2008 increased our cost of funding and limited our access to some of our
traditional sources of liquidity such as securitized debt offerings backed by mortgages, loans,
credit card receivables and other assets. If current market conditions continue, our liquidity
could be adversely affected.
A number of our products expose us to credit risk, including loans, leases and lending commitments,
derivatives, trading account assets and assets held-for-sale. As one of the nations largest
lenders, we have exposures to many different
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We have exposure to increased levels of risk when a number of customers are engaged in similar
business activities or activities in the same geographic region, or when they have similar economic
features that would cause their ability to meet contractual obligations to be similarly affected by
changes in economic conditions. We regularly monitor various segments of our portfolio exposures to
assess potential concentration risks. Our efforts to diversify or hedge our credit portfolio
against concentration risks may not be successful and any concentration of credit risk could
increase the potential for significant losses in our credit portfolio. In addition, disruptions in
the liquidity or transparency of the financial markets may result in our inability to sell,
syndicate or realize upon securities, loans or other instruments or positions held by us,
thereby leading to increased concentrations
Our risk management framework seeks to mitigate risk and loss to us. We have established processes
and procedures intended to identify, measure, monitor, report and analyze the types of risk to
which we are subject, including liquidity risk, credit risk, market risk, interest rate risk,
operational risk, legal and fiduciary risk, reputational risk and private equity risk, among
others. However, as with any risk management framework, there are inherent limitations to our risk
management strategies as there may exist, or develop in the future, risks that we have not
appropriately anticipated or identified. If our risk management framework proves ineffective, we
could suffer unexpected losses and could be materially adversely affected.
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Our businesses and earnings are affected by the fiscal and other policies that are adopted by
various regulatory authorities of the United States, non-U.S. governments and international
agencies.
We engage in power generation, and in connection with the commodities activities of our Investment
Bank, we engage in the storage, transportation, marketing or trading of several commodities,
including metals, agricultural products, crude oil, oil products, natural gas, electric power,
emission credits, coal, freight, and related products and indices. As a result of these activities,
we are subject to extensive and evolving energy, commodities, environmental, and other governmental
laws and regulations. We expect laws and regulations affecting our power generation and commodities
activities to expand in scope and complexity. We may incur substantial costs in complying with
current or future laws and regulations and the failure to comply with these laws and regulations
may result in substantial civil and criminal fines and penalties. In addition, liability may be
incurred without regard to fault under certain environmental laws and regulations for remediation
of contaminations. Our power generation and commodities activities also further exposes us to the
risk of unforeseen and catastrophic events, including natural disasters, leaks, spills, explosions,
release of toxic substances, fires, accidents on land and at sea, wars, and terrorist attacks that
could result in personal injuries, loss of life, property damage, damage to our reputation and
suspension of operations. In addition, our power generation activities are subject to disruptions,
many of which are outside of our control, from the breakdown or failure of power generation
equipment, transmission lines or other equipment or processes, and the contractual failure of
performance by third-party suppliers or service providers, including the failure to obtain and
deliver raw materials necessary for the operation of power generation facilities. We attempt to
mitigate our risks, but our actions may not prove adequate to address every contingency. In
addition, insurance covering some of these risks may not be available, and the proceeds, if any,
from insurance recovery may not be adequate to cover liabilities with respect to particular
incidents. As a result, our financial condition and results of operations may be adversely affected
by such events.
Our businesses are dependent on our ability to process, record and monitor a large number of
increasingly complex transactions. If any of our financial, accounting, or other data
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We operate within a highly regulated industry. We are subject to regulation under state and federal
laws in the U.S., as well as the applicable laws of each of the various other jurisdictions outside
the U.S. in which we do business. These laws and regulations affect the type and manner in which we
do business and may limit our ability to expand our product offerings, pursue acquisitions, or
restrict the scope of operations and services provided.
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We are named as a defendant or are otherwise involved in various legal proceedings, including class
actions and other litigation or disputes with third parties, as well as investigations or
proceedings brought by regulatory agencies. Actions brought against us may result in judgments,
settlements, fines, penalties or other results adverse to us, which could materially adversely
affect our business, financial condition or results of operation, or cause us serious reputational
harm. As a participant in the financial services industry, it is likely we will continue to
experience a high level of litigation and regulatory scrutiny and investigations related to our
businesses and operations.
We operate in a highly competitive environment and we expect competitive conditions to continue to
intensify as continued merger activity in the financial services industry produces larger,
better-capitalized and more geographically diverse companies that are capable of offering a wider
array of financial products and services at more competitive prices. Consolidations in the
financial services industry increased substantially during 2008, as several major U.S.
financial institutions merged, were forced to sell assets and, in some cases failed.
We have in the past and may in the future seek to grow our business by acquiring other businesses.
There can be no assurance that our acquisitions will have the anticipated positive results,
including results relating to: the total cost of integration; the time required to complete the
integration; the amount of longer-term cost savings; the overall performance of the combined
entity; or an improved price for our common stock. Integration of an acquired business can be
complex and costly, sometimes including combining relevant accounting and data processing systems
and management controls, as well as managing relevant relationships with employees, clients,
suppliers and other business partners. Integration efforts could divert management attention and
resources, which could adversely affect our operations or results.
Maintaining a positive reputation is critical to our attracting and maintaining customers,
investors and employees. Damage to our reputation can therefore cause significant harm to our
business and prospects. Harm to our reputation can arise from numerous sources, including, among
others, employee misconduct, litigation or regulatory outcomes, failing to deliver minimum
standards of service and quality, compliance failures, unethical behavior, and the activities of
customers and counterparties. Further, negative publicity regarding us, whether or not true, may
also result in harm to our prospects.
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Our employees are our most important resource and, in many areas of the financial services
industry, competition for qualified personnel is intense. The executive compensation restrictions
currently, or that may in the future may be, imposed on us as a result of our participation in the
Capital Purchase Program or other government programs, may adversely affect our ability to attract
and retain qualified senior management and employees. If we are unable to continue to retain and
attract qualified employees, our performance, including our competitive position, could be
materially adversely affected.
Pursuant to accounting principles generally accepted in the United States of America,
we are required to use certain assumptions and estimates in preparing our financial statements,
including in determining credit loss reserves, reserves related to litigations and the fair value
of certain assets and liabilities, among other items. If assumptions or estimates underlying our
financial statements are incorrect, we may experience material losses.
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Name
Age
James Dimon
52
Frank J. Bisignano
49
Steven D. Black
56
Michael J. Cavanagh
42
Stephen M. Cutler
47
William M. Daley
60
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Ina R. Drew
52
Samuel Todd Maclin
52
Jay Mandelbaum
46
Heidi Miller
55
Charles W. Scharf
43
Gordon A. Smith
50
James E. Staley
52
William T. Winters
47
Barry L. Zubrow
55
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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18
19
20
21
22
23
236
237
Year ended
Total shares
Average price
December 31, 2008
repurchased
paid per share
2,043
$
45.61
7,041
47.57
24,214
31.05
362
39.89
369
44.17
460,896
44.29
461,627
44.29
494,925
$
43.69
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AND
CORPORATE GOVERNANCE
Number of shares to be
Weighted-average
Number of shares remaining
December 31, 2008
issued upon exercise of
exercise price of
available for future issuance under
(Shares in thousands)
outstanding options/SARs
outstanding options/SARs
stock compensation plans
191,679
$
47.91
347,956
(a)
90,731
45.16
282,410
$
47.02
347,956
(a)
Represents future shares available under the shareholder-approved 2005 Long-Term Incentive
Plan, as amended and restated effective May 20, 2008.
1.
Financial statements
The Consolidated financial statements, the Notes thereto and the report thereon listed in Item 8
are set forth commencing on page 18.
2.
Financial statement schedules
3.
Exhibits
3.1
Restated Certificate of Incorporation of JPMorgan Chase & Co., effective April 5, 2006
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 7, 2006).
3.2
Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series I
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co.
(File No. 1-5805) filed April 24, 2008).
3.3
Certificate of Designations of 6.15% Cumulative Preferred Stock, Series E (incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008).
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3.4
Certificate of Designations of 5.72% Cumulative Preferred Stock, Series F (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008).
3.5
Certificate of Designations of 5.49% Cumulative Preferred Stock, Series G (incorporated by
reference to Exhibit 3.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008).
3.6
Certificate of Designations of 8.625% Non-Cumulative Preferred Stock, Series J (incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K/A of JPMorgan Chase & Co. (File No.
1-5805) filed September 17, 2008).
3.7
Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series K (incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed October 31, 2008).
3.8
By-laws of JPMorgan Chase & Co., effective July 15, 2008 (incorporated by reference to Exhibit
3.4 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 16,
2008).
4.1(a)
Indenture, dated as of December 1, 1989, between Chemical Banking Corporation (now known as
JPMorgan Chase & Co.) and The Chase Manhattan Bank (National Association) (succeeded by Deutsche
Bank Trust Company Americas), as Trustee.
4.1(b)
First Supplemental Indenture, dated as of November 1, 2007, between JPMorgan Chase & Co. and
Deutsche Bank Trust Company Americas, as Trustee, to the Indenture,
dated as of December 1, 1989
(incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed November 7, 2007).
4.1(c)
Fifth Supplemental Indenture, dated as of December 22, 2008, between JPMorgan Chase & Co.
and Deutsche Bank Trust Company Americas, as Trustee, to the
Indenture, dated as of December 1, 1989.
4.2(a)
Indenture, dated as of April 1, 1987, as amended and restated as of December 15, 1992,
between Chemical Banking Corporation (now known as JPMorgan Chase & Co.) and Morgan Guaranty Trust
Company of New York (succeeded by U.S. Bank Trust National Association), as Trustee (incorporated
by reference to Exhibit 4.3(a) to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No.
1-5805) for the year ended December 31, 2005).
4.2(b)
Third Supplemental Indenture, dated as of December 29, 2000, between The Chase Manhattan
Corporation (now known as JPMorgan Chase & Co.) and U.S. Bank Trust National Association, as
Trustee, to the Indenture, dated as of April 1, 1987, as amended and restated as of December 15,
1992 (incorporated by reference to Exhibit 4.3(c) to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2005).
4.3(a)
Indenture, dated as of May 25, 2001, between J.P. Morgan Chase & Co. and Bankers Trust
Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference
to Exhibit 4(a)(1) to the Registration Statement on Form S-3 of J.P. Morgan Chase & Co. (File No.
333-52826) filed June 13, 2001).
4.3(b)
First Supplemental Indenture, dated as of April 9, 2008, between JPMorgan Chase & Co. and
Deutsche Bank Trust Company Americas, as Trustee to the Indenture, dated as of May 25, 2001
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co.
(File no. 1-5805) filed October 31, 2008).
4.4(a)
Junior Subordinated Indenture, dated as of December 1, 1996, between The Chase Manhattan
Corporation (now known as JPMorgan Chase & Co.) and The Bank of New York (succeeded by The Bank of
New York Mellon), as Trustee.
4.4(b)
Supplemental Indenture (First), dated as of September 23, 2004, between JPMorgan Chase & Co.
and The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to the
Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to Exhibit
4.2 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-126750) filed September 23, 2004).
4.4(c)
Supplemental Indenture (Second), dated as of May 19, 2005, between JPMorgan Chase & Co. and
The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to the
Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-126750) filed July 21, 2005.
4.5
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008).
4.6
Form of Deposit Agreement (incorporated by reference to Exhibit 4(d) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007).
4.7
Form of Deposit Agreement (incorporated by reference to Exhibit 4(e) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007).
4.8
Form of Deposit Agreement (incorporated by reference to Exhibit 4(f) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007).
4.9
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed August 21, 2008).
10.1
Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., as amended and
restated July 2001 and as of December 31, 2004 (incorporated by reference to Exhibit 10.1 to the
Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). *
10.2
2005 Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., effective
as of January 1, 2005 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K
of JPMorgan Chase & Co. (File No. 1-5805) for the year
ended December 31, 2007). *
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10.3
Post-Retirement Compensation Plan for Non-Employee Directors of The Chase Manhattan
Corporation, as amended and restated, effective May 21, 1996. *
10.4
2005 Deferred Compensation Program of JPMorgan Chase & Co., restated effective as of December 31, 2008. *
10.5
JPMorgan Chase & Co. 2005 Long-Term Incentive Plan as
amended and restated effective May 20, 2008 (incorporated by
reference to Appendix B of
Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805)
filed March 31, 2008). *
10.6
Key Executive Performance Plan of JPMorgan Chase & Co., restated as of January 1, 2005
(incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of JPMorgan Chase &
Co. (File No. 1-5805) for the year ended December 31, 2005). *
10.7
Excess Retirement Plan of JPMorgan Chase & Co., restated and amended as of December 31, 2008.
*
10.8
1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies, as
amended, dated December 11, 1996. *
10.9
Executive Retirement Plan of JPMorgan Chase & Co., as amended and restated December 31, 2008.
*
10.10
Amendment to Bank One Corporation Director Stock Plan, as amended and restated effective
February 1, 2003. *
10.11
Summary of Bank One Corporation Director Deferred Compensation Plan (incorporated by
reference to Exhibit 10.19 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No.
1-5805) for the year ended December 31, 2005). *
10.12
Bank One Corporation Stock Performance Plan, as amended and restated effective February 20,
2001. *
10.13
Bank One Corporation Supplemental Savings and Investment Plan, as amended and restated
effective December 31, 2008. *
10.14
Revised and Restated Banc One Corporation 1989 Stock Incentive Plan, effective January 18,
1989. *
10.15
Banc One Corporation Revised and Restated 1995 Stock Incentive Plan, effective April 17,
1995. *
10.16
Form of JPMorgan Chase & Co. Long-Term Incentive Plan
Award Agreement of January 2005 stock appreciation rights
(incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K
of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). *
10.17
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of October 2005 stock
appreciation rights (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K
of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). *
10.18
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008
stock appreciation rights (incorporated by reference to Exhibit 10.25 to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). *
10.19
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008
restricted stock units (incorporated by reference to Exhibit 10.26 to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). *
10.20
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock
appreciation rights, dated as of January 20, 2009. *
10.21
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member stock appreciation rights, dated as of January 20, 2009. *
10.22
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted
stock units, dated as of January 20, 2009. *
10.23
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member restricted stock units, dated as of January 20, 2009. *
10.24
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008
stock appreciation rights for James Dimon (incorporated by reference to Exhibit 10.27 to the Annual
Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31,
2007). *
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10.25
Letter Agreement, including the Securities Purchase Agreement-Standard Terms incorporated
therein, dated October 26, 2008, between JPMorgan Chase & Co. and the United States Department of
the Treasury (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of
JPMorgan Chase & Co. (File No. 1-5805) filed October 31, 2008).
10.26
Warrant to purchase up to 88,401,697 shares of Common Stock, issued on October 28, 2008
(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of JPMorgan Chase & Co.
(File No. 1-5805) filed October 31, 2008).
12.1
Computation of ratio of earnings to fixed charges.
12.2
Computation of ratio of earnings to fixed charges and preferred stock dividend requirements.
21.1
List of Subsidiaries of JPMorgan Chase & Co.
22.1
Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended
December 31, 2008 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934).
23.1
Consent of independent registered public accounting firm.
31.1
Certification.
31.2
Certification.
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*
This exhibit is a management contract or
compensatory plan or arrangement.
Table of Contents
Table of Contents
JPMorgan Chase & Co. / 2008 Annual Report
25
Table of Contents
(unaudited)
(in millions, except per share, headcount and ratio data)
As of or for the year ended December 31,
2008
(f)
2007
2006
2005
2004
(g)
$
67,252
$
71,372
$
61,999
$
54,248
$
42,736
19,445
6,864
3,270
3,483
1,686
1,534
858
43,500
41,703
38,843
38,926
34,336
2,773
22,805
19,886
11,839
5,856
(926
)
7,440
6,237
3,585
1,596
3,699
15,365
13,649
8,254
4,260
795
229
206
3,699
15,365
14,444
8,483
4,466
1,906
$
5,605
$
15,365
$
14,444
$
8,483
$
4,466
$
0.86
$
4.51
$
3.93
$
2.36
$
1.51
1.41
4.51
4.16
2.43
1.59
$
0.84
$
4.38
$
3.82
$
2.32
$
1.48
1.37
4.38
4.04
2.38
1.55
1.52
1.48
1.36
1.36
1.36
36.15
36.59
33.45
30.71
29.61
3,501
3,404
3,470
3,492
2,780
3,605
3,508
3,574
3,557
2,851
3,733
3,367
3,462
3,487
3,556
$
50.63
$
53.25
$
49.00
$
40.56
$
43.84
19.69
40.15
37.88
32.92
34.62
31.53
43.65
48.30
39.69
39.01
117,695
146,986
167,199
138,387
138,727
2
%
13
%
12
%
8
%
6
%
4
13
13
8
6
0.21
1.06
1.04
0.70
0.44
0.31
1.06
1.10
0.72
0.46
65
58
63
72
80
10.9
8.4
8.7
8.5
8.7
14.8
12.6
12.3
12.0
12.2
6.9
6.0
6.2
6.3
6.2
$
509,983
$
491,409
$
365,738
$
298,377
$
288,814
205,943
85,450
91,975
47,600
94,512
744,898
519,374
483,127
419,148
402,114
2,175,052
1,562,147
1,351,520
1,198,942
1,157,248
1,009,277
740,728
638,788
554,991
521,456
252,094
183,862
133,421
108,357
95,422
134,945
123,221
115,790
107,072
105,314
166,884
123,221
115,790
107,211
105,653
224,961
180,667
174,360
168,847
160,968
(a)
Results for 2008 and 2004 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutual Banks banking operations and the merger with Bank
One Corporation, respectively.
(b)
The income tax benefit in 2008 is the result of the release of previously established deferred
tax liabilities on non-U.S. earnings and business tax credits.
(c)
On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust
businesses for the consumer, business banking and middle-market banking businesses of The Bank of
New York Company Inc. The results of operations of these corporate trust businesses are being
reported as discontinued operations for each of the periods presented.
(d)
Effective September 25, 2008, JPMorgan Chase acquired the banking operations of Washington
Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price
which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not
held-for-sale were written down against that negative goodwill. The negative goodwill that remained
after writing down nonfinancial assets was recognized as an extraordinary gain in 2008.
(e)
JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London
Stock Exchange Limited and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan
Chases common stock are from The New York Stock Exchange Composite Transaction Tape.
(f)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
(g)
On July 1, 2004, Bank One Corporation merged with and
into JPMorgan Chase. Accordingly, 2004
results include six months of the combined Firms results and six months of heritage JPMorgan Chase
results.
26
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
December 31,
(in dollars)
2003
2004
2005
2006
2007
2008
$
100.00
$
109.92
$
116.02
$
145.36
$
134.91
$
100.54
100.00
110.89
118.07
140.73
114.51
51.17
100.00
110.88
116.33
134.70
142.10
89.53
J.P. Morgan is one of the worlds leading
investment banks, with deep client relationships
and broad product capabilities. The Investment
Banks clients are corporations, financial
institutions, governments and
institutional investors. The Firm offers a full
range of investment banking products and services
in all major capital markets, including advising on
corporate strategy and structure, capital raising
in equity and debt markets, sophisticated risk
management, market-making in cash securities and
derivative instruments, prime brokerage and research. The Investment Bank (IB)
also selectively commits the Firms own capital to
principal investing and trading activities.
Retail Financial Services (RFS), which includes
the Retail Banking and Consumer Lending reporting
segments, serves consumers and businesses through
personal service at bank branches and through ATMs,
online banking and telephone banking as well as
through auto dealerships and school financial aid
offices. Customers can use more than 5,400 bank
branches (third-largest nationally) and 14,500 ATMs
(second-largest nationally) as well as online and
mobile banking around the clock. More than 21,400
branch salespeople assist
JPMorgan Chase & Co. / 2008 Annual Report
27
Table of Contents
Chase Card Services (CS) is one of the nations largest
credit card issuers with more than 168 million
cards in circulation and more than $190 billion in
managed loans. Customers used Chase cards to meet
more than $368 billion worth of their spending
needs in 2008. Chase has a market leadership
position in building loyalty and rewards programs
with many of the worlds most respected brands and
through its proprietary products, which include
the Chase Freedom program.
Commercial Banking (CB) serves more than 26,000
clients nationally, including corporations,
municipalities, financial institutions and
not-for-profit entities with annual revenue
generally ranging from $10 million to $2 billion,
and nearly 30,000 real estate investors/owners.
Delivering extensive industry knowledge, local
expertise and dedicated service, CB partners with
the Firms other businesses to provide
comprehensive solutions, including lending,
treasury services, investment banking and asset
management to meet its clients domestic and
international financial needs.
Treasury & Securities Services (TSS) is a global
leader in transaction, investment and information
services. TSS is one of the worlds largest cash
management providers and a leading global
custodian. Treasury Services (TS) provides cash
management, trade, wholesale card and liquidity
products and services to small and mid-sized
companies, multinational corporations, financial
institutions and government entities. TS partners
with the Commercial Banking, Retail Financial
Services and Asset Management businesses to serve
clients firmwide. As a result, certain TS revenue
is included in other segments results. Worldwide
Securities Services (WSS) holds, values, clears
and services securities, cash and alternative
investments for investors and broker-dealers, and
manages depositary receipt programs globally.
Asset Management (AM), with assets under supervision of $1.5 trillion, is a global leader in
investment and wealth management. AM clients
include institutions, retail investors and
high-net-worth individuals in every major market
throughout the world. AM offers global investment
management in equities, fixed income, real estate,
hedge funds, private equity and liquidity,
including money market instruments and bank
deposits. AM also provides trust and estate,
banking and brokerage services to high-net-worth
clients, and retirement services for corporations
and individuals. The majority of AMs client assets
are in actively managed portfolios.
28
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions, except per share and ratio data)
2008
(c)
2007
Change
$
67,252
$
71,372
(6
)%
20,979
6,864
206
43,500
41,703
4
3,699
15,365
(76
)
1,906
NM
5,605
15,365
(64
)
$
0.84
$
4.38
(81
)
1.37
4.38
(69
)
2
%
13
%
4
%
13
%
(a)
Includes an accounting conformity provision
for credit losses of $1.5 billion related to the
acquisition of Washington Mutuals banking
operations in 2008.
(b)
JPMorgan Chase acquired the banking operations of
Washington Mutual Bank from the Federal Deposit
Insurance Corporation (FDIC) for $1.9 billion. The
fair value of the net assets acquired from the FDIC
exceeded the purchase price which resulted in
negative goodwill. In accordance with SFAS 141,
nonfinancial assets that are not held-for-sale were
written down against that negative goodwill. The
negative goodwill that remained after writing down
nonfinancial assets was recognized as an
extraordinary gain in 2008.
The allocation of the purchase price to the net
assets acquired (based on their respective fair
values at September 25, 2008) and the resulting
negative goodwill may be modified through September
25, 2009, as more information is obtained about the
fair value of assets acquired and liabilities
assumed.
(c)
On September 25, 2008, JPMorgan Chase acquired the
banking operations of Washington Mutual Bank. On May 30, 2008,
the Bear Stearns merger was consummated. Each of these transactions
was accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
JPMorgan Chase reported 2008 net income of $5.6
billion, or $1.37 per share, and total net revenue
of $67.3 billion, compared with record net income
of $15.4 billion, or $4.38 per share, and record
total net revenue of $71.4 billion, for 2007. Return
on common equity was 4% in 2008, compared with 13%
in 2007. Results in 2008
include the acquisition of The Bear Stearns Companies Inc. (Bear
Stearns) on May 30,
2008, and the acquisition of the banking operations of Washington Mutual
Bank (Washington Mutual) on September 25, 2008.
JPMorgan Chase & Co. / 2008 Annual Report
29
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30
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
The following forward-looking statements are
based upon the current beliefs and expectations of
JPMorgan Chases management and are subject to
significant risks and uncertainties. These risks
and uncertainties could cause JPMorgan Chases
actual results to differ materially from those set
forth in such forward-looking statements.
JPMorgan Chase & Co. / 2008 Annual Report
31
Table of Contents
On
February 23, 2009, the Board of Directors reduced the
Firms quarterly common stock dividend from $0.38 to $0.05 per
share, effective for the dividend payable April 30, 2009 to
shareholders of record on April 6, 2009. The action will enable
the Firm to retain an additional $5.0 billion in common equity per
year. The Firm expects to maintain the dividend at this level for the
time being. The action was taken in order to help ensure that the
Firms balance sheet retained the capital strength necessary to
weather a further decline in economic conditions. The Firm intends to
return to a more normalized dividend payout as soon as feasible after
the environment has stabilized.
32
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31, (in millions)
2008
(a)
2007
2006
$
5,526
$
6,635
$
5,520
(10,699
)
9,015
10,778
5,088
3,938
3,468
13,943
14,356
11,855
1,560
164
(543
)
3,467
2,118
591
7,419
6,911
6,913
2,169
1,829
2,175
28,473
44,966
40,757
38,779
26,406
21,242
$
67,252
$
71,372
$
61,999
(a)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
Total net revenue of $67.3 billion was down $4.1
billion, or 6%, from the prior year. The decline
resulted from the extremely challenging business
environment for financial services firms in 2008.
Principal transactions revenue decreased
significantly and included net markdowns on
mortgage-related positions and leveraged lending
funded and unfunded commitments, losses on
preferred securities of Fannie Mae and Freddie Mac,
and losses on private equity investments. Also
contributing to the decline in total net revenue
were other losses and markdowns recorded in other
income, including the
Firms share of Bear Stearns losses from April 8
to May 30, 2008. These declines were largely offset
by higher net interest income, proceeds from the
sale of Visa shares in its initial public offering,
and the gain on the dissolution of the Chase
Paymentech Solutions joint venture.
JPMorgan Chase & Co. / 2008 Annual Report
33
Table of Contents
Total net revenue of $71.4 billion was up $9.4
billion, or 15%, from the prior year. Higher net
interest income, very strong private equity gains,
record asset management, administration and
commissions revenue, higher mortgage fees and
related income, and record investment banking fees
contributed to the revenue growth. These increases
were offset partially by lower trading revenue.
34
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions)
2008
(b)
2007
2006
$
2,681
$
934
$
321
646
3,327
934
321
16,764
5,930
2,949
888
17,652
5,930
2,949
$
20,979
$
6,864
$
3,270
(a)
2008 included adjustments to the
provision for credit losses to conform the
Washington Mutual loan loss reserve methodologies
to the Firms methodologies in connection with
the Washington Mutual transaction.
(b)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
The provision for credit losses in 2008 rose by
$14.1 billion compared with the prior year due to
increases in both the consumer and wholesale
provisions. The increase in the consumer provision
reflected higher estimated losses for home equity
and mortgages resulting from declining housing
prices; an increase in estimated losses for the
auto, student and business banking loan
portfolios; and an increase in the allowance for
loan losses and higher charge-offs of credit card
loans. The increase in the wholesale provision was
driven by a higher allowance resulting from a
weakening credit environment and growth in retained
loans. The wholesale provision in the first quarter
of 2008 also included the effect of the transfer of
$4.9 billion of funded and unfunded leveraged
lending commitments to retained loans from
held-for-sale. In addition, in 2008 both the consumer
and wholesale provisions were affected by a $1.5
billion charge to conform assets acquired from
Washington Mutual to the Firms loan loss
methodologies. For a more detailed discussion of the
loan portfolio and the allowance for loan
losses, see the segment discussions for RFS on pages
4550, CS on pages 5153, IB on pages 4244 and
CB on pages 5455, and the Credit Risk Management
section on pages 8099 of this Annual Report.
The provision for credit losses in 2007 rose $3.6
billion from the prior year due to increases in
both the consumer and wholesale provisions. The
increase in the consumer provision from the prior
year was largely due
to an increase in estimated losses related to home
equity, credit card and subprime mortgage
loans. Credit card net charge-offs in 2006 benefited
following the change in bankruptcy legislation in
the fourth quarter of 2005. The increase in the
wholesale provision from the prior year primarily
reflected an increase in the allowance for
JPMorgan Chase & Co. / 2008 Annual Report
35
Table of Contents
Year ended December 31,
(in millions)
2008
(a)
2007
2006
$
22,746
$
22,689
$
21,191
3,038
2,608
2,335
4,315
3,779
3,653
6,053
5,140
4,450
1,913
2,070
2,209
3,740
3,814
3,272
1,263
1,394
1,428
20,322
18,805
17,347
432
209
305
$
43,500
$
41,703
$
38,843
(a)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
Total noninterest expense for 2008 was $43.5
billion, up $1.8 billion, or 4%, from the prior
year. The increase was driven by the additional
operating costs related to the Washington Mutual
transaction and Bear Stearns merger, and investments
in the businesses, partially offset by lower
performance-based incentives.
Total noninterest expense for 2007 was $41.7
billion, up $2.9 billion, or 7%, from the prior
year. The increase was driven by higher
compensation expense, as well as investments
across the business segments and acquisitions.
36
JPMorgan Chase & Co./2008 Annual Report
Table of Contents
Year ended December 31,
(in millions, except rate)
2008
(a)
2007
2006
$
2,773
$
22,805
$
19,886
(926
)
7,440
6,237
(33.4
)%
32.6
%
31.4
%
(a)
On September 25, 2008, JPMorgan Chase
acquired the banking operations of Washington
Mutual Bank. On May 30, 2008, the Bear Stearns merger was
consummated. Each of these
transactions was accounted for as a purchase and
their respective results of operations are included
in the Firms results from each respective
transaction date. For additional information on
these transactions, see Note 2 on pages 123128 of
this Annual Report.
The decrease in the effective tax rate in 2008
compared with the prior year was the result of
significantly lower reported pretax income combined
with changes in the proportion of income subject to
U.S. federal taxes. Also contributing to the decrease
in the effective tax rate was increased business
tax credits and the realization of a $1.1 billion
benefit from the release of deferred tax
liabilities. These deferred tax liabilities were
associated with the undistributed earnings of
certain non-U.S. subsidiaries that were deemed to be
reinvested indefinitely. These decreases were
partially offset by
changes in state and local taxes, and equity losses
representing the Firms 49.4% ownership interest in
Bear Stearns losses from April 8 to May
30, 2008, for which no income tax benefit was
recorded. For a further discussion of income
taxes, see Critical Accounting Estimates used by the
Firm on pages 107111 and Note 28 on pages
197199 of this Annual Report.
The increase in the effective tax rate for 2007, as compared with the prior year, was primarily the
result of higher reported pretax income combined
with changes in the proportion of income subject to
federal, state and local taxes. Also contributing to
the increase in the effective tax rate was the
recognition in 2006 of $367 million of benefits
related to the resolution of tax audits.
JPMorgan Chase & Co. / 2008 Annual Report
37
Table of Contents
2008
2007
Fully
Fully
Year ended December 31,
tax-
tax-
(in millions, except
Reported
equivalent
Managed
Reported
equivalent
Managed
per share and ratio data)
results
Credit card
(c)
adjustments
basis
results
Credit card
(c)
adjustments
basis
$
5,526
$
$
$
5,526
$
6,635
$
$
$
6,635
(10,699
)
(10,699
)
9,015
9,015
5,088
5,088
3,938
3,938
13,943
13,943
14,356
14,356
1,560
1,560
164
164
3,467
3,467
2,118
2,118
7,419
(3,333
)
4,086
6,911
(3,255
)
3,656
2,169
1,329
3,498
1,829
683
2,512
28,473
(3,333
)
1,329
26,469
44,966
(3,255
)
683
42,394
38,779
6,945
579
46,303
26,406
5,635
377
32,418
67,252
3,612
1,908
72,772
71,372
2,380
1,060
74,812
19,445
3,612
23,057
6,864
2,380
9,244
1,534
1,534
43,500
43,500
41,703
41,703
2,773
1,908
4,681
22,805
1,060
23,865
(926
)
1,908
982
7,440
1,060
8,500
3,699
3,699
15,365
15,365
3,699
3,699
15,365
15,365
1,906
1,906
$
5,605
$
$
$
5,605
$
15,365
$
$
$
15,365
$
0.84
$
$
$
0.84
$
4.38
$
$
$
4.38
2
%
%
%
2
%
13
%
%
%
13
%
4
4
21
21
0.21
NM
NM
0.20
1.06
NM
NM
1.01
65
NM
NM
60
58
NM
NM
56
$
744,898
$
85,571
$
$
830,469
$
519,374
$
72,701
$
$
592,075
1,791,617
76,904
1,868,521
1,455,044
66,780
1,521,824
(a)
2008 included an accounting conformity loan loss reserve provision related
to the acquisition of Washington Mutuals banking operations.
(b)
Based on income from continuing operations.
(c)
Credit card securitizations affect CS. See pages 5153 of this Annual Report for further
information.
38
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2006
Fully
Reported
tax-equivalent
Managed
results
Credit card
(c)
adjustments
basis
$
5,520
$
$
$
5,520
10,778
10,778
3,468
3,468
11,855
11,855
(543
)
(543
)
591
591
6,913
(3,509
)
3,404
2,175
676
2,851
40,757
(3,509
)
676
37,924
21,242
5,719
228
27,189
61,999
2,210
904
65,113
3,270
2,210
5,480
38,843
38,843
19,886
904
20,790
6,237
904
7,141
13,649
13,649
795
795
14,444
14,444
$
14,444
$
$
$
14,444
$
3.82
$
$
$
3.82
12
%
%
%
12
%
20
20
1.04
NM
NM
1.00
63
NM
NM
60
$
483,127
$
66,950
$
$
550,077
1,313,794
65,266
1,379,060
(including average
securitized credit card receivables)
* Represents net income applicable to common stock
(d)
The Firm uses return on common equity
less goodwill, a non-GAAP financial measure, to
evaluate the operating performance of the Firm
and to facilitate comparisons to competitors.
(e)
The Firm uses return on managed assets, a
non-GAAP financial measure, to evaluate the
overall performance of the managed credit card
portfolio, including securitized credit card
loans.
JPMorgan Chase & Co. / 2008 Annual Report
39
Table of Contents
Commencing October 1, 2008,RFS was reorganized into
the following two reporting segments: Retail
Banking and Consumer Lending. Previously, RFS
consisted of three reporting segments: Regional
Banking, Mortgage Banking and Auto Finance. The new
Retail Banking reporting segment now comprises
consumer banking and business banking activities,
which previously were reported in Regional Banking.
The new Consumer Lending reporting segment now
comprises: (a) the prior Mortgage Banking and Auto
Finance reporting segments,(b) the home equity,
student and other lending business activities which
were previously reported in the Regional Banking
reporting segment and (c) loan activity related to
prime mortgages that were originated by RFS, but
reported in the Corporate/Private Equity business
segment. This reorganization is reflected in this
Annual Report and the financial information for
prior periods has been revised to reflect the
changes as if they had been in effect throughout
all periods reported.
Results of the business segments are intended to
reflect each segment as if it were essentially a
stand-alone business. The management reporting
process that derives business segment results
allocates income and expense using market-based
methodologies.
When business segments join efforts to sell
products and services to the Firms clients, the
participating business segments agree to share
revenue from those transactions. The segment
results reflect these revenue-sharing agreements.
Funds transfer pricing is used to allocate interest
income and expense to each business and transfer
the primary interest rate risk exposures to the
Treasury group within the Corporate/Private Equity
business segment. The allocation process is unique
to each business segment and considers the interest
rate risk, liquidity risk and regulatory
requirements of that segments stand-alone peers.
This process is overseen by the Firms
Asset-Liability Committee (ALCO). Business
segments may retain certain interest rate
exposures, subject to management approval, that
would be expected in the normal operation of a
similar peer business.
40
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Each business segment is allocated capital by
taking into consideration stand-alone peer
comparisons, economic risk measures and regulatory
capital requirements. The amount of capital
assigned to each business is referred to as equity.
Line of business equity increased during the second
quarter of 2008 in IB and AM due to the Bear
Stearns merger and, for AM, the purchase of the
additional equity interest in Highbridge. At the
end of the third quarter of 2008, equity was
increased for each line of business with a view
toward the future implementation of the new Basel
II capital rules. For further details on these
rules, see Basel II on page 72 of this Annual
Report. In addition, equity allocated to RFS,CS and
CB was increased as a result of the Washington
Mutual transaction. For a further discussion, see
Capital managementLine of business equity on page
70 of this Annual Report.
Where business segments use services provided by
support units within the Firm, the costs of those
support units are allocated to the business
segments. The expense is allocated based upon
their actual cost or the lower of actual cost or
market, as well as upon usage of the services
provided. In contrast, certain other expense
related to certain corporate functions, or to
certain technology and operations, are not
allocated to the business segments and are
retained in Corporate. Retained expense includes:
parent company costs that would not be incurred if
the segments were stand-alone businesses; adjustments to align certain corporate
staff, technology and operations allocations with
market prices; and other one-time items not
aligned with the business segments.
The following table summarizes the business segment results for the periods indicated.
Year ended December 31,
Total net revenue
Noninterest expense
(in millions, except ratios)
2008
2007
2006
2008
2007
2006
$
12,214
$
18,170
$
18,833
$
13,844
$
13,074
$
12,860
23,520
17,305
14,825
12,077
9,905
8,927
16,474
15,235
14,745
5,140
4,914
5,086
4,777
4,103
3,800
1,946
1,958
1,979
8,134
6,945
6,109
5,223
4,580
4,266
7,584
8,635
6,787
5,298
5,515
4,578
69
4,419
14
(28
)
1,757
1,147
$
72,772
$
74,812
$
65,113
$
43,500
$
41,703
$
38,843
Year ended December 31,
Net income (loss)
Return on equity
(in millions, except ratios)
2008
2007
2006
2008
2007
2006
$
(1,175
)
$
3,139
$
3,674
(5
)%
15
%
18
%
880
2,925
3,213
5
18
22
780
2,919
3,206
5
21
23
1,439
1,134
1,010
20
17
18
1,767
1,397
1,090
47
47
48
1,357
1,966
1,409
24
51
40
557
1,885
842
NM
NM
NM
$
5,605
$
15,365
$
14,444
4
%
13
%
13
%
(a)
Represents reported results on a tax-equivalent basis and excludes the impact of credit
card securitizations.
(b)
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On
May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for
as a purchase and their respective results of operations are included in the Firms results from
each respective transaction date. For additional information on these transactions, see Note 2 on
pages 123-128 of this Annual Report.
(c)
Net income included an extraordinary gain of $1.9 billion related to the Washington Mutual
transaction for 2008 and income from discontinued operations of $795 million for 2006.
JPMorgan Chase & Co. / 2008 Annual Report
41
Table of Contents
Year ended December 31,
(in millions, except ratios)
2008
(g)
2007
2006
$
5,907
$
6,616
$
5,537
(7,042
)
4,409
9,512
463
446
517
3,064
2,701
2,240
(462
)
(78
)
528
1,930
14,094
18,334
10,284
4,076
499
12,214
18,170
18,833
2,015
654
191
121
121
121
7,701
7,965
8,190
6,143
5,109
4,670
13,844
13,074
12,860
(3,524
)
4,563
5,903
(2,349
)
1,424
2,229
$
(1,175
)
$
3,139
$
3,674
(5
)%
15
%
18
%
(0.14
)
0.45
0.57
113
72
68
63
44
41
(a)
The 2008 results include net markdowns on
mortgage-related exposures and leveraged lending
funded and unfunded commitments of $5.9 billion
and $4.7 billion, respectively, compared with $1.4
billion and $1.3 billion, respectively, in 2007.
(b)
All other income for 2008 decreased from the
prior year due to increased revenue sharing
agreements with other business segments. All other
income for 2007 decreased from the prior year due
mainly to losses on loan sales and lower gains on
sales of assets.
(c)
Net interest income for 2008 increased from the
prior year due to an increase in interest-earning
assets, including the addition of the Bear Stearns
Prime Services business combined with wider spreads
on certain fixed income products. The increase in
2007 from the prior year was due primarily to an
increase in interest-earning assets.
(d)
Total net
revenue included tax-equivalent adjustments,
predominantly due to income tax credits related to
affordable housing investments and tax-exempt
income from municipal bond investments of $1.7 billion, $927 million and $802 million for 2008,
2007 and 2006,respectively.
(e)
TSS is charged a credit reimbursement related
to certain exposures managed within IB credit
portfolio on behalf of clients shared with TSS.
(f)
The income tax benefit in 2008 includes the
result of reduced deferred tax liabilities on
overseas earnings.
(g)
Results for 2008 include seven months of the
combined Firms (JPMorgan Chases and Bear
Stearns) results and five months of heritage
JPMorgan Chase results. All prior periods reflect
heritage JPMorgan Chase results.
Year ended December 31,
(in millions)
2008
(d)
2007
2006
$
2,008
$
2,273
$
1,659
1,749
1,713
1,178
2,150
2,630
2,700
5,907
6,616
5,537
1,957
6,339
8,736
3,611
3,903
3,458
739
1,312
1,102
$
12,214
$
18,170
$
18,833
$
2,530
$
8,165
$
9,601
7,681
7,301
7,421
2,003
2,704
1,811
$
12,214
$
18,170
$
18,833
(a)
Fixed income markets include client and
portfolio management revenue related to both
market-making and proprietary risk-taking across
global fixed income markets, including foreign
exchange, interest rate, credit and commodities
markets.
(b)
Equities markets include client and portfolio
management revenue related to market-making and
proprietary risk-taking across global equity
products, including cash instruments, derivatives
and convertibles.
(c)
Credit portfolio revenue includes net interest
income, fees and the impact of loan sales activity,
as well as gains or losses on securities received
as part of a loan restructuring, for IBs credit
portfolio. Credit portfolio revenue also includes
the results of risk management related to the
Firms lending and derivative activities, and
changes in the credit valuation adjustment, which
is the component of the fair value of a derivative
that reflects the credit quality of the
counterparty. Additionally, credit portfolio
revenue incorporates an adjustment to the valuation
of the Firms derivative liabilities as a result of
the adoption of SFAS 157 on January 1, 2007. See
pages 8099 of the Credit Risk Management section
of this Annual Report for further discussion.
(d)
Results for 2008 include seven months of the
combined Firms (JPMorgan Chases and Bear
Stearns) results and five months of heritage
JPMorgan Chase results. All prior periods reflect
heritage JPMorgan Chase results.
Net loss was $1.2 billion, a decrease of $4.3
billion from the prior year, driven by lower total
net revenue, a higher provision for credit losses
and higher noninterest expense, partially offset by
a reduction in deferred tax liabilities on overseas
earnings.
42
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Net income was $3.1 billion, a decrease of $535
million, or 15%, from the prior year. The decrease
reflected lower fixed income revenue, a higher
provision for credit losses and increased
noninterest expense, partially offset by record
investment banking fees and equity markets revenue.
Year ended December 31,
(in millions, except headcount)
2008
2007
2006
$
33,000
$
21,000
$
21,000
$
832,729
$
700,565
$
647,569
instruments
(a)
350,812
359,775
275,077
112,337
63,198
54,541
73,108
62,247
58,846
18,502
17,723
21,745
91,610
79,970
80,591
679,780
611,749
527,753
26,098
21,000
20,753
27,938
25,543
23,729
(a)
As a result of the adoption of SFAS 159 in
the first quarter of 2007, $11.7 billion of loans
were reclassified to trading assets. Loans
held-for-sale and loans at fair value were excluded
when calculating the allowance coverage ratio and
net charge-off (recovery) rate.
(b)
Loans retained included credit portfolio
loans, leveraged leases and other accrual loans,
and excluded loans at fair value.
(c)
Adjusted assets, a non-GAAP financial measure,
equals total assets minus (1) securities purchased
under resale agreements and securities borrowed
less securities sold, not yet purchased; (2) assets
of variable interest entities (VIEs) consolidated
under FIN 46R; (3) cash and securities segregated
and on deposit for regulatory and other
purposes; (4) goodwill and intangibles; (5)
securities received as collateral; and (6)
investments purchased under the Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity
Facility. The amount of adjusted assets is
presented to assist the reader in comparing IBs
asset and capital levels to other investment banks
in the securities industry. Asset-to-equity
leverage ratios are commonly used as one measure to
assess a companys capital adequacy. IB believes an
adjusted asset amount that excludes the assets
discussed above, which were considered to have a
low risk profile, provides a more meaningful
measure of balance sheet leverage in the securities
industry.
JPMorgan Chase & Co. / 2008 Annual Report
43
Table of Contents
Year ended December 31,
(in millions, except ratio data)
2008
2007
2006
$
105
$
36
$
(31
)
1,175
353
231
1,326
100
38
2,501
453
269
3,444
1,329
1,052
360
560
305
3,804
1,889
1,357
0.14
%
0.06
%
(0.05
)%
4.71
(h)
2.14
(h)
1.79
301
439
461
1.28
0.44
0.29
$
181
$
80
$
56
34
23
22
57
48
31
32
33
45
(108
)
(77
)
(70
)
196
107
84
69
17
15
(63
)
(18
)
(11
)
$
202
$
106
$
88
(a)
Nonperforming loans included loans
held-for-sale and loans at fair value of $32
million, $50 million and $3 million at December
31, 2008, 2007 and 2006, respectively, which were
excluded from the allowance coverage ratios.
Nonperforming loans at December 31, 2006, excluded
distressed loans held-for-sale that were purchased
as part of IBs proprietary activities. As a result
of the adoption of SFAS 159 in the first quarter of
2007, these loans were reclassified to trading
assets.
(b)
As a result of the adoption of SFAS 159 in the
first quarter of 2007, $11.7 billion of loans were
reclassified to trading assets.
(c)
Loans held-for-sale and loans at fair value
were excluded when calculating the allowance
coverage ratio and net charge-off (recovery)
rate.
(d)
Results for 2008 include seven months of the
combined Firms (JPMorgan Chases and Bear
Stearns) results and five months of heritage
JPMorgan Chase results. All prior periods reflect
heritage JPMorgan Chase results. For a more
complete description of value-at-risk (VaR), see
pages 100103 of this Annual Report.
(e)
Average VaRs were less than the sum of the VaRs
of their market risk components, which was due to
risk offsets resulting from portfolio
diversification. The diversification effect
reflected the fact that the risks were not
perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks
of the positions themselves.
(f)
Trading VaR
includes predominantly all trading activities in
IB; however, particular risk parameters of certain
products are not fully captured, for example,
correlation risk. Trading VaR does not include VaR related to
held-for-sale funded loans and unfunded
commitments, nor the debit valuation adjustments
(DVA) taken on derivative and structured
liabilities to reflect the credit quality of the
Firm. See the DVA Sensitivity table on page 103
of this Annual Report for further details.
Trading VaR also does not include the MSR
portfolio or VaR related to other corporate
functions, such as Corporate/Private Equity.
Beginning in the fourth quarter of 2008, trading
VaR includes the estimated credit spread
sensitivity of certain mortgage products.
(g)
Included VaR on derivative credit valuation
adjustments (CVA), hedges of the CVA and
mark-to-market hedges of the retained loan
portfolio, which were all reported in principal
transactions revenue. This VaR does not include the
retained loan portfolio.
(h)
Excluding the impact
of a loan originated in March 2008 to Bear Stearns,
the adjusted ratio would be 4.84% for 2008. The
average balance of the loan extended to Bear
Stearns was $1.9 billion for 2008. The allowance for
loan losses to period-end loans was 4.83% and 1.92%
at December 31, 2008 and 2007, respectively.
2008
2007
2006
Market
Market
Market
December 31,
share
Rankings
share
Rankings
share
Rankings
10%
#1
8%
#2
7%
#2
12
1
13
1
14
1
9
2
7
3
6
3
12
1
9
2
7
6
27
2
27
4
26
4
16
1
10
2
9
2
26
1
24
1
26
1
15
1
10
2
9
2
16
1
11
5
8
6
33
3
28
3
29
3
(a)
Source: Thomson Reuters. The results for 2008 are pro forma for the Bear Stearns
merger. The results for 2007 and 2006 represent heritage JPMorgan Chase only.
(b)
Includes asset-backed securities, mortgage-backed securities and municipal securities.
(c)
Includes rights offerings; U.S. domiciled equity and equity-related transactions.
(d)
Global announced M&A is based upon rank value; all other rankings are based
upon proceeds, with full credit to each book manager/equal if joint. Because of joint
assignments, market share of all participants will add up to more than 100%.
Global and U.S. announced M&A market share and rankings for 2007 and 2006
include transactions withdrawn since December 31, 2007 and 2006. U.S.
announced M&A represents any U.S. involvement ranking.
44
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions)
2008
2007
2006
$
2,546
$
1,881
$
1,597
1,510
1,275
1,422
1
(57
)
3,621
2,094
618
939
646
523
739
882
557
9,355
6,779
4,660
14,165
10,526
10,165
23,520
17,305
14,825
9,905
2,610
561
5,068
4,369
3,657
6,612
5,071
4,806
397
465
464
12,077
9,905
8,927
Year ended December 31,
(in millions, except ratios)
2008
2007
2006
1,538
4,790
5,337
658
1,865
2,124
$
880
$
2,925
$
3,213
5
%
18
%
22
%
51
57
60
50
55
57
(a)
The Firm adopted SFAS 159 in the first quarter of 2007. As a result, beginning in
the first quarter of 2007, certain loan-origination costs have been classified as
expense.
(b)
Retail Financial Services uses the overhead ratio (excluding the amortization of core
deposit intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the
overhead ratio calculation results in a higher overhead ratio in the earlier years and
a lower overhead ratio in later years; this method would result in an improving
overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes
Retail Bakings core deposit intangible amortization expense related to the Bank of
New York transaction and the Bank One merger of $394 million, $460 million and
$458 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Net income was $880 million, a decrease of $2.0 billion, or 70%, from the prior year, as a significant increase in
the provision for credit losses was partially offset by positive MSR risk management results and
the positive impact of the Washington Mutual transaction.
JPMorgan Chase & Co. / 2008 Annual Report
45
Table of Contents
Net income was $2.9 billion, a decrease of $288
million, or 9%, from the prior year, as a decline
in Consumer Lending was offset partially by
improved results in Retail Banking.
Year ended December 31,
(in millions, except headcount
and ratios)
2008
2007
2006
period-end
$
419,831
$
256,351
$
237,887
368,786
211,324
180,760
9,996
16,541
32,744
378,782
227,865
213,504
360,451
221,129
214,081
25,000
16,000
16,000
$
304,442
$
241,112
$
231,566
257,083
191,645
187,753
17,056
22,587
16,129
274,139
214,232
203,882
258,362
218,062
201,127
19,011
16,000
14,629
102,007
69,465
65,570
$
4,877
$
1,350
$
576
6,784
2,828
1,677
9,077
3,378
1,902
8,918
2,668
1,392
1.90
%
0.70
%
0.31
%
2.08
0.70
0.31
loans
(f)
2.42
1.26
0.77
3.19
1.26
0.77
136
97
89
1.79
1.24
0.79
(a)
Loans included prime mortgage loans originated with the intent to sell, which, for
new originations on or after January 1, 2007, were accounted for at fair value under
SFAS 159. These loans, classified as trading assets on the Consolidated Balance
Sheets, totaled $8.0 billion and $12.6 billion at December 31, 2008 and 2007,
respectively. Average loans included prime mortgage loans, classified as trading
assets on the Consolidated Balance Sheets, of $14.2 billion and $11.9 billion for the
years ended December 31, 2008 and 2007, respectively.
(b)
Excludes purchased credit-impaired loans accounted for
under SOP 03-3 that were acquired as part of the Washington Mutual transaction.
These loans were accounted for on a pool basis and the pools are considered to be
performing under SOP 03-3.
(c)
Nonperforming loans and assets included loans held-for-sale and loans accounted
for at fair value of $236 million, $69 million and $116 million at December 31,
2008, 2007 and 2006, respectively. Certain of these loans are classified as trading
assets on the Consolidated Balance Sheets.
(d)
Nonperforming loans and assets excluded (1) loans eligible for repurchase as well
as loans repurchased from Governmental National Mortgage Association (GNMA)
pools that are insured by U.S. government agencies of $3.3 billion, $1.5 billion and
$1.2 billion at December 31, 2008, 2007 and 2006, respectively, and (2) student
loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $437 million,
$417 million and $387 million at December 31, 2008, 2007 and 2006, respectively.
These amounts were excluded, as reimbursement is proceeding normally.
46
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
(e)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other
home lending products. Amounts for 2007 have been revised to reflect
this change. Amounts for 2006 have not been revised as the impact
was not material.
(f)
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratio and the net charge-off rate.
(g)
Excludes the impact of purchased credit-impaired loans accounted for under SOP
03-3 that were acquired as part of the Washington Mutual transaction at December
31, 2008. These loans were accounted for at fair value on the acquisition date,
which included the impact of credit losses over the remaining life of the portfolio.
Accordingly, no allowance for loan losses has been recorded for these loans.
Year ended December 31,
(in millions, except ratios)
2008
2007
2006
$
4,951
$
3,763
$
3,259
7,659
6,193
5,698
12,610
9,956
8,957
449
79
114
7,232
6,166
5,667
4,929
3,711
3,176
$
2,982
$
2,245
$
1,922
57
%
62
%
63
%
54
57
58
(a)
Retail Banking uses the overhead ratio (excluding the amortization of core deposit
intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying
expense trends of the business. Including CDI amortization expense in the overhead
ratio calculation results in a higher overhead ratio in the earlier years and a lower
overhead ratio in later years; this method would result in an improving overhead
ratio over time, all things remaining equal. This ratio excludes Retail Bakings core
deposit intangible amortization expense related to the Bank of New York transaction and the Bank One merger of $394 million, $460 million and $458 million for
the years ended December 31, 2008, 2007 and 2006, respectively.
Retail Banking net income was $3.0 billion, up $737
million, or 33%, from the prior year. Total net
revenue was $12.6 billion, up $2.7 billion, or 27%,
reflecting the impact of the Washington Mutual
transaction, wider deposit spreads, higher
deposit-related fees, and higher deposit balances.
The provision for credit losses was $449 million,
compared with $79 million in the prior year,
reflecting an increase in the allowance for loan
losses for Business Banking loans due to higher
estimated losses on the portfolio. Noninterest
expense was $7.2 billion, up $1.1 billion, or 17%,
from the prior year, due to the Washington Mutual
transaction and investments in the retail
distribution network.
Retail Banking net income was $2.2 billion, an
increase of $323 million, or 17%, from the prior
year. Total net revenue was $10.0 billion, up $1.0
billion, or 11%, benefiting from the following: the
Bank of New York
transaction; increased deposit-related fees; and
growth in deposits. These benefits were offset
partially by a shift to narrower-spread deposit
products. The provision for credit losses was $79
million, compared with $114 million in the prior
year. Noninterest expense was $6.2 billion, up $499
million, or 9%, from the prior year, driven by the
Bank of New York transaction and investments in the
retail distribution network.
Year ended December 31,
(in billions, except ratios and
where otherwise noted)
2008
2007
2006
$
5.5
$
6.9
$
5.7
18.4
15.6
14.0
$
109.2
$
66.9
$
67.1
144.0
96.0
91.5
89.1
48.6
43.2
342.3
211.5
201.8
$
16.7
$
14.9
$
13.4
$
77.1
$
65.8
$
62.7
114.3
97.1
89.7
53.2
43.8
37.5
244.6
206.7
189.9
2.89
%
2.72
%
2.74
%
$
26.3
$
25.0
$
20.5
(in millions, except ratio)
$
346
$
163
$
114
2.07
%
1.09
%
0.85
%
$
424
$
294
$
244
Year ended December 31,
2008
2007
2006
$
17,640
$
18,360
$
14,882
5,474
3,152
3,079
14,568
9,186
8,506
15,825
9,650
7,573
5,661
4,105
3,614
(in thousands)
11,710
5,918
4,909
(in thousands)
24,499
10,839
9,995
(a)
Employees acquired as part of the Bank of
New York transaction are included beginning in
2007.
Year ended December 31,
(in millions, except ratio)
2008
2007
2006
$
4,404
$
3,016
$
1,401
6,506
4,333
4,467
10,910
7,349
5,868
9,456
2,531
447
4,845
3,739
3,260
(3,391
)
1,079
2,161
$
(2,102
)
$
680
$
1,291
44
%
51
%
56
%
JPMorgan Chase & Co. / 2008 Annual Report
47
Table of Contents
Consumer Lending net loss was $2.1 billion,
compared with net income of $680 million in the
prior year. Total net revenue was $10.9 billion, up
$3.6 billion, or 48%, driven by higher mortgage
fees and related income (due primarily to positive
MSR risk management results), the impact of the
Washington Mutual transaction, higher loan balances
and wider loan spreads.
Consumer Lending net income was $680 million, a
decrease of $611 million, or 47%, from the prior
year. Total net revenue was $7.3 billion, up $1.5
billion, or 25%, benefiting from positive MSR risk
management results, increased mortgage production
revenue, wider loan spreads and the absence of a
prior-year $233 million loss related to $13.3
billion of mortgage loans transferred to
held-for-sale. These benefits were offset partially
by the sale of the insurance business.
Year ended December 31,
(in billions)
2008
2007
2006
$
114.3
$
94.8
$
85.7
65.2
34.0
46.5
15.3
15.5
13.2
9.0
15.9
11.0
10.3
42.6
42.3
41.0
1.3
2.1
2.8
$
263.6
$
199.7
$
199.5
$
99.9
$
90.4
$
78.3
45.0
30.4
43.3
15.3
12.7
15.4
2.3
13.6
10.5
8.3
43.8
41.1
42.7
1.1
2.3
2.4
$
221.0
$
187.4
$
190.4
48
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in billions)
2008
2007
2006
$
142.9
$
94.8
$
85.7
87.0
34.0
46.5
22.1
15.5
13.2
40.6
15.9
11.0
10.3
42.6
42.3
41.0
1.3
2.1
2.8
$
352.4
$
199.7
$
199.5
$
107.0
$
90.4
$
78.3
50.4
30.4
43.3
17.0
12.7
15.4
10.3
13.6
10.5
8.3
43.8
41.1
42.7
1.1
2.3
2.4
$
243.2
$
187.4
$
190.4
(a)
Purchased credit-impaired loans represent loans acquired in the Washington Mutual
transaction that are accounted for under SOP 03-3.
(b)
Total average loans owned includes loans held-for-sale of $2.8 billion, $10.6 billion and
$16.1 billion for the years ended December 31, 2008, 2007 and 2006, respectively.
(in millions, except ratios)
2008
2007
2006
$
2,391
$
564
$
143
526
33
9
933
157
47
568
354
238
113
79
25
$
4,531
1,187
462
2.39
%
0.62
%
0.18
%
1.18
0.13
0.03
6.10
1.55
0.34
1.30
0.86
0.56
0.93
0.88
0.31
2.08
0.67
0.27
2.23
%
0.62
%
0.18
%
1.05
0.13
0.03
5.49
1.55
0.34
1.30
0.86
0.56
0.93
0.88
0.31
1.89
0.67
0.27
4.21
%
3.10
%
1.80
%
$
8,653
$
3,084
$
1,658
2.36
%
1.24
%
0.64
%
loans
(a)
3.16
1.24
0.64
(a)
Excludes the impact of purchased credit-impaired loans accounted for under SOP
03-3 that were acquired as part of the Washington Mutual transaction. Under SOP
03-3, these loans were accounted for at fair value on the acquisition date, which
includes the impact of estimated credit losses over the remaining lives of the loans.
Accordingly, no charge-offs and no allowance for loan losses has been recorded for
these loans.
(b)
Average loans included loans held-for-sale of $2.8 billion, $10.6 billion and $16.1
billion for the years ended December 31, 2008, 2007 and 2006, respectively. These
amounts were excluded when calculating the net charge-off rate.
(c)
Excluded loans eligible for repurchase as well as loans repurchased from GNMA
pools that are insured by U.S. government agencies of $3.2 billion, $1.2 billion and
$960 million, at December 31, 2008 ,2007 and 2006,
respectively. These amounts
were excluded, as reimbursement is proceeding normally.
(d)
Excluded loans that are 30 days past due and still accruing, which are insured by
U.S. government agencies under the Federal Family Education Loan Program of
$824 million, $663 million and $464 million at December 31, 2008, 2007 and
2006, respectively. These amounts are excluded as reimbursement is proceeding
normally.
(e)
Excludes purchased credit-impaired loans. The 30+
day delinquency rate for these loans was 17.89% at December 31,
2008. There were no purchased credit-impaired loans at
December 31, 2007 and 2006.
(f)
Nonperforming assets excluded (1) loans eligible for repurchase as well as loans
repurchased from Governmental National Mortgage Association (GNMA) pools
that are insured by U.S. government agencies of $3.3 billion, $1.5 billion and $1.2
billion at December 31, 2008, 2007 and 2006, respectively, and (2) student loans
that are 90 days past due and still accruing, which are insured by U.S. government
agencies under the Federal Family Education Loan Program of $437 million, $417
million and $387 million at December 31, 2008, 2007 and 2006, respectively. These
amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally.
(g)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other
home lending products. Amounts for 2007 have been revised to reflect
this change. Amounts for 2006 have not been revised as the impact was not material.
(h)
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were
acquired as part of the Washington Mutual transaction. These loans are accounted
for on a pool basis, and the pools are considered to be performing under SOP 03-3.
JPMorgan Chase & Co. / 2008 Annual Report
49
Table of Contents
Consumer Lending (continued)
(in billions, except ratios and where
otherwise noted)
2008
2007
2006
$
41.1
$
45.5
$
40.5
29.4
42.7
32.8
55.5
27.9
13.3
43.0
43.3
32.6
169.0
159.4
119.2
16.3
48.3
51.9
6.9
7.0
8.1
19.4
21.3
19.3
14.6
18.8
12.9
278.1
216.1
211.1
1,172.6
614.7
526.7
9.3
8.6
7.5
$
898
$
880
$
304
3,258
2,334
2,139
(6,849
)
(516
)
165
(2,052
)
(1,531
)
(1,440
)
(8,901
)
(2,047
)
(1,275
)
8,366
927
(550
)
2,723
1,214
314
3,621
2,094
618
(a)
Included $14.2 billion and $11.9 billion
of prime mortgage loans at fair value for the
years ended December 31, 2008 and 2007,
respectively.
50
JPMorgan Chase & Co. / 2008 Annual Report
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Year ended December 31,
(in millions, except ratios)
2008
2007
2006
$
2,768
$
2,685
$
2,587
(49
)
361
357
2,719
3,046
2,944
13,755
12,189
11,801
16,474
15,235
14,745
10,059
5,711
4,598
1,127
1,021
1,003
3,356
3,173
3,344
657
720
739
5,140
4,914
5,086
1,275
4,610
5,061
495
1,691
1,855
$
780
$
2,919
$
3,206
$
(183
)
$
67
$
82
5
%
21
%
23
%
31
32
34
Net income was $780 million, a decline of $2.1
billion, or 73%, from the prior year. The decrease
was driven by a higher provision for credit losses,
partially offset by higher total net revenue.
JPMorgan Chase & Co. / 2008 Annual Report
51
Table of Contents
Net income of $2.9 billion was down $287 million,
or 9%, from the prior year. Prior-year results
benefited from significantly lower net charge-offs
following the
change in bankruptcy legislation in the fourth
quarter of 2005. The increase in net charge-offs
was offset partially by higher revenue.
Charge volume
Represents the dollar amount of cardmember purchases, balance transfers and cash
advance activity.
Net accounts opened
Includes originations, purchases and sales.
Merchant acquiring business
Represents a business that processes bank card transactions for
merchants.
Bank card volume
Represents the dollar amount of transactions processed for merchants.
Total transactions
Represents the number of transactions and authorizations processed for
merchants.
52
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions, except headcount, ratios
and where otherwise noted)
2008
2007
2006
8.45
%
8.16
%
8.36
%
6.18
3.82
3.26
1.67
2.04
2.09
3.94
6.38
7.19
3.16
3.29
3.60
0.78
3.09
3.59
0.48
1.95
2.27
$
368.9
$
354.6
$
339.6
27.9
16.4
45.9
168.7
155.0
154.4
35.6
28.3
22.5
$
713.9
$
719.1
$
660.6
21.4
19.7
18.2
$
104,746
$
84,352
$
85,881
85,571
72,701
66,950
$
190,317
$
157,053
$
152,831
$
15,000
$
14,100
$
14,100
$
173,711
$
155,957
$
148,153
$
83,293
$
79,980
$
73,740
79,566
69,338
67,367
$
162,859
$
149,318
$
141,107
$
14,326
$
14,100
$
14,100
24,025
18,554
18,639
$
8,159
$
5,496
$
4,698
5.01
%
3.68
%
3.33
%
4.97
%
3.48
%
3.13
%
2.34
1.65
1.50
$
7,692
$
3,407
$
3,176
7.34
%
4.04
%
3.70
%
$
28,250
6,964
14.87
%
4.18
7.11
8.50
3.75
Year ended December 31,
(in millions, except headcount, ratios
and where otherwise noted)
2008
2007
2006
$
162,067
$
157,053
$
152,831
155,895
149,318
141,107
8.16
%
8.16
%
8.36
%
3.93
6.38
7.19
4.92
3.68
3.33
4.36
3.48
3.13
2.09
1.65
1.50
(a)
Represents total net revenue
less provision for credit losses.
(b)
Pretax return on average managed
outstandings.
(c)
Results for 2008 included approximately 13
million credit card accounts acquired in the
Washington Mutual transaction. Results for 2006
included approximately 30 million accounts from
loan portfolio acquisitions.
(d)
The Chase Paymentech Solutions joint venture
was dissolved effective November 1, 2008. For the
period January 1, 2008 through October 31, 2008,
the data presented represent activity for the
Chase Paymentech Solutions joint venture and for
the period November 1, 2008 through December 31,
2008, the data presented represent activity for
Chase Paymentech Solutions.
(e)
Results for 2008 reflect the impact of
purchase accounting adjustments related to the
Washington Mutual transaction.
(f)
Based on loans on a reported basis.
(g)
Statistics are only presented for periods
after September 25, 2008, the date of the
Washington Mutual transaction.
(h)
As a percentage of average managed outstandings.
(i)
The 2008 allowance for loan losses included an
amount related to loans acquired in the Washington
Mutual transaction.
Year ended December 31,
(in millions)
2008
2007
2006
$
6,082
$
5,940
$
6,096
(3,314
)
(3,255
)
(3,509
)
$
2,768
$
2,685
$
2,587
$
6,838
$
6,554
$
6,082
6,917
5,635
5,719
$
13,755
$
12,189
$
11,801
$
12,871
$
12,855
$
12,535
3,603
2,380
2,210
$
16,474
$
15,235
$
14,745
$
6,456
$
3,331
$
2,388
3,603
2,380
2,210
$
10,059
$
5,711
$
4,598
$
96,807
$
89,177
$
82,887
76,904
66,780
65,266
$
173,711
$
155,957
$
148,153
$
4,556
$
3,116
$
2,488
3,603
2,380
2,210
$
8,159
$
5,496
$
4,698
(a)
For a discussion of managed basis, see the non-GAAP financial measures discussion on pages
3839 of this Annual Report.
JPMorgan Chase & Co. / 2008 Annual Report
53
Table of Contents
Year ended December 31,
(in millions, except ratios)
2008
2007
2006
$
854
$
647
$
589
113
92
67
514
524
417
1,481
1,263
1,073
3,296
2,840
2,727
4,777
4,103
3,800
464
279
160
692
706
740
1,206
1,197
1,179
48
55
60
1,946
1,958
1,979
2,367
1,866
1,661
928
732
651
$
1,439
$
1,134
$
1,010
20
%
17
%
18
%
41
48
52
(a)
Revenue from investment banking products sold to CB clients and commercial card
revenue is included in all other income.
Net income was $1.4 billion, an increase of $305
million, or 27%, from the prior year, due to
growth in total net revenue including the impact
of the Washington Mutual transaction, partially
offset by a higher provision for credit losses.
Net income was $1.1 billion, an increase of $124
million, or 12%, from the prior year due primarily
to growth in total net revenue, partially offset by
higher provision for credit losses.
54
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions, except
headcount)
2008
2007
2006
$
1,743
$
1,419
$
1,344
2,648
2,350
2,243
334
292
253
52
42
(40
)
$
4,777
$
4,103
$
3,800
$
966
$
888
$
716
$
2,939
$
2,689
$
2,535
243
921
815
656
413
421
458
261
178
151
$
4,777
$
4,103
$
3,800
$
8,000
$
6,700
$
6,300
$
114,299
$
87,140
$
57,754
81,931
60,231
53,154
406
863
442
$
82,337
$
61,094
$
53,596
103,121
87,726
73,613
$
7,251
$
6,502
$
5,702
$
42,193
$
37,333
$
33,225
9,310
16,297
12,481
8,632
9,008
7,116
7,566
5,529
4,164
4,173
$
82,337
$
61,094
$
53,596
5,206
4,125
4,459
Year ended December 31,
(in millions, except ratios)
2008
2007
2006
$
288
$
44
$
27
1,026
146
121
1,142
148
122
2,826
1,695
1,519
206
236
187
3,032
1,931
1,706
0.35
%
0.07
%
0.05
%
3.04
(g)
2.81
2.86
275
1,161
1,255
1.10
(g)
0.24
0.23
(a)
Represents the total revenue related to investment banking products sold to CB
clients.
(b)
Results for 2008 include total net revenue and average loans acquired in the
Washington Mutual transaction.
(c)
Liability balances include deposits and deposits swept to on-balance sheet
liabilities such as commercial paper, federal funds purchased and securities loaned or
sold under repurchase agreements.
(d)
Purchased credit-impaired wholesale loans accounted for under SOP 03-3 that were
acquired in the Washington Mutual transaction are considered nonperforming loans because
the timing and amount of expected cash flows are not reasonably estimable.
These nonperforming loans were included when calculating the allowance coverage ratio, the
allowance for loan losses to nonperforming loans ratio, and the nonperforming loans to
average loans ratio. The carrying amount of these purchased credit- impaired loans was $224
million at December 31, 2008.
(e)
Beginning in 2008, the allowance for loan losses included an amount related to
loans acquired in the Washington Mutual transaction and the Bear Stearns merger.
(f)
Loans held-for-sale and loans accounted for at fair value were excluded when
calculating the allowance coverage ratio and the net charge-off rate.
(g)
The September 30, 2008, ending loan balance of $44.5 billion
acquired in the Washington Mutual transaction is treated as if it had
been part of the loan balance for the entire third quarter of 2008.
JPMorgan Chase & Co. / 2008 Annual Report
55
Table of Contents
Year ended December 31,
(in millions, except ratio data)
2008
2007
2006
$
1,146
$
923
$
735
3,133
3,050
2,692
917
708
612
5,196
4,681
4,039
2,938
2,264
2,070
8,134
6,945
6,109
82
19
(1
)
(121
)
(121
)
(121
)
2,602
2,353
2,198
2,556
2,161
1,995
65
66
73
5,223
4,580
4,266
2,708
2,225
1,723
941
828
633
$
1,767
$
1,397
$
1,090
$
3,555
$
3,013
$
2,792
4,579
3,932
3,317
$
8,134
$
6,945
$
6,109
47
%
47
%
48
%
64
66
70
33
32
28
Year ended December 31,
(in millions, except headcount)
2008
2007
2006
$
4,500
$
3,000
$
2,200
$
54,563
$
53,350
$
31,760
26,226
20,821
15,564
279,833
228,925
189,540
3,751
3,000
2,285
27,070
25,669
25,423
(a)
TSS is charged a credit reimbursement related to certain exposures managed within IB
credit portfolio on behalf of clients shared with TSS. Beginning in first quarter 2009, income
statement and balance sheet items for credit portfolio activity related to joint IB/TSS
clients will be reflected proportionally in the respective IB and TSS financials. This will
replace the previous approach whereby a credit reimbursement was charged to TSS by IB.
(b)
Pretax margin represents income before income tax expense divided by total net
revenue, which is a measure of pretax performance and another basis by which management
evaluates its performance and that of its competitors.
(c)
Loan balances include wholesale overdrafts, commercial card and trade finance loans.
(d)
Liability balances include deposits and deposits swept to on-balance sheet liabilities
such as commercial paper, federal funds purchased and securities loaned or sold under
repurchase agreements.
Net income was a record $1.8 billion, an increase of $370 million, or 26%, from the prior year,
driven by higher total net revenue. This increase was largely offset by higher noninterest expense.
Net income was a record $1.4 billion, an increase of $307 million, or 28%, from the prior year,
driven by record total net revenue, partially offset by higher noninterest expense.
56
JPMorgan Chase & Co. / 2008 Annual Report
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Year ended December 31,
(in millions, except ratio data)
2008
2007
2006
$
3,555
$
3,013
$
2,792
2,648
2,350
2,243
299
270
207
6,502
5,633
5,242
4,579
3,932
3,317
$
11,081
$
9,565
$
8,559
$
242,706
$
199,077
$
162,020
382,947
316,651
262,678
51
%
56
%
56
%
57
60
62
Year ended December 31,
(in millions, except ratio data
and where otherwise noted)
2008
2007
2006
$
13,205
$
15,946
$
13,903
4,000
3,870
3,503
115,742
111,036
104,846
171,036
168,605
145,325
2,408
2,925
3,409
22,784
18,722
17,228
$
(2
)
$
$
1
30
74
18
7
63
32
1
(0.01
)%
%
0.01
%
0.28
0.09
0.04
247
NM
NM
0.11
(a)
TSS firmwide FX revenue, which includes FX revenue recorded in TSS and FX revenue
associated with TSS customers who are FX customers of IB, was $880 million, $552 million and
$445 million for the years ended December 31, 2008, 2007 and 2006, respectively.
(b)
Firmwide liability balances include TS liability balances recorded in the Commercial
Banking line of business.
(c)
Overhead ratios have been calculated based upon firmwide revenue and TSS and TS
expense, respectively, including those allocated to certain other lines of business. FX
revenue and expense recorded in IB for TSS-related FX activity are not included in this ratio.
(d)
International electronic funds transfer includes non-U.S. dollar ACH and clearing
volume.
(e)
Wholesale cards issued include domestic commercial card, stored value card, prepaid
card and government electronic benefit card products.
JPMorgan Chase & Co. / 2008 Annual Report
57
Table of Contents
Year ended December 31,
(in millions, except ratios)
2008
2007
2006
$
6,004
$
6,821
$
5,295
62
654
521
6,066
7,475
5,816
1,518
1,160
971
7,584
8,635
6,787
85
(18
)
(28
)
3,216
3,521
2,777
2,000
1,915
1,713
82
79
88
5,298
5,515
4,578
2,201
3,138
2,237
844
1,172
828
$
1,357
$
1,966
$
1,409
$
2,565
$
2,362
$
1,686
1,775
2,525
1,972
1,620
2,408
1,885
1,387
1,340
1,244
237
$
7,584
$
8,635
$
6,787
24
%
51
%
40
%
70
64
67
29
36
33
(a)
In 2008, certain clients were transferred from Private Bank to Private Wealth
Management. Prior periods have been revised to conform to this change.
(b)
Pretax margin represents income before income tax expense divided by total net
revenue, which is a measure of pretax performance and another basis by which management
evaluates its performance and that of its competitors.
Net income was $1.4 billion, a decline of $609 million, or 31%, from the prior year, driven by
lower total net revenue offset partially by lower noninterest expense.
Net income was a record $2.0 billion, an increase of $557 million, or 40%, from the prior year.
Results benefited from record total net revenue, partially offset by higher noninterest expense.
58
JPMorgan Chase & Co. / 2008 Annual Report
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Year ended December 31,
(in millions, except headcount, ranking
data, and where otherwise noted)
2008
2007
2006
1,705
1,729
1,506
1,531,000
1,501,000
1,362,000
324
42
%
55
%
58
%
54
%
57
%
83
%
65
%
75
%
77
%
76
%
76
%
79
%
$
7,000
$
4,000
$
3,500
$
65,550
$
51,882
$
43,635
38,124
29,496
26,507
70,179
58,863
50,607
5,645
3,876
3,500
15,339
14,799
13,298
$
11
$
(8
)
$
(19
)
147
12
39
191
112
121
5
7
6
0.03
%
(0.03
)%
(0.07
)%
0.50
0.38
0.46
130
933
310
0.39
0.04
0.15
(a)
Derived from following rating services: Morningstar for the United States; Micropal
for the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan.
(b)
Derived from following rating services: Lipper for the United States and Taiwan;
Micropal for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan.
(c)
Reflects the transfer in 2007 of held-for-investment prime mortgage loans transferred
from AM to Corporate within the Corporate/Private Equity segment.
Percentage of assets under management in funds rated 4 and 5 stars (3 year). Mutual fund
rating services rank funds based on their risk-adjusted performance over various periods. A 5
star rating is the best and represents the top 10% of industry wide ranked funds. A 4 star
rating represents the next 22% of industry wide ranked funds. The worst rating is a 1 star
rating.
Percentage of assets under management in first- or second- quartile funds (one, three
and five years). Mutual fund rating services rank funds according to a peer-based performance
system, which measures returns according to specific time and fund classification (small, mid,
multi and large cap).
JPMorgan Chase & Co. / 2008 Annual Report
59
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Assets under supervision (AUS) were $1.5 trillion, a decrease of $76 billion, or 5%, from the prior year.
Assets under management (AUM) were $1.1 trillion, down $60 billion, or 5%, from the prior year. The
decrease was due to the effect of lower markets and non-liquidity outflows, predominantly offset by
liquidity product inflows across all segments and the addition of Bear Stearns assets under
management. Custody, brokerage,
administration and deposit balances were $363 billion, down $16 billion due to the effect of lower
markets on brokerage and custody balances, offset by the addition of Bear Stearns Brokerage. The
Firm also has a 43% interest in American Century Companies, Inc., whose AUM totaled $70 billion and
$102 billion at December 31, 2008 and 2007, respectively, which are excluded from the AUM above.
AUS were $1.6 trillion, an increase of $225 billion, or 17%, from the
prior year. AUM were $1.2 trillion, up 18%, or $180 billion, from the
prior year. The increase in AUM was the result of net asset inflows into liquidity and alternative
products and market appreciation across all segments. Custody, brokerage, administration and
deposit balances were $379 billion, up $45 billion. The Firm also has a 44% interest in American
Century Companies, Inc., whose AUM totaled $102 billion and $103 billion at December 31, 2007 and
2006, respectively, which are excluded from the AUM above.
Assets under supervision
(a)
As of or for the year
ended December 31, (in billions)
2008
2007
2006
$
613
$
400
$
311
180
200
175
240
472
427
100
121
100
1,133
1,193
1,013
363
379
334
$
1,496
$
1,572
$
1,347
$
681
$
632
$
538
181
183
142
194
300
259
71
78
74
6
$
1,133
$
1,193
$
1,013
$
682
$
633
$
539
378
403
328
262
394
343
124
142
137
50
$
1,496
$
1,572
$
1,347
(a)
Excludes assets under management of American Century Companies, Inc., in which the
Firm had a 43%, 44% and 43% ownership at December 31, 2008, 2007 and 2006, respectively.
(b)
In 2008, certain clients were transferred from Private Bank to Private Wealth
Management. Prior periods have been revised to conform to this change.
(c)
Includes $15 billion for assets under management and $68 billion for assets under
supervision from the Bear Stearns merger in the second quarter of 2008.
60
JPMorgan Chase & Co./2008 Annual Report
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Year ended December 31,
(in millions)
2008
2007
2006
$
(3,588
)
$
4,552
$
1,181
1,637
39
(608
)
1,673
465
485
(278
)
5,056
1,058
347
(637
)
(1,044
)
69
4,419
14
447
(j)(k)
(11
)
(1
)
1,534
2,340
2,754
2,626
1,841
3,025
2,357
432
209
305
4,613
5,988
5,288
(4,641
)
(4,231
)
(4,141
)
(28
)
1,757
1,147
(1,884
)
2,673
(1,132
)
(535
)
788
(1,179
)
(1,349
)
1,885
47
795
(1,349
)
1,885
842
1,906
$
557
$
1,885
$
842
(a)
Included losses on preferred equity interests in Fannie Mae and Freddie Mac in
2008.
(b)
The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages
129143 of this Annual Report for additional information.
(c)
Included gain on sale of MasterCard shares in 2008.
(d)
Included a gain from the dissolution of the Chase Paymentech Solutions joint
venture and proceeds from the sale of Visa shares in its initial public offering in 2008.
(e)
Represents an accounting conformity loan loss reserve provision related to the
acquisition of Washington Mutual Banks banking operations. For a further discussion, see
Consumer Credit Portfolio on page 99 of this Annual Report.
(f)
Included a release of credit card litigation reserves in 2008 and insurance
recoveries related to settlement of the Enron and WorldCom class action litigations and
for certain other material legal proceedings of $512 million for full year 2006.
(g)
Includes tax benefits recognized upon resolution of tax audits.
(h)
Included a $622 million gain from the sale of selected corporate trust businesses
in 2006.
(i)
Effective September 25, 2008, JPMorgan Chase acquired Washington Mutuals banking
operations from the FDIC for $1.9 billion. The fair value of the Washington Mutual net
assets acquired exceeded the purchase price, which resulted in negative goodwill. In
accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written
down against that negative goodwill. The negative goodwill that remained after writing
down nonfinancial assets was recognized as an extraordinary gain in 2008.
(j)
In November 2008, the Firm transferred $5.8 billion of higher quality credit card
loans from the legacy Chase portfolio to a securitization trust previously established by
Washington Mutual (the Trust). As a result of converting higher credit quality
Chase-originated on-book receivables to the Trusts sellers interest which has a higher
overall loss rate reflective of the total assets within the Trust, approximately $400
million of incremental provision expense was recorded during the fourth quarter. This
incremental provision expense was recorded in the Corporate segment as the action related
to the acquisition of Washington Mutuals banking operations. For further discussion of
credit card securitizations, see Note 16 on pages 169170 of this Annual Report.
(k)
Includes $9 million for credit card securitizations related to the Washington
Mutual transaction.
Net income for Corporate/Private Equity was $557
million, compared with net income of $1.9 billion
in the prior year. This segment includes the
results of Private Equity and Corporate business
segments, as well as merger-related items.
JPMorgan Chase & Co. / 2008 Annual Report
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Net income was $1.9 billion, compared with $842
million in the prior year, benefiting from strong
Private Equity gains, partially offset by higher
expense. Prior-year results also included Income
from discontinued operations of $795 million, which
included a one-time gain of $622 million from the
sale of selected corporate trust businesses.
Year ended December 31,
(in millions, except headcount)
2008
2007
2006
$
(963
)
$
3,967
$
1,142
1,032
452
(1,128
)
$
69
$
4,419
$
14
$
(690
)
$
2,165
$
627
1,458
(150
)
(391
)
(2,117
)
(130
)
(189
)
(1,349
)
1,885
47
795
(1,349
)
1,885
842
1,906
$
557
$
1,885
$
842
23,376
22,512
23,242
(a)
The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages
129143 of this Annual Report for additional information.
(b)
Included a release of credit card litigation reserves in 2008 and insurance
recoveries related to settlement of the Enron and WorldCom class action litigations and
for certain other material legal proceedings of $512 million for full year 2006.
(c)
Includes tax benefits recognized upon resolution of tax audits.
(d)
Includes an accounting conformity loan loss reserve provision related to the
Washington Mutual transaction in 2008. 2008 also reflects items related to the Bear Stearns
merger, which included Bear Stearns losses, merger costs, Bear Stearns asset management
liquidation costs and Bear Stearns private client services broker retention expense. Prior
periods represent costs related to the Bank One transaction in 2004 and the Bank of New
York transaction in 2006.
(e)
Included a $622 million gain from the sale of selected corporate trust business in
2006.
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JPMorgan Chase & Co./2008 Annual Report
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The carrying value of the private equity portfolio
at December 31, 2008, was $6.9 billion, down from
$7.2 billion at December 31, 2007. The portfolio
decrease was primarily driven by unfavorable
valuation adjustments on existing investments,
partially offset by new investments, and the
addition of the Bear Stearns portfolios. The
portfolio represented 5.8% of the Firms
stockholders equity less goodwill at December 31,
2008, down from 9.2% at December 31, 2007.
The carrying value of the private equity portfolio
at December 31, 2007, was $7.2 billion, up from
$6.1 billion at December 31, 2006. The portfolio
increase was due primarily to favorable valuation
adjustments on nonpublic investments and new
investments, partially offset by sales activity.
The portfolio represented 9.2% of the Firms
stockholders equity less goodwill at December 31,
2007, up from
8.6% at December 31, 2006.
Year ended December 31,
(in millions)
2008
2007
2006
$
1,652
$
37
$
(619
)
106,801
85,517
63,361
166,662
76,200
82,091
7,059
5,639
7,292
6,635
$
1,717
$
2,312
$
1,223
(2,480
)
1,607
(1
)
(763
)
3,919
1,222
(131
)
165
77
$
(894
)
$
4,084
$
1,299
$
483
$
390
$
587
792
288
451
543
536
831
5,564
5,914
4,692
6,296
4,867
5,795
805
849
802
1,169
1,076
1,080
$
6,852
$
7,153
$
6,081
$
8,257
$
6,231
$
7,326
(a)
Results for 2008 included a gain on the sale of MasterCard shares. All periods
reflect repositioning of the Corporate investment securities portfolio and exclude
gains/losses on securities used to manage risk associated with MSRs.
(b)
Includes Chief Investment Office investment securities only.
(c)
Held-for-investment prime mortgage loans were transferred from AM to the
Corporate/Private Equity segment for risk management and reporting purposes. The initial
transfer in 2007 had no material impact on the financial results of Corporate/Private
Equity.
(d)
Unrealized gains (losses) contain reversals of unrealized gains and losses that
were recognized in prior periods and have now been realized.
(e)
The Firm adopted SFAS 157 in the first quarter of 2007. For additional
information, see Note 4 on pages 129143 of this Annual Report.
(f)
Included in principal transactions revenue in the Consolidated Statements of
Income.
(g)
For more information on the Firms policies regarding the valuation of the private
equity portfolio, see Note 4 on pages 129143 of this Annual Report.
(h)
Unfunded commitments to third-party equity funds were $1.4 billion, $881 million
and $589 million at December 31, 2008, 2007 and 2006, respectively.
JPMorgan Chase & Co./2008 Annual Report
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December 31, (in millions)
2008
2007
$
26,895
$
40,144
138,139
11,466
203,115
170,897
124,000
84,184
347,357
414,273
162,626
77,136
205,943
85,450
744,898
519,374
(23,164
)
(9,234
)
721,734
510,140
60,987
24,823
48,027
45,270
14,984
14,731
121,245
83,633
$
2,175,052
$
1,562,147
$
1,009,277
$
740,728
192,546
154,398
170,245
78,431
45,274
89,162
121,604
68,705
187,978
94,476
10,561
14,016
270,683
199,010
2,008,168
1,438,926
166,884
123,221
$
2,175,052
$
1,562,147
The following is a discussion of the
significant changes in the Consolidated
Balance Sheets from December 31, 2007.
The Firm utilizes deposits with banks, federal
funds sold and securities purchased under resale
agreements, securities borrowed, and federal funds
purchased and securities loaned or sold under
repurchase agreements as part of its liquidity
management activities to manage the Firms cash
positions and risk-based capital requirements and
to support the Firms trading and risk management
activities. In particular, the Firm uses
securities purchased under resale agreements and
securities borrowed to provide funding or liquidity
to clients by purchasing and borrowing clients
securities for the short-term. Federal funds
purchased and securities loaned or sold
The Firm uses debt and equity trading instruments
for both market-making and proprietary risk-taking
activities. These instruments consist predominantly
of fixed income securities, including government
and corporate debt; equity, including convertible
securities; loans, including certain prime mortgage
and other loans warehoused by RFS and IB for sale
or securitization purposes and accounted for at
fair value under SFAS 159; and physical commodities
inventories. The decreases in trading assets and
liabilities debt and equity instruments from
December 31, 2007, reflected the effect of the
challenging capital markets environment,
particularly for debt securities, partially offset
by positions acquired as a result of the Bear
Stearns merger. For additional information, refer
to Note 4 and Note 6 on pages 129143 and
146148, respectively, of this Annual Report.
Derivative instruments enable end-users to
increase, reduce or alter exposure to credit or
market risks. The value of a derivative is derived
from its reference to an underlying variable or
combination of variables such as interest rate,
credit, foreign exchange, equity or commodity
prices or indices. JPMorgan Chase makes markets in
derivatives for customers, is an end-user of
derivatives for its principal risk-taking
activities, and is also an end-user of derivatives
to hedge or manage risks of market and credit exposures,
modify the interest rate characteristics of related
balance sheet instruments or meet longer-term
investment objectives. The majority of the Firms
derivatives are entered into for market-making
purposes. The increase in derivative receivables
and payables from December 31, 2007, was primarily
related to the decline in interest rates, widening
credit spreads and volatile foreign exchange rates
reflected in interest rate, credit and foreign
exchange derivatives, respectively. The increase
also included positions acquired in the Bear
Stearns merger. For additional information, refer
to derivative contracts, Note 4, Note 6 and Note 32
on pages 129143, 146148, and 202205,
respectively, of this Annual Report.
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JPMorgan Chase & Co./2008 Annual Report
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Almost all of the Firms securities portfolio is
classified as AFS and is used predominantly to
manage the Firms exposure to interest rate
movements, as well as to make strategic longer-term
investments. The AFS portfolio increased from
December 31, 2007, predominantly as a result of
purchases, partially offset by sales and
maturities. For additional information related to
securities, refer to the Corporate/Private Equity
segment discussion, Note 4 and Note 12 on pages
6163, 129143 and 158162, respectively, of
this Annual Report.
The Firm provides loans to a variety of customers,
from large corporate and institutional clients to
individual consumers. Loans increased from December
31, 2007, largely due to loans acquired in the
Washington Mutual transaction, organic growth in
lending in the wholesale businesses, particularly
CB, and growth in the consumer prime mortgage
portfolio driven by the decision to retain, rather
than sell, new originations of nonconforming
mortgage loans.
The Firms accrued interest and accounts receivable
consist of accrued interest receivable from
interest-earning assets; receivables from customers
(primarily from activities related to IBs Prime
Services business);
receivables from brokers, dealers and clearing
organizations; and receivables from failed
securities sales. The Firms accounts payable and
other liabilities consist of accounts payable to
customers (primarily from activities related to
IBs Prime Services business), payables to brokers,
dealers and clearing organizations; payables from
failed securities purchases; accrued expense,
including for interest-bearing liabilities; and all
other liabilities, including obligations to return
securities received as collateral. The increase in
accrued interest and accounts receivable from
December 31, 2007, was due largely to the Bear
Stearns merger, reflecting higher customer
receivables in IBs Prime Services business and the
Washington Mutual transaction. The increase in
accounts payable and other liabilities
Goodwill arises from business combinations and
represents the excess of the cost of an acquired
entity over the net fair value amounts assigned to
assets acquired and liabilities assumed. The
increase in goodwill was due predominantly to the
dissolution of Chase Paymentech Solutions joint
venture, the merger with Bear Stearns, the purchase
of an additional equity interest in Highbridge and
tax-related purchase accounting adjustments
associated with the Bank One merger, which
increased goodwill attributed to IB. These
items were offset partially by a decrease in
goodwill attributed to TSS predominantly resulting
from the sale of a previously consolidated
subsidiary. For additional information, see Note 18
on pages 186189 of this Annual Report.
The Firms other intangible assets consist of MSRs,
purchased credit card relationships, other credit
card-related intangibles, core deposit intangibles,
and other intangibles. MSRs increased due to the
Washington Mutual transaction and the Bear Stearns
merger; sales in RFS of originated loans; and
purchases of MSRs. These increases in MSRs were
partially offset by markdowns of the fair value of
the MSR asset due to changes to inputs and
assumptions in the MSR valuation model, including
updates to prepayment assumptions to reflect
current expectations, and to servicing portfolio
run-offs. The decrease in other intangible assets
reflects amortization expense associated with
credit card-related and core deposit intangibles,
partially offset by increases due to the
dissolution of the Chase Paymentech Solutions joint
venture, the purchase of an additional equity
interest in Highbridge, and the acquisition of an
institutional global custody portfolio. For
additional information on MSRs and other intangible
assets, see Note 18 on pages 186189 of this
Annual Report.
The Firms other assets consist of private equity
and
other investments, collateral received, corporate
and bank-owned life insurance policies, premises
and equipment, assets acquired in loan satisfaction
(including real estate owned), and all other
assets. The increase in other assets from December
31, 2007, was due to the Bear Stearns merger, which
partly resulted in a higher volume of collateral
received from customers, the Washington Mutual
transaction, and the purchase of asset-backed
commercial paper from money market mutual funds in
connection with the Federal Reserves Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity
Facility (AML Facility), which was established by
the Federal Reserve on September 19, 2008, as a
temporary lending facility to provide liquidity to
eligible MMMFs. For additional information
regarding the AML Facility, see Executive Overview
and Note 22 on pages 2932 and 190 respectively,
of this Annual Report.
JPMorgan Chase & Co./2008 Annual Report
65
Table of Contents
The Firms deposits represent a liability to
customers, both retail and wholesale, related to
non-brokerage funds held on their behalf. Deposits
are generally classified by location (U.S. and
non-U.S.), whether they are interest or
noninterest-bearing, and by type (i.e., demand,
money market deposit, savings, time or negotiable
order of withdrawal accounts). Deposits help
provide a stable and consistent source of funding
for the Firm. Deposits were at a higher level
compared with the level at December 31, 2007,
predominantly from the deposits assumed in the
Washington Mutual transaction, net increases in
wholesale interest- and noninterest-bearing
deposits in TSS, AM and CB. The increase in TSS was
driven by both new and existing clients, and due to
the deposit inflows related to the heightened
volatility and credit concerns affecting the
markets. For more information on deposits, refer to
the TSS and RFS segment discussions on pages 5657
and 4550, respectively, and the Liquidity Risk
Management discussion on pages 7680 of this
Annual Report. For more information on wholesale
liability balances, including deposits, refer to
the CB and TSS segment discussions on pages 5455
and 5657 of this Annual Report.
The Firm utilizes commercial paper and other
borrowed funds as part of its liquidity management
activities to meet short-term funding needs, and in
connection with a TSS liquidity management product
whereby excess client funds, are transferred into
commercial paper overnight sweep accounts. The
increase in other borrowed funds was predominantly
due to advances from Federal Home Loan Banks of
$70.2 billion (net of maturities of $10.4 billion)
that were assumed as part of the Washington Mutual
transaction and nonrecourse advances from the
Federal Reserve Bank of Boston (FRBB) to fund
purchases of asset-backed commercial paper from money market mutual
funds, and other borrowings from the Federal
Reserve under the Term Auction Facility program.
For additional information on the Firms Liquidity
Risk Management and other borrowed funds, see pages
7680 and Note 21 on page 190 of this Annual
Report.
The Firm utilizes long-term debt and trust
preferred capital debt securities to provide
cost-effective and diversified sources of funds and
as critical components of the Firms liquidity and
capital management. Long-term debt and trust
preferred capital debt securities increased from
December 31, 2007, predominantly due to debt
assumed in both the Bear Stearns merger and the
Washington Mutual transaction, and debt issuances
of $20.8 billion, which are guaranteed by the FDIC
under its Temporary Liquidity Guarantee Program
(the TLG Program). These increases were partially
offset by net maturities and redemptions, including
IB structured notes, the issuances of which are
generally client-driven. For additional information
on the Firms long-term debt activities, see the
Liquidity Risk Management discussion on pages
7680 and Note 23 on pages 191192 of this Annual
Report.
The increase in total stockholders equity from
December 31, 2007, was predominantly due to the
issuance of preferred and common equity securities
during 2008. In the fourth quarter of 2008,
JPMorgan Chase participated in the Capital Purchase
Program and issued preferred stock and a warrant to
purchase common stock to the U.S. Treasury,
resulting in a $25.0 billion increase to
stockholders equity. Additional preferred stock
issuances and a common stock issuance during 2008
increased equity by $19.3 billion. Equity from
issuances of stock awards under the Firms employee
stock-based compensation plans, the Bear Stearns
merger, and net income for 2008 was more than
offset by the declaration of cash dividends and net
losses recorded within accumulated other
comprehensive income related to AFS securities and
defined benefit pension and OPEB plans. For a
further discussion, see the Capital Management
section that follows, and Note 24 and Note 27 on
pages 193194 and 196197, respectively, of this
Annual Report.
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JPMorgan Chase & Co./2008 Annual Report
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For certain liquidity commitments to SPEs, the Firm
could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank,
N.A., was downgraded below specific levels,
primarily P-1,
A-1 and F1 for Moodys, Standard & Poors and
Fitch,
respectively. The amount of these liquidity
commitments was $61.0 billion and $94.0 billion at
December 31, 2008 and 2007, respectively.
Alternatively, if JPMorgan Chase Bank, N.A., were
downgraded, the Firm could be replaced by another
liquidity provider in lieu of providing funding
under the liquidity commitment, or in certain
circumstances,
The Firm helps customers meet their financing needs
by providing access to the commercial paper markets
through variable interest entities (VIEs) known
as multi-seller conduits. Multi-seller conduit
entities are separate bankruptcy-remote entities
that purchase interests in, and make loans secured
by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm.
The conduits fund their purchases and loans through
the issuance of highly rated commercial paper to
third-party investors. The primary source of
repayment of the commercial paper is the cash flow
from the pools of assets. JPMorgan Chase receives
fees related to the structuring of multi-seller
conduit transactions and receives compensation from
the multi-seller conduits for its role as
administrative agent, liquidity provider, and
provider of program-wide credit enhancement.
As a financial intermediary, the Firm creates
certain types of VIEs and also structures
transactions, typically derivative structures, with
these VIEs to meet investor needs. The Firm may
also provide liquidity and other support. The risks
inherent in derivative instruments or liquidity
commitments are managed similarly to other credit,
market and liquidity risks to which the Firm is
exposed. The principal types of VIEs the Firm uses
in these structuring activities are municipal bond
vehicles, credit-linked note vehicles and
collateralized debt obligation vehicles.
JPMorgan Chase securitizes and sells a variety of
loans, including residential mortgages, credit
cards, automobile, student, and commercial loans
(primarily related to real estate). JPMorgan
Chase-sponsored securitizations utilize SPEs as
part of the securitization process. These SPEs are
structured to meet the definition of a QSPE (as
discussed in Note 1 on page 122 of this Annual
Report); accordingly, the assets and liabilities of
securitization-related QSPEs are not reflected on
the Firms Consolidated Balance Sheets (except for
retained interests, as described below). The
primary purpose of these vehicles is to meet
investor needs and generate liquidity for the Firm
through the
sale of loans to the QSPEs. These QSPEs are
financed through the issuance of fixed or
floating-rate asset-backed securities that are sold
to third-party investors or held by the Firm.
For more information regarding these programs and
the Firms other SPEs, as well as the Firms
consolidation analysis for these programs, see Note
16 and Note 17 on pages 168176 and 177186,
respectively, of this Annual Report.
JPMorgan Chase & Co. / 2008 Annual Report
67
Table of Contents
The following table summarizes certain revenue
information related to consolidated and
nonconsolidated VIEs and QSPEs with which the Firm
has significant involvement. The revenue reported
in the table below primarily represents contractual
servicing and credit fee income (i.e., for income
from acting as administrator, structurer, liquidity
provider). It does not include mark-to-market gains
and losses from changes in the fair value of
trading positions (such as derivative transactions)
entered into with VIEs. Those gains and losses are
recorded in principal transactions revenue.
Year ended December 31,
(in millions)
2008
2007
2006
$
314
$
187
(b)
$
160
18
33
49
332
220
209
1,746
1,420
1,131
$
2,078
$
1,640
$
1,340
(a)
Includes revenue associated with consolidated VIEs and significant nonconsolidated
VIEs.
(b)
Excludes the markdown on subprime CDO assets that was recorded in principal
transactions revenue in 2007.
(c)
Excludes servicing revenue from loans sold to and securitized
by third parties. Prior period amounts have been revised to conform to the current period presentation.
In December 2007, the American Securitization Forum
(ASF) issued the Streamlined Foreclosure and
Loss Avoidance Framework for Securitized Subprime
Adjustable Rate Mortgage Loans (the Framework).
The Framework provides guidance for servicers to
streamline evaluation procedures of borrowers with
certain subprime adjustable rate mortgage (ARM)
loans to more efficiently provide modification of
such loans with terms that are more appropriate for
the individual needs of such borrowers. The
Framework applies to all first-lien subprime ARM
loans that have a fixed rate of interest for an
initial period of 36 months or less; are included
in
securitized pools; were originated between January
1, 2005, and July 31, 2007; and have an initial
interest rate reset date between January 1, 2008,
and July 31, 2010. The Framework categorizes the
population of ASF Framework Loans into three
segments. Segment 1 includes loans where the
borrower is current and likely to be able to
refinance into any available mortgage product.
Segment 2 includes loans where the borrower is
current, unlikely to be able to refinance into any
readily available mortgage industry product and
meets certain defined criteria. Segment 3 includes
loans where the borrower is not current, as
defined, and does not meet the criteria for
Segments 1 or 2.
JPMorgan Chase adopted the Framework during the
first quarter of 2008. For those AFS Framework
Loans serviced by the Firm and owned by
Firm-sponsored QSPEs, the Firm modified principal
amounts of $1.7 billion of Segment 2 subprime
mortgages during the year ended December 31, 2008.
The following table presents selected information
relating to the principal amount of Segment 3
loans for the year ended December 31, 2008, including those that
have been modified, subjected to other loss mitigation activities or
have been prepaid by the borrower.
Year ended December 31, (in millions)
2008
$
2,384
865
219
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By remaining maturity at December 31,
2008
2007
(in millions)
2009
2010-2011
2012-2013
After 2013
Total
Total
$
642,978
$
4,098
$
9,916
$
84,515
$
741,507
$
815,936
93,307
69,479
53,567
9,510
225,863
250,954
16,467
25,574
9,983
1,705
53,729
90,105
25,998
35,288
30,650
3,416
95,352
100,222
3,889
718
240
80
4,927
5,371
139,661
131,059
94,440
14,711
379,871
446,652
$
782,639
$
135,157
$
104,356
$
99,226
$
1,121,378
$
1,262,588
$
169,281
$
$
$
$
169,281
$
385,758
670
670
NA
9,537
28,970
15,452
29,876
83,835
85,262
$
278,520
$
11,414
$
8,139
$
1,028
$
299,101
$
249,877
47,406
21,089
738
954
70,187
450
36,026
78,199
51,275
86,594
252,094
183,862
18,589
18,589
15,148
67
199
1,289
3,450
5,005
7,209
1,676
3,215
2,843
9,134
16,868
10,908
1,356
878
219
234
2,687
2,434
1,174
2,086
1,999
2,879
8,138
5,477
666
809
865
2,665
5,005
5,656
$
366,891
$
117,889
$
67,367
$
125,527
$
677,674
$
481,021
(a)
Includes credit card and home equity lending-related commitments of $623.7 billion
and $95.7 billion, respectively, at December 31, 2008; and $714.8 billion and $74.2
billion, respectively, at December 31, 2007. These amounts for credit card and home equity
lending-related commitments represent the total available credit for these products. The
Firm has not experienced, and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm can reduce or cancel these
lines of credit by providing the borrower prior notice or, in some cases, without notice
as permitted by law.
(b)
Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion
at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve, unused advised lines are not reportable. See the
Glossary of terms, on page 218 of this Annual Report, for the Firms definition of advised
lines of credit.
(c)
Represents contractual amount net of risk participations totaling $28.3 billion at
both December 31, 2008 and 2007.
(d)
Excludes unfunded commitments to third-party private equity funds of $1.4 billion
and $881 million at December 31, 2008 and 2007, respectively. Also excluded unfunded
commitments for other equity investments of $1.0 billion and $903 million at December 31,
2008 and 2007, respectively.
(e)
Includes commitments to investment and noninvestment grade counterparties in
connection with leveraged acquisitions of $3.6 billion and $8.2 billion at December 31,
2008 and 2007, respectively.
(f)
Largely represents asset purchase agreements to the Firms administered
multi-seller, asset-backed commercial paper conduits. The maturity is based upon the
weighted-average life of the underlying assets in the SPE, which are based upon the
remainder of each conduit transactions committed liquidity plus either the expected
weighted average life of the assets should the committed liquidity expire without renewal,
or the expected time to sell the underlying assets in the securitization market. It also
includes $96 million and $1.1 billion of asset purchase agreements to other third-party
entities at December 31, 2008 and 2007, respectively.
(g)
JPMorgan Chase held collateral relating to $31.0 billion and $31.5 billion of
these arrangements at December 31, 2008 and 2007, respectively. Prior periods have been
revised to conform to the current presentation.
(h)
Includes unissued standby letters of credit commitments of $39.5 billion and $50.7
billion at December 31, 2008 and 2007, respectively.
(i)
Collateral held by the Firm in support of securities lending indemnification
agreements was $170.1 billion and $390.5 billion at December 31, 2008 and 2007,
respectively. Securities lending collateral comprises primarily cash, securities issued by
governments that are members of the Organisation for Economic Co-operation and Development
and U.S. government agencies.
(j)
Represents notional amounts of derivatives qualifying as guarantees. For further
discussion of guarantees, see Note 33 on pages 206210 of this Annual Report.
(k)
Included on the Consolidated Balance Sheets in beneficial interests issued by
consolidated variable interest entities.
(l)
Includes noncancelable operating leases for premises and equipment used primarily
for banking purposes and for energy-related tolling service agreements. Excludes the
benefit of noncancelable sublease rentals of $2.3 billion and $1.3 billion at December 31,
2008 and 2007, respectively.
(m)
Includes deferred annuity contracts. Excludes the $1.3 billion discretionary
contribution to the Firms U.S. defined benefit pension plan that was made on January 15,
2009 (for further discussion, see Note 9 on pages 149155), and contributions to the U.S.
and non-U.S. other postretirement benefits plans, if any, as these contributions are not
reasonably estimable at this time. Also excluded are unrecognized tax benefits of $5.9
billion and $4.8 billion at December 31, 2008 and 2007, respectively, as the timing and
amount of future cash payments are not determinable at this time.
JPMorgan Chase & Co. / 2008 Annual Report
69
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integrate firmwide capital management activities with capital management activities
within each of the lines of business
measure performance consistently across all lines of business
provide comparability with peer firms for each of the lines of business
Line of business equity
December 31, (in billions)
2008
2007
$
33.0
$
21.0
25.0
16.0
15.0
14.1
8.0
6.7
4.5
3.0
7.0
4.0
42.4
58.4
$
134.9
$
123.2
Line of business equity
Yearly Average
(in billions)
2008
2007
$
26.1
$
21.0
19.0
16.0
14.3
14.1
7.3
6.5
3.8
3.0
5.6
3.9
53.0
54.2
$
129.1
$
118.7
(a)
2008 and 2007 include $41.9 billion and $41.7 billion, respectively, of equity to
off-set goodwill, and $11.1 billion and $12.5 billion, respectively, of equity, primarily
related to Treasury, Private Equity and the Corporate pension plan.
Economic risk capital
Yearly Average
(in billions)
2008
2007
$
37.8
$
30.0
10.5
9.5
6.3
5.6
5.3
3.7
59.9
48.8
46.1
45.2
23.1
24.7
$
129.1
$
118.7
(a)
Reflects additional capital required, in the Firms view, to meet its regulatory
and debt rating objectives.
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Credit risk capital is estimated separately for the
wholesale businesses (IB, CB, TSS and AM) and
consumer businesses (RFS and CS).
The Firm calculates market risk capital guided by
the principle that capital should reflect the risk
of loss in the value of portfolios and financial
instruments caused by adverse movements in market
variables, such as interest and foreign exchange
rates, credit spreads, securities prices and
commodities prices. Daily Value-at-Risk (VaR),
biweekly stress-test results and other factors are
used to determine appropriate capital levels. The
Firm allocates market risk capital to each business
segment according to a formula that weights that
segments VaR and stress-test exposures. See Market
Risk Management on pages 99104 of this Annual
Report for more information about these market risk
measures.
Capital is allocated to the lines of business for
operational risk using a risk-based capital
allocation methodology which estimates operational
risk on a bottom-up basis. The operational risk
capital model is based upon actual losses and
potential scenario-based stress losses, with
adjustments to the capital calculation to reflect
changes in the quality of the control environment
or the use of risk-transfer products. The Firm
believes its model is consistent with the new Basel
II Framework.
Capital is allocated to privately and publicly held
securities, third-party fund investments and
commitments in the private equity portfolio to
cover the potential loss associated with a decline
in equity markets and related asset devaluations.
In addition to negative market fluctuations,
potential losses in private equity investment
portfolios can be magnified by liquidity risk. The
capital allocation for the private equity portfolio
is based upon measurement of the loss experience
suffered by the Firm and other market participants
over a prolonged period of adverse equity market
conditions.
December 31, (in millions)
2008
2007
$
136,104
$
88,746
48,616
43,496
$
184,720
$
132,242
$
1,244,659
$
1,051,879
1,966,895
1,473,541
(a)
The FASB has been deliberating certain amendments to both
SFAS 140 and FIN 46R that may impact the accounting for
transactions that involve QSPEs and VIEs. Based on the provisions of
the current proposal and the Firm's interpretation of the proposal,
the Firm estimates that the impact of consolidation could be up to
$70 billion of credit card receivables, $40 billion of
assets related to Firm-sponsored multi-seller conduits, and
$50 billion of other loans (including residential mortgages);
the decrease in the Tier 1 capital ratio could be approximately
80 basis points. The ultimate impact could differ significantly
due to the FASB's continuing deliberations on the final requirements
of the rule and market conditions.
JPMorgan Chase & Co. / 2008 Annual Report
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$
88,746
5,605
23,750
1,250
7,800
352
11,485
3,317
1,198
(6,307
)
2,619
(1,475
)
(1,357
)
(879
)
47,358
$
136,104
Pursuant to the Capital Purchase Program, on
October 28, 2008, the Firm issued to the U.S.
Treasury, for total proceeds of $25.0 billion,
(i)
2.5 million shares of Series K Preferred Stock, and
(ii) a Warrant to purchase up to 88,401,697 shares
of the Firms common stock, at an exercise price of
$42.42 per share, subject to certain antidilution
and other adjustments. The Series K Preferred Stock
qualifies as Tier 1 capital.
The minimum risk-based capital requirements adopted
by the U.S. federal banking agencies follow the
Capital Accord of the Basel Committee on Banking
Supervision. In 2004, the Basel Committee published
a revision to the Accord (Basel II). The goal of
the new Basel II Framework is to provide more
risk-sensitive regulatory capital calculations and
promote enhanced risk management practices among
large, internationally active banking
organizations. U.S. banking regulators published a
final Basel II rule in December 2007, which will
require JPMorgan Chase to implement Basel II at the
holding company level, as well as at certain of its
key U.S. bank subsidiaries.
JPMorgan Chases principal U.S. broker-dealer
subsidiaries are J.P. Morgan Securities Inc.
(JPMorgan Securities) and J.P. Morgan Clearing
Corp. (formerly known as Bear Stearns Securities
Corp.). JPMorgan Securities and J.P. Morgan
Clearing Corp. are each subject to Rule 15c3-1
under the Securities Exchange Act of 1934 (Net
Capital Rule). JPMorgan Securities and J.P. Morgan
Clearing Corp. are also registered as futures
commission merchants and subject to Rule 1.17
under the Commodity Futures Trading Commission
(CFTC).
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JPMorgan Chase & Co. / 2008 Annual Report
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Year ended December 31,
2008
2007
2006
114
%
34
%
34
%
JPMorgan Chase & Co. / 2008 Annual Report
73
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Risk identification: The Firms exposure to risk through its daily business
dealings, including lending, trading and capital markets activities, is identified and
aggregated through the Firms risk management infrastructure. In addition, individuals who
manage risk positions, particularly those positions that are complex, are responsible for
identifying and estimating potential losses that could arise from specific or unusual
events, that may not be captured in other models, and those risks are communicated to
senior management.
Risk measurement: The Firm measures risk using a variety of methodologies, including
calculating probable loss, unexpected loss and value-at-risk, and by conducting stress
tests and making comparisons to external benchmarks. Measurement models and related
assumptions are routinely reviewed with the goal of ensuring that the Firms risk
estimates are reasonable and reflect underlying positions.
Risk monitoring/control: The Firms risk management policies and procedures
incorporate risk mitigation strategies and include approval limits by customer, product,
industry, country and business. These limits are monitored on a daily, weekly and monthly
basis, as appropriate.
Risk reporting: Risk reporting is executed on a line of business and consolidated
basis. This information is reported to management on a daily, weekly and monthly basis, as
appropriate. There are eight major risk types identified in the business activities of the
Firm: liquidity risk, credit risk, market risk, interest rate risk, private equity risk,
operational risk, legal and fiduciary risk, and reputation risk.
The Firms risk governance structure starts with
each line of business being responsible for
managing its own risks. Each line of business works
closely with Risk Management through its own risk
committee and, in most cases, its own chief risk
officer to manage risk. Each line of business risk
committee is responsible for decisions regarding
the business risk strategy, policies and controls.
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During the second half of 2008, global markets
exhibited extraordinary levels of volatility and
increasing signs of stress. Throughout this period,
access by market participants to the debt, equity,
and consumer loan securitization markets was
constrained and funding spreads widened sharply. In
response to strains in financial markets, U.S.
government and regulatory agencies introduced
various programs to inject liquidity into the
financial system. JPMorgan Chase participated in a
number of these programs, two of which were the
Capital Purchase Program and the FDICs TLG
Program. On October 28, 2008, JPMorgan Chase issued
$25.0 billion of preferred stock as well as a
warrant to purchase up to 88,401,697 shares of the
Firms common stock to the U.S. Treasury under the
Capital Purchase Program, which enhanced the Firms
capital and liquidity positions. In addition, on
December 4, 2008, JPMorgan Chase elected to
continue to participate in the FDICs TLG Program,
which facilitated long-term debt issuances at rates
(including the guarantee fee charged by the FDIC)
more favorable than those for non-FDIC guaranteed
debt issuances. Under the TLG Program, the FDIC
guarantees certain senior unsecured debt of
JPMorgan Chase, and in return for the guarantees,
the FDIC is paid a fee based on the amount and
maturity of the debt. Under the TLG Program, the
FDIC will pay the unpaid principal and interest on
an FDIC-guaranteed debt instrument upon the uncured
failure of the participating entity to make a
timely payment of principal or interest in
accordance with the terms of the instrument. During
the fourth quarter of 2008, pursuant to the TLG
Program, the Firm issued $20.8 billion of bonds
guaranteed by the FDIC, further enhancing the
Firms liquidity position. At December 31, 2008,
all of the FDIC-guaranteed debt
was outstanding and had a carrying value of $21.0
billion, net of hedges. In the interest of
promoting deposit stability, during the fourth
quarter, the FDIC also (i) temporarily increased,
through 2009, insurance coverage on bank deposits
to $250,000 per customer from $100,000 per
customer, and (ii) for qualified institutions who
participated in the TLG Program (such as the Firm),
provided full deposit insurance coverage for noninterest-bearing transaction accounts.
The Asset-Liability Committee approves and oversees
the execution of the Firms liquidity policy and
contingency funding plan. Corporate Treasury
formulates the Firms liquidity and contingency
planning strategies and is responsible for
measuring, monitoring, reporting and managing the
Firms liquidity risk profile.
The Firm monitors liquidity trends, tracks
historical and prospective on- and off-balance
sheet liquidity obligations, identifies and
measures internal and external liquidity warning
signals to permit early detection of liquidity
issues, and manages contingency planning
(including identification and testing of various
company-specific and market-driven stress
scenarios). Various tools, which together
contribute to an overall firmwide liquidity
perspective, are used to monitor and manage
liquidity. Among others, these include: (i)
analysis of the timing of liquidity sources versus
liquidity uses (i.e., funding gaps) over periods
ranging from overnight to one year; (ii) management
of debt and capital issuances to ensure that the
illiquid portion of the balance sheet can be funded
by equity, long-term debt, trust preferred capital
debt securities and deposits the Firm believes to
be stable; and (iii) assessment of the Firms
capacity to raise incremental unsecured and secured
funding.
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JPMorgan Chase & Co. / 2008 Annual Report
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The deposits held by the RFS, CB, TSS and AM lines
of business are a generally consistent source of
funding for JPMorgan Chase Bank, N.A. As of
December 31, 2008, total deposits for the Firm were
$1.0 trillion, compared with $740.7 billion at
December 31, 2007. A significant portion of the
Firms deposits are retail deposits, which are less
sensitive to interest rate changes or market
volatility and therefore are considered more stable
than market-based (i.e., wholesale) liability
balances. The Washington Mutual transaction added
approximately $159.9 billion of deposits to the
Firm, a significant majority of which are retail
deposits. In addition, through the normal course of
business, the Firm benefits from substantial
liability balances originated by RFS, CB, TSS and AM.
These franchise-generated liability balances
include deposits and funds that are swept to
on-balance sheet liabilities (e.g., commercial
paper, federal funds purchased and securities
loaned or sold under repurchase agreements), a
significant portion of which are considered to be
stable and consistent sources of funding due to the
nature of the businesses from which
they are generated. For further discussions of
deposit and liability balance trends, see the
discussion of the results for the Firms business
segments and the Balance sheet analysis on pages
4260 and 6466, respectively, of this Annual
Report.
Funding markets are evaluated on an ongoing basis
to achieve an appropriate global balance of
unsecured and secured funding at favorable rates.
Generating funding from a broad range of sources in
a variety of geographic locations enhances
financial flexibility and limits dependence on any
one source.
In connection with the issuance of certain of its
trust preferred capital debt securities and
noncumulative perpetual preferred stock, the Firm
entered into Replacement Capital Covenants (RCCs)
granting certain rights to the holders of covered
debt, as defined in the RCCs, that prohibit the
repayment, redemption or purchase of the trust
preferred capital debt securities and noncumulative
perpetual preferred stock except, with limited
exceptions, to the extent that JPMorgan Chase has
received, in each such case, specified amounts of
proceeds from the sale of certain qualifying
securities. Currently the Firms covered debt is
its 5.875% Junior Subordinated Deferrable Interest
Debentures, Series O, due in 2035. For more
information regarding these covenants, reference is
made to the respective RCCs entered into by the
Firm in connection with the issuances of such trust
preferred capital debt securities and noncumulative
perpetual
JPMorgan Chase & Co. / 2008 Annual Report
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For the years ended December 31, 2008, 2007 and
2006, cash and due from banks decreased $13.2
billion, $268 million, and increased
$3.7 billion, respectively. The following
discussion highlights the major activities and
transactions that affected JPMorgan Chases cash
flows during 2008, 2007 and 2006.
JPMorgan Chases operating assets and liabilities
support the Firms capital markets and lending
activities, including the origination or purchase
of loans initially designated as held-for-sale.
The operating assets and liabilities can vary
significantly in the normal course of business due
to the amount and timing of cash flows, which are
affected by client-driven activities, market
conditions and trading strategies. Management
believes cash flows from operations, available
cash balances and the Firms ability to generate
cash through short-and long-term borrowings are
sufficient to fund the Firms operating liquidity
needs.
The Firms investing activities predominantly
include originating loans to be held for investment,
other receivables, the available-for-sale
investment portfolio and other short-term
investment vehicles. For the year ended December
31, 2008, net cash of $286.3 billion was used in
investing activities, primarily for: purchases of
investment securities in Corporates AFS portfolio
to manage the Firms exposure to interest
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JPMorgan Chase & Co. / 2008 Annual Report
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The Firms financing activities primarily reflect
cash flows related to customer deposits, issuances
of long-term debt and trust preferred capital debt
securities, and issuances of preferred and common
stock. In 2008, net cash provided by financing
activities was $250.5 billion due to: growth in
wholesale deposits, in particular, interest-and
noninterest-bearing deposits in TSS (driven by both
new and existing clients, and due to the deposit
inflows related to the heightened volatility and
credit
concerns affecting the global markets), as well as
increases in AM and CB (due to organic growth);
proceeds of
$25.0 billion from the issuance of preferred stock
and a warrant to the U.S. Treasury under the
Capital Purchase Program; additional issuances of
common stock and preferred stock used for general
corporate purposes; an increase in other borrowings
due to nonrecourse secured advances from the
Federal Reserve Bank of Boston to fund the purchase
of asset-backed commercial paper from money market
mutual funds; increases in federal funds purchased
and securities loaned or sold under repurchase
agreements in connection with higher short-term
requirements to fulfill client demand for liquidity
and finance the Firms AFS securities inventory;
and a net increase in long-term debt due to a
combination of non-FDIC guaranteed debt and trust
preferred capital debt securities issued prior to
December
4, 2008, and the issuance of $20.8 billion of
FDIC-guaranteed long-term debt issued during the
fourth quarter of 2008. The fourth-quarter
FDIC-guaranteed issuance was offset partially by
maturities of non-FDIC guaranteed long-term debt
during the same period. The increase in long-term
debt and trust preferred capital debt securities
was used primarily to fund certain illiquid assets
held by the parent holding company and build
liquidity. Cash was also used to pay dividends on
common and preferred stock. The Firm did not
repurchase any shares of its common stock in the
open market during 2008 in order to maintain its
capital objectives.
The cost and availability of financing are
influenced by credit ratings. Reductions in these
ratings could have an adverse effect on the Firms
access to liquidity sources, increase the cost of
funds, trigger additional collateral or funding
requirements and decrease the number of investors
and counterparties willing to lend to the Firm.
Additionally, the Firms funding requirements for
VIEs and other third-party commitments may be
adversely affected. For additional information on
the impact of a credit ratings downgrade on the
funding requirements for VIEs, and on derivatives
and collateral agreements, see Special-purpose
entities on pages 6768 and Ratings profile of
derivative receivables marked to market (MTM) on
page 88 of this Annual Report.
Short-term debt
Senior long-term debt
Moodys
S&P
Fitch
Moodys
S&P
Fitch
P-1
A-1
F1+
Aa3
A+
AA-
P-1
A-1+
F1+
Aa1
AA-
AA-
P-1
A-1+
F1+
Aa1
AA-
AA-
JPMorgan Chase & Co. / 2008 Annual Report
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Credit risk management is overseen by the Chief
Risk Officer and implemented within the lines of
business. The Firms credit risk management
governance consists of the following functions:
establishing a comprehensive credit risk policy framework
monitoring and managing credit risk across all portfolio segments, including
transaction and line approval
assigning and managing credit authorities in connection with the approval of all
credit exposure
managing criticized exposures
calculating the allowance for credit losses and ensuring appropriate credit
risk-based capital management
The Firm is exposed to credit risk through lending
and capital markets activities. The credit risk
management organization works in partnership with the
business segments in identifying and aggregating
exposures across all lines of business.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of
obligor or counterparty default. Methodologies for
measuring credit risk vary depending on several
factors, including type of asset (e.g., consumer
installment versus wholesale loan), risk
measurement parameters (e.g., delinquency status
and credit bureau score versus wholesale risk
rating) and risk management and collection
processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based upon the amount of exposure
should the obligor or the counterparty default, the
probability of default and the loss severity given
a default event. Based upon these factors and
related market-based inputs, the Firm estimates
both probable and unexpected losses for the
wholesale and consumer portfolios. Probable losses,
reflected in the provision for credit losses, are
based primarily upon statistical estimates of
credit losses as a result of obligor or
counterparty default. However, probable losses are
not the sole indicators of risk. If losses were
entirely predictable, the probable loss rate could
be factored into pricing and covered as a normal
and recurring cost of doing business. Unexpected
losses, reflected in the allocation of credit risk
capital, represent the potential volatility of
actual losses relative to the probable level of
losses. Risk measurement for the wholesale
portfolio is assessed primarily on a risk-rated
basis; for the consumer portfolio, it is assessed
primarily on a credit-scored basis.
80
JPMorgan Chase & Co. / 2008 Annual Report
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For portfolios that are risk-rated (generally held
in IB, CB, TSS and AM), probable and unexpected
loss calculations are based upon estimates of
probability of default and loss given default.
Probability of default is the expected default
calculated on an obligor basis. Loss given default
is an estimate of losses given a default event and
takes into consideration collateral and structural
support for each credit facility. Calculations and
assumptions are based upon management information
systems and methodologies which are under continual
review. Risk ratings are assigned to differentiate
risk within the portfolio and are reviewed on an
ongoing basis by credit risk management and
revised, if needed, to reflect the borrowers
current risk profiles and the related collateral
and structural positions.
For credit-scored portfolios (generally held in RFS
and CS), probable loss is based upon a statistical
analysis of inherent losses over discrete periods
of time. Probable losses are estimated using
sophisticated portfolio modeling, credit scoring
and decision-support tools to project credit risks
and establish underwriting standards. In addition,
common measures of credit quality derived from
historical loss experience are used to predict
consumer losses. Other risk characteristics
evaluated include recent loss experience in the
portfolios, changes in origination sources,
portfolio seasoning, loss severity and underlying
credit practices, including charge-off policies.
These analyses are applied to the Firms current
portfolios in order to estimate delinquencies and
severity of losses, which determine the amount of
probable losses. These factors and analyses are
updated at least on a quarterly basis or more
frequently as market conditions dictate.
The Firm has developed policies and practices that
are designed to preserve the independence and
integrity of the approval and decision making of
extending credit and are intended to ensure credit
risks are assessed accurately, approved properly,
monitored regularly and managed actively at both
the transaction and portfolio levels. The policy
framework establishes credit approval authorities,
concentration limits, risk-rating methodologies,
portfolio review parameters and guidelines for
management of distressed exposure. Wholesale credit
risk is monitored regularly on both an aggregate
portfolio level and on an individual customer
basis. Management of the Firms wholesale exposure
is accomplished through a number of means including
loan syndication and participations, loan sales,
securitizations, credit derivatives, use of master
netting agreements and collateral and other
risk-reduction techniques, which are further
discussed in the following risk sections. For
consumer credit risk, the key focus items are
trends and concentrations at the portfolio level,
whereby potential problems can be remedied through
changes in underwriting policies and portfolio
guidelines. Consumer Credit Risk Management
monitors trends against business expectations and
industry benchmarks.
To enable monitoring of credit risk and
decision-making, aggregate credit exposure, credit
quality forecasts, concentrations levels and risk
profile changes are reported regularly to senior
credit risk management. Detailed portfolio
reporting of industry, customer and geographic
concentrations occurs monthly, and the
appropriateness of the allowance for credit losses
is reviewed by senior management at least on a
quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit
exceptions are provided regularly to, and discussed
with, senior management, for further information,
see page 74 of this Annual Report.
During 2008, credit markets experienced
deterioration and increased defaults and downgrades
reflecting,
among other things, reduced liquidity. The
liquidity and credit crisis has adversely affected
many financial institutions, resulting in the
failure of some in both the U.S. and Europe, and
has impacted the functioning of credit markets,
particularly, the loan syndication and asset-backed
securitization markets. The Firms credit portfolio
was affected by these market conditions and
experienced deteriorating credit quality,
especially in the latter part of the year,
generally consistent with the market. In 2008, for
the wholesale portfolio, criticized assets and NPAs
increased, from historical lows, 301% and 525%,
respectively, from the previous year. Charge-offs,
which typically lag other portfolio deterioration,
have increased from historical lows by 458% over
2007. The Firm has remained focused on aggressively
managing the portfolio, including ongoing, in-depth
reviews of credit quality, as well as of revisions
of industry, product and client concentrations.
Risk levels are adjusted as needed to reflect the
Firms risk tolerance.
Underwriting standards across all areas of lending
have been strengthened, consistent with evolving
market conditions in order to permit the Firm to
lend in a safe and prudent manner. In light of the
current market conditions, the wholesale allowance
for loan loss coverage ratio has been strengthened
to 2.64%, from 1.67% at the end of 2007.
JPMorgan Chase & Co. / 2008 Annual Report
81
Table of Contents
Nonperforming
90 days past due
Average annual
As of or for the year ended December 31,
Credit exposure
assets
(h)(i)(j)(k)
and still accruing
Net charge-offs
net charge-off rate
(in millions, except ratios)
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
$
728,915
$
491,736
$
8,921
(j)
$
3,232
(j)
$
3,275
$
2,043
$
9,835
$
4,538
1.73
%
1.00
%
8,287
18,899
12
45
NA
7,696
8,739
20
5
NA
$
744,898
$
519,374
$
8,953
$
3,282
$
3,275
$
2,043
$
9,835
$
4,538
1.73
%
1.00
%
85,571
72,701
1,802
1,050
3,612
2,380
4.53
3.43
830,469
592,075
8,953
3,282
5,077
3,093
13,447
6,918
2.08
1.33
162,626
77,136
1,079
29
NA
NA
NA
NA
16,141
NA
NA
NA
NA
1,009,236
669,211
10,032
3,311
5,077
3,093
13,447
6,918
2.08
1.33
1,121,378
1,262,588
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
2,533
(k)
546
NA
NA
NA
NA
NA
NA
NA
NA
149
(k)
76
NA
NA
NA
NA
NA
NA
NA
NA
2,682
622
NA
NA
NA
NA
NA
NA
$
2,130,614
$
1,931,799
$
12,714
$
3,933
$
5,077
$
3,093
$
13,447
$
6,918
2.08
%
1.33
%
$
(91,451
)
$
(67,999
)
$
$
(3
)
NA
NA
NA
NA
NA
NA
(19,816
)
(9,824
)
NA
NA
NA
NA
NA
NA
NA
NA
(a)
Loans (other than those for which the SFAS 159 fair value option has been elected) are
presented net of unearned income and net deferred loan fees of $694 million and $1.0
billion at December 31, 2008 and 2007, respectively.
(b)
Represents securitized credit card receivables. For further discussion of credit card
securitizations, see Card Services on pages 5153 of this Annual Report.
(c)
Primarily represents margin loans to prime and retail brokerage customers included in
accrued interest and accounts receivable on the Consolidated Balance Sheets.
(d)
Includes credit card and home equity lending-related commitments of $623.7 billion
and $95.7 billion, respectively, at December 31, 2008, and $714.8 billion and $74.2
billion, respectively, at December 31, 2007. These amounts for credit card and home equity
lending-related commitments represent the total available credit for these products. The
Firm has not experienced, nor does it anticipate, all available lines of credit being used
at the same time. The Firm can reduce or cancel these lines of credit by providing the
borrower prior notice or, in some cases, without notice as permitted by law.
(e)
Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at
December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve, unused advised lines are not reportable. See the
Glossary of Terms on page 218 of this Annual Report for the Firms definition of advised
lines of credit.
(f)
Represents the net notional amount of protection purchased and sold of single-name
and portfolio credit derivatives used to manage the credit exposures; these derivatives do
not qualify for hedge accounting under SFAS 133. For additional
information, see page 89
of this Annual Report.
(g)
Represents other liquid securities collateral held by the Firm as of December 31,
2008 and 2007, respectively.
(h)
Excludes nonperforming assets related to (1) loans eligible for repurchase as well as
loans repurchased from GNMA pools that are insured by U.S. government agencies of $3.3
billion and $1.5 billion at December 31, 2008, and 2007, respectively, and (2) student
loans that are 90 days past due and still accruing, which are insured by U.S. government
agencies under the Federal Family Education Loan Program, of $437 million and $417 million
at December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans are
excluded, as reimbursement is proceeding normally.
(i)
During the second quarter of 2008, the policy for classifying subprime mortgage and
home equity loans as nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
(j)
Excludes home lending purchased credit-impaired home loans accounted for under SOP
03-3 that were acquired as part of the Washington Mutual transaction. These loans are
accounted for on a pool basis and the pools are considered to be performing under SOP
03-3. Also excludes loans held-for-sale and loans at fair value.
(k)
Includes $1.5 billion of assets acquired in the Washington Mutual transaction.
82
JPMorgan Chase & Co./2008 Annual Report
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90 days past due
As of or for the year ended December 31,
Credit exposure
Nonperforming loans
(f)
and accruing
(in millions)
2008
2007
2008
2007
2008
2007
$
248,089
$
189,427
$
2,350
$
464
$
163
$
75
6,259
14,910
12
45
7,696
8,739
20
5
$
262,044
$
213,076
$
2,382
$
514
$
163
$
75
162,626
77,136
1,079
29
16,141
440,811
290,212
3,461
543
163
75
379,871
446,652
NA
NA
NA
NA
$
820,682
$
736,864
$
3,461
$
543
$
163
$
75
$
(91,451
)
$
(67,999
)
$
$
(3
)
NA
NA
(19,816
)
(9,824
)
NA
NA
NA
NA
(a)
Includes $224 million of purchased credit-impaired loans at December 31, 2008, which
are accounted for in accordance with SOP 03-3. They are considered nonperforming loans
because the timing and amount of expected future cash flows is not reasonably estimable.
For additional information, see Note 14 on pages 163166 of this Annual Report.
(b)
Primarily represents margin loans to prime and retail brokerage customers, which are
included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
(c)
Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at
December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve, unused advised lines are not reportable.
(d)
Represents the net notional amount of protection purchased and sold of single-name
and portfolio credit derivatives used to manage the credit exposures; these derivatives do
not qualify for hedge accounting under SFAS 133. For additional information, see page 89
of this Annual Report.
(e)
Represents other liquid securities collateral held by the Firm as of December 31,
2008 and 2007, respectively.
(f)
Assets acquired in loan satisfactions have been excluded in this presentation. See
the wholesale nonperforming assets by line of business segment table for additional
information.
Wholesale
Year ended December 31,
(in millions, except ratios)
2008
2007
$
402
$
72
0.18
%
0.04
%
(a)
Excludes average wholesale loans held-for-sale and loans at fair value of $18.9 billion
and $18.6 billion for the years ended December 31, 2008 and 2007, respectively.
Wholesale
Year ended December 31,
(in millions)
2008
2007
$
514
$
391
3,381
1,107
859
576
521
185
93
136
40
87
1,513
984
1,868
123
$
2,382
$
514
JPMorgan Chase & Co./2008 Annual Report
83
Table of Contents
2008
2007
Assets acquired in
Assets acquired in
loan satisfactions
loan satisfactions
As of December 31,
Nonperforming
Real estate
Nonperforming
Nonperforming
Real estate
Nonperforming
(in millions)
loans
owned
Other
assets
loans
owned
Other
assets
$
1,175
$
247
$
1,079
(a)
$
2,501
$
353
$
67
$
33
(a)
$
453
1,026
102
14
1,142
146
2
148
30
30
147
25
172
12
12
4
4
3
3
$
2,382
$
349
$
1,118
$
3,849
$
514
$
69
$
33
$
616
(a)
Includes derivative receivables of $1.1 billion and $29 million as of December 31, 2008 and
2007, respectively.
Maturity profile
(c)
Ratings profile
December 31, 2008
Due in 1 year
Due after 1 year
Due after
Investment-grade (IG)
Noninvestment-grade
Total %
(in billions, except ratios)
or less
through 5 years
5 years
Total
AAA/Aaa to BBB-/Baa3
BB+/Ba1 & below
Total
of IG
32
%
43
%
25
%
100
%
$
161
$
87
$
248
65
%
31
36
33
100
127
36
163
78
37
59
4
100
317
63
380
83
34
%
50
%
16
%
100
%
$
605
$
186
791
77
%
14
16
$
821
47
%
47
%
6
%
100
%
$
(82
)
$
(9
)
$
(91
)
90
%
Maturity profile
(c)
Ratings profile
December 31, 2007
Due in 1 year
Due after 1 year
Due after
Investment-grade (IG)
Noninvestment-grade
Total %
(in billions, except ratios)
or less
through 5 years
5 years
Total
AAA/Aaa to BBB-/Baa3
BB+/Ba1 & below
Total
of IG
44
%
45
%
11
%
100
%
$
127
$
62
$
189
67
%
17
39
44
100
64
13
77
83
35
59
6
100
380
67
447
85
36
%
53
%
11
%
100
%
$
571
$
142
713
80
%
24
$
737
39
%
56
%
5
%
100
%
$
(68
)
$
$
(68
)
100
%
(a)
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from
the retained portfolio.
(b)
Represents the net notional amounts of protection purchased and sold of single-name
and portfolio credit derivatives used to manage the credit exposures; these derivatives do
not qualify for hedge accounting under SFAS 133.
(c)
The maturity profile of loans and lending-related commitments is based upon the
remaining contractual maturity. The maturity profile of derivative receivables is based
upon the maturity profile of average exposure. See page 87 of this Annual Report for a
further discussion of average exposure.
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JPMorgan Chase & Co. / 2008 Annual Report
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JPMorgan Chase & Co./2008 Annual Report
85
Table of Contents
(a)
Rankings are based upon exposure at December 31, 2008. The industries presented in
2007 table reflect the rankings in the 2008 table.
(b)
For more information on exposures to SPEs included in all other, see Note 17 on
pages 177186 of this Annual Report.
(c)
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred
from the retained portfolio.
(d)
Credit exposure is net of risk participations and excludes the benefit of credit
derivative hedges and collateral held against derivative receivables or loans.
(e)
Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these
derivatives do not qualify for hedge accounting under SFAS 133.
(f)
Represents other liquid securities collateral held by the Firm as of December 31,
2008 and 2007, respectively.
2008
2007
December 31,
Credit
% of
Credit
% of
(in millions, except ratios)
exposure
portfolio
exposure
portfolio
$
7,737
30
%
$
1,070
16
%
2,849
11
498
7
1,775
7
1,338
20
1,674
6
303
4
1,363
5
345
5
1,311
5
550
8
847
3
12
819
3
212
3
792
3
239
4
726
3
138
2
712
3
17
591
2
288
4
436
2
246
4
319
1
74
1
262
1
111
2
3,784
15
1,397
20
$
25,997
100
%
$
6,838
100
%
2,258
205
$
28,255
$
7,043
(a)
Rankings are based upon exposure at December 31, 2008. The industries presented in
the 2007 table reflect the rankings in the 2008 table.
(b)
Loans held-for-sale and loans at fair value relate primarily
to syndicated loans
and loans transferred from the retained portfolio.
Real estate: Exposure to this industry grew in 2008 due to the Washington Mutual
transaction, with approximately 70% of this increase consisting of
exposure to multi-family lending. Approximately 45% of the real estate exposure is to large real estate companies and
institutions (e.g. REITS), professional real estate developers, owners, or service
providers, and generally involves real estate leased to third-party tenants. Commercial
construction and development accounted for approximately 13% of the real estate
portfolio at 2008 year-end. Exposure to national and regional single family homebuilders
decreased by 31% from 2007 and represented 5% of the portfolio at 2008 year-end. The increase
in criticized exposure was largely a result of downgrades to select names within the
portfolio, primarily in IB, reflecting the weakening credit environment. The remaining
increase in criticized exposure reflected exposures acquired in the Washington Mutual transaction.
Banks and finance companies: Exposure to this industry increased primarily as a
result of higher derivative exposure to commercial banks due to higher volatility and
greater trade volume and to the addition of derivative positions from the Bear Stearns
merger. The percentage of the portfolio that is investment grade has declined slightly
from 2007 as a result of the impact of the weakening credit environment on financial
counterparties. The growth in criticized exposure was primarily a result of downgrades
to specialty finance companies, reflected in loans and lending-related commitments.
Automotive: Industry conditions deteriorated significantly in 2008, particularly in
North America, and are expected to remain under pressure in 2009. The largest percentage
of the Firms wholesale criticized exposure in this segment is related to Original
Equipment Manufacturers. However, a majority of the year-over-year increase in criticized
exposure related to automotive suppliers which were negatively
affected by
significant declines in automotive production. Most of the Firms criticized exposure in
this segment remains performing and is substantially secured.
Asset Managers: Exposure in this industry grew from 2007 as a result of increased
derivative exposure to primarily investment grade funds and the
acquisition of loans and lending-related commitments to this industry
due to the Bear Stearns merger.
All other: All other in the wholesale credit exposure concentration table on page 85
of this Annual Report at December 31, 2008 included $278.1 billion of credit exposure to 17 industry segments.
Exposures related to SPEs and high-net-worth individuals were 37% and 19%, respectively, of
this
category. SPEs provide secured financing (generally backed by receivables, loans or
86
JPMorgan Chase & Co. / 2008 Annual Report
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bonds on a bankruptcy-remote, nonrecourse or
limited-recourse basis) originated by a diverse
group of companies in industries that are not
highly correlated. For further discussion of
SPEs, see Note 17 on pages 177186 of this
Annual Report. The remaining all other exposure
is well-diversified across industries and none
comprise more than 2% of total exposure.
December 31,
Notional amounts
(a)
(in billions)
2008
2007
$
56,206
$
53,458
6,277
4,548
4,803
5,742
4,656
5,349
71,942
69,097
$
8,388
$
7,967
$
3,354
$
3,424
389
40
972
909
959
906
5,674
5,279
$
234
$
275
115
91
206
228
198
233
753
827
$
77
$
105
56
72
628
739
652
821
1,413
1,737
$
88,170
$
84,907
(a)
Represents the sum of gross long and gross short third-party notional derivative
contracts.
(b)
Includes cross currency swap contract notional amounts of $1.7 trillion and $1.4
trillion at December 31, 2008 and 2007, respectively.
(c)
Written options do not result in counterparty credit risk.
December 31,
Derivative receivables MTM
(in millions)
2008
2007
$
64,101
$
36,020
44,695
22,083
24,715
5,616
14,830
9,419
14,285
3,998
162,626
77,136
(19,816
)
(9,824
)
$
142,810
$
67,312
JPMorgan Chase & Co. / 2008 Annual Report
87
Table of Contents
Rating equivalent
2008
2007
December 31,
Exposure net of
% of exposure net
Exposure net of
% of exposure net
(in millions, except ratios)
all collateral
of all collateral
all collateral
of all collateral
$
68,708
48
%
$
38,314
57
%
24,748
17
9,855
15
15,747
11
9,335
14
28,186
20
9,451
14
5,421
4
357
$
142,810
100
%
$
67,312
100
%
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JPMorgan Chase & Co. / 2008 Annual Report
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Credit derivatives are financial contracts that
isolate credit risk from an underlying instrument
(such as a loan or security) and transfer that risk
from one party (the buyer of credit protection) to
another (the seller of credit protection). The Firm
is both a purchaser and seller of credit
protection. As a purchaser of credit protection,
the Firm has risk that the counterparty providing
the credit protection will default. As a seller of
credit protection, the Firm has risk that the
underlying instrument referenced in the contract
will be subject to a credit event. Of the Firms $162.6 billion of total derivative receivables MTM
at December 31, 2008, $44.7 billion, or 27%, was
associated with credit derivatives, before the
benefit of liquid securities collateral.
Notional amount
Dealer/client
Credit portfolio
December 31,
Protection
Protection
Protection
Protection
(in billions)
purchased
(a)
sold
(a)
purchased
(b)
sold
Total
$
4,097
$
4,198
$
92
$
1
$
8,388
$
3,999
$
3,896
$
70
$
2
$
7,967
(a)
Includes $3.9 trillion at December 31, 2008, of notional exposure within protection purchased and
protection sold where the underlying reference instrument is identical. The remaining
exposure includes single name and index CDS which the Firm purchased to manage the
remaining net protection sold. For a further discussion on credit derivatives, see Note 32
on pages 202205 of this Annual Report.
(b)
Includes $34.9 billion and $31.1 billion at December 31, 2008 and 2007,
respectively, that represented the notional amount for structured portfolio protection;
the Firm retains a minimal first risk of loss on this portfolio.
Within the dealer/client business, the Firm
actively utilizes credit derivatives by buying and
selling credit protection, predominantly on
corporate debt obligations, in response to client
demand for credit risk protection on the underlying
reference instruments. Protection may be bought or
sold by the Firm on single reference debt
instruments (single-name credit derivatives),
portfolios of referenced instruments (portfolio
credit derivatives) or quoted indices (indexed
credit derivatives). The risk positions are largely
matched as the Firms exposure to a given reference
entity under a contract to sell protection to a
counterparty may be offset partially, or entirely,
with a contract to purchase protection from another
counterparty on the same underlying instrument. Any
residual default exposure and spread risk is
actively managed by the Firms various trading
desks.
In managing its wholesale credit exposure the Firm
purchases protection through single-name and
portfolio credit derivatives to manage the credit
risk associated with loans, lending-related
commitments and derivative receivables. Gains or
losses on the credit derivatives are expected to
offset the unrealized increase or decrease in
JPMorgan Chase & Co. / 2008 Annual Report
89
Table of Contents
December 31,
Notional amount of protection purchased
(in millions)
2008
2007
$
81,227
$
63,645
10,861
6,462
$
92,088
$
70,107
(a)
Included $34.9 billion and $31.1 billion at December 31, 2008 and 2007,
respectively, that represented the notional amount for structured portfolio protection;
the Firm retains a first risk of loss on this portfolio.
Year ended December 31,
(in millions)
2008
2007
2006
$
2,216
$
350
$
(246
)
(2,359
)
(363
)
133
$
(143
)
$
(13
)
$
(113
)
(a)
These hedges do not qualify for hedge accounting under SFAS 133.
(b)
Excludes gains of $530 million, $373 million and $56 million for the years ended
December 31, 2008, 2007 and 2006, respectively, of other principal transactions revenue
that are not associated with hedging activities. The amount for 2008 and 2007 incorporates
an adjustment to the valuation of the Firms derivative liabilities as a result of the
adoption of SFAS 157 on January 1, 2007.
Wholesale lending-related commitments were
$379.9 billion at December 31, 2008, compared with
$446.7 billion at December 31, 2007. The decrease
was largely related to a reduction in multi-seller
conduit-related commitments. In the Firms view,
the total contractual amount of these instruments
is not representative of the Firms actual credit
risk exposure or funding requirements. In
determining the amount of credit risk exposure the
Firm has to wholesale lending-related commitments,
which is used as the basis for allocating credit
risk capital to these instruments, the Firm has
established a loan-equivalent amount for each
commitment; this amount represents the portion of
the unused commitment or other contingent exposure
that is expected, based upon average portfolio
historical experience, to become outstanding in the
event of a default by an obligor. The
loan-equivalent amount of the Firms
lending-related commitments was $204.3 billion and
$238.7 billion as of December 31, 2008 and 2007,
respectively.
The Firm has a comprehensive internal process
for measuring and managing exposures to emerging
markets countries. There is no common definition of
emerging markets but the Firm generally, though not
exclusively, includes in its definition those
countries whose sovereign debt ratings are
equivalent to A+ or lower. Exposures to a country
include all credit-related lending, trading and
investment activities, whether cross-border or
locally funded. In addition to monitoring country
exposures, the Firm uses stress tests to measure
and
manage the risk of extreme loss associated with
sovereign crises.
90
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
At December 31, 2008
Cross-border
Total
(in billions)
Lending
(a)
Trading
(b)
Other
(c)
Total
Local
(d)
exposure
$
2.9
$
1.6
$
0.9
$
5.4
$
2.3
$
7.7
2.2
2.8
0.9
5.9
0.6
6.5
1.8
1.6
0.3
3.7
0.8
4.5
1.8
0.5
2.3
1.3
3.6
0.1
0.2
0.3
0.6
2.5
3.1
At December 31, 2007
Cross-border
Total
(in billions)
Lending
(a)
Trading
(b)
Other
(c)
Total
Local
(d)
exposure
$
3.2
$
2.6
$
0.7
$
6.5
$
3.4
$
9.9
1.1
(0.7
)
1.2
1.6
5.0
6.6
2.9
1.0
0.2
4.1
0.4
4.5
1.9
0.8
0.8
3.5
0.6
4.1
2.2
0.3
0.4
2.9
0.3
3.2
(a)
Lending includes loans and accrued interest receivable, interest-bearing deposits
with banks, acceptances, other monetary assets, issued letters of credit net of
participations, and undrawn commitments to extend credit.
(b)
Trading includes: (1) issuer exposure on cross-border debt and equity instruments,
held both in trading and investment accounts, adjusted for the impact of issuer hedges,
including credit derivatives; and (2) counterparty exposure on derivative and foreign
exchange contracts as well as security financing trades (resale agreements and securities
borrowed).
(c)
Other represents mainly local exposure funded cross-border.
(d)
Local exposure is defined as exposure to a country denominated in local currency,
booked and funded locally. Any exposure not meeting these criteria is defined as
cross-border exposure.
JPMorgan Chase & Co. / 2008 Annual Report
91
Table of Contents
Credit
Nonperforming
90 days past due
Average annual
As of or for the year ended December 31,
exposure
loans
(g)(h)(i)
and still accruing
Net charge-offs
net charge-off rate
(j)
(in millions, except ratios)
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
credit-impaired
(a)
$
114,335
$
94,832
$
1,394
$
786
$
$
$
2,391
$
564
2.39
%
0.62
%
72,266
39,988
1,895
501
526
33
1.02
0.10
15,330
15,473
2,690
1,017
933
157
6.10
1.55
9,018
10
42,603
42,350
148
116
568
354
1.30
0.86
104,746
84,352
4
7
2,649
1,547
4,556
3,116
5.47
3.90
33,715
25,314
430
341
463
421
459
242
1.58
1.01
2,028
3,989
NA
NA
NA
NA
394,041
306,298
6,571
2,768
3,112
1,968
9,433
4,466
2.90
1.61
28,555
NA
NA
NA
NA
NA
NA
NA
21,855
NA
NA
NA
NA
NA
NA
NA
6,760
NA
NA
NA
NA
NA
NA
NA
31,643
NA
NA
NA
NA
NA
NA
NA
88,813
NA
NA
NA
NA
NA
NA
NA
482,854
306,298
6,571
2,768
3,112
1,968
9,433
4,466
2.71
1.61
85,571
72,701
1,802
1,050
3,612
2,380
4.53
3.43
568,425
378,999
6,571
2,768
4,914
3,018
13,045
6,846
3.06
1.97
95,743
74,191
5,079
7,394
16
4,726
8,058
623,702
714,848
12,257
11,429
741,507
815,936
$
1,309,932
$
1,194,935
$
190,317
$
157,053
$
4
$
7
$
4,451
$
2,597
$
8,168
$
5,496
5.01
%
3.68
%
(a)
Includes RFS, CS and residential mortgage loans reported in the Corporate/Private
Equity segment, as well as approximately $80.0 billion in non-credit-impaired consumer
loans acquired in the Washington Mutual transaction.
(b)
Excludes operating lease-related assets of $2.2 billion and $1.9 billion for
December 31, 2008 and 2007, respectively.
(c)
Includes loans for prime mortgage and other (largely student loans) of $206
million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4
billion at December 31, 2007, respectively.
(d)
Purchased credit-impaired loans represent loans acquired in the Washington Mutual
transaction that were considered credit-impaired under SOP 03-3, and include $6.4 billion
of loans that were considered nonperforming by Washington Mutual prior to the transaction
closing. Under SOP 03-3, these loans are considered to be performing loans as of the
transaction date and accrete interest income over the estimated life of the loan when
cash flows are reasonably estimable, even if the underlying loans are contractually past
due. For additional information, see Note 14 on pages 163166 of this Annual Report.
(e)
Represents securitized credit card receivables. For a further discussion of credit
card securitizations, see CS on pages 5153 of this Annual Report.
(f)
The credit card and home equity lending-related commitments represent the total
available lines of credit for these products. The Firm has not experienced, and does not
anticipate, that all available lines of credit will be utilized at the same time. For
credit card commitments and home equity commitments (if certain conditions are met), the
Firm can reduce or cancel these lines of credit by providing the borrower prior notice or,
in some cases, without notice as permitted by law.
(g)
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were
acquired as part of the Washington Mutual transaction. These loans are accounted for on a
pool basis and the pools are considered to be performing under SOP 03-3.
(h)
Excludes nonperforming assets related to: (1) loans eligible for repurchase, as
well as loans repurchased from Governmental National Mortgage Association (GNMA) pools that are insured by U.S. government agencies of
$3.3 billion for December 31, 2008 and $1.5 billion for December 31, 2007; and (2) student
loans that are 90 days past due and still accruing, which are insured by U.S. government
agencies under the Federal Family Education Loan Program of $437 million and $417 million
as of December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans
are excluded, as reimbursement is proceeding normally.
(i)
During the second quarter of 2008, the Firms policy for classifying subprime
mortgage and home equity loans as nonperforming was changed to conform to all the other
home lending products. Amounts for 2007 have been revised to reflect
this change.
(j)
Net charge-off rates exclude average loans held-for-sale of $2.8 billion and $10.6
billion for 2008 and 2007, respectively.
92
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2008
2007
Assets acquired
Assets acquired in
loan satisfactions
loan satisfactions
As of December 31,
Nonperforming
Real estate
Nonperforming
Nonperforming
Real estate
Nonperforming
(in millions)
loans
owned
Other
assets
loans
owned
Other
assets
$
6,548
$
2,183
$
110
$
8,841
$
2,760
$
477
$
72
$
3,309
4
4
7
7
19
1
20
1
1
$
6,571
$
2,184
$
110
$
8,865
$
2,768
$
477
$
72
$
3,317
JPMorgan Chase & Co. / 2008 Annual Report
93
Table of Contents
94
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Total
Total
Total
consumer
consumer
December 31, 2008
Home
Prime
Subprime
Option
home loan
Card
All
loans
Card
loans
(in billions)
equity
mortgage
mortgage
ARMs
portfolio
Auto
reported
other loans
reported
securitized
managed
$
23.2
$
22.8
$
2.2
$
3.8
$
52.0
$
4.7
$
14.8
$
2.0
$
73.5
$
12.5
$
86.0
16.3
10.4
1.7
0.9
29.3
3.7
8.3
4.7
46.0
6.6
52.6
8.1
2.7
0.4
0.2
11.4
3.8
7.4
4.1
26.7
6.1
32.8
6.3
6.0
2.3
0.9
15.5
1.5
6.8
0.9
24.7
5.2
29.9
7.2
3.3
0.7
0.3
11.5
2.2
5.3
2.5
21.5
4.6
26.1
4.6
0.7
0.4
5.7
3.3
4.1
3.3
16.4
3.4
19.8
5.0
2.5
0.8
0.3
8.6
1.6
4.2
0.9
15.3
3.6
18.9
3.6
1.3
0.4
5.3
1.5
3.4
2.8
13.0
2.8
15.8
5.9
1.6
0.4
0.2
8.1
1.6
2.3
1.9
13.9
1.8
15.7
1.6
0.7
0.5
0.1
2.9
1.7
3.9
0.7
9.2
3.2
12.4
3.8
2.3
0.3
0.5
6.9
0.6
2.0
0.4
9.9
1.6
11.5
2.4
1.9
0.3
0.3
4.9
0.9
2.1
0.9
8.8
2.1
10.9
26.3
16.3
4.9
1.5
49.0
15.5
40.1
10.5
115.1
32.1
147.2
114.3
72.5
15.3
9.0
211.1
42.6
104.7
35.6
394.0
85.6
479.6
Total
Total
Total
consumer
consumer
December 31, 2007
Home
Prime
Subprime
Option
home loan
Card
All
loans
Card
loans
(in billions)
equity
mortgage
mortgage
ARMs
portfolio
Auto
reported
other loans
reported
securitized
managed
$
14.9
$
11.4
$
2.0
$
$
28.3
$
5.0
$
11.0
$
1.0
$
45.3
$
9.6
$
54.9
14.4
6.4
1.6
22.4
3.6
6.6
4.2
36.8
5.6
42.4
6.1
1.7
0.3
8.1
3.7
5.8
3.5
21.1
5.4
26.5
5.3
3.9
2.5
11.7
1.6
4.7
0.5
18.5
4.2
22.7
6.7
2.2
0.8
9.7
2.2
4.5
1.9
18.3
3.9
22.2
4.9
0.5
0.5
5.9
2.9
3.3
2.6
14.7
3.1
17.8
4.4
1.4
0.8
6.6
1.7
3.3
0.5
12.1
3.1
15.2
3.7
1.0
0.6
5.3
1.3
2.9
2.3
11.8
2.5
14.3
5.7
1.1
0.4
7.2
1.8
1.7
1.8
12.5
1.4
13.9
1.6
0.4
0.5
2.5
1.7
3.2
0.5
7.9
2.9
10.8
1.6
0.4
0.3
2.3
0.6
1.4
0.2
4.5
1.3
5.8
2.3
1.0
0.3
3.6
1.0
2.0
0.8
7.4
1.7
9.1
23.2
9.2
4.8
37.2
15.3
34.0
8.9
95.4
28.0
123.4
$
94.8
$
40.6
$
15.4
$
$
150.8
$
42.4
$
84.4
$
28.7
$
306.3
$
72.7
$
379.0
JPMorgan Chase & Co. / 2008 Annual Report
95
Table of Contents
(a)
Excluding the purchased credit-impaired loans acquired in the Washington Mutual
transaction.
96
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
2008
2007
(in millions)
Wholesale
Consumer
Total
Wholesale
Consumer
Total
$
3,154
$
6,080
$
9,234
$
2,711
$
4,568
$
7,279
(56
)
(56
)
3,154
6,080
9,234
2,655
4,568
7,223
521
10,243
10,764
185
5,182
5,367
(119
)
(810
)
(929
)
(113
)
(716
)
(829
)
402
9,433
9,835
72
4,466
4,538
2,895
16,765
19,660
598
5,940
6,538
641
936
1,577
3,536
17,701
21,237
598
5,940
6,538
229
2,306
2,535
28
(c)
(35
)
(c)
(7
)
(27
)
(i)
38
(i)
11
$
6,545
$
16,619
$
23,164
$
3,154
$
6,080
$
9,234
$
712
$
74
$
786
$
108
$
80
$
188
5,833
16,545
22,378
3,046
6,000
9,046
$
6,545
$
16,619
$
23,164
$
3,154
$
6,080
$
9,234
$
835
$
15
$
850
$
499
$
25
$
524
(214
)
(1
)
(215
)
336
(10
)
326
5
(48
)
(43
)
(209
)
(49
)
(258
)
336
(10
)
326
66
66
8
(c)
(7)
(c)
1
$
634
$
25
$
659
$
835
$
15
$
850
$
29
$
$
29
$
28
$
$
28
605
25
630
807
15
822
$
634
$
25
$
659
$
835
$
15
$
850
$
7,179
$
16,644
$
23,823
$
3,989
$
6,095
$
10,084
2.64
%
(d)
3.46
%
(e)(h)
3.18
%
(d)(e)(h)
1.67
%
(d)
2.01
%
(e)
1.88
%
(d)(e)
2.64
(d)
4.24
(e)
3.62
(d)(e)
1.67
(d)
2.01
(e)
1.88
(d)(e)
0.18
(f)
2.71
(g)(h)
1.73
(f)(g)(h)
0.04
(f)
1.61
(g)
1.00
(f)(g)
0.18
(f)
2.90
(g)
1.81
(f)(g)
0.04
(f)
1.61
(g)
1.00
(f)(g)
(a)
Reflects the effect of the adoption of SFAS 159 at January 1, 2007. For a further
discussion of SFAS 159, see Note 5 on pages 144146 of this Annual Report.
(b)
Related to the Washington Mutual transaction in 2008.
(c)
Primarily related to the transfer of loans and lending-related commitments from RFS to CB during the first quarter
of 2008.
(d)
Wholesale loans held-for-sale and loans at fair value were $14.0 billion and $23.6
billion at December 31, 2008 and 2007, respectively. These amounts were excluded when
calculating the allowance coverage ratios.
(e)
Consumer loans held-for-sale were $2.0 billion and $4.0 billion at December 31,
2008 and 2007, respectively. These amounts were excluded when calculating the allowance
coverage ratios.
(f)
Average wholesale loans held-for-sale and loans at fair value were $18.9 billion
and $18.6 billion for the years ended December 31, 2008 and 2007, respectively. These
amounts were excluded when calculating the net charge-off rates.
(g)
Average consumer (excluding card) loans held-for-sale and loans at fair value were
$2.8 billion and $10.6 billion for the years ended December 31, 2008 and 2007,
respectively. These amounts were excluded when calculating the net charge-off rates.
(h)
Includes $88.8 billion of home lending credit-impaired loans acquired in the
Washington Mutual transaction and accounted for under SOP 03-3 at December 31, 2008. These
loans were accounted for at fair value on the acquisition date, which reflected expected
cash flows (including credit losses) over the remaining life of the portfolio. No
allowance for loan losses has been recorded for these loans as of December 31, 2008.
(i)
Partially related to the transfer of allowance between wholesale and consumer in
conjunction with prime mortgages transferred to the Corporate/Private Equity sector.
JPMorgan Chase & Co. / 2008 Annual Report
97
Table of Contents
Net charge-offs (recoveries)
December 31,
Allowance for loan losses
year ended
(in millions)
2008
2007
2008
2007
$
3,444
$
1,329
$
105
$
36
2,826
1,695
288
44
74
18
(2
)
191
112
11
(8
)
10
6,545
3,154
402
72
8,918
2,668
4,877
1,350
7,692
3,407
4,556
3,116
9
5
16,619
6,080
9,433
4,466
3,612
2,380
16,619
6,080
13,045
6,846
$
23,164
$
9,234
$
13,477
$
6,918
98
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Provision for
Year ended December 31,
Provision for loan losses
lending-related commitments
Total provision for credit losses
(in millions)
2008
2007
2006
2008
2007
2006
2008
2007
2006
$
2,216
$
376
$
112
$
(201
)
$
278
$
79
$
2,015
$
654
$
191
505
230
133
(41
)
49
27
464
279
160
52
11
(1
)
30
8
82
19
(1
)
87
(19
)
(30
)
(2
)
1
2
85
(18
)
(28
)
676
(1
)
5
681
(1
)
3,536
598
213
(209
)
336
108
3,327
934
321
9,906
2,620
552
(1
)
(10
)
9
9,905
2,610
561
6,456
3,331
2,388
6,456
3,331
2,388
1,339
(11
)
(48
)
1,291
(11
)
17,701
5,940
2,940
(49
)
(10
)
9
17,652
5,930
2,949
21,237
6,538
3,153
(258
)
326
117
20,979
6,864
3,270
3,612
2,380
2,210
3,612
2,380
2,210
$
24,849
$
8,918
$
5,363
$
(258
)
$
326
$
117
$
24,591
$
9,244
$
5,480
(a)
Includes accounting conformity provisions related to the Washington Mutual
transaction in 2008.
(b)
Includes provision expense related to loans acquired in the Bear Stearns merger in
the second quarter of 2008.
(c)
Includes amounts related to held-for-investment prime mortgages transferred from
AM to the Corporate/Private Equity segment.
(d)
In November 2008, the Firm transferred $5.8 billion of higher quality credit card
loans from the legacy Chase portfolio to a securitization trust previously established by
Washington Mutual (the Trust). As a result of converting higher credit quality
Chase-originated on-book receivables to the Trusts sellers interest which has a higher
overall loss rate reflective of the total assets within the Trust, approximately $400
million of incremental provision expense was recorded during the fourth quarter. This
incremental provision expense was recorded in the Corporate segment as the action related
to the acquisition of Washington Mutuals banking operations. For further discussion of
credit card securitizations, see Note 16 on pages 169170 of this Annual Report.
Market risk is identified, measured, monitored, and
controlled by Market Risk, a corporate risk
governance function independent of the lines of
business. Market Risk seeks to facilitate efficient
risk/return decisions, reduce volatility in
operating performance and make the Firms market
risk profile transparent to senior management, the
Board of Directors and regulators. Market Risk is
overseen by the Chief Risk Officer and performs the
following functions:
Establishment of a comprehensive market risk policy framework
Independent measurement, monitoring and control of business segment market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Market Risk works in partnership with the
business segments to identify market risks
throughout the Firm and define and monitor
market risk policies and procedures. All
business segments are
JPMorgan Chase & Co. / 2008 Annual Report
99
Table of Contents
Nontrading risk arises from execution of the Firms
core business strategies, the delivery of products
and services to its customers, and the positions
the Firm undertakes to risk-manage its exposures.
Nonstatistical risk measures
Value-at-risk (VaR)
Loss advisories
Drawdowns
Economic value stress testing
Earnings-at-risk stress testing
Risk identification for large exposures (RIFLE)
Nonstatistical risk measures other than stress
testing include net open positions, basis point
values, option sensitivities, market values,
position concentrations and position turnover.
These measures provide granular information on the
Firms market risk exposure. They are aggregated by
line of business and by risk type, and are used for
monitoring limits, one-off approvals and tactical
control.
JPMorgan Chases primary statistical risk measure,
VaR, estimates the potential loss from adverse
market moves in an ordinary market environment and
provides a consistent cross-business measure of
risk profiles and levels of diversification. VaR is
used for comparing risks across businesses,
monitoring limits, and as an input to economic
capital calculations. VaR provides risk
transparency in a normal trading environment. Each
business day the Firm undertakes a comprehensive
VaR calculation that includes both its trading and
its nontrading risks. VaR for nontrading risk
measures the amount of potential change in the fair
values of the exposures related to these risks;
however, for such risks, VaR is not a measure of
reported revenue since nontrading activities are
generally not marked to market through net income.
Hedges of nontrading activities may be included in
trading VaR since they are marked to market.
100
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
As of or for the year ended
2008
2007
At December 31,
December 31,
(a)
(in millions)
Average
Minimum
Maximum
Average
Minimum
Maximum
2008
2007
$
181
$
99
$
409
$
80
$
25
$
135
$
253
$
106
34
13
90
23
9
44
70
22
57
19
187
48
22
133
69
27
32
24
53
33
21
66
26
27
(108
)
(b)
NM
(c)
NM
(c)
(77
)
(b)
NM
(c)
NM
(c)
(152
)
(b)
(82
)
(b)
$
196
$
96
$
420
$
107
$
50
$
188
$
266
$
100
69
20
218
17
8
31
171
22
(63
)
(b)
NM
(c)
NM
(b)
(18
)
(b)
NM
(c)
NM
(c)
(120
)
(b)
(19
)
(b)
$
202
$
96
$
449
$
106
$
50
$
178
$
317
$
103
(a)
The results for the year ended December 31, 2008, include five months of heritage
JPMorgan Chase only results and seven months of results for the combined JPMorgan Chase
and Bear Stearns; 2007 reflects heritage JPMorgan Chase results only.
(b)
Average and period-end VaRs were less than the sum of the VaRs of its market risk
components, which is due to risk offsets resulting from portfolio diversification. The
diversification effect reflects the fact that the risks were not perfectly correlated. The
risk of a portfolio of positions is therefore usually less than the sum of the risks of
the positions themselves.
(c)
Designated as not meaningful (NM) because the minimum and maximum may occur on
different days for different risk components, and hence it is not meaningful to compute a
portfolio diversification effect.
IBs average total trading and credit portfolio VaR
was $202 million for 2008, compared with $106
million for 2007, and includes the positions from
the Bear Stearns merger since May 31, 2008. The
increase in average
and maximum VaR during 2008 compared with the prior
year was primarily due to increased volatility
across virtually all asset classes. In addition,
increased hedges of positions not specifically
captured in VaR for example, macro hedge
strategies that have been deployed to mitigate the
consequences of a systemic risk event and hedges of
loans held-for-sale significantly increased the
VaR compared with the prior period.
To evaluate the soundness of its VaR model, the
Firm conducts daily back-testing of VaR against
daily IB market risk-related revenue, which is
defined as the change in value of principal
transactions revenue (less Private Equity
gains/losses) plus any trading-related net interest
income, brokerage commissions, underwriting fees or
other revenue. The daily IB market risk-related
revenue excludes gains and losses on held-for-sale
funded loans and unfunded commitments and from DVA.
The following histogram illustrates the daily
market risk-related gains and losses for IB trading
businesses for the year ended 2008. The chart shows
that IB posted market risk-related gains on 165 of
the 262 days in this period, with 54 days exceeding
$120 million. The inset graph looks at those days
on which IB experienced losses and depicts the
amount by which 99% confidence level VaR exceeded
the actual loss on each of those days. During the
year ended December 31, 2008, losses were sustained
on 97 days; losses exceeded the VaR measure on
three of those days compared with eight days for
the year ended 2007. The Firm would expect to incur
losses greater than those predicted by the 99%
confidence level VaR estimates once in every 100
trading days, or about two to three times a year.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
(a) Includes seven months of Bear Stearns results.
Six
months ended December 31, 2008
(in millions)
Average
At December 31
$
162
$
180
23
38
47
39
23
25
(88
)
(108
)
$
167
$
174
45
77
(36
)
(57
)
$
176
$
194
37
112
48
114
(19
)
(48
)
$
66
$
178
(40
)
(86
)
$
202
$
286
102
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1 Basis Point Increase in
(in millions)
JPMorgan Chase Credit Spread
$
32
$
38
While VaR reflects the risk of loss due to adverse
changes in normal markets, stress testing captures
the Firms exposure to unlikely but plausible
events in abnormal markets. The Firm conducts
economic value stress tests for both its trading
and nontrading activities at least every two weeks
using multiple scenarios that assume credit spreads
widen significantly, equity prices decline and
interest rates rise in the major currencies.
Additional scenarios focus on the risks predominant
in individual business segments and include
scenarios that focus on the potential for adverse
moves in complex portfolios. Periodically,
scenarios are reviewed and updated to reflect
changes in the Firms risk profile and economic
events. Along with VaR, stress testing is
important in measuring and controlling risk. Stress
testing enhances the understanding of the Firms
risk profile and loss potential, and stress losses
are monitored against limits. Stress testing is
also utilized in one-off approvals and
cross-business risk measurement, as well as an
input to economic capital allocation. Stress-test
The VaR and stress-test measures described above
illustrate the total economic sensitivity of the
Firms balance sheet to changes in market
variables. The effect of interest rate exposure on
reported net income is also important. Interest
rate risk exposure in the Firms core non-trading
business activities (i.e., asset/liability
management positions) results from on- and
off-balance sheet positions and can occur due to a
variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and
off-balance sheet
instruments. For example, if liabilities reprice quicker than assets and funding interest
rates are declining, earnings will increase initially.
Differences in the amounts of assets, liabilities and off-balance sheet instruments
that are repricing at the same time. For example, if more deposit liabilities are
repricing than assets when general interest rates are declining, earnings will increase
initially.
Differences in the amounts by which short-term and long-term market interest rates
change (for example, changes in the slope of the yield curve because the Firm has the
ability to lend at long-term fixed rates and borrow at variable or short-term fixed rates.
Based upon these scenarios, the Firms earnings would be affected negatively by a sudden
and unanticipated increase in short-term rates paid on its liabilities (e.g., deposits)
without a corresponding increase in long-term rates received on its assets (e.g., loans).
Conversely, higher long-term rates received on assets generally are beneficial to
earnings, particularly when the increase is not accompanied by rising short-term rates
paid on liabilities.
The impact of changes in the maturity of various assets, liabilities or off-balance
sheet instruments as interest rates change. For example, if more borrowers than forecasted
pay down higher rate loan balances when general interest rates are declining, earnings may
decrease initially.
JPMorgan Chase & Co. / 2008 Annual Report
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Immediate change in rates
(in millions)
+200bp
+100bp
-100bp
-200bp
$
336
$
672
$
NM
(a)
$
NM
(a)
$
(26
)
$
55
$
(308
)
$
(664
)
(a)
Down 100 and 200 basis point parallel shocks result in a Fed Funds target rate of
zero, and negative three- and six-month Treasury rates. The earnings-at-risk results of
such a low probability scenario are not meaningful (NM).
Individuals who manage risk positions,
particularly those that are complex, are
responsible for identifying potential losses that
could arise from specific, unusual events, such as
a potential tax change, and estimating the
probabilities of losses arising from such events.
This information is entered into the Firms RIFLE
database. Management of trading businesses control
RIFLE entries, thereby permitting the Firm to
monitor further earnings vulnerability not
adequately covered by standard risk measures.
Market risk is controlled primarily through a
series of limits. Limits reflect the Firms risk
appetite in the context of the market environment
and business strategy. In setting limits, the Firm
takes into consideration factors such as market
volatility, product liquidity, business trends and
management experience.
The Market Risk Management group also performs
periodic reviews as necessary of both businesses
and products with exposure to market risk to assess
the ability of the businesses to control their
market risk. Strategies, market conditions, product
details and risk controls are reviewed, and
specific recommendations for improvements are made
to management.
Some of the Firms financial instruments cannot be
valued based upon quoted market prices but are
instead valued using pricing models. Such models
are used for management of risk positions, such as
reporting against limits, as well as for valuation.
The Model Risk Group, independent of the businesses
and market risk management, reviews the models the
Firm uses and assesses model appropriateness and
consistency. The model reviews consider a number of
factors about the models suitability for valuation
and risk management of a particular product,
including whether it accurately reflects the
characteristics of the transaction and its
significant risks, the suitability and convergence
properties of numerical algorithms, reliability of
data sources, consistency of the treatment with
models for similar products, and sensitivity to
input parameters and assumptions that cannot be
priced from the market.
104
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The Firm makes direct principal investments in
private equity. The illiquid nature and long-term
holding period associated with these investments
differentiates private equity risk from the risk of
positions held in the trading portfolios. The
Firms approach to managing private equity risk is
consistent with the Firms general risk governance
structure. Controls are in place establishing
expected levels for total and annual investment in
order to control the overall size of the portfolio.
Industry and geographic concentration limits are in
place and intended to ensure diversification of the
portfolio. All invest-
Operational risk is inherent in each of the Firms
businesses and support activities. Operational risk
can manifest itself in various ways, including
errors, fraudulent acts, business interruptions,
inappropriate behavior of employees, or vendors
that do not perform in accordance with their
arrangements. These events could result in
financial losses and other damage to the Firm,
including reputational harm.
Client service and selection
Business practices
Fraud, theft and malice
Execution, delivery and process management
Employee disputes
Disasters and public safety
Technology and infrastructure failures
Risk identification is the recognition of the
operational risk events that management believes
may give rise to operational losses. All businesses
utilize the Firms standard self-assessment process
and supporting architecture as a dynamic risk
management tool. The goal of the self-assessment
process is for each business to identify the key
operational risks specific to its environment and
assess the degree to which it maintains appropriate
controls. Action plans are developed for control
issues identified, and businesses are held
accountable for tracking and resolving these issues
on a timely basis.
The Firm has a process for monitoring operational
risk-event data, permitting analysis of errors and
losses as well as trends. Such analysis, performed
both at a line-of-business level and by risk-event
type, enables identification of the causes
associated with risk events faced by the
businesses. Where available, the internal data can
be supplemented with external data for comparative
analysis with industry patterns. The data reported
enables the Firm to back-test against
self-assessment results. The Firm is a founding
member of
the Operational Riskdata eXchange Association, a
not-for-profit industry association formed for the
purpose of collecting operational loss data,
sharing data in an anonymous form and benchmarking
results back to members. Such information
supplements the Firms ongoing operational risk
measurement and analysis.
JPMorgan Chase & Co. / 2008 Annual Report
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Operational risk management reports provide timely
and accurate information, including information
about actual operational loss levels and
self-assessment results, to the lines of business
and senior management. The purpose of these reports
is to enable management to maintain operational
risk at appropriate levels within each line of
business, to escalate issues and to provide
consistent data aggregation across the Firms
businesses and support areas.
Internal Audit utilizes a risk-based program of
audit coverage to provide an independent assessment
of the design and effectiveness of key controls
over the Firms operations, regulatory compliance
and reporting. This includes reviewing the
operational risk framework, the effectiveness and
accuracy of the business self-assessment process
and the loss data collection and reporting
activities.
The risk management committees within each line of
business include in their mandate the oversight of
the legal, reputational and, where appropriate,
fiduciary risks in their businesses that may
produce significant losses or reputational damage.
The Fiduciary Risk Management function works with
the relevant line-of-business risk committees with
the goal of ensuring that businesses providing
investment or risk management products or services
that give rise to fiduciary duties to clients
perform at the appropriate standard relative to
their fiduciary relationship with a client. Of
particular focus are the policies and practices
that address a business responsibilities to a
client, including client suitability determination;
disclosure obligations and communications; and
performance expectations with respect to risk
management products or services being provided. In
this way, the relevant line-of-business risk
committees, together with the Fiduciary Risk
Management function, provide oversight of the
Firms efforts to monitor, measure and control the
risks that may arise in the delivery of the
products or services to clients that give rise to
such fiduciary duties, as well as those stemming
from any of the Firms fiduciary responsibilities
to employees under the Firms various employee
benefit plans.
106
JPMorgan Chase & Co. / 2008 Annual Report
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JPMorgan Chases allowance for credit losses covers
the wholesale and consumer loan portfolios, as well
as the Firms portfolio of lending-related
commitments. The allowance for credit losses is
intended to adjust the value of the Firms loan
assets for probable credit losses as of the balance
sheet date. For further discussion of the
methodologies used in establishing the Firms
allowance for credit losses, see Note 15 on pages
166168 of this Annual Report.
The methodology for calculating both the allowance
for loan losses and the allowance for
lending-related commitments involves significant
judgment. First and foremost, it involves the
early identification of credits that are
deteriorating. Second, it involves judgment in
establishing the inputs used to estimate the
allowances. Third, it involves management judgment
to evaluate certain macroeconomic factors,
underwriting standards, and other relevant
internal and external factors affecting the credit
quality of the current portfolio and to refine
loss factors to better reflect these conditions.
The allowance
for credit losses for the consumer portfolio is sensitive to changes in the
economic environment, delinquency status, credit
bureau scores, the realizable value of collateral,
borrower behavior and other risk factors, and is
intended to represent managements best estimate of
incurred losses as of the balance sheet date. The credit performance of the consumer portfolio
across the entire consumer credit product spectrum
continues to be negatively affected by the economic
environment, as the weak labor market and weak
overall economic conditions have resulted in
increased delinquencies, while continued weak
housing prices have driven a significant increase
in loss severity. Significant judgment is required to estimate the
duration and severity of the current economic
downturn, as well as its potential impact on
housing prices and the labor market. While the
allowance for credit losses is highly sensitive to
both home prices and unemployment rates, in the
current market it is difficult to estimate
how potential changes in one or both of these
factors might impact the allowance for credit
losses. For example, while both factors are
important determinants of overall allowance levels,
changes in one factor or the other may not occur at
the same rate, or changes may be directionally
inconsistent such that improvement in one factor
JPMorgan Chase & Co. / 2008 Annual Report
107
Table of Contents
JPMorgan Chase carries a portion of it assets and
liabilities at fair value. The majority of such
assets and liabilities are carried at fair value
on a recurring basis. In addition, certain assets
are carried at fair value on a nonrecurring
basis, including loans accounted for at the lower
of cost or fair value that are only subject to
fair value adjustments under certain
circumstances.
108
JPMorgan Chase & Co. / 2008 Annual Report
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December 31,
2008
2007
(in billions)
Total at fair value
Level 3 total
Total at fair value
Level 3 total
$
347.4
$
41.4
$
414.3
$
24.1
2,741.7
53.0
909.8
20.2
(2,579.1
)
(832.7
)
162.6
53.0
(e)
77.1
20.2
(e)
205.9
12.4
85.4
0.1
7.7
2.7
8.7
8.4
9.4
9.4
8.6
8.6
6.9
6.4
7.2
6.8
46.5
5.0
34.2
3.1
786.4
130.3
635.5
71.3
11.0
4.3
14.9
11.8
$
797.4
$
134.6
(f)
$
650.4
$
83.1
21.2
$
113.4
$
2,175.1
$
1,562.1
6
%
5
%
5
17
13
14
(a)
Includes physical commodities carried at the lower of cost or fair value.
(b)
Includes certain securities purchased under resale agreements, certain securities
borrowed and certain other investments.
(c)
Predominantly consists of debt financing and other loan warehouses held-for-sale
and other assets.
(d)
Balances for which the Firm did not bear economic exposure at
December 31, 2007, were not significant.
(e)
The Firm does not allocate the FIN 39 netting adjustment across the levels of the
fair value hierarchy. As such, the level 3 derivative receivables balance included in the
level 3 total balance is reported gross of any netting adjustments.
(f)
Included in the table above are $95.1 billion of level 3 assets, consisting of
recurring and nonrecurring assets, carried by IB at December 31, 2008. This includes $21.2
billion of assets for which the Firm serves as an intermediary between two parties and
does not bear economic exposure.
JPMorgan Chase & Co. / 2008 Annual Report
109
Table of Contents
JPMorgan Chase acquired, in connection with the
Washington Mutual transaction, certain loans with
evidence of deterioration of credit quality since
origination and for which it was probable, at
acquisition, that the Firm would be unable to
collect all contractually required payments
receivable. These purchased credit-impaired loans
are accounted for in accordance with SOP 03-3. Many
of the assumptions and estimates underlying the
application of SOP 03-3 are both significant and
judgmental, particularly considering the current
economic environment. The level of future home
price declines, the duration and severity of the
current economic downturn and the lack of market
liquidity and transparency are factors that have
impacted and may continue to impact these
assumptions and estimates.
Under SFAS 142, goodwill must be allocated to
reporting units and tested for impairment. SFAS 142
defines reporting units of an entity as either SFAS
131 operating segments (i.e., one level below the
SFAS 131 reportable segments as disclosed in Note
37 of this Annual Report) or one level below the
SFAS 131 operating segments. JPMorgan Chase
generally determined its reporting units to be one
level below the six major business segments
identified in Note 37 on pages 214215 of this
Annual Report, plus Private Equity which is
included in Corporate. This determination was based
on how the Firms operating segments are managed
and how they are reviewed by the Firms Operating
Committee.
110
JPMorgan Chase & Co. / 2008 Annual Report
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JPMorgan Chase is subject to the income tax laws of
the various jurisdictions in which it operates,
including U.S. federal, state and non-U.S.
jurisdictions. These laws are often complex and may
be subject to different interpretations. To
determine the financial statement impact of its
accounting for income taxes, including the
provision for income tax expense and its
unrecognized tax benefits, JPMorgan Chase must make
assumptions and judgments about how to interpret
and apply these complex tax laws to numerous
transactions and business events. Disputes over
interpretations with the various taxing authorities
may be settled upon audit or administrative
appeals. In some cases, the Firms interpretations
of tax laws may be subject to adjudication by the
court systems of the tax jurisdictions in which it
operates. JPMorgan Chase regularly reviews whether
the Firm may be assessed additional income taxes as
a result of the resolution of these matters, and
the Firm records additional reserves as
appropriate.
In April 2007, the FASB issued FSP FIN 39-1, which
permits offsetting of cash collateral receivables
or payables with net derivative positions under
certain circumstances. The Firm adopted FSP FIN
39-1 effective January 1, 2008. The FSP did not
have a material impact on the Firms Consolidated
Balance Sheets.
In June 2007, the FASB ratified EITF 06-11, which
must be applied prospectively for dividends
declared in fiscal years beginning after December
15, 2007. EITF 06-11 requires that realized tax
benefits from dividends or dividend equivalents
paid on equity-classified share-based payment
awards that are charged to retained earnings be
recorded as an increase to additional paid-in
capital and included in the pool of excess tax
benefits
available to absorb tax deficiencies on share-based
payment awards. Prior to the issuance of EITF
06-11, the Firm did not include these tax benefits
as part of this pool of excess tax benefits. The
Firm adopted EITF 06-11 on January 1, 2008. The
adoption of this consensus did not have an impact
on the Firms Consolidated Balance Sheets or
results of operations.
In November 2007, the SEC issued SAB 109, which
revises and rescinds portions of SAB 105.
Specifically, SAB 109 states that the expected net
future cash flows related to the associated
servicing of the loan should be included in the
measurement of all written loan commitments that
are accounted for at fair value through earnings.
The provisions of SAB 109 are applicable to
written loan commitments issued or modified
beginning on January 1, 2008. The Firm adopted SAB
109 on January 1, 2008. The adoption of this
pronouncement did not have a material impact on
the Firms Consolidated Balance Sheets or results
of operations.
In December 2007, the FASB issued SFAS 141R and
SFAS 160, which amend the accounting and reporting
of business combinations, as well as noncontrolling
(i.e., minority) interests. For JPMorgan Chase,
SFAS 141R is effective for business combinations
that close on or after January 1, 2009. SFAS 160 is
effective for JPMorgan Chase for fiscal years
beginning on or after December 15, 2008.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
In February 2008, the FASB issued FSP FAS 140-3,
which requires an initial transfer of a financial
asset and a repurchase financing that was entered
into contempora-neously with, or in contemplation
of, the initial transfer to be evaluated together
as a linked transaction under SFAS 140, unless
certain criteria are met. The Firm adopted FSP FAS
140-3 on January 1, 2009, for new transactions
entered into after the date of adoption. The
adoption of FSP FAS 140-3 is not expected to have a
material impact on the Consolidated Balance Sheets
or results of operations.
In March 2008, the FASB issued SFAS 161, which
amends the disclosure requirements of SFAS 133.
SFAS 161 requires increased disclosures about
derivative instruments and hedging activities and
their effects on an entitys financial position,
financial performance and cash flows. SFAS 161 is
effective for fiscal years beginning after November
15, 2008, with early adoption permitted. SFAS 161
will only affect JPMorgan Chases disclosures of
derivative instruments and related hedging
activities, and not its Consolidated Balance
Sheets, Consolidated Statements of Income or
Consolidated Statements of Cash Flows.
In June 2008, the FASB issued FSP EITF 03-6-1,
which addresses whether instruments granted in
share-based payment transactions are participating
securities prior to vesting and, therefore, need to
be included in the earnings allocation in computing
earnings per share under the two-class method. FSP
EITF 03-6-1 is effective for financial statements
issued for fiscal years beginning after December
15, 2008, and interim periods within those years.
Adoption of FSP EITF
03-6-1 does not affect net income or results of
operations but may result in a reduction of basic
and/or diluted earnings per share in certain
periods.
In September 2008, the FASB issued FSP FAS 133-1
and FIN 45-4. The FSP requires enhanced disclosures
about credit derivatives and guarantees to address
the potential adverse effects of changes in credit
risk on the financial position, financial
performance and cash flows of the sellers of these
instruments. The FSP is effective for reporting
periods ending after November 15, 2008, with
earlier application permitted. The disclosures required by this FSP are incorporated in this Annual Report. FSP FAS 133-1 and
FIN 45-4 only affects JPMorgan Chases
disclosures of credit derivatives and guarantees
and not its Consolidated
Balance Sheets, Consolidated Statements of Income
or Consolidated
Statements of Cash Flows.
In September 2008, the EITF issued EITF 07-5, which
establishes a two-step process for evaluating
whether equity-linked financial instruments and
embedded features are indexed to a companys own
stock for purposes of determining whether the
derivative scope exception in SFAS 133 should be
applied. EITF 07-5 is effective for fiscal years
beginning after December 2008. The adoption of this
EITF is not expected to have a material impact on
the Firms Consolidated Balance Sheets or results
of operations.
The FASB has been deliberating certain amendments
to both SFAS 140 and FIN 46R that may impact the
accounting for transactions that involve QSPEs and
VIEs. Among other things, the FASB is proposing to
eliminate the concept of QSPEs from both SFAS 140
and FIN 46R and make key changes to the
consolidation model of FIN 46R that will change the
method of determining which party to a VIE should
consolidate the VIE. A final standard is
expected to be issued in the second quarter of
2009, with an
112
JPMorgan Chase & Co. / 2008 Annual Report
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In October 2008, the FASB issued FSP FAS 157-3,
which clarifies the application of SFAS 157 in a
market that is not active and provides an example
to illustrate key considerations in determining the
fair value of a financial instrument when the
market for that financial asset is not active. The
FSP was effective upon issuance, including prior
periods for which financial statements have not
been issued. The application of this FSP did not
have an impact on the Firms Consolidated Balance
Sheets or results of operations.
On December 11, 2008, the FASB issued FSP FAS 140-4
and FIN 46(R)-8, which requires additional
disclosures relating to transfers of financial
assets and interests in
securitization entities and other variable interest
entities. The purpose of this FSP is to require
improved disclosure by public enterprises prior to
the effective dates of the proposed amendments to
SFAS 140 and FIN 46(R). The effective date for the
FSP is for reporting periods (interim and
annual) beginning with the first reporting period
that ends after December 15, 2008. The disclosures
required by this FSP are incorporated in this
Annual Report. FSP SFAS 140-4 and FIN 46(R)-8 only affects JPMorgan Chases disclosure of
transfers of financial assets and interests in
securitization entities and other variable interest
entities and not its Consolidated Balance Sheets,
Consolidated Statements of Income or Consolidated
Statements of Cash Flows.
In December 2008, the FASB issued FSP FAS 132(R)-1,
which requires more detailed disclosures about
employers plan assets, including investment
strategies, major categories of plan assets,
concentrations of risk within plan assets, and
valuation techniques used to measure the fair value
of plan assets. This FSP is effective for fiscal
years ending after December 15, 2009. The Firm
intends to adopt these additional disclosure
requirements on the effective date.
In January 2009, the FASB issued FSP EITF 99-20-1,
which amends the impairment guidance in EITF 99-20
to make the investment security impairment model in
EITF 99-20 more consistent with the securities
impairment model in SFAS 115. FSP EITF 99-20-1
removes the requirement that a holders best
estimate of cash flows be based exclusively upon
those that a market participant would use and
allows for reasonable judgment to be applied in
considering whether an adverse change in cash flows
has occurred based on all available information
relevant to the collectibility of the security. FSP
EITF 99-20-1 is effective for interim and annual periods ending after
December 15, 2008, and therefore the Firm has adopted FSP EITF 99-20-1
as of December 31, 2008. The adoption of this
FSP did not have a material impact on the Firms
Consolidated Balance Sheets or results of
operations.
JPMorgan Chase & Co. / 2008 Annual Report
113
Table of Contents
For the year ended
December 31, 2008
(in millions)
Asset position
Liability position
$
8,090
$
5,809
26,108
25,957
34,198
31,766
(12,773
)
(12,802
)
40,916
39,194
(6,818
)
(4,293
)
55,523
53,865
(48,091
)
(48,726
)
$
7,432
$
5,139
December 31, 2008
(in millions)
Asset position
Liability position
$
27,282
$
24,381
22,463
20,047
3,954
3,609
1,824
5,828
55,523
53,865
(48,091
)
(48,726
)
$
7,432
$
5,139
114
JPMorgan Chase & Co. / 2008 Annual Report
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local, regional and international business, economic and political conditions and
geopolitical events;
changes in trade, monetary and fiscal policies and laws;
securities and capital markets behavior, including changes in market liquidity and
volatility;
changes in investor sentiment or consumer spending or saving behavior;
ability of the Firm to manage effectively its liquidity;
credit ratings assigned to the Firm or its subsidiaries;
the Firms reputation;
ability of the Firm to deal effectively with an economic slowdown or other economic
or market difficulty;
technology changes instituted by the Firm, its counterparties or competitors;
mergers and acquisitions, including the Firms ability to integrate acquisitions;
ability of the Firm to develop new products and services;
acceptance of the Firms new and existing products and services by the marketplace
and the ability of the Firm to increase market share;
ability of the Firm to attract and retain employees;
ability of the Firm to control expense;
competitive pressures;
changes in the credit quality of the Firms customers and counterparties;
adequacy of the Firms risk management framework;
changes in laws and regulatory requirements or adverse judicial proceedings;
changes in applicable accounting policies;
ability of the Firm to determine accurate values of certain assets and liabilities;
occurrence of natural or man-made disasters or calamities or conflicts, including
any effect of any such disasters, calamities or conflicts on the Firms power generation
facilities and the Firms other commodity-related activities;
the other risks and uncertainties detailed in Part 1, Item 1A: Risk Factors in the
Firms Annual Report on Form 10-K for the year ended December 31, 2008.
JPMorgan Chase & Co. / 2008 Annual Report
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James Dimon
Chairman and Chief Executive Officer
Michael J. Cavanagh
Executive Vice President and Chief Financial Officer
116
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JPMorgan Chase & Co. / 2008 Annual Report
117
Table of Contents
Year ended December 31, (in millions, except per share data)
2008
2007
2006
$
5,526
$
6,635
$
5,520
(10,699
)
9,015
10,778
5,088
3,938
3,468
13,943
14,356
11,855
1,560
164
(543
)
3,467
2,118
591
7,419
6,911
6,913
2,169
1,829
2,175
28,473
44,966
40,757
73,018
71,387
59,107
34,239
44,981
37,865
38,779
26,406
21,242
67,252
71,372
61,999
20,979
6,864
3,270
22,746
22,689
21,191
3,038
2,608
2,335
4,315
3,779
3,653
6,053
5,140
4,450
1,913
2,070
2,209
3,740
3,814
3,272
1,263
1,394
1,428
432
209
305
43,500
41,703
38,843
2,773
22,805
19,886
(926
)
7,440
6,237
3,699
15,365
13,649
795
3,699
15,365
14,444
1,906
$
5,605
$
15,365
$
14,444
$
4,931
$
15,365
$
14,440
$
0.86
$
4.51
$
3.93
1.41
4.51
4.16
0.84
4.38
3.82
1.37
4.38
4.04
3,501
3,404
3,470
3,605
3,508
3,574
$
1.52
$
1.48
$
1.36
118
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December 31, (in millions, except share data)
2008
2007
$
26,895
$
40,144
138,139
11,466
203,115
170,897
124,000
84,184
509,983
491,409
205,943
85,450
744,898
519,374
(23,164
)
(9,234
)
721,734
510,140
60,987
24,823
10,045
9,319
48,027
45,270
9,403
8,632
1,649
2,303
3,932
3,796
111,200
74,314
$
2,175,052
$
1,562,147
$
1,009,277
$
740,728
192,546
154,398
37,845
49,596
132,400
28,835
166,878
157,867
187,978
94,476
10,561
14,016
252,094
183,862
18,589
15,148
2,008,168
1,438,926
31,939
3,942
3,658
92,143
78,597
54,013
54,715
(5,687
)
(917
)
(217
)
(9,249
)
(12,832
)
166,884
123,221
$
2,175,052
$
1,562,147
JPMorgan Chase & Co. / 2008 Annual Report
119
Table of Contents
Year ended December 31, (in millions, except per share data)
2008
2007
2006
$
$
$
139
31,550
352
37
(139
)
31,939
3,658
3,658
3,618
284
40
3,942
3,658
3,658
78,597
77,807
74,994
11,201
859
790
2,813
48
242
1,250
(54
)
92,143
78,597
77,807
54,715
43,600
33,848
915
172
54,715
44,515
34,020
5,605
15,365
14,444
(674
)
(4
)
(5,633
)
(5,165
)
(4,860
)
54,013
54,715
43,600
(917
)
(1,557
)
(626
)
(1
)
(917
)
(1,558
)
(626
)
(4,770
)
641
171
(1,102
)
(5,687
)
(917
)
(1,557
)
(269
)
52
(217
)
(12,832
)
(7,718
)
(4,762
)
(8,178
)
(3,938
)
2,454
3,199
1,334
(21
)
(135
)
(352
)
1,150
(9,249
)
(12,832
)
(7,718
)
$
166,884
$
123,221
$
115,790
$
5,605
$
15,365
$
14,444
(4,770
)
641
171
$
835
$
16,006
$
14,615
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Year ended December 31, (in millions)
2008
2007
2006
$
5,605
$
15,365
$
14,444
20,979
6,864
3,270
3,143
2,427
2,149
1,263
1,394
1,428
(2,637
)
1,307
(1,810
)
(1,560
)
(164
)
543
(1,540
)
(199
)
(1,136
)
2,637
2,025
2,368
(34,902
)
(116,471
)
(178,355
)
38,036
107,350
173,448
(12,787
)
(121,240
)
(61,664
)
15,408
(10,496
)
916
10,221
(1,932
)
(1,170
)
(33,629
)
(21,628
)
(7,193
)
24,061
12,681
(4,521
)
1,012
4,284
7,815
(12,013
)
7,674
(111
)
23,098
(110,560
)
(49,579
)
(118,929
)
2,081
8,168
(44,597
)
(29,814
)
(6,939
)
10
14
19
44,414
31,143
24,909
96,806
98,450
123,750
(248,599
)
(122,507
)
(201,530
)
27,531
34,925
20,809
(59,123
)
(83,437
)
(70,837
)
2,128
(70
)
185
28,850
(11,228
)
(3,609
)
(3,903
)
1,839
(286,346
)
(73,118
)
(99,627
)
177,331
113,512
82,105
15,250
(7,833
)
36,248
9,186
41,412
12,657
72,407
95,141
56,721
(62,691
)
(49,410
)
(34,267
)
148
365
302
11,969
1,467
1,659
25,000
7,746
(139
)
(8,178
)
(3,938
)
(5,911
)
(5,051
)
(4,846
)
71
1,561
6,247
250,506
182,986
152,749
(507
)
424
199
(13,249
)
(268
)
3,742
40,144
40,412
36,670
$
26,895
$
40,144
$
40,412
$
37,267
$
43,472
$
36,415
2,280
7,472
5,563
Note:
In 2008, the fair values of noncash assets acquired and liabilities assumed in the merger
with Bear Stearns were $288.2 billion and $287.7 billion, respectively; approximately 26 million
shares of common stock, valued at approximately $1.2 billion, were issued in connection with the
Bear Stearns merger. Also, in 2008 the fair values of noncash assets acquired and liabilities
assumed in the Washington Mutual transaction were $260.0 billion and $259.8 billion, respectively.
In 2006, the Firm exchanged selected corporate trust businesses for The Bank of New Yorks
consumer, business banking and middle-market banking businesses. The fair values of the noncash
assets exchanged were $2.15 billion.
JPMorgan Chase & Co. / 2008 Annual Report
121
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The Consolidated Financial Statements include the
accounts of JPMorgan Chase and other entities in
which the Firm has a controlling financial
interest. All material intercompany balances and
transactions have been eliminated.
The preparation of Consolidated Financial
Statements requires management to make estimates
and assumptions that affect the reported amounts of
assets and liabilities, revenue and expense, and
disclosures
122
JPMorgan Chase & Co. / 2008 Annual Report
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JPMorgan Chase revalues assets, liabilities,
revenue and expense denominated in non-U.S.
currencies into U.S. dollars using applicable
exchange rates.
The Firm acquires property from borrowers through
loan restructurings, workouts, and foreclosures.
Property acquired may include real property (e.g.,
land, buildings, and fixtures) and personal
property
(e.g., aircraft, railcars, and ships). Acquired
property is valued at fair value less costs to
sell at acquisition. Each quarter the fair value
of the acquired property is reviewed and adjusted,
if necessary. Any adjustments to fair value in the
first 90 days are credited/charged to the
allowance for loan losses and thereafter to other
expense.
For JPMorgan Chases Consolidated Statements of
Cash Flows, cash is defined as those amounts
included in cash and due from banks.
The following table identifies JPMorgan Chases
other significant accounting policies and the Note
and page where a detailed description of each
policy can be found.
Note 4
Page 129
Note 5
Page 144
Note 6
Page 146
Note 7
Page 148
Note 9
Page 149
Note 10
Page 155
Note 11
Page 158
Note 12
Page 158
Note 13
Page 162
Note 14
Page 163
Note 15
Page 166
Note 16
Page 168
Note 17
Page 177
Note 18
Page 186
Note 19
Page 189
Note 21
Page 190
Note 22
Page 190
Note 28
Page 197
Note 31
Page 201
Note 32
Page 202
Note 33
Page 206
On February 23, 2009, the Board of Directors reduced the
Firms quarterly common stock dividend from $0.38 to $0.05 per
share, effective for the dividend payable April 30, 2009 to
shareholders of record on April 6, 2009.
On September 25, 2008, JPMorgan Chase acquired the
banking operations of Washington Mutual Bank
(Washington Mutual) from the Federal Deposit
Insurance Corporation (FDIC) for $1.9 billion.
The acquisition expands JPMorgan Chases consumer
branch network into several states, including
California, Florida and Washington, among others.
The acquisition also extends the reach of the
Firms business banking, commercial banking, credit
card, consumer lending and wealth management
businesses. The acquisition was accounted for under
the purchase method of accounting in accordance
with SFAS 141.
JPMorgan Chase & Co. / 2008 Annual Report
123
Table of Contents
(a)
The acquisition was accounted for as a purchase business combination in accordance with
SFAS 141. SFAS 141 requires the assets (including identifiable intangible assets) and liabilities
(including executory contracts and other commitments) of an acquired business as of the effective
date of the acquisition to be recorded at their respective fair values and consolidated with those
of JPMorgan Chase. The fair value of the net assets of Washington Mutuals banking operations
exceeded the $1.9 billion purchase price, resulting in negative goodwill. In accordance with SFAS
141, noncurrent, nonfinancial assets not held-for-sale, such as premises and equipment and other
intangibles, were written down against the negative goodwill. The negative goodwill that remained
after writing down transaction related core deposit intangibles of approximately $4.9 billion and
premises and equipment of approximately $3.2 billion was recognized as an extraordinary gain of
$1.9 billion.
(b)
The extraordinary gain was recorded in Corporate/Private Equity.
(in millions)
September 25, 2008
$
3,680
3,517
1,700
5,691
17,220
206,436
3,201
5,874
16,330
$
263,649
$
159,869
4,549
81,622
585
6,523
6,654
259,802
$
3,847
124
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Effective May 30, 2008, BSC Merger Corporation, a
wholly owned subsidiary of JPMorgan Chase, merged
with The Bear Stearns Companies Inc. (Bear
Stearns) pursuant to the Agreement and Plan of
Merger, dated as of March 16, 2008, as amended
March 24, 2008, and Bear Stearns became a wholly
owned subsidiary of JPMorgan Chase. The merger
provided the Firm with a leading global prime
brokerage platform; strengthened the Firms
equities and asset management businesses; enhanced
capabilities in mortgage origination,
securitization and servicing; and expanded the
platform of the Firms energy business. The merger
is being accounted for under the purchase method of
accounting, which requires that the assets and
liabilities of Bear Stearns be fair valued. The
total purchase price to
complete the merger was $1.5 billion.
JPMorgan Chase & Co. / 2008 Annual Report
125
Table of Contents
(a)
The value of JPMorgan Chase common stock was determined by averaging the closing
prices of JPMorgan Chases common stock for the four trading days during the period March
19, 2008, through March 25, 2008.
(b)
Represents shares of Bear Stearns common stock held in an irrevocable grantor
trust (the RSU Trust) to be used to settle stock awards granted to selected employees
and certain key executives under certain heritage Bear Stearns employee stock plans.
Shares in the RSU Trust were exchanged for 6 million shares of JPMorgan Chase common stock
at the merger exchange ratio of 0.21753. For further discussion of the RSU trust, see Note
10 on pages 155158 of this Annual Report.
(c)
The goodwill was recorded in the Investment Bank.
126
JPMorgan Chase & Co. / 2008 Annual Report
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The following reflects the value assigned to Bear
Stearns net assets as of the merger date.
(in millions)
May 30, 2008
$
534
21,204
55,195
136,535
4,407
34,677
761
35,418
$
288,731
$
54,643
16,166
24,267
47,042
67,015
78,532
287,665
$
1,066
(a)
Reflects the fair value assigned to 49.4% of the Bear Stearns net assets acquired
on April 8, 2008 (net of related amortization), and the fair value assigned to the
remaining 50.6% of the Bear Stearns net assets acquired on May 30, 2008. The difference
between the Bear Stearns net assets acquired as presented above and the fair value of the
net assets acquired (including goodwill) presented in the previous table represents
JPMorgan Chases net losses recorded under the equity method of accounting.
The following unaudited pro forma condensed
combined financial information presents the results
of operations of the Firm as they may have appeared
if the Bear Stearns merger and the Washington
Mutual transaction had been completed on January 1,
2008, and January 1, 2007.
Year ended December 31,
(in millions, except per share data)
2008
2007
$
68,071
$
92,052
(14,141
)
17,733
(12,235
)
17,733
$
(4.22
)
$
5.16
(3.68
)
5.16
(4.22
)
5.01
(3.68
)
5.01
3,511
3,430
3,511
3,534
(a)
Common equivalent shares have been excluded from the pro forma computation of
diluted loss per share for the year ended December 31, 2008, as the effect would be
antidilutive.
On June 30, 2008, JPMorgan Chase fully and
unconditionally guaranteed each series of
outstanding preferred stock of Bear Stearns, as
well as all of Bear Stearns outstanding Securities
and Exchange Commission (SEC) registered U.S.
debt securities and obligations relating to trust
preferred capital debt securities. Subsequently, on
July 15, 2008, JPMorgan Chase completed an internal
merger transaction, which resulted in each series
of outstanding preferred stock of Bear Stearns
being automatically exchanged into newly issued
shares of JPMorgan Chase preferred stock having
substantially identical terms. Depositary shares,
which formerly had represented a one-fourth
interest in a share of Bear Stearns preferred
stock, continue to trade on the New York Stock
Exchange but following completion of this internal
merger transaction, represent a one-fourth interest
in a share of JPMorgan Chase preferred stock. In
addition, on July 31, 2008, JPMorgan Chase assumed
(1) all of Bear Stearns then-outstanding
SEC-registered U.S. debt securities; (2) Bear
Stearns obligations relating to trust preferred
capital debt securities; (3) certain of Bear
Stearns then-outstanding foreign debt securities;
and (4) certain of Bear Stearns guarantees of
then-outstanding foreign debt securities issued by
subsidiaries of Bear Stearns, in each case, in
accordance with the agreements and indentures
governing these securities. JPMorgan Chase also
guaranteed Bear Stearns obligations under Bear Stearns U.S. $30.0 billion Euro Medium Term Note
Programme and U.S. $4.0 billion Euro Note Issuance
Programme.
The dissolution of Chase Paymentech Solutions joint
venture, a global payments and merchant acquiring
joint venture between JPMorgan Chase and First Data
Corporation, was completed on November 1, 2008.
JPMorgan Chase retained approximately 51% of the
business and will operate the business under the
name Chase Paymentech Solutions. The dissolution of
Chase Paymentech
JPMorgan Chase & Co. / 2008 Annual Report
127
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On March 19, 2008, Visa Inc. (Visa) completed
its initial public offering (IPO). Prior to the
IPO, JPMorgan Chase held approximately a 13%
equity interest in Visa. On March 28, 2008, Visa
used a portion of the proceeds from the offering
to redeem a portion of the Firms equity interest,
which resulted in the recognition of a pre-tax
gain of $1.5 billion (recorded in other income).
In conjunction with the IPO, Visa placed $3.0
billion in escrow to cover liabilities related to
certain litigation matters. The escrow was
increased by $1.1 billion in the fourth quarter of 2008.
JPMorgan Chases interest in the escrow was
recorded as a reduction of other expense and
reported net to the extent of established
litigation reserves.
In January 2008, JPMorgan Chase purchased an
additional equity interest in Highbridge Capital
Management, LLC (Highbridge). As a result, the
Firm currently owns 77.5% of Highbridge.
On October 1, 2006, JPMorgan Chase completed the
acquisition of The Bank of New York Company, Inc.s
(The Bank of New York) consumer, business and
middle-market banking businesses in exchange for
selected corporate trust businesses plus a cash
payment of $150 million. The transaction also included a
contingent payment payable to The Bank of New York;
the amount due of $25 million was paid in 2008. The
acquisition added 339 branches and more than 400
ATMs, and it significantly strengthened Retail
Financial Services distribution network in the New
York tri-state area. The Bank of New York
businesses acquired were valued at a premium of
$2.3 billion; the Firms corporate trust businesses
that were transferred (i.e., trustee, paying agent,
loan agency and document management services) were
valued at a premium of $2.2 billion. This
transaction included the acquisition of
approximately $7.7 billion in loans net of
allowance for loan losses and $12.9 billion in
deposits from the Bank of New York. The Firm also
recognized core deposit intangibles of $485
million, which are being amortized using an
accelerated method over a 10-year period. JPMorgan
Chase recorded an after-tax gain of $622 million on
this transaction in the fourth quarter of 2006. For
additional discussion related to the transaction,
see Note 3 on pages 128129 of this Annual Report.
On August 1, 2006, the buyout and growth equity
professionals of JPMorgan Partners (JPMP) formed
an independent firm, CCMP Capital, LLC (CCMP),
and the venture professionals separately formed an
independent firm, Panorama Capital, LLC
(Panorama). The investment professionals of CCMP
and Panorama continue to manage the former JPMP
investments pursuant to a management agreement
with the Firm.
On July 1, 2006, JPMorgan Chase completed the sale
of its life insurance and annuity underwriting
businesses to Protective Life Corporation for cash
proceeds of approximately $1.2 billion, consisting
of $900 million of cash received from Protective
Life Corporation and approximately $300 million of
preclosing dividends received from the entities
sold. The after-tax impact of this transaction was
negligible. The sale included both the heritage
Chase insurance business and the insurance business
that Bank One had bought from Zurich Insurance in
2003.
On April 21, 2006, JPMorgan Chase completed the acquisition of
$1.6 billion of private-label credit card
receivables and approximately 21 million accounts
from Kohls Corporation (Kohls). JPMorgan Chase
and Kohls also entered into an agreement under
which JPMorgan Chase is offering private-label
credit cards to both new and existing Kohls
customers.
On March 1, 2006, JPMorgan Chase acquired, for
approximately $663 million, Collegiate Funding
Services, a leader in student loan servicing and
consolidation. This acquisition included $6
billion of student loans.
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Selected income statements data
(a)
Year ended December 31, (in millions)
2006
$
407
264
1,081
1,752
385
1,367
572
$
795
(a)
There was no income from discontinued operations during 2008 or 2007.
Selected balance sheet data
(in millions)
October 1, 2006
$
838
547
$
1,385
$
24,011
547
$
24,558
Defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date, and establishes a framework for measuring fair value;
Establishes a three-level hierarchy for fair value measurements based upon the
transparency of inputs to the valuation of an asset or liability as of the measurement
date;
Nullifies the guidance in EITF 02-3, which required the deferral of profit at
inception of a transaction involving a derivative financial instrument in the absence of
observable data supporting the valuation technique;
Eliminates large position discounts for financial instruments quoted in active
markets and requires consideration of the Firms creditworthiness when valuing
liabilities; and
Expands disclosures about instruments measured at fair value.
Credit valuation adjustments (CVA) are necessary when the market price (or
parameter) is not indicative of the credit quality of the counterparty. As few classes of
derivative contracts are listed on an exchange, the majority of derivative positions are
valued using internally developed models that use as their basis observable market
parameters. Market practice is to quote parameters equivalent to a AA credit rating
whereby all counterparties are assumed to have the same credit quality. Therefore, an
adjustment is necessary to reflect the credit quality of each derivative counterparty to
arrive at fair value. The adjustment also takes into account contractual factors designed
to reduce the Firms credit exposure to each counterparty, such as collateral and legal
rights of offset.
Debit valuation adjustments (DVA) are necessary to reflect the credit quality of
the Firm in the valuation of liabilities measured at fair value. This adjustment was
incorporated into the Firms valuations commencing January 1, 2007, in accordance with
SFAS 157. The methodology to determine the adjustment is consistent with CVA and
incorporates JPMorgan Chases credit spread as observed through the credit default swap
market.
Liquidity valuation adjustments are necessary when the Firm may not be able to
observe a recent market price for a financial instrument that trades in inactive (or less
active) markets or to reflect the cost of exiting larger-than-normal market-size risk
positions (liquidity adjustments are not taken for positions classified within level 1 of
the fair value hierarchy). The Firm tries to ascertain the amount of uncertainty in the
initial valuation based upon the degree of liquidity of the market in which the financial
JPMorgan Chase & Co. / 2008 Annual Report
129
Table of Contents
instrument trades and makes liquidity adjustments to the carrying value of the
financial instrument. The Firm measures the liquidity adjustment based upon the following
factors: (1) the amount of time since the last relevant pricing point; (2) whether there
was an actual trade or relevant external quote; and (3) the volatility of the principal
risk component of the financial instrument. Costs to exit larger-than-normal market-size
risk positions are determined based upon the size of the adverse market move that is likely
to occur during the period required to bring a position down to a nonconcentrated level.
Unobservable parameter valuation adjustments are necessary when positions are valued
using internally developed models that use as their basis
unobservable parameters that
is, parameters that must be estimated and are, therefore, subject to management judgment.
These positions are normally traded less actively. Examples include certain credit products where parameters such as correlation and recovery
rates are unobservable. Unobservable parameter valuation adjustments are applied to
mitigate the possibility of error and revision in the estimate of the market price provided
by the model.
SFAS 157 establishes a three-level valuation
hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based
upon the transparency of inputs to the valuation
of an asset or liability as
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement. For a level 3 analysis, see pages 138139 of this Note.
To estimate the fair value of resale agreements,
cash flows are evaluated taking into consideration
any derivative features of the resale agreement and
are then discounted using the appropriate market
rates for the applicable maturity. As the inputs
into the valuation are primarily based upon readily
observable pricing information, such resale
agreements are generally classified within level 2
of the valuation hierarchy.
The majority of the Firms loans and
lending-related commitments are not carried at fair
value on a recurring basis on the Consolidated
Balance Sheets, nor are they actively traded. The
fair value of such loans and lending-related
commitments is included in the disclosures required
by SFAS 107 on pages 142143 of this Note. Loans
carried at fair value on a recurring and
nonrecurring basis are included in the applicable
tables that follow.
The fair value of loans and lending-related
commitments is calculated using observable market
information, including pricing from actual market
transactions or broker quotations where available.
Where pricing information is not available for the
specific loan, the valuation is generally based
upon quoted market prices of similar instruments,
such as loans and bonds. These comparable
instruments share characteristics that typically
include industry, rating, capital structure,
seniority, and consideration of counterparty credit
risk. In addition, general market conditions,
including prevailing market spreads for credit and
liquidity risk, are also considered in the
valuation process.
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Fair values for consumer installment loans
(including automobile financings and consumer real
estate not expected to be securitized), for which
market rates for comparable loans are readily
available, are based upon discounted cash flows
adjusted for prepayment assumptions. The discount
rates used for consumer installment loans are based
on current market rates for new originations of
comparable loans. Fair value for credit card
receivables is based upon discounted expected cash
flows. The discount rates used for credit card
receivables incorporate only the effects of
interest rate changes, since the expected cash
flows already reflect an adjustment for credit
risk. Consumer installment loans and credit card
receivables that are not carried on the balance sheet at
fair value are not classified
within the fair value hierarchy. For further discussion of the
valuation of mortgage loans carried at fair value, see the
Mortgage-related exposures carried at fair value section of
this Note.
Where quoted prices for identical securities are
available in an active market, securities are
classified in level 1 of the valuation hierarchy.
Level 1 securities include highly liquid government
bonds, mortgage products for which there are quoted
prices in active markets (such as U.S. government
agency or U.S. government-sponsored enterprise
pass-through mortgage-backed securities) and
exchange-traded equities.
Commodities inventory is carried at the lower of
cost or fair value. The fair value for commodities
inventory is determined primarily using pricing and
data derived from the markets on which the
underlying commodities are traded. Market prices
may be adjusted for liquidity. The Firm also has
positions in commodity-based derivatives that can be traded on an exchange or
over-the-counter. The pricing inputs to these
derivatives include forward curves of underlying
commodities, basis curves, volatilities,
correlations, and occasionally other model
parameters. The valuation of these derivatives is
based upon calibrating to market transactions, as
well as to independent pricing information from
sources such as brokers and dealer consensus
pricing services. Where inputs are unobservable,
they are benchmarked to observable market data
based upon historic and implied correlations, then
adjusted for uncertainty where appropriate. The
majority of commodities inventory and
commodities-based derivatives are classified within
level 2 of the valuation hierarchy.
Exchange-traded derivatives valued using quoted
prices are classified within level 1 of the
valuation hierarchy. However, few classes of
derivative contracts are listed on an exchange;
thus, the majority of the Firms derivative
positions are valued using internally developed
models that use as their basis readily observable
market parameters that is, parameters that are
actively quoted and can be validated to external
sources, including industry pricing services.
Depending on the types and contractual terms of
derivatives, fair value can be modeled using a
series of techniques, such as the Black-Scholes
option pricing model, simulation models or a
combination of various models, which are
consistently applied. Where derivative products
have been established for some time, the Firm uses
models that are widely accepted in the financial
services industry. These models reflect the
JPMorgan Chase & Co. / 2008 Annual Report
131
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Mortgage servicing rights (MSRs) and certain
retained interests from securitization activities
do not trade in an active, open market with readily
observable prices. While sales of MSRs do occur,
the precise terms and conditions typically are not
readily available. Accordingly, the Firm estimates the fair value of
MSRs and certain other retained interests in
securitizations using discounted cash flow (DCF)
models.
For MSRs, the Firm uses an option-adjusted spread (OAS) valuation model in
conjunction with the Firms proprietary prepayment model to project MSR cash flows over
multiple interest rate scenarios, which are then discounted at risk-adjusted rates to
estimate an expected fair value of the MSRs. The OAS model considers portfolio
characteristics, contractually specified servicing fees, prepayment assumptions,
delinquency rates, late charges, other ancillary revenue, costs to service and other
economic factors. The Firm reassesses and periodically adjusts the underlying inputs and
assumptions used in the OAS model to reflect market conditions and assumptions that a
market participant would consider in valuing the MSR asset. Due to the nature of the
valuation inputs, MSRs are classified within level 3 of the valuation hierarchy.
For certain retained interests in securitizations (such as interest-only strips), a
single interest rate path discounted cash flow model is used and generally includes
assumptions based upon projected finance charges related to the securitized assets,
estimated net credit losses, prepayment assumptions and contractual interest paid to
third-party investors. Changes in the assumptions used may have a significant impact on
the Firms valuation of retained interests, and such interests are therefore typically
classified within level 3 of the valuation hierarchy.
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JPMorgan Chase & Co. / 2008 Annual Report
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The valuation of nonpublic private equity
investments, held primarily by the Private Equity
business within Corporate, requires significant
management judgment due to the absence of quoted
market prices, the inherent lack of liquidity and
the long-term nature of such assets. As such,
private equity investments are valued initially
based upon cost. Each quarter, valuations are
reviewed utilizing available and relevant market
data to determine if the carrying value of these
investments should be adjusted. Such market data
primarily includes observations of the trading
multiples of public companies considered comparable
to the private companies being valued and the
operating performance of the underlying portfolio
company, including its historical and projected net
income and earnings before interest, taxes,
depreciation and amortization (EBITDA).
Valuations are adjusted to account for
company-specific issues, the lack of liquidity
inherent in a nonpublic investment and the fact
that comparable public companies are not identical
to the companies being valued. In addition, a variety
of additional factors are reviewed by management,
including, but not limited to, financing and sales transactions with third parties, future
expectations of the particular investment, changes
in market outlook and the third-party financing
environment. The Firm applies its valuation
methodology consistently from period to period and
believes that the methodology and associated
valuation adjustments are appropriate. Nonpublic
private equity investments are included in level 3
of the valuation hierarchy.
The fair value of asset-backed commercial paper
(ABCP) investments purchased under the Federal
Reserves Asset-Backed Commercial Paper Money
Market Mutual Fund Liquidity Facility (AML
Facility) for U.S. money market mutual funds is
determined based on observable market information and is classified in level 2 of the
valuation hierarchy.
To estimate the fair value of repurchase
agreements, cash flows are evaluated taking into
consideration any derivative features and are then
discounted using the appropriate market rates for
the applicable maturity. Generally, for these types of agreements,
there is a requirement that collateral be maintained with a market
value equal to, or in excess of, the principal amount loaned; as a
result, there would be no adjustment, or an immaterial adjustment,
to reflect the credit quality of the Firm (i.e., DVA) related to these agreements. As the inputs into the
valuation are primarily based upon observable
pricing information, repurchase agreements are
classified within level 2 of the valuation
hierarchy.
The fair value of beneficial interests issued by
consolidated VIEs (beneficial interests) is
estimated based upon the fair value of the
underlying assets held by the VIEs. The valuation
of beneficial interests does not include an
adjustment to reflect the credit quality of the
Firm, as the holders of these beneficial interests
do not have recourse to the general credit of
JPMorgan Chase. As the inputs into the valuation
are generally based upon readily observable market
pricing information, the majority of beneficial
interests issued by consolidated VIEs are
classified within level 2 of the valuation
hierarchy.
Included within deposits, other borrowed funds and
long-term debt are structured notes issued by the
Firm that are financial instruments containing
embedded derivatives. To estimate the fair value of
structured notes, cash flows are evaluated taking
into consideration any derivative features and are
then discounted using the appropriate market rates
for the applicable maturities. In addition, the
valuation of structured notes includes an adjustment to reflect the credit
quality of the Firm (i.e., the DVA). Where the
inputs into the valuation are primarily based upon
readily observable market pricing information, the
structured notes are classified within level 2 of
the valuation hierarchy. Where significant inputs
are unobservable, structured notes are classified
within level 3 of the valuation hierarchy.
JPMorgan Chase & Co. / 2008 Annual Report
133
Table of Contents
Internal models with
Quoted market
significant observable
Internal models with
Total carrying value
prices in active
market parameters
significant unobservable
FIN 39
in the Consolidated
December 31, 2008
(in millions)
markets (Level 1)
(Level 2)
market parameters (Level 3)
netting
(d)
Balance Sheets
$
$
20,843
$
$
$
20,843
3,381
3,381
98,393
29,597
870
128,860
10,361
2,641
13,002
1,180
6,312
7,492
5
61,230
6,506
67,741
73,174
3,992
1,380
78,546
14,711
17,091
31,802
3,401
12,932
16,333
3,581
3,581
172,752
133,185
41,420
347,357
3,630
2,685,101
52,991
(2,579,096
)
162,626
176,382
2,818,286
94,411
(2,579,096
)
509,983
118,823
74,695
12,391
205,909
5,029
2,667
7,696
9,403
9,403
151
332
6,369
6,852
5,977
11,355
5,015
22,347
6,128
11,687
11,384
29,199
$
301,333
$
2,933,921
$
130,256
$
(2,579,096
)
$
786,414
21,169
$
109,087
$
$
4,370
$
1,235
$
$
5,605
2,993
2,993
14,612
101
14,713
34,568
10,418
288
45,274
3,630
2,622,371
43,484
(2,547,881
)
121,604
38,198
2,632,789
43,772
(2,547,881
)
166,878
1,735
1,735
41,666
16,548
58,214
$
38,198
$
2,698,165
$
61,656
$
(2,547,881
)
$
250,138
134
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Internal models with
Quoted market
significant observable
Internal models with
Total carrying value
prices in active
market parameters
significant unobservable
FIN 39
in the Consolidated
December 31, 2007 (in millions)
markets (Level 1)
(Level 2)
market parameters (Level 3)
netting
(d)
Balance Sheets
$
$
19,131
$
$
$
19,131
106,572
40,362
258
147,192
7,230
5,860
13,090
3,019
5,233
8,252
6
52,137
7,972
60,115
82,499
9,552
1,197
93,248
46,038
11,776
57,814
27,209
2,863
30,072
4,490
4,490
199,326
190,881
24,066
414,273
18,574
871,105
20,188
(832,731
)
77,136
217,900
1,061,986
44,254
(832,731
)
491,409
71,941
13,364
101
85,406
359
8,380
8,739
8,632
8,632
68
322
6,763
7,153
10,784
1,054
3,160
14,998
10,852
1,376
9,923
22,151
$
300,693
$
1,096,216
$
71,290
$
(832,731
)
$
635,468
$
$
5,228
$
1,161
$
$
6,389
5,768
5,768
10,672
105
10,777
73,023
15,659
480
89,162
19,553
852,055
19,555
(822,458
)
68,705
92,576
867,714
20,035
(822,458
)
157,867
25
25
2,922
82
3,004
48,518
21,938
70,456
$
92,576
$
940,822
$
43,346
$
(822,458
)
$
254,286
(a)
Physical commodities inventories are accounted for at the lower of cost or fair
value.
(b)
Includes assets for which the Firm serves as an intermediary between two parties
and does not bear market risk. The assets are predominantly reflected within derivative
receivables.
(c)
Includes the fair value adjustment for unfunded lending-related commitments
accounted for at fair value.
(d)
As permitted under FIN 39, the Firm has elected to net derivative receivables and
derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. The increase in FIN 39 netting from December
31, 2007, primarily relates to the decline in interest rates, widening credit spreads and
volatile foreign exchange rates reflected in interest rate, credit and foreign exchange
derivatives, respectively.
JPMorgan Chase & Co. / 2008 Annual Report
135
Table of Contents
Fair value measurements using significant unobservable inputs
Change in
unrealized
gains
and (losses)
related to
Total
financial
Fair
realized/
Purchases,
Transfers
Fair
instruments
For the year ended
value,
unrealized
issuances
into and/or
value,
held at
December 31, 2008
January 1,
gains/
settlements,
out of
December 31,
December 31,
(in millions)
2008
(losses)
(c)
net
level 3
(c)
2008
2008
$
24,066
$
(12,805
)
(d)(e)
$
6,201
$
23,958
$
41,420
$
(9,860
)
(d)(e)
633
4,556
(d)
2,290
2,028
9,507
1,814
(d)
101
(1,232
)
(f)
3,772
9,750
12,391
(422
)
(f)
8,380
(1,547
)
(d)
12
(4,178
)
2,667
(1,324
)
(d)
8,632
(6,933
)
(e)
7,704
9,403
(6,933
)
(e)
6,763
(638
)
(d)
320
(76
)
6,369
(1,089
)
(d)
3,160
(930
)
(g)
2,802
(17
)
5,015
(742
)
(g)
$
(1,161
)
$
57
(d)
$
(79
)
$
(52
)
$
(1,235
)
$
69
(d)
(105
)
7
(d)
(53
)
50
(101
)
24
(d)
(480
)
73
(d)
33
86
(288
)
125
(d)
other liabilities
(25
)
25
(d)
(d)
consolidated VIEs
(82
)
24
(d)
603
(545
)
(d)
(21,938
)
4,502
(d)
1,717
(829
)
(16,548
)
3,682
(d)
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Fair value measurements using significant unobservable inputs
Change in
unrealized
gains
and (losses)
related to
Total
financial
Fair
realized/
Purchases,
Transfers
Fair
instruments
For the year ended
value,
unrealized
issuances
into and/or
value,
held at
December 31, 2007
January 1,
gains/
settlements,
out of
December 31,
December 31,
(in millions)
2007
(losses)
(c)
net
level 3
(c)
2007
2007
$
9,320
$
(916
)
(d)(e)
$
5,902
$
9,760
$
24,066
$
(912
)
(d)(e)
(2,800
)
1,674
(d)
257
1,502
633
1,979
(d)
177
38
(f)
(21
)
(93
)
101
(5
)
(f)
643
(346
)
(d)
8,013
70
8,380
(36
)
(d)
7,546
(516
)
(e)
1,602
8,632
(516
)
(e)
5,493
4,051
(d)
(2,764
)
(17
)
6,763
1,711
(d)
1,591
37
(g)
1,059
473
3,160
(19
)
(g)
$
(385
)
$
(42
)
(d)
$
(667
)
$
(67
)
$
(1,161
)
$
(38
)
(d)
(67
)
(d)
(34
)
(4
)
(105
)
(135
)
(d)
(32
)
383
(d)
(125
)
(706
)
(480
)
(734
)
(d)
other liabilities
(460
)
(d)
435
(25
)
(25
)
(d)
consolidated VIEs
(8
)
6
(d)
1
(81
)
(82
)
(11,386
)
(1,142
)
(d)
(6,633
)
(2,777
)
(21,938
)
(468
)
(d)
(a)
Private equity instruments represent investments within the Corporate/Private
Equity line of business.
(b)
Level 3 liabilities as a percentage of total Firm liabilities accounted for at
fair value (including liabilities carried at fair value on a nonrecurring basis) were 25%
and 17% at December 31, 2008 and 2007, respectively. The Firm does not allocate the FIN 39
netting adjustment across the levels of the fair value hierarchy. As such, the level 3
derivative payables balance included in the level 3 total balance is
gross of any netting adjustments.
(c)
Beginning January 1, 2008, all transfers in and out of level 3 are assumed to
occur at the beginning of the reporting period.
(d)
Reported in principal transactions revenue.
(e)
Changes in fair value for Retail Financial Services mortgage loans originated with
the intent to sell and MSRs are measured at fair value and reported in mortgage fees and
related income.
(f)
Realized gains (losses) are reported in securities gains (losses). Unrealized
gains (losses) are reported in accumulated other comprehensive income (loss).
(g)
Reported in other income.
JPMorgan Chase & Co. / 2008 Annual Report
137
Table of Contents
Certain assets, liabilities and unfunded
lending-related commitments are measured at fair
value on a nonrecurring basis; that is, the
instruments are not measured at fair value on an
ongoing basis but are subject to fair value
adjustments only in certain circumstances
Internal models with
Internal models with
Quoted market prices
significant observable
significant unobservable
Total carrying value
in active markets
market parameters
market parameters
in the Consolidated
December 31, 2008
(in millions)
(Level 1)
(Level 2)
(Level 3)
Balance Sheets
$
$
4,991
$
3,999
$
8,990
1,763
291
2,054
$
$
6,754
$
4,290
$
11,044
$
$
212
$
98
$
310
$
$
212
$
98
$
310
Internal models with
Internal models with
Quoted market prices
significant observable
significant unobservable
Total carrying value
in active markets
market parameters
market parameters
in the Consolidated
December 31, 2007 (in millions)
(Level 1)
(Level 2)
(Level 3)
Balance Sheets
$
$
2,818
$
16,196
$
19,014
267
126
393
$
$
3,085
$
16,322
$
19,407
$
$
$
103
$
103
$
$
$
103
$
103
(a)
Includes leveraged lending and other loan warehouses held-for-sale.
(b)
Represents the fair value adjustment associated with $1.5 billion and $3.2 billion
of unfunded held-for-sale lending-related commitments within the leveraged lending
portfolio at December 31, 2008 and 2007, respectively.
(c)
Includes $4.5 billion of level 3 held-for-sale loans reclassified to
held-for-investment during 2007.
The following table presents the total change in
value of financial instruments for which a fair
value adjustment has been included in the
Consolidated Statements of Income for the years
ended December 31, 2008 and 2007, related to
financial instruments held at December 31, 2008 and 2007.
Year ended December 31, (in millions)
2008
2007
$
(3,887
)
$
(720
)
(685
)
(161
)
(285
)
2
$
(4,857
)
$
(879
)
Level 3 assets (including assets measured at fair
value on a nonrecurring basis) were 6% of total
Firm assets at December 31, 2008. The following
describes significant changes to level 3 assets
during the year.
Acquisition of $41.5 billion of level 3 assets as a result of the merger with Bear
Stearns.
Acquisition of $5.9 billion of MSRs related to the Washington Mutual transaction.
Purchase of approximately $4.4 billion of reverse mortgages in the first quarter of
2008, for which there is limited pricing information and a lack of market liquidity.
Transfers of $14.0 billion of AAA-rated CLOs backed by corporate loans, based upon a
significant reduction in new deal issuance and price transparency; $10.5 billion of mortgage-related assets, including commercial mortgage-backed
securities with a rating below AAA, other noninvestment grade mortgage securities and
certain prime mortgages; and $2.8 billion of auction-rate
securities, in each case due to a
significant reduction in market liquidity.
Approximately $20.0 billion of sales and markdowns of residential mortgage-backed
securities, prime residential mortgage loans and Alt-A residential mortgage loans.
$11.5 billion of sales and markdowns of leveraged loans, as well as transfers of
similar loans to level 2 due to the increased price transparency for such assets.
138
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
$3.5 billion of transfers of bridge loans to level 2 due to increased price
transparency for such assets.
Gains and losses in the tables above for 2008 include:
Losses on trading debt and equity instruments of approximately $12.8 billion,
principally from mortgage-related transactions and auction-rate securities.
A $6.9 billion decline in the fair value of the MSR asset.
Losses of approximately $3.9 billion on leveraged loans.
Leveraged loans are typically classified as held-for-sale and measured at the lower of cost
or fair value and therefore included in the nonrecurring fair value assets.
Gains of $4.5 billion related to structured notes, principally due to significant
volatility in the equity markets.
Net gains of $4.6 billion related to derivatives, principally due to changes in
credit spreads and rate curves.
When determining the fair value of an instrument,
it may be necessary to record a valuation
adjustment to arrive at an exit price in
accordance with SFAS 157. Valuation adjustments
include, but are not limited to, amounts to
reflect counterparty credit quality and the Firms
own creditworthiness. For a detailed discussion of
the valuation adjustments the Firm considers, see
the valuation discussion at the beginning of this
Note.
Year ended December 31, (in millions)
2008
2007
$
162,626
$
77,136
(9,566
)
(1,265
)
121,604
68,705
1,389
518
67,340
87,622
2,413
896
(a)
Derivative CVA, gross of hedges, includes results managed by Credit Portfolio and
other lines of business within IB.
(b)
Structured notes are carried at fair value based upon the Firms election under
SFAS 159. For further information on these elections, see Note 5 on page 144 of this
Annual Report.
Year ended December 31, (in millions)
2008
2007
$
(7,561
)
$
(803
)
789
514
1,211
806
(a)
Derivative CVA, gross of hedges, includes results managed by Credit Portfolio and
other lines of business within IB.
(b)
Structured notes are carried at fair value based upon the Firms election under
SFAS 159. For further information on these elections, see Note 5 on page 144 of this
Annual Report.
As noted above, certain of the Firms wholesale and consumer
loans are carried at fair value including mortgage related loans. Since the second half of 2007,
liquidity in certain sectors of the mortgage
markets has decreased, thereby limiting the price
transparency of certain mortgage-related
instruments. The table below summarizes the Firms
mortgage-related exposures that are carried at fair
value through earnings or at the lower of cost or
fair value; the table excludes securities held in
the available-for-sale portfolio.
Exposure as of
Net
December 31, 2008
gains/(losses)
(e)
Net of risk
reported in income
management
year ended
(in millions)
Gross
activities
(d)
December 31, 2008
$
11,221
$
5,044
3,934
3,917
15,155
8,961
$
(1,468
)
941
(28
)
(369
)
1,591
951
(292
)
2,836
1,438
(792
)
4,338
2,179
(752
)
(a)
Included exposures in IB and Retail Financial Services segments.
(b)
Excluded from the table above are certain mortgage-related assets that are carried
at fair value and recorded in trading assets, such as: (i) U.S. government agency and U.S.
government-sponsored enterprise securities that are liquid and of high credit quality of
$58.9 billion at December 31, 2008; and (ii) reverse mortgages of $4.3 billion at December 31,
2008, for which the principal risk is mortality risk. Also excluded
are mortgage servicing rights,
which are reported in Note 18 on pages 187188 of this Annual Report.
(c)
Also excluded from the table above are certain mortgage-related financing
transactions, which are collateralized by mortgage-related assets, of $5.7 billion at
December 31, 2008. These financing transactions are excluded from the table as they are
accounted for on an accrual basis of accounting. For financings deemed to be impaired,
impairment is measured and recognized based upon the fair value of the collateral. Of
these financing transactions, $1.2 billion at December 31, 2008, was considered impaired.
(d)
The amounts presented reflect the effects of derivatives utilized to risk manage
the gross exposures arising from cash-based instruments and are presented on a bond or
loan equivalent (notional) basis. Derivatives are excluded from
the gross exposure as they are principally used for risk management
purposes.
(e)
Net gains and losses include all revenue related to the positions (i.e., interest income, changes in fair value of the assets, changes in fair value of the related
risk management positions, and interest expense related to the liabilities funding
the positions).
JPMorgan Chase & Co. / 2008 Annual Report
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Residential mortgage loans and mortgage-backed
securities are classified within level 2 or level 3
of the valuation hierarchy depending on the level
of liquidity and activity in the markets for a
particular product. Level 3 assets include
residential whole loans, prime and Alt-A
residential mortgage-backed securities rated below
AAA, subprime residential mortgage-backed
securities and single-name CDS on ABS. Products
that continue to have reliable price transparency
as evidenced by consistent market transactions,
such as AAA-rated prime and Alt-A securities, as
well as agency securities, continue to be
classified in level 2.
While commercial mortgages and commercial
mortgage-backed securities are classified within
level 2 or level 3 of the valuation hierarchy,
depending on the level of liquidity and activity in
the markets, the majority of these mortgages,
including both loans and lower-rated securities,
are currently classified in level 3. Level 2 assets
include AAA-rated fixed-rate commercial
mortgage-backed securities.
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Unrealized gains/(losses)
included in other
Net gains/(losses)
comprehensive income
reported in income
(pretax)
Exposures as of
year ended
year ended
(in millions)
December 31, 2008
December 31,
2008
(a)
December 31, 2008
$
6,027
$
(32
)
$
(1,769
)
868
(196
)
194
(89
)
(32
)
2,075
2
(156
)
3,939
(684
)
$
6,424
$
23
$
165
558
(5
)
(4
)
110,403
458
1,915
9,657
11
(54
)
(a)
Excludes related net interest income.
$6.9 billion of prime and Alt-A securities, principally rated AAA. The fair value
of these securities is determined based upon independent pricing services supported by
relevant and observable market data for similar securities. The Firm classifies these
securities in level 2 of the valuation hierarchy.
$3.9 billion of commercial mortgage-backed securities, principally rated AAA. The
fair value of these securities is determined using a third party pricing service that
uses relevant and observable market data. The Firm classifies these securities in level 2
of the valuation hierarchy.
$127.0 billion of U.S. government agencies or U.S. government-sponsored enterprise
mortgage-backed securities. Where these securities trade in active markets and there is
market-observable pricing, they are classified in level 1 of the valuation hierarchy.
Where the determination of fair value is based on broker quotes and independent pricing
services, supported by relevant and observable
market data, the Firm classifies such securities in level 2 of the valuation hierarchy.
JPMorgan Chase & Co. / 2008 Annual Report
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In connection with the initial adoption of
SFAS 157, the Firm recorded the following on
January 1, 2007:
a cumulative effect increase to retained earnings of $287 million, primarily
related to the release of profit previously deferred in accordance with EITF 02-3;
an increase to pretax income of $166 million ($103 million after-tax) related to the
incorporation of the Firms creditworthiness in the valuation of liabilities recorded at
fair value; and
an increase to pretax income of $464 million ($288 million after-tax) related to
valuations of nonpublic private equity investments.
Many but not all of the financial instruments held
by the Firm are recorded at fair value on the
Consolidated Balance Sheets. SFAS 107 requires
disclosure of the estimated fair value of certain
financial instruments and the methods and
significant assumptions used to estimate their fair
value. Financial instruments within the scope of
SFAS 107 are included in the table below.
Additionally, certain financial instruments and all
nonfinancial instruments are excluded from the
scope of SFAS 107. Accordingly, the fair value
disclosures required by SFAS 107 provide only a
partial estimate of the fair value of JPMorgan
Chase. For example, the Firm has developed
long-term relationships with its customers through
its deposit base and credit card accounts, commonly
referred to as core deposit intangibles and credit
card relationships. In the opinion of management,
these items, in the aggregate, add significant
value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
Certain financial instruments that are not carried
at fair value on the Consolidated Balance Sheets
are carried at amounts that approximate fair value
due to their short-term nature and generally
negligible credit risk. These instruments include
cash and due from banks, deposits with banks,
federal funds sold and securities purchased under
resale agreements and securities borrowed with short-dated maturities,
short-term receivables and
accrued interest receivable, commercial paper,
federal funds purchased and securities loaned or sold under
repurchase agreements with short-dated maturities,
other borrowed funds (excluding advances from Federal Home Loan Banks), accounts payable and accrued
liabilities. In addition, SFAS 107 requires that
the fair value for deposit liabilities with no
stated maturity (i.e., demand, savings and certain
money market deposits) be equal to their carrying
value. SFAS 107 does not allow for the recognition
of the inherent funding value of these instruments.
142
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2008
2007
Carrying
Estimated
Appreciation/
Carrying
Estimated
Appreciation/
December 31, (in billions)
value
fair value
(depreciation)
value
fair value
(depreciation)
$
226.0
$
226.0
$
$
76.4
$
76.4
$
203.1
203.1
170.9
170.9
124.0
124.0
84.2
84.2
510.0
510.0
491.4
491.4
205.9
205.9
85.4
85.4
721.7
700.0
(21.7
)
510.1
510.7
0.6
9.4
9.4
8.6
8.6
104.6
104.7
0.1
66.6
67.1
0.5
$
2,104.7
$
2,083.1
$
(21.6
)
$
1,493.6
$
1,494.7
$
1.1
$
1,009.3
$
1,010.2
$
(0.9
)
$
740.7
$
741.3
$
(0.6
)
192.5
192.5
154.4
154.4
37.8
37.8
49.6
49.6
132.4
134.1
(1.7
)
28.8
28.8
166.9
166.9
157.9
157.9
183.3
183.3
89.0
89.0
10.6
10.5
0.1
14.0
13.9
0.1
270.7
262.1
8.6
199.0
198.7
0.3
$
2,003.5
$
1,997.4
$
6.1
$
1,433.4
$
1,433.6
$
(0.2
)
$
(15.5
)
$
0.9
(a)
The fair value of interest-bearing deposits are estimated by discounting cash
flows using the appropriate market rates for the applicable maturity.
(b)
Fair value for long-term debt, including junior subordinated deferrable interest
debentures held by trusts that issued guaranteed capital debt securities, is based upon
current market rates and adjusted for JPMorgan Chases credit quality.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
The following is a discussion of the primary
financial instruments for which fair value
elections were made and the basis for those
elections:
On January 1, 2007, the Firm elected to record, at
fair value, the following:
Loans and unfunded lending-related commitments that are extended as part of IBs
principal investing activities. The transition amount related to these loans included a
reversal of the allowance for loan losses of $56 million.
Certain loans held-for-sale. These loans were reclassified to trading assets debt
and equity instruments. This election enabled the Firm to record loans purchased as part
of the Investment Banks commercial mortgage securitization activity and proprietary
activities at fair value and discontinue SFAS 133 fair value hedge relationships for
certain originated loans.
Loans purchased or originated as part of IBs securitization warehousing
activities.
Prime mortgage loans originated with the intent to sell within Retail Financial
Services (RFS).
On January 1, 2007, the Firm elected to record at
fair value resale and repurchase agreements with
an embedded derivative or a maturity of greater
than one year. The intent of this election was to
mitigate volatility due to the differences in the
measurement basis for the agreements (which were
previously accounted for on an accrual basis) and
the associated risk management arrangements (which
are accounted for on a fair value basis). An
election was not made for short-term agreements,
as the carrying value for such agreements
generally approximates fair value. For additional
information regarding these agreements, see Note
13 on pages 162163 of this Annual Report.
IB issues structured notes as part of its
client-driven activities. Structured notes are
financial instruments that contain embedded
derivatives and are included in long-term debt. On
January 1, 2007, the Firm elected to record at fair
value all structured notes not previously elected
or eligible for election under SFAS 155. The
election was made to mitigate the volatility due to
the differences in the measurement basis for
structured notes and the associated risk management
arrangements as well as to eliminate the
operational burdens of having different accounting
models for the same type of financial instrument.
In the third quarter of 2008, the Firm elected
the fair value option for the ABCP investments
purchased under the Federal Reserves AML
Facility for U.S. money market mutual funds, as
well as the related nonrecourse advance from the
Federal Reserve Bank of Boston (FRBB). At
December 31, 2008, ABCP investments of
$11.2 billion were recorded in other assets; the
corresponding non-recourse liability to the FRBB
in the same amount was recorded in other borrowed
funds. For further discussion, see Note 21 on page
190 of this Annual Report.
144
JPMorgan Chase & Co. / 2008 Annual Report
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The following table presents the changes in fair value included in the Consolidated Statements of
Income for the years ended December 31, 2008 and 2007, for items for which the fair value election
was made. The
profit and loss information presented below only includes the financial instruments that were
elected to be measured at fair value; related risk management instruments, which are required to be
measured at fair value, are not included in the table.
2008
2007
Principal
Other
Total changes in
Principal
Other
Total changes in
December 31, (in millions)
transactions
(c)
income
(c)
fair value recorded
transactions
(c)
income
(c)
fair value recorded
$
1,139
$
$
1,139
$
580
$
$
580
29
29
(870
)
(58
)
(d)
(928
)
421
(1
)
(d)
420
(9,802
)
(283
)
(d)
(10,085
)
(517
)
(157
)
(d)
(674
)
696
1,178
(d)
1,874
188
1,033
(d)
1,221
(1,991
)
(1,991
)
102
102
(42
)
(42
)
40
40
(660
)
(e)
(660
)
30
(e)
30
(132
)
(132
)
(906
)
(906
)
(127
)
(127
)
(78
)
(78
)
1,888
1,888
(412
)
(412
)
35
35
(17
)
(17
)
(460
)
(460
)
355
355
(228
)
(228
)
1,174
1,174
771
771
16,202
16,202
(2,985
)
(2,985
)
(a)
Total changes in instrument-specific credit risk related to structured notes were
$1.2 billion and $806 million for the years ended December 31, 2008 and 2007,
respectively, which includes adjustments for structured notes classified within deposits
and other borrowed funds, as well as long-term debt.
(b)
Structured notes are debt instruments with embedded derivatives that are tailored
to meet a clients need for derivative risk in funded form. The embedded derivative is the
primary driver of risk. The 2008 gain included in Other changes in fair value results
from a significant decline in the value of certain structured notes where the embedded
derivative is principally linked to either equity indices or commodity prices, both of
which declined sharply during the second half of 2008. Although the risk associated with
the structured notes is actively managed, the balance reported in
this table does not include
the income statement impact of such risk management instruments.
(c)
Included in the amounts are gains and losses related to certain financial
instruments previously carried at fair value by the Firm, such as structured liabilities
elected pursuant to SFAS 155 and loans purchased as part of the Investment Banks trading
activities.
(d)
Reported in mortgage fees and related income.
(e)
Reported in other income.
The following describes how the gains and losses
included in earnings during 2008 and 2007, which
were attributable to changes in
instrument-specific credit risk, were determined.
Loans and lending-related commitments: For floating-rate instruments, all changes in
value are
attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of
the changes in value for the period is made between those changes in value that are
interest rate-related and changes in value that are credit-related. Allocations are
generally based upon an analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar entities or industries.
Long-term debt: Changes in value attributable to instrument-specific credit risk
were derived principally from observable changes in the Firms credit spread. The gain for
2008 and 2007 was attributable to the widening of the Firms credit spread.
Resale and repurchase agreements, securities borrowed agreements and securities
lending agreements: Generally, for these types of agreements, there is a requirement that
collateral be maintained with a market value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an immaterial adjustment for
instrument-specific credit risk related to these agreements.
The following table reflects the difference between
the aggregate fair value and the aggregate
remaining contractual principal balance outstanding
as of December 31, 2008 and 2007, for loans and
long-term debt for which the SFAS 159 fair value
option has been elected. The loans were classified
in trading assets debt and equity instruments or
in loans.
JPMorgan Chase & Co. / 2008 Annual Report
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2008
2007
Fair value
Fair value
Remaining
over (under)
Remaining
over (under)
aggregate
remaining
aggregate
remaining
contractual
aggregate
contractual
aggregate
principal
contractual
principal
contractual
amount
principal amount
amount
principal amount
December 31, (in millions)
outstanding
Fair value
outstanding
outstanding
Fair value
outstanding
$
$
$
$
$
$
11
11
7,454
1,519
(5,935
)
3,044
1,176
(1,868
)
189
51
(138
)
15
5
(10
)
7,643
1,570
(6,073
)
3,070
1,192
(1,878
)
34,038
30,283
(3,755
)
56,164
56,638
474
10,206
7,441
(2,765
)
9,011
8,580
(431
)
$
51,887
$
39,294
$
(12,593
)
$
68,245
$
66,410
$
(1,835
)
$
(27,043
)
(b)
$
(26,241
)
$
(802
)
$
(24,262
)
(b)
$
(24,033
)
$
(229
)
NA
(31,973
)
NA
NA
(46,423
)
NA
NA
$
(58,214
)
NA
NA
$
(70,456
)
NA
$
$
$
$
(58
)
$
(58
)
$
NA
(1,735
)
NA
NA
(2,946
)
NA
NA
$
(1,735
)
NA
NA
$
(3,004
)
NA
(a)
Remaining contractual principal is not applicable to nonprincipal protected notes.
Unlike principal protected notes for which the Firm is obligated to return a stated amount
of principal at the maturity of the note, nonprincipal protected notes do not obligate the
Firm to return a stated amount of principal at maturity but to return an amount based upon
the performance of an underlying variable or derivative feature embedded in the note.
(b)
Where the Firm issues principal protected zero coupon or discount notes, the
balance reflected as the remaining contractual principal is the final principal payment at
maturity.
Year ended December 31, (in millions)
2008
2007
2006
$
(9,791
)
$
4,736
$
9,418
(908
)
4,279
1,360
$
(10,699
)
$
9,015
$
10,778
(a)
Includes revenue on private equity investments held in the Private Equity business
within Corporate/Private Equity and those held in other business segments.
Trading assets include debt and equity instruments
held for trading purposes that JPMorgan Chase owns
(long positions), certain loans for which the
Firm manages on a fair value basis and has elected
the SFAS 159 fair value option, and physical
commodities inventories that are accounted for at
the lower of cost or fair value.
Trading liabilities include debt and equity
instruments that the Firm has sold to other parties
but does not own (short positions). The Firm is
obligated to purchase instruments at a future date
to cover the short positions. Included in trading
assets and trading liabilities are the reported
receivables (unrealized gains) and payables
(unrealized losses) related to derivatives. Trading
assets and liabilities are carried at fair value on
the Consolidated Balance Sheets. For a discussion
of the valuation of trading assets and trading
liabilities, see Note 5 on pages 144146 of this
Annual Report.
146
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
December 31, (in millions)
2008
2007
$
22,121
$
32,378
6,037
791
35
2,264
52,871
33,910
9,149
9,928
13,002
13,090
7,492
8,252
38,647
67,921
60,323
53,941
78,546
93,248
31,802
57,814
1,725
6,136
787
3,572
680
1,459
805
974
2,816
8,256
1,296
321
722
605
1,343
2,675
1,604
169
3,868
4,879
687
1,026
3,581
4,490
7,418
6,174
347,357
414,273
64,101
36,020
44,695
22,083
14,830
9,419
24,715
5,616
14,285
3,998
162,626
77,136
$
509,983
$
491,409
2008
2007
$
45,274
$
89,162
48,449
25,542
23,566
11,613
11,921
6,942
20,352
7,552
17,316
17,056
121,604
68,705
$
166,878
$
157,867
(a)
Prior periods have been revised to reflect the current presentation.
(b)
Primarily represents securities sold, not yet purchased.
Year ended December 31, (in millions)
2008
2007
2006
$
384,102
$
381,415
$
280,079
121,417
65,439
57,368
$
78,841
$
94,737
$
102,794
93,200
65,198
57,938
(a)
Primarily represent securities sold, not yet purchased.
Private equity investments are recorded in other
assets on the Consolidated Balance Sheets. The
following table presents the carrying value and
cost of the private equity investment portfolio
held by the Private Equity business within
Corporate/Private Equity for the dates indicated.
December 31,
2008
2007
(in millions)
Carrying value
Cost
Carrying value
Cost
$
6,852
$
8,257
$
7,153
$
6,231
JPMorgan Chase & Co. / 2008 Annual Report
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This revenue category includes advisory and equity
and debt underwriting fees. Advisory fees are
recognized as revenue when the related services
have been performed. Underwriting fees are
recognized as revenue when the Firm has rendered
all services to the issuer and is entitled to
collect the fee from the issuer, as long as there
are no other contingencies associated with the fee
(e.g., the fee is not contingent upon the customer
obtaining financing). Underwriting fees are net of
syndicate expense; the Firm recognizes credit
arrangement and syndication fees as revenue after
satisfying certain retention, timing and yield
criteria.
This revenue category includes fees from loan
commitments, standby letters of credit, financial
guarantees, deposit-related fees in lieu of
compensating balances, cash management-related
activities or transactions, deposit accounts and
other loan-servicing activities. These fees are
recognized over the period in which the related
service is provided.
This revenue category includes fees from investment
management and related services, custody, brokerage
services, insurance premiums and commissions, and
other products. These fees are recognized over the
period in which the related service is provided.
Performance-based fees, which are earned based upon
exceeding certain benchmarks or other performance
targets, are accrued and recognized at the end of
the performance period in which the target is met.
Year ended December 31, (in millions)
2008
2007
2006
$
5,562
$
6,364
$
4,429
432
639
567
5,994
7,003
4,996
2,452
2,401
2,430
3,141
2,702
2,184
2,356
2,250
2,245
5,497
4,952
4,429
$
13,943
$
14,356
$
11,855
(a)
Includes fees for custody, securities lending, funds services and broker-dealer clearance.
This revenue category primarily reflects Retail
Financial Services mortgage banking revenue,
including: fees and income derived from mortgages
originated with the intent to sell; mortgage sales
and servicing; the impact of risk management
activities associated with the mortgage pipeline,
warehouse loans and MSRs; and revenue related to
any residual interests held from mortgage
securitizations. This revenue category also
includes gains and losses on sales and lower of
cost or fair value adjustments for mortgage loans
held-for-sale, as well as changes in fair value for
mortgage loans originated with the intent to sell
and measured at fair value under SFAS 159. For
loans measured at fair value under SFAS 159,
origination costs are recognized in the associated
expense category as incurred. Costs to originate
loans held-for-sale and accounted for at the lower
of cost or fair value are deferred and recognized
as a component of the gain or loss on sale. Net
interest
income from mortgage loans and securities gains and
losses on available-for-sale (AFS) securities
used in mortgage-related risk management activities
are recorded in interest income and securities
gains (losses), respectively. For a further
discussion of MSRs, see Note 18 on pages 187188
of this Annual Report.
This revenue category includes interchange income
from credit and debit cards and servicing fees
earned in connection with securitization
activities. Volume-related payments to partners and
expense for rewards programs are netted against
interchange income; expense related to rewards
programs are recorded when the rewards are earned
by the customer, as more fully described below.
Other fee revenue is recognized as earned, except
for annual fees, which are deferred and recognized
on a straight-line basis over the 12-month period
to which they pertain. Direct loan origination
costs are also deferred and recognized over a
12-month period. In addition, due to the
consolidation of Chase Paymentech Solutions in the
fourth quarter of 2008, this category now includes
net fees earned for processing card transactions
for merchants.
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JPMorgan Chase & Co. / 2008 Annual Report
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The Firm has contractual agreements with numerous
affinity organizations and co-brand partners, which
grant the Firm exclusive rights to market to the
members or customers of such organizations and
partners. These organizations and partners endorse
the credit card programs and provide their mailing
lists to the Firm, and they may also conduct
marketing activities and provide awards under the
various credit card programs. The terms of these
agreements generally range from three to ten years.
The economic incentives the Firm pays to the
endorsing organizations and partners typically
include payments based upon new account
originations, charge volumes, and the cost of the
endorsing organizations or partners marketing
activities and awards.
Year ended December 31, (in millions)
2008
2007
2006
$
38,347
$
36,660
$
33,121
6,344
5,232
4,147
17,236
17,041
10,942
5,983
6,497
5,578
2,297
4,539
3,402
1,916
1,418
1,265
652
895
73,018
71,387
59,107
14,546
21,653
17,042
10,933
16,142
14,086
8,355
6,606
5,503
consolidated VIEs
405
580
1,234
34,239
44,981
37,865
38,779
26,406
21,242
19,445
6,864
3,270
1,534
$
20,979
$
6,864
$
3,270
$
17,800
$
19,542
$
17,972
(a)
Interest income and interest expense include the current period interest accruals
for financial instruments measured at fair value except for financial instruments
containing embedded derivatives that would be separately accounted for in accordance with
SFAS
133 absent the SFAS 159 fair value election; for those instruments, all changes in fair
value, including any interest elements, are reported in principal transactions revenue.
(b)
As a result of restructuring certain multi-seller conduits the Firm administers,
JPMorgan Chase deconsolidated $29 billion of interests in purchased receivables, $3
billion of loans and $1 billion of securities and recorded $33 billion of lending-related
commitments during 2006.
(c)
Predominantly margin loans.
(d)
Includes brokerage customer payables.
(e)
Includes accounting conformity loan loss reserve provision related to the
acquisition of Washington Mutuals banking operations.
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Table of Contents
The Firm has a qualified noncontributory U.S.
defined benefit pension plan that provides benefits
to substantially all U.S. employees. The U.S. plan
employs a cash balance formula in the form of pay
and interest credits to determine the benefits to
be provided at retirement, based upon eligible
compensation and years of service. Employees begin
to accrue plan benefits after completing one year
of service, and beginning January 1, 2008, benefits
generally vest after three years of service. The
Firm also offers benefits through defined benefit
pension plans to qualifying employees in certain
non-U.S. locations based upon factors such as
eligible compensation, age and/or years of service.
JPMorgan Chase offers several defined contribution
plans in the U.S. and in certain non-U.S.
locations, all of which are administered in
accordance with applicable local laws and
regulations. The most significant of these plans is
The JPMorgan Chase 401(k) Savings Plan (the 401(k)
Savings Plan), which covers substantially all U.S.
employees. The 401(k) Savings Plan allows employees
to make pretax and Roth 401(k) contributions to
tax-deferred investment portfolios. The JPMorgan
Chase Common Stock Fund, which is an investment
option under the 401(k) Savings Plan, is a
nonleveraged employee stock ownership plan. The
Firm matches eligible employee contributions up to
a certain percentage of benefits-eligible
compensation per pay period, subject to plan and
legal limits. Employees begin to receive matching
contributions after completing a
one-year-of-service requirement and are immediately
vested in the Firms contributions when made.
Employees with total annual cash compensation of
$250,000 or more are not eligible for matching
contributions. The 401(k) Savings Plan also permits
discretionary profit-sharing contributions by
participating companies for certain employees,
subject to a specified vesting schedule.
JPMorgan Chase offers postretirement medical and
life insurance benefits to certain retirees and
postretirement medical benefits to qualifying U.S.
employees. These benefits vary with length of
service and date of hire and provide for limits on
the Firms share of covered medical benefits. The
medical benefits are contributory, while the life
insurance benefits are noncontributory.
Postretirement medical benefits also are offered to
qualifying U.K. employees.
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Defined benefit pension plans
As of or for the year ended December 31,
U.S.
Non-U.S.
OPEB plans
(d)
(in millions)
2008
2007
2008
2007
2008
2007
$
(7,556
)
$
(8,098
)
$
(2,743
)
$
(2,917
)
$
(1,204
)
$
(1,443
)
(278
)
(270
)
(29
)
(36
)
(5
)
(7
)
(488
)
(468
)
(142
)
(144
)
(74
)
(74
)
2
(1
)
(e)
(5
)
NA
NA
(3
)
(3
)
(61
)
(57
)
(147
)
494
214
327
99
231
673
789
105
90
154
165
NA
NA
NA
NA
(10
)
(11
)
4
(6
)
(6
)
24
(3
)
(1
)
(1
)
(3
)
594
(84
)
13
(1
)
$
(7,796
)
$
(7,556
)
$
(2,007
)
$
(2,743
)
$
(1,095
)
$
(1,204
)
$
9,960
$
9,955
$
2,933
$
2,813
$
1,406
$
1,351
(2,377
)
753
(298
)
57
(246
)
87
38
37
88
92
3
3
3
3
3
(673
)
(789
)
(105
)
(90
)
(37
)
(35
)
(24
)
4
(613
)
79
$
6,948
(c)
$
9,960
(c)
$
2,008
$
2,933
$
1,126
$
1,406
$
(848
)
$
2,404
$
1
$
190
$
31
$
202
$
(7,413
)
$
(7,184
)
$
(1,977
)
$
(2,708
)
NA
NA
(a)
Represents overfunded plans with an aggregate balance of $122 million and $3.3
billion at December 31, 2008 and 2007, respectively, and underfunded plans with an
aggregate balance of $938 million and $491 million at December 31, 2008 and 2007,
respectively.
(b)
The table above does not include any amounts attributable to the Washington Mutual
Pension and OPEB plans. The disposition of those plans has not been determined.
(c)
At December 31, 2008 and 2007, approximately $313 million and $299 million,
respectively, of U.S. plan assets included participation rights under participating
annuity contracts.
(d)
Includes an unfunded accumulated postretirement benefit obligation of $32 million
and $49 million at December 31, 2008 and
2007, respectively, for the U.K. plan.
(e)
Represents change resulting from the Bear Stearns merger.
Defined benefit pension plans
As of the year ended December 31,
U.S.
Non-U.S.
OPEB plans
(in millions)
2008
2007
2008
2007
2008
2007
$
(3,493
)
$
(250
)
$
(492
)
$
(434
)
$
(349
)
$
(98
)
(26
)
(31
)
2
2
40
58
$
(3,519
)
$
(281
)
$
(490
)
$
(432
)
$
(309
)
$
(40
)
JPMorgan Chase & Co. / 2008 Annual Report
151
Table of Contents
Defined benefit pension plans
U.S.
Non-U.S.
OPEB plans
Year ended December 31, (in millions)
2008
2007
2006
2008
2007
2006
2008
2007
2006
$
278
$
270
$
281
$
29
$
36
$
37
$
5
$
7
$
9
488
468
452
142
144
120
74
74
78
(719
)
(714
)
(692
)
(152
)
(153
)
(122
)
(98
)
(93
)
(93
)
12
25
55
45
14
29
4
5
5
(16
)
(16
)
(19
)
1
2
1
4
2
2
(1
)
4
3
1
1
1
2
52
29
60
47
82
86
(31
)
(11
)
8
11
4
2
14
27
36
NA
NA
NA
63
33
62
61
109
122
(31
)
(11
)
8
263
268
254
286
219
199
NA
NA
NA
$
326
$
301
$
316
$
347
$
328
$
321
$
(31
)
$
(11
)
$
8
$
3,243
$
(533
)
NA
$
235
$
(176
)
NA
$
248
$
(223
)
NA
NA
(2
)
NA
NA
NA
(27
)
(55
)
NA
(14
)
NA
(5
)
(5
)
NA
NA
15
16
NA
NA
(5
)
NA
3
3
NA
NA
1
NA
NA
NA
(150
)
NA
3
NA
3,238
(538
)
NA
58
(237
)
NA
269
(218
)
NA
$
3,290
$
(509
)
NA
$
105
$
(155
)
NA
$
238
$
(229
)
NA
(a)
Includes various defined benefit pension plans, which are individually immaterial.
Defined benefit pension plans
OPEB plans
Year ended December 31, 2009 (in millions)
U.S.
Non-U.S.
U.S.
Non-U.S.
$
301
$
42
$
$
4
(14
)
$
305
$
42
$
(14
)
$
JPMorgan Chases expected long-term rate of return
for U.S. defined benefit pension and OPEB plan
assets is a blended average of the investment
advisors projected long-term (10 years or more)
returns for the various asset classes, weighted by
the asset allocation. Returns on asset classes are
developed using a forward-looking building-block
approach and are not strictly based upon historical
returns. Equity returns are generally developed as
the sum of inflation, expected real earnings growth
and expected long-term dividend yield. Bond returns
are generally developed as the sum of inflation,
real bond yield and
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JPMorgan Chase & Co. / 2008 Annual Report
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U.S.
Non-U.S.
December 31,
2008
2007
2008
2007
6.65
%
6.60
%
2.00-6.20
%
2.25-5.80
%
6.70
6.60
6.20
5.80
4.00
4.00
3.00-4.00
3.00-4.25
8.50
9.25
7.00
5.75
5.00
5.00
5.50
4.00
2014
2014
2012
2010
U.S.
Non-U.S.
Year ended December 31,
2008
2007
2006
2008
2007
2006
6.60
%
5.95
%
5.70
%
2.25-5.80
%
2.25-5.10
%
2.00-4.70
%
6.60
5.90
5.65
5.80
5.10
4.70
7.50
7.50
7.50
3.25-5.75
3.25-5.60
3.25-5.50
7.00
7.00
6.84
NA
NA
NA
4.00
4.00
4.00
3.00-4.25
3.00-4.00
3.00-3.75
9.25
10.00
10.00
5.75
6.63
7.50
5.00
5.00
5.00
4.00
4.00
4.00
2014
2014
2013
2010
2010
2010
For the year ended
1-Percentage-
1-Percentage-
December 31, 2008
point
point
(in millions)
increase
decrease
$
3
$
(3
)
45
(40
)
JPMorgan Chase & Co. / 2008 Annual Report
153
Table of Contents
The investment policy for the Firms postretirement
employee benefit plan assets is to optimize the
risk-return relationship as appropriate to the
respective plans needs and goals, using a global
portfolio of various asset classes diversified by
market segment, economic sector and issuer.
Specifically, the goal is to optimize the asset mix
for future benefit obligations, while managing
various risk factors and each plans investment
return objectives. For example, long-duration fixed
income securities are included in the U.S.
qualified pension plans asset allocation, in
recognition of its long-duration obligations. Plan
assets are managed by a combination of internal and
external investment managers and are rebalanced
within approved ranges on a continued basis. The
Firm reviews the allocation daily and all factors
that impact portfolio changes to ensure the Plan
stays within these ranges, rebalancing when deemed
necessary.
Defined benefit pension plans
U.S.
Non-U.S.
OPEB plans
(a)
Target
% of plan assets
Target
% of plan assets
Target
% of plan assets
December 31,
Allocation
2008
2007
Allocation
2008
2007
Allocation
2008
2007
10-30
%
25
%
28
%
68
%
73
%
70
%
50
%
50
%
50
%
25-60
36
45
27
21
25
50
50
50
5-20
7
9
1
1
1
15-50
32
18
4
5
4
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
(a)
Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
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JPMorgan Chase & Co. / 2008 Annual Report
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U.S.
Non-U.S.
December 31,
2008
2007
2006
2008
2007
2006
(25.17
)%
7.96
%
13.40
%
(21.58)-5.06
%
0.06-7.51
%
2.80-7.30
%
(17.89
)
6.51
9.30
NA
NA
NA
The following table presents benefit payments expected to be paid, which include the effect of
expected future service, for the years indicated. The OPEB medical and life insurance payments are
net of expected retiree contributions.
U.S.
Non-U.S.
Year ended December 31,
defined benefit
defined benefit
OPEB before
Medicare
(in millions)
pension plans
pension plans
Medicare Part D subsidy
Part D subsidy
$
917
$
88
$
109
$
11
928
94
111
12
597
99
112
13
616
102
110
14
629
107
109
15
3,333
571
513
87
JPMorgan Chase & Co. / 2008 Annual Report
155
Table of Contents
In 2008, 2007 and 2006, JPMorgan Chase granted
long-term stock-based awards to certain key
employees under the 2005 Long-Term Incentive Plan
(the 2005 Plan). The 2005 Plan, plus prior Firm
plans and plans assumed as the result of
acquisitions, constitute the Firms stock-based
incentive plans (LTI Plan). The 2005 Plan became
effective on May 17, 2005, after approval by
shareholders at the 2005 annual meeting. In May
2008, the 2005 Plan was amended and under the terms
of the amended plan as of December 31, 2008, 348
million shares of common stock are available for
issuance through May 2013. The amended 2005 Plan is
the only active plan under which the Firm is
currently granting stock-based incentive awards.
Compensation expense for RSUs is measured based
upon the number of shares granted multiplied by
the stock price at the grant date and is
recognized in net income as previously described.
The following table summarizes JPMorgan Chases
RSU activity for 2008.
Weighted-
(in thousands, except weighted
Number of
average grant
average data)
Shares
date fair value
99,017
$
43.11
85,890
40.37
5,975
42.24
(36,606
)
38.95
(6,232
)
42.90
148,044
$
42.53
156
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
(in thousands, except
Number of
Weighted-average
Weighted-average
Aggregate
weighted-average data)
options/SARs
exercise price
remaining contractual life (in years)
intrinsic value
325,931
$
41.70
9,341
41.37
3,906
399.91
(34,761
)
33.73
(3,382
)
44.13
(17,666
)
47.61
283,369
$
47.21
3.5
$
224,632
242,653
47.85
2.7
224,632
During 2006, the incremental expense related to the
Firms adoption of SFAS 123R was $712 million. This
amount represents an accelerated noncash
recognition of costs that would otherwise have been
incurred in future periods. Also, as a result of
adopting SFAS 123R, the Firms income from
continuing operations (pretax) for the year ended
December 31, 2006, was lower by $712 million, and
each of income from continuing operations
(after-tax) and net income for the year ended
December 31, 2006, was lower by $442 million, than
if the Firm had continued to account for
stock-based incentives under APB 25 and SFAS 123.
Basic and diluted earnings per share from
continuing operations, as well as basic and diluted
net income per share, for the year ended December
31, 2006 were $.13 and $.12 lower, respectively,
than if the Firm had not adopted SFAS 123R.
The Firm recognized noncash compensation expense
related to its various employee stock-based
incentive awards of $2.6 billion, $2.0 billion and
$2.4 billion (including the $712 million
incremental impact of adopting SFAS 123R) for the
years ended December 31, 2008, 2007, and 2006,
respectively, in its Consolidated Statements of
Income. These amounts included an accrual for the
estimated cost of stock awards to be granted to
full-career eligible employees of $409 million,
$500 million and $498 million for the years ended
December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008, approximately $1.9 billion
(pretax) of compensation cost related to unvested
awards has not yet been charged to net income. That
cost is expected to be amortized into compensation
expense over a weighted-average period of 1.3
years. The Firm does not capitalize any
compensation cost related to share-based
compensation awards to employees.
The total income tax benefit related to
stock-based incentive arrangements recognized in
the Firms Consolidated Statements of Income for
the years ended December 31, 2008, 2007 and 2006,
was $1.1 billion, $810 million and $947 million,
respectively.
Year ended December 31, (in millions)
2008
2007
2006
$
1,026
$
2,023
$
1,924
72
238
211
The following table presents the assumptions used
to value employee stock options and SARs granted
during the period under the Black-Scholes
valuation model.
Year ended December 31,
2008
2007
2006
3.90
%
4.78
%
5.11
%
3.57
3.18
2.89
34
33
23
6.8
6.8
6.8
JPMorgan Chase & Co. / 2008 Annual Report
157
Table of Contents
2008
Year ended December 31, (in millions)
Bear Stearns
Washington Mutual
Total
2007
(b)
2006
(b)
$
181
$
113
$
294
$
(19
)
$
26
42
42
17
25
85
11
96
188
239
23
15
$
308
$
124
$
432
$
209
$
305
(a)
With the exception of occupancy and technology-related write-offs, all of the costs in
the table required the expenditure of cash.
(b)
The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation and the
Bank of New York transaction.
(a)
The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation.
(b)
Excludes $10 million and $21 million at December 31, 2007 and 2006, respectively,
related to the Bank of New York transaction.
Year ended December 31,
(in millions)
2008
2007
2006
$
1,890
$
667
$
399
(330
)
(b)
(503
)
(942
)
$
1,560
$
164
$
(543
)
(a)
Proceeds from securities sold were within approximately 2% of amortized cost.
(b)
2008 includes $76 million of losses due to the other-than-temporary impairment of
subprime mortgage-backed securities.
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JPMorgan Chase & Co. / 2008 Annual Report
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2008
2007
Gross
Gross
Gross
Gross
Amortized
unrealized
unrealized
Fair
Amortized
unrealized
unrealized
Fair
December 31, (in millions)
cost
gains
losses
value
cost
gains
losses
value
$
616
$
2
$
7
$
611
$
2,470
$
14
$
2
$
2,482
6,281
148
5
6,424
8
1
9
69
13
82
73
9
82
557
9
8
558
108,360
2,257
214
110,403
62,505
641
55
63,091
9,717
37
90
9,664
6
2
8
3,479
94
238
3,335
92
1
2
91
17,226
64
8
17,282
2,040
2,040
8,173
173
2
8,344
6,804
18
28
6,794
9,358
257
61
9,554
1,927
1
4
1,924
3,073
2
7
3,068
4,124
55
1
4,178
7,762
4
1,739
6,027
3,551
7
5
3,553
213
19
194
384
41
28
397
1,064
196
868
2,233
24
182
2,075
4,623
684
3,939
13,651
8
2,268
11,391
775
47
728
1,008
4
134
878
11,847
168
820
11,195
18
1
17
29
29
$
209,328
$
3,264
$
6,683
$
205,909
$
84,788
$
790
$
172
$
85,406
$
34
$
1
$
$
35
$
44
$
1
$
$
45
(a)
Consists primarily of mortgage-related obligations.
(b)
Consists primarily of mortgage-backed securities issued by U.S. government-sponsored
entities.
JPMorgan Chase & Co. / 2008 Annual Report
159
Table of Contents
Securities with gross unrealized losses
Less than 12 months
12 months or more
Gross
Gross
Total Gross
unrealized
Fair
unrealized
Total Fair
unrealized
2008
(in millions)
Fair value
losses
value
losses
value
losses
$
249
$
7
$
$
$
249
$
7
2,042
5
1
2,043
5
427
8
427
8
3,547
211
468
3
4,015
214
7,410
90
7,410
90
1,129
232
16
6
1,145
238
382
8
382
8
308
1
74
1
382
2
558
54
30
7
588
61
19
7
19
7
5,386
1,642
333
97
5,719
1,739
151
19
151
19
868
196
868
196
1,908
182
1,908
182
3,939
684
3,939
684
10,267
1,964
472
304
10,739
2,268
813
134
813
134
9,059
820
9,059
820
17
1
17
1
$
48,311
$
6,245
$
1,562
$
438
$
49,873
$
6,683
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Securities with gross unrealized losses
Less than 12 months
12 months or more
Gross
Gross
Total
Total Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
2007 (in millions)
value
losses
value
losses
value
losses
$
175
$
2
$
$
$
175
$
2
1,345
55
1,345
55
21
2
21
2
1,102
1,102
335
3
1,928
25
2,263
28
1,126
3
183
1
1,309
4
4
1
4
1
1,313
5
1,313
5
306
28
306
28
443
31
285
16
728
47
29
29
$
4,850
$
74
$
3,745
$
98
$
8,595
$
172
JPMorgan Chase & Co. / 2008 Annual Report
161
Table of Contents
By remaining maturity at
Available-for-sale securities
Held-to-maturity securities
December 31, 2008
Amortized
Fair
Average
Amortized
Fair
Average
(in millions, except ratios)
cost
value
yield
(b)
cost
value
yield
(b)
$
24,163
$
24,056
2.80
%
$
$
%
26,115
25,075
2.46
13,105
12,436
3.78
31
32
6.89
145,945
144,342
5.19
3
3
5.69
$
209,328
$
205,909
4.49
%
$
34
$
35
6.78
%
(a)
Includes securities with no stated maturity. Substantially all of the Firms
mortgage-backed securities and collateralized mortgage obligations are due in ten years or
more based upon contractual maturity. The estimated duration, which reflects anticipated
future prepayments based upon a consensus of dealers in the market, is approximately four
years for mortgage-backed securities and collateralized mortgage obligations.
(b)
The average yield is based upon amortized cost balances at year-end. Yields are
derived by dividing interest income by total amortized cost. Taxable-equivalent yields are
used where applicable.
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JPMorgan Chase & Co. / 2008 Annual Report
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December 31, (in millions)
2008
2007
$
200,265
$
169,305
124,000
84,184
$
174,456
$
126,098
6,077
10,922
(a)
Includes resale agreements of $20.8 billion and $19.1 billion accounted for at
fair value at December 31, 2008 and 2007, respectively.
(b)
Includes securities borrowed of $3.4 billion accounted for at fair value at
December 31, 2008.
(c)
Includes repurchase agreements of $3.0 billion and $5.8 billion accounted for at
fair value at December 31, 2008 and 2007, respectively.
At the principal amount outstanding, net of the allowance for loan losses, unearned
income and any net deferred loan fees or costs, for loans held for investment (other than
purchased credit-impaired loans);
At the lower of cost or fair value, with valuation changes recorded in noninterest
revenue, for loans that are classified as held-for-sale; or
At fair value, with changes in fair value recorded in noninterest revenue, for loans
classified as trading assets or risk managed on a fair value basis;
Purchased credit-impaired loans held for investment are accounted for under SOP
03-3 and initially measured at fair value, which includes estimated future credit losses.
Accordingly, an allowance for loan losses related to these loans is not recorded at the
acquisition date.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
December 31, (in millions)
2008
2007
$
68,709
$
55,655
64,214
16,748
20,615
14,757
5,918
5,770
22,330
25,883
4,990
14,440
186,776
133,253
27,941
27,659
2,667
3,527
16,381
16,740
603
720
18,711
21,968
8,965
9,209
75,268
79,823
96,650
83,314
66,881
20,275
36,996
31,497
6,521
6,490
41,041
47,851
13,955
23,649
262,044
213,076
114,335
94,832
72,266
39,988
15,330
15,473
9,018
42,603
42,350
104,746
84,352
33,715
25,314
2,028
3,989
394,041
306,298
88,813
NA
482,854
306,298
$
744,898
$
519,374
(a)
Includes Investment Bank, Commercial Banking, Treasury & Securities Services and
Asset Management.
(b)
Includes purchased credit-impaired loans of $224 million at December 31, 2008,
acquired in the Washington Mutual transaction.
(c)
Represents credits extended for real estate-related purposes to borrowers who are
primarily in the real estate development or investment businesses and which the repayment
is predominantly from the sale, lease, management, operations or refinancing of the
property.
(d)
Includes loans for commercial & industrial, real estate, financial institutions
and other of $11.0 billion, $428 million, $1.5 billion and $995 million at December 31,
2008, respectively, and $19.6 billion, $548 million, $862 million and $2.7 billion at
December 31, 2007 respectively.
(e)
Includes Retail Financial Services, Card Services and the Corporate/Private Equity
segment.
(f)
Includes billed finance charges and fees net of an allowance for uncollectible
amounts.
(g)
Includes loans for prime mortgage and other (largely student loans) of $206
million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4
billion at December 31, 2007, respectively.
(h)
Loans (other than purchased loans and those for which the SFAS 159 fair value
option has been elected) are presented net of unearned income and net deferred loan fees
of $694 million and $1.0 billion at December 31, 2008 and 2007, respectively.
164
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31, (in millions)
2008
2007
2006
$
(2,508
)
$
99
$
672
(a)
Excludes sales related to loans accounted for at fair value.
In connection with the Washington Mutual
transaction, JPMorgan Chase acquired certain loans
that it deemed to be credit-impaired under SOP
03-3. Wholesale loans with a carrying amount of
$224 million at December 31, 2008, were determined
to be credit-impaired at the date of acquisition in
accordance with SFAS 114. These wholesale loans are
being accounted for individually (not on a pooled
basis) and are reported as nonperforming loans
since cash flows for each individual loan are not
reasonably estimable. Such loans are excluded from
the remainder of the following discussion, which
relates solely to purchased credit-impaired
consumer loans.
(a)
Date of the Washington Mutual transaction.
(b)
The amounts in the table above were revised in the fourth quarter of 2008 due to
the Firms refinement of both estimates and its application of certain provisions of SOP
03-3.
(c)
Represents undiscounted principal and interest cash flows expected at acquisition.
(d)
This amount is recognized into interest income over the estimated life of the
underlying loans.
December 31, (in millions)
2008
$
118,180
88,813
(a)
Represents the sum of principal and earned interest at the reporting date.
Accretable Yield Activity
(in millions)
$
32,662
(1,292
)
(4,877
)
$
26,493
JPMorgan Chase & Co. / 2008 Annual Report
165
Table of Contents
December 31, (in millions)
2008
2007
$
2,026
$
429
2,252
322
4,278
751
62
28
62
28
$
4,340
$
779
$
712
$
108
379
116
$
1,091
$
224
Year ended December 31, (in millions)
2008
2007
2006
$
896
$
316
$
697
1,211
317
300
$
2,107
$
633
$
997
$
$
$
2
57
$
57
$
$
2
(a)
Excludes credit card loans.
(b)
In 2008, methodologies for calculating impaired loans have changed. Prior periods
have been revised to conform to current presentation.
(c)
When the discounted cash flows, collateral value or market price equals or exceeds
the carrying value of the loan, then the loan does not require an allowance under SFAS
114.
(d)
The allowance for impaired loans under SFAS 114 is included in JPMorgan Chases
allowance for loan losses. The allowance for certain consumer impaired loans has been
categorized in the allowance for loan losses as formula-based.
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31, (in millions)
2008
2007
2006
$
9,234
$
7,279
$
7,090
(56
)
9,234
7,223
7,090
10,764
5,367
3,884
(
929
)
(829
)
(842
)
9,835
4,538
3,042
19,660
6,538
3,153
1,577
21,237
6,538
3,153
2,535
(7
)
11
78
$
23,164
$
9,234
$
7,279
$
786
$
188
$
118
22,378
9,046
7,161
$
23,164
$
9,234
$
7,279
(a)
Reflects the effect of the adoption of SFAS 159 at January 1, 2007. For a further
discussion of SFAS 159, see Note 5 on pages 144146 of this Annual Report.
(b)
Relates to the Washington Mutual transaction in 2008.
(c)
The 2008 amount represents foreign-exchange translation. The 2007 amount
represents assets acquired of $5 million and $5 million of foreign-exchange translation.
The 2006 amount represents the Bank of New York transaction.
JPMorgan Chase & Co. / 2008 Annual Report
167
Table of Contents
Year ended December 31, (in millions)
2008
2007
2006
$
850
$
524
$
400
(215
)
326
117
(43
)
(258
)
326
117
66
1
7
$
659
$
850
$
524
$
29
$
28
$
33
630
822
491
$
659
$
850
$
524
(a)
Related to the Washington Mutual transaction.
(b)
The 2006 amount represents the Bank of New York transaction.
168
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Principal amount outstanding
JPMorgan
Chase interest in securitized
assets
(f)(g)(h)(i)
Total
Total
assets held
Assets held
interests
by Firm-
in QSPEs
held by
December 31, 2008
sponsored
with continuing
Trading
AFS
Other
JPMorgan
(in billions)
QSPEs
involvement
assets
securities
Loans
assets
Chase
$
121.6
$
121.6
(e)
$
0.5
$
5.6
$
33.3
$
5.6
$
45.0
233.9
212.3
1.7
0.7
2.4
61.0
58.6
0.1
0.1
48.3
48.3
0.1
0.3
0.4
174.1
45.7
2.0
0.5
2.5
1.1
1.1
0.1
0.1
0.8
0.8
$
640.8
$
488.4
$
4.3
$
7.2
$
33.3
$
5.7
$
50.5
Principal amount outstanding
JPMorgan Chase interest in securitized assets
(f)(i)(j)
Total
Total
assets held
Assets held
interests
by Firm-
in QSPEs
held by
December 31, 2007
sponsored
with continuing
Trading
AFS
Other
JPMorgan
(in billions)
QSPEs
involvement
assets
securities
Loans
assets
Chase
$
92.7
$
92.7
(e)
$
$
0.3
$
18.6
$
4.6
$
23.5
78.3
77.7
0.4
0.4
23.7
22.7
0.3
0.1
0.4
109.6
3.4
1.1
1.1
0.1
0.1
2.3
2.3
0.1
0.1
$
307.7
$
199.9
$
0.7
$
0.4
$
18.6
$
4.8
$
24.5
(a)
Includes Alt-A loans.
(b)
Includes co-sponsored commercial securitizations and, therefore, includes
non-JPMorgan Chase originated commercial mortgage loans. Commercial and other consists of securities backed by commercial loans
(predominantly real estate) and non-mortgage related consumer receivables purchased from
third parties. The Firm generally does not retain a residual interest in the Firms sponsored
commercial mortgage securitization transactions.
(c)
Includes securitized loans where the Firm owns less than a majority of the
subordinated or residual interests in the securitizations.
(d)
Includes securitization-related QSPEs sponsored by heritage Bear Stearns and
heritage Washington Mutual at December 31, 2008.
(e)
Includes credit card loans, accrued interest and fees, and cash amounts
on deposit.
(f)
Excludes retained servicing (for a discussion of MSRs, see Note 18 on pages
187188 of this Annual Report).
(g)
Excludes senior and subordinated securities of $974 million at December
31, 2008, that the Firm purchased in connection with IBs
secondary market-making
activities.
(h)
Includes investments acquired in the secondary market, but
predominantly held-for-investment purposes of $1.8 billion as of
December 31, 2008. This is comprised of $1.4 billion of
investments classified as available-for-sale, including
$172 million in credit cards, $693 million of
residential mortgages and $495 million of commercial and other;
and $452 million of investments classified as trading, including
$112 million of credit cards, $303 million of residential
mortgages, and $37 million of commercial and other.
(i)
Excludes interest rate and foreign exchange derivatives that are primarily used to
manage the interest rate and foreign exchange risks of the securitization entities. See
Note 6 and Note 32 on pages 146147 and 202205, respectively, of this Annual Report for
further information on derivatives.
(j)
Excludes senior and subordinated securities of
$9.8 billion at December 31, 2007, that were retained at the
time of securitization in connection with IBs underwriting
activity or that are purchased in connection with IBs secondary
market-making activities.
The following discussion describes the nature of the Firms securitization activities by major
product type.
The Card Services (CS) business securitizes originated and purchased credit card loans. The Firms primary
continuing involvement includes servicing the receivables, retaining an undivided sellers interest
in the receivables, retaining certain senior and subordinated securities and the maintenance of
escrow accounts.
JPMorgan Chase & Co. / 2008 Annual Report
169
Table of Contents
The Firm securitizes originated and purchased
residential mortgages and originated commercial
mortgages.
170
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
The Firm also securitizes automobile and student
loans originated by RFS and purchased consumer
loans (including automobile and student loans). The
Firm retains servicing responsibilities for all
originated and certain purchased student and
automobile loans. It may also hold a retained
interest in these securitizations; such residual
interests are classified as other assets. At
December 31, 2008 and 2007, the Firm held $37
million and $85 million, respectively, of retained
interests in securitized automobile loans and $52 million and $55 million,
respectively, of retained interests in securitized
student loans.
The following tables provide information related to the Firms securitization activities for the
years ended December 31, 2008, 2007 and 2006. For the periods presented there were no cash flows
from the Firm to the QSPEs related to recourse or guarantee arrangements.
JPMorgan Chase & Co. / 2008 Annual Report
171
Table of Contents
(a)
Other cash flows received include excess servicing fees and other ancillary fees
received.
(b)
Includes cash paid by the Firm to reacquire assets from the QSPEs, for example,
servicer clean-up calls.
(c)
Excludes a random removal of $6.2 billion of credit card
loans from a securitization trust previously established by
Washington Mutual and an account addition of $5.8 billion of
higher quality credit card loans from the legacy Chase portfolio to
the legacy Washington Mutual trust in
November 2008. These are
noncash transactions that are permitted by the trust documents in
order to maintain the appropriate level of undivided sellers
interest.
(d)
Includes cash flows received on retained interests including, for example,
principal repayments, and interest payments.
(e)
PPR: principal payment rate; CPR: constant prepayment rate; ABS: absolute
prepayment speed.
(f)
Includes $5.5 billion of securities retained by the Firm.
(g)
Includes securitizations sponsored by Bear Stearns and Washington Mutual as of
their respective acquisition dates.
(h)
Includes Alt-A loans.
(i)
As of January 1, 2007, the Firm adopted the fair value election for IB warehouse
and the RFS prime mortgage warehouse. The carrying value of these loans accounted for at
fair value approximates the proceeds received from securitization.
(j)
Expected credit losses for consumer prime residential mortgage, and student and
certain other securitizations are minimal and are incorporated into other assumptions.
172
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Ratings
profile of retained interests
(c)(d)
2008
Investment
Noninvestment
Retained
December 31, (in billions)
Grade
grade
interest
$
5.5
$
3.8
$
9.3
1.1
0.3
1.4
0.1
0.1
0.4
0.4
1.7
0.3
2.0
0.1
0.1
$
8.7
$
4.6
$
13.3
(a)
Includes retained subordinated interests carried at fair value, including CS
accrued interests and fees, escrow accounts, and other residual interests. Excludes
undivided seller interest in the trusts of $33.3 billion at December 31,
2008, which is carried at historical cost, and unencumbered cash
amounts on deposit of $2.1 billion at December 31, 2008.
(b)
Includes Alt-A loans.
(c)
The ratings scale is presented on an S&P-equivalent basis.
(d)
Excludes $1.8 billion of investments acquired in the
secondary market, but predominantly held for investment purposes. Of
this amount $1.7 billion is classified as investment grade.
December 31, 2008
Residential mortgage
(in millions, except rates and where
Option
Commercial
Student
otherwise noted)
Credit card
Prime
(c)
Subprime
ARMs
and other
loans
Auto
$
3,463
(b)
$
1,420
$
68
$
436
$
1,966
$
55
$
40
0.5
5.3
1.5
7.3
3.5
8.2
0.7
15.4-16.7
%
0.0-50.6
%
(d)
1.0-53.1
%
5.0-15.0
%
0.0-100.0
%
(g)
5.0
%
1.2-1.4
%
16.6
17.7
25.1
7.6
0.7
5.0
1.3
PPR
CPR
CPR
CPR
CPR
CPR
ABS
$
(42
)
$
(31
)
$
(5
)
$
(4
)
$
(1
)
$
(1
)
$
(85
)
(57
)
(6
)
(11
)
(1
)
(2
)
(1
)
4.7-7.6
%
0.0-78.1
%
(d)
0.0-78.1
%
(f)
0.0-26.3
%
0.0-5.0
%
%
(e)
0.4-0.7
%
7.0
4.4
3.4
0.3
0.3
0.5
$
(235
)
$
(25
)
$
(7
)
$
$
(12
)
$
$
(426
)
(49
)
(13
)
(1
)
(24
)
(1
)
18.0
%
9.9-67.7
%
(d)
10.6-30.0
%
3.6-71.7
%
3.3-47.8
%
(g)
9.0
%
4.1-4.2
%
18.0
14.5
21.5
17.3
12.4
9.0
4.1
$
(10
)
$
(52
)
$
(3
)
$
(16
)
$
(26
)
$
(2
)
$
(20
)
(102
)
(5
)
(28
)
(49
)
(4
)
JPMorgan Chase & Co. / 2008 Annual Report
173
Table of Contents
December 31, 2007
Residential mortgage
(in millions, except rates and where
Option
Commercial
Student
otherwise noted)
Credit card
Prime
(c)
Subprime
ARMs
and other
loans
Auto
$
3,324
$
381
$
387
$
$
42
$
58
$
106
0.4-0.5
2.9-4.9
2.9
0.3-11.0
8.8
0.9
15.6-18.9
%
19.0-25.3
%
25.7
%
%
0.0-50.0
%
1.0-8.0
%
1.4
%
PPR
CPR
CPR
CPR
CPR
ABS
$
(59
)
$
(14
)
$
(30
)
$
$
(1
)
$
(1
)
$
(1
)
(118
)
(25
)
(54
)
(2
)
(2
)
(1
)
3.3-4.6
%
0.0-3.0
%
(e)
3.3
%
%
0.0-0.9
%
%
(e)
0.6
%
$
(117
)
$
(13
)
$
(68
)
$
$
(1
)
$
$
(2
)
(234
)
(25
)
(120
)
(1
)
(3
)
12.0
%
11.0-23.9
%
15.0-30.0
%
%
1.0-18.0
%
9.0
%
6.8
%
$
(2
)
$
(18
)
$
(16
)
$
$
$
(3
)
$
(4
)
(36
)
(31
)
(1
)
(5
)
(1
)
(a)
PPR: principal payment rate; ABS: absolute prepayment speed; CPR: constant
prepayment rate.
(b)
Excludes certain interests that are not valued using modeling
techniques.
(c)
Includes Alt-A loans.
(d)
Including the valuation assumptions used to determine the fair value
for a limited amount of retained interests resulted in a wider range
than those used for the
majority of the portfolio. Excluding these retained interests, the
range of assumptions used to value the prime/Alt A mortgage
retained interests would have been 0.0-29.4% for prepayment rates;
0.0-25.0% for loss assumptions; and 9.9%-21.4% for the discount rates.
(e)
Expected losses for prime residential mortgage, student loans and certain wholesale securitizations are minimal and are incorporated into other assumptions.
(f)
Including the loss assumptions used to determine the fair value for a
limited amount of retained interests resulted in a wider range than those used for the
majority of the portfolio. Excluding these retained interests, the range of loss assumption
used to value the subprime mortgage retained interests would have
been 0.2-43.5%.
(g)
The valuation assumptions used to determine the fair value
for a limited amount of retained interests were higher than the
majority of the portfolio. Excluding these retained interests, the
range of assumptions used to value the commercial and other retained
interests would have been 0.0% to 22.0% for prepayment rates and
3.3%-30.4% for the discount rates.
174
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
90 days past due
Nonaccrual
Net loan charge-offs
Total Loans
and still accruing
assets
(g)(h)
Year ended
December 31, (in millions)
2008
2007
2008
2007
2008
2007
2008
2007
$
114,335
$
94,832
$
$
$
1,394
$
786
$
2,391
$
564
72,266
39,988
1,895
501
526
33
15,330
15,473
2,690
1,017
933
157
9,018
10
42,603
42,350
148
116
568
354
104,746
84,352
2,649
1,547
4
7
4,556
3,116
33,715
25,314
463
421
430
341
459
242
2,028
3,989
NA
NA
394,041
306,298
3,112
1,968
6,571
2,768
9,433
4,466
88,813
482,854
306,298
3,112
1,968
6,571
2,768
9,433
4,466
262,044
213,076
163
75
2,382
(i)
514
(i)
402
72
744,898
519,374
3,275
2,043
8,953
3,282
9,835
4,538
212,274
77,582
21,130
1,215
5,645
7
58,607
22,692
13,301
3,238
4,797
413
48,328
6,440
270
791
2,276
2
6
15
13
85,571
72,701
1,802
1,050
3,612
2,380
1,074
1,141
66
1
45,677
3,419
28
166
8
11
$
452,322
$
179,811
$
1,896
$
1,050
$
41,039
$
4,459
$
14,348
$
2,824
$
1,197,220
(f)
$
699,185
(f)
$
5,171
$
3,093
$
49,992
$
7,741
$
24,183
$
7,362
(a)
Includes Alt-A loans.
(b)
Includes loans for prime mortgage and other (largely student loans) of $206
million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4
billion at December 31, 2007, respectively.
(c)
Purchased credit-impaired loans represent loans acquired in the Washington Mutual
acquisition that were considered credit-impaired under SOP 03-3, and include $6.4 billion
of loans that were nonperforming immediately prior to the acquisition. Under SOP 03-3,
these loans are considered to be performing loans as of the acquisition date; they accrete
interest income over the estimated life of the loan when cash flows are reasonably
estimable, even if the underlying loans are contractually past due. For additional
information, see Note 14 on pages 163166 of this Annual Report.
(d)
Total assets held in securitization-related SPEs were
$640.8 billion and $307.7 billion at December 31, 2008
and 2007, respectively. The $452.3 billion and
$179.8 billion of loans securitized at December 31, 2008
and 2007, respectively, excludes $152.4 billion and
$107.8 billion of securitized loans, respectively, in which the
Firm has no continuing involvement; $33.3 billion and
$18.6 billion of sellers interests in credit card master
trusts, respectively; and $2.8 billion and $1.5 billion of
cash amounts on deposit and escrow accounts.
(e)
Represents both loans on the Consolidated Balance Sheets and loans that have been
securitized.
(f)
Includes securitized loans that were previously recorded at fair value and
classified as trading assets.
(g)
During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as
nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
(h)
Excludes nonperforming assets related to (i) loans eligible for repurchase, as
well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of
$3.3 billion and $1.5 billion at December 31, 2008 and 2007, respectively, and (ii)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $437 million and
$417 million at December 31, 2008 and 2007, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally.
(i)
Includes nonperforming loans held-for-sale and loans at fair value of $32 million
and $50 million at December 31, 2008 and 2007, respectively.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
See the Glossary of Terms on page 220 of this
Annual Report for the Firms definition of subprime
loans. Within the confines of the limited
decision-making abilities of a QSPE under SFAS 140,
the operating documents that govern existing
subprime securitizations generally authorize the
servicer to modify loans for which default is
reasonably foreseeable, provided that the
modification is in the best interests of the QSPEs
beneficial interest holders and would not result in
a REMIC violation.
December 31,
2008
2007
(in millions, except ratios)
Amount
%
Amount
%
$
1,940
15
%
$
1,940
20
%
2,930
23
970
10
7,806
62
6,790
70
$
12,676
100
%
$
9,700
100
%
December 31, (in millions)
2008
2007
$
44,401
$
19,636
99
412
$
44,500
$
20,048
For the year ended
December 31, (in millions)
2008
$
2,384
865
219
176
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Investment Bank: Utilizes VIEs to assist clients in accessing the financial markets
in a cost-efficient manner. IB is involved with VIEs through multi-seller conduits and for
investor intermediation purposes, as discussed below. IB also securitizes loans through
QSPEs, to create asset-backed securities, as further discussed in Note 16 on pages
168176 of this Annual Report.
Asset Management (AM): Provides investment management services to a limited number
of the Firms funds deemed VIEs. AM earns a fixed fee based upon assets managed; the fee varies with each funds investment
objective and is competitively priced. For the limited number of funds that qualify as
VIEs, AMs relationships with such funds are not considered significant variable interests
under FIN 46(R).
Treasury & Securities Services: Provides services to a number of VIEs that are
similar to those provided to non-VIEs. TSS earns market-based fees for the services it
provides. The relationships resulting from TSS services are not considered to be
significant variable interests under FIN 46(R).
Commercial Banking (CB): Utilizes VIEs to assist clients in accessing the
financial markets in a cost-efficient manner. This is often accomplished through the use
of products similar to those offered in IB. CB may assist in the structuring and/or
ongoing administration of these VIEs and may provide liquidity, letters of credit and/or
derivative instruments in support of the VIE. The relationships resulting from CBs
services are not considered to be significant variable interests under FIN 46(R).
Corporate/Private Equity: Corporate utilizes VIEs to issue guaranteed capital debt
securities. See Note 23 on page 191 for further information. The Private Equity business,
also included in Corporate, may be involved with entities that could be deemed VIEs.
Private equity activities are accounted for in accordance with the AICPA Audit and
Accounting Guide
Investment Companies
(the Guide). In June 2007, the AICPA issued SOP
07-1, which provides guidance for determining whether an entity is within the scope of
the Guide, and therefore qualifies to use the Guides specialized accounting principles
(referred to as investment company accounting). In May 2007, the FASB issued FSP FIN
46(R)-7, which amends FIN 46(R) to permanently exempt entities within the scope of the
Guide from applying the provisions of FIN 46(R) to their investments. In February 2008,
the FASB agreed to an indefinite delay of the effective date of SOP 07-1 in order to
address implementation issues, which effectively delays FSP FIN 46(R)-7 as well for those
companies, such as the Firm, that have not adopted SOP 07-1. Had FIN 46(R) been applied to
VIEs subject to this deferral, the impact would have been immaterial to the Firms
consolidated financial statements as of December 31, 2008.
Funding and liquidity
The Firm is an active participant in the
asset-backed securities business, and it helps
customers meet their
financing needs by providing access to the
commercial paper markets through VIEs known as
multi-seller conduits. Multi-seller conduit
entities are separate bankruptcy-remote entities
that purchase interests in, and make loans secured
by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm.
The conduits fund their purchases and loans through
the issuance of highly rated commercial paper to
third-party investors. The primary source of
repayment of the commercial paper is the cash flow
from the pools of assets. In most instances, the
assets are structured with deal-specific credit
enhancements provided by the customers (i.e.,
sellers) to the conduits or other third parties.
Deal-specific credit enhancements are generally
structured to cover a multiple of historical losses
expected on the pool of assets, and are typically
in the form of overcollateralization provided by
the seller, but also may include any combination of
the following: recourse to the seller or
originator, cash collateral accounts, letters of
credit, excess spread, retention of subordinated
interests or third-party guarantees. The
deal-specific credit enhancements mitigate the
Firms potential losses on its agreements with the
conduits.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
December 31, (in billions)
2008
2007
$
42.9
$
61.2
43.1
62.6
55.4
87.3
17.0
13.2
3.0
2.5
56.9
88.9
(a)
The accounting for these agreements is further discussed in Note 33 on pages
206210. The carrying value related to asset purchase agreements was $147 million at
December 31, 2008, of which $138 million represented the
remaining fair value of the guarantee under FIN 45. The Firm has
recognized this guarantee in other liabilities with an offsetting
entry recognized in other assets for the net present value of the
future premium receivable under the contracts.
(b)
The Firms maximum exposure to loss is limited to the amount of drawn commitments
(i.e., sellers assets held by the multi-seller conduits for which the Firm provides
liquidity support) of $42.9 billion and $61.2 billion at December 31, 2008 and 2007,
respectively, plus contractual but undrawn commitments of $14.0 billion and $27.7 billion
at December 31, 2008 and 2007, respectively. Since the Firm provides credit enhancement
and liquidity to Firm-administered, multi-seller conduits, the
maximum exposure is not
adjusted to exclude exposure that would be absorbed by third- party liquidity providers.
JPMorgan Chases administered multi-seller
conduits fund a variety of asset types for the
Firms clients. Asset types primarily include
credit card receivables, auto loans, trade
receivables, student loans, commercial loans,
residential mortgages, capital commitments (e.g.,
loans to private equity, mezzanine and real estate
opportunity funds secured by capital commitments
of highly rated institutional investors), and
various other asset types. It is the Firms
intention that the assets funded by its
administered multi-seller conduits be sourced only
from the Firms clients and not originated by, or
transferred from, JPMorgan Chase.
2008
2007
Unfunded
Commercial
Liquidity
Liquidity
Unfunded
Commercial
Liquidity
Liquidity
December 31,
commitments to
paper funded
provided by
provided
commitments to
paper funded
provided by
provided
(in billions)
Firms clients
assets
third parties
by Firm
Firms clients
assets
third parties
by Firm
$
3.0
$
8.9
$
0.1
$
11.8
$
3.3
$
14.2
$
$
17.5
1.4
10.0
11.4
4.5
10.2
14.7
3.8
5.5
9.3
6.0
6.6
12.6
0.7
4.6
5.3
0.8
9.2
10.0
1.5
4.0
0.4
5.1
2.1
4.8
0.4
6.5
0.7
0.7
4.6
3.1
7.7
1.3
3.9
0.6
4.6
2.0
5.1
0.6
6.5
0.2
0.4
0.6
0.6
0.7
1.3
0.7
1.6
2.3
1.1
2.5
3.6
0.7
1.8
2.5
1.3
1.3
2.6
0.5
0.5
0.1
0.7
0.1
0.7
0.7
1.7
0.2
2.2
0.6
0.8
0.3
1.1
0.7
1.3
0.4
1.6
$
14.0
$
42.9
$
1.5
$
55.4
$
27.7
$
61.2
$
1.6
$
87.3
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Ratings profile of VIE assets of the multi-seller conduits
(a)
Commercial
Wt. avg.
December 31, 2008
Investment-grade
Noninvestment-grade
paper funded
expected
(in billions)
AAA to AAA-
AA+ to AA-
A+ to A-
BBB to BBB-
BB+ and below
assets
life (years)
(b)
$
4.8
$
3.9
$
0.1
$
0.1
$
$
8.9
1.5
4.1
4.1
1.8
10.0
2.5
4.0
1.5
5.5
1.0
3.6
0.9
0.1
4.6
1.8
1.1
2.0
0.6
0.3
4.0
2.7
0.6
0.1
0.7
4.0
3.6
0.3
3.9
2.4
0.4
0.4
1.5
0.4
1.2
1.6
2.2
0.1
1.0
0.7
1.8
1.1
0.1
0.4
0.2
0.7
1.6
0.5
0.3
0.8
3.7
$
14.7
$
22.0
$
5.6
$
0.6
$
$
42.9
2.0
Ratings profile of VIE assets of the multi-seller conduits
(a)
Commercial
Wt. avg.
December 31, 2007
Investment-grade
Noninvestment-grade
paper funded
expected
(in billions)
AAA to AAA-
AA+ to AA-
A+ to A-
BBB to BBB-
BB+ and below
assets
life (years)
(b)
$
4.2
$
9.4
$
0.6
$
$
$
14.2
1.5
1.8
6.9
1.4
0.1
10.2
2.3
4.7
1.7
0.2
6.6
1.3
1.0
8.1
0.1
9.2
0.5
0.5
3.5
0.7
0.1
4.8
2.8
1.5
0.8
0.8
3.1
1.5
5.1
5.1
3.4
0.7
0.7
1.1
0.4
1.9
0.2
2.5
2.2
0.4
0.7
0.2
1.3
0.8
0.5
0.5
0.7
1.4
0.2
0.1
1.7
1.8
1.2
0.1
1.3
3.7
$
11.0
$
43.8
$
5.7
$
0.5
$
0.2
$
61.2
1.8
(a)
The ratings scale is presented on an S&P equivalent basis.
(b)
Weighted average expected life for each asset type is based upon the remaining
term of each conduit transactions committed liquidity plus either the expected weighted
average life of the assets should the committed liquidity expire without renewal or the
expected time to sell the underlying assets in the securitization market.
The weighted average life of commercial paper
issued by the multi-seller conduits at December 31,
2008 and 2007, was 27 days and 26 days,
respectively, and the average yield on the
commercial paper at December 31, 2008 and 2007, was
0.6% and 5.7%, respectively.
JPMorgan Chase & Co. / 2008 Annual Report
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The multi-seller conduits administered by the Firm
were not consolidated at December 31, 2008 and
2007, because each conduit had issued expected loss
notes (ELNs), the holders of which are committed
to absorbing the majority of the expected loss of
each respective conduit.
The Firm did not have and continues not to have
any intent to protect any ELN holders from
potential losses on any of the conduits holdings
and has no plans to remove any assets from any
conduit unless required to do so in its role as
administrator. Should such a transfer occur, the
Firm would allocate losses on such assets between
itself and the ELN holders in accordance with the
terms of the applicable ELN.
In determining the primary beneficiary of the
conduits the Firm uses a Monte Carlobased model
to estimate the expected losses of each of the
conduits and considers the relative rights and
obligations of each of the variable interest
holders. The Firms expected loss modeling treats
all variable interests, other than the ELNs, as its
own to determine consolidation. The variability to
be considered in the modeling of expected losses is
based on the design of the entity. The Firms
traditional multi-seller conduits are designed to
pass credit risk, not liquidity risk, to its
variable interest holders, as the assets are
intended to be held in the conduit for the longer
term.
New deals, including the issuance of new or additional variable interests (credit
support, liquidity facilities, etc);
Changes in usage, including the change in the level of outstanding variable
interests (credit support, liquidity facilities, etc);
Modifications of asset purchase agreements; and
Sales of interests held by the primary beneficiary.
The multi-seller conduits are primarily designed to
provide an efficient means for clients to access
the commercial paper market. The Firm believes the
conduits effectively disperse risk among all
parties and that the preponderance of the economic
risk in the Firms multi-seller conduits is not
held by JPMorgan Chase.
The table below shows the impact on the Firms
reported assets, liabilities, Tier 1 capital ratio
and Tier 1 leverage ratio if the Firm were required
to consolidate all of the multi-seller conduits
that it administers at their current carrying
value.
December 31, 2008
(in billions, except ratios)
Reported
Pro forma
(a)(b)
$2,175.1
$2,218.2
2,008.2
2,051.3
10.9
%
10.9
%
6.9
6.8
(a)
The table shows the impact of consolidating the assets and liabilities of the
multi-seller conduits at their current carrying value; as such, there would be no income
statement or capital impact at the date of consolidation. If the Firm were required to
consolidate the assets and liabilities of the conduits at fair value, the Tier 1 capital
ratio would be approximately 10.8%. The fair value of the assets is primarily based upon pricing for
comparable transactions. The fair value of these assets could change significantly because
the pricing of conduit transactions is renegotiated with the client, generally, on an
annual basis and due to changes in current market conditions.
(b)
Consolidation is assumed to occur on the first day of the quarter, at the
quarter-end levels, in order to provide a meaningful adjustment to average assets in the
denominator of the leverage ratio.
In July 2007, a reverse repurchase agreement
collateralized by prime residential mortgages held
by a Firm-administered multi-seller conduit was put
to JPMorgan Chase under its deal-specific liquidity
facility. The asset was transferred to and recorded
by JPMorgan Chase at its par value based on the
fair value of the collateral that supported the
reverse repurchase agreement. During the fourth
quarter of 2007, additional information regarding
the value of the collateral, including performance
statistics, resulted in the determination by the
Firm that the fair value of the collateral was
impaired. Impairment losses were allocated to the
ELN holder (the party that absorbs the majority of
the expected loss from the conduit) in accordance
with the contractual provisions of the ELN note.
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As a financial intermediary, the Firm creates
certain types of VIEs and also structures
transactions, typically derivative structures, with
these VIEs to meet investor needs. The Firm may
also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit,
market or liquidity risks to which the Firm is
exposed. The principal types of VIEs for which the
Firm is engaged in these structuring activities are
municipal bond vehicles, credit-linked note
vehicles, asset swap
vehicles and collateralized debt obligation
vehicles.
The Firm has created a series of secondary market
trusts that provide short-term investors with
qualifying tax-exempt investments, and that allow
investors in tax-exempt securities to finance their
investments at short-term tax-exempt rates. In a
typical transaction, the vehicle purchases
fixed-rate longer-term highly rated municipal bonds
and funds the purchase by issuing two types of
securities: (1) putable floating-rate certificates
and (2) inverse floating-rate residual interests
(residual interests). The maturity of each of the
putable floating-rate certificates and the residual
interests is equal to the life of the vehicle,
while the maturity of the underlying municipal
bonds is longer. Holders of the putable
floating-rate certificates may put, or tender,
the certificates if the remarketing agent cannot
successfully remarket the floating-rate
certificates to another investor. A liquidity
facility conditionally obligates the liquidity
provider to fund the purchase of the tendered
floating-rate certificates. Upon termination of the
vehicle, if the proceeds from the sale of the
underlying municipal bonds are not sufficient to
repay the liquidity facility, the liquidity
provider has recourse either to excess
collateralization in the vehicle or the residual
interest holders for reimbursement.
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
2008
2007
Fair value of
Fair value of
December 31,
assets held
Liquidity
Excess/
Maximum
assets held
Liquidity
Excess/
Maximum
(in billions)
by VIEs
facilities
(d)
(deficit)
(e)
exposure
by VIEs
facilities
(d)
(deficit)
(e)
exposure
$
10.0
$
6.9
$
3.1
$
6.9
$
19.2
$
18.1
$
1.1
$
18.1
Fair value
Wt. avg.
Ratings profile of VIE assets
(f)
of assets
expected
December 31,
Investment-grade
Noninvestment-grade
held by
life of assets
(in billions)
AAA to AAA-
AA+ to AA-
A+ to A-
BBB to BBB-
BB+ and below
VIEs
(years)
$
3.8
$
5.9
$
0.2
$
0.1
$
$
10.0
22.3
14.6
4.4
0.2
19.2
10.0
(a)
Excluded $6.0 billion and $6.9 billion at December 31, 2008 and 2007, respectively, which
were consolidated due to the Firm owning the residual interests.
(b)
Certain of the municipal bond vehicles are structured to meet the definition of a QSPE (as
discussed in Note 1 on page 122 of this Annual Report); accordingly, the assets and liabilities of
QSPEs are not reflected in the Firms Consolidated Balance Sheets (except for retained interests
that are reported at fair value). Excluded nonconsolidated amounts of $603 million and $7.1 billion
at December 31, 2008 and 2007, respectively, related to QSPE municipal bond vehicles in which the
Firm owned the residual interests.
(c)
The decline in balances at December 31, 2008, compared with December 31, 2007, was due to
third-party residual interest holders exercising their right to terminate the municipal bond
vehicles. The proceeds from the sales of municipal bonds were sufficient to repay the putable
floating-rate certificates, and the Firm did not incur losses as a result of these terminations.
(d)
The Firm may serve as credit enhancement provider in municipal bond vehicles in which it
serves as liquidity provider. The Firm provided insurance on underlying municipal bonds in the form
of letters of credit of $10 million and $103 million at December 31, 2008 and 2007, respectively.
(e)
Represents the excess (deficit) of municipal bond asset fair value available to repay the
liquidity facilities, if drawn.
(f)
The ratings scale is based upon the Firms internal risk ratings and presented on an S&P
equivalent basis.
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2008
2007
Par value of
Par value of
December 31,
Derivative
Trading
Total
collateral held
Derivative
Trading
Total
collateral held
(in billions)
receivables
assets
(c)
exposure
(d)
by VIEs
(e)
receivables
assets
(c)
exposure
(d)
by VIEs
(e)
$
3.6
$
0.7
$
4.3
$
14.5
$
0.8
$
0.4
$
1.2
$
13.5
7.7
0.3
8.0
16.6
4.5
0.9
5.4
12.8
$
11.3
$
1.0
$
12.3
$
31.1
$
5.3
$
1.3
$
6.6
$
26.3
(a)
Excluded fair value of collateral of $2.1 billion and $2.5 billion at December 31, 2008
and 2007, respectively, which was consolidated as the Firm, in its role as secondary market maker,
held a majority of the issued CLNs of certain vehicles.
(b)
Includes synthetic collateralized debt obligation vehicles, which have similar risk
characteristics to managed credit-linked note vehicles. At December 31, 2008 and 2007, trading
assets included $7 million and $291 million, respectively, of transactions with subprime
collateral.
(c)
Trading assets principally comprise notes issued by VIEs, which from time to time are held as
part of the termination of a deal or to support limited market-making.
(d)
On-balance sheet exposure that includes derivative receivables and trading assets.
(e)
The Firms maximum exposure arises through the derivatives executed with the VIEs; the
exposure varies over time with changes in the fair value of the derivatives. The Firm relies upon
the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are
structured at inception so that the par value of the collateral is expected to be sufficient to pay
amounts due under the derivative contracts.
JPMorgan Chase & Co. / 2008 Annual Report
183
Table of Contents
(a)
Trading assets principally comprise notes issued by VIEs, which from time to time are held
as part of the termination of a deal or to support limited market-making.
(b)
On-balance sheet exposure that includes derivative receivables (payables) and trading assets.
(c)
The Firms maximum exposure arises through the derivatives executed with the VIEs; the
exposure varies over time with changes in the fair value of the derivatives. The Firm relies upon
the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are
structured at inception so that the par value of the collateral is expected to be sufficient to pay
amounts due under the derivative contracts.
(d)
Excluded fair value of collateral of $1.0 billion and $976 million at December 31, 2008 and
2007, respectively, which was consolidated as the Firm, in its role as secondary market maker,
held a majority of the issued notes of certain vehicles.
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
December 31, 2008
Funded
Unfunded
Maximum
(in billions)
loans
commitments
(a)
exposure
(b)
$
0.4
$
$
0.4
0.4
0.7
1.1
$
0.8
$
0.7
$
1.5
December 31, 2007
Funded
Unfunded
Maximum
(in billions)
loans
commitments
(a)
exposure
(b)
$
2.4
$
1.9
$
4.3
2.7
3.4
6.1
$
5.1
$
5.3
$
10.4
Ratings profile of VIE assets
(c)
December 31,
Investment-grade
Noninvestment-grade
Total
(in billions)
AAA to AAA-
AA+ to AA-
A+ to A-
BBB to BBB-
BB+ and below
exposure
$
$
$
$
$ 0.4
$
0.4
2.7
2.7
(a)
Typically contingent upon certain asset-quality conditions being met by asset managers.
(b)
The aggregate of the fair value of loan exposure and any unfunded, contractually committed
financing.
(c)
The ratings scale is based upon JPMorgan Chases internal risk ratings and presented on an S&P
equivalent basis.
JPMorgan Chase & Co. / 2008 Annual Report
185
Table of Contents
The following table presents information on assets, liabilities and commitments related to VIEs
that are consolidated by the Firm.
Consolidated VIEs
Assets
December 31,
2008
Trading debt
Total
(in billions)
and equity
Loans
Other
(b)
assets
(c)
$
5.9
$
$
0.1
$
6.0
1.9
0.2
2.1
0.2
0.1
0.3
4.0
0.1
4.1
0.5
0.5
0.4
0.4
2.8
1.3
1.1
5.2
$
10.8
$
5.3
$
2.5
$
18.6
Liabilities
December 31,
2008
Beneficial interests
Total
(in billions)
in VIE
Assets
(d)
Other
(e)
liabilities
$
5.5
$
0.4
$
5.9
1.3
0.6
1.9
2.8
1.1
3.9
0.1
0.1
0.2
0.2
0.7
1.8
2.5
$
10.6
$
3.9
$
14.5
Consolidated VIEs
Assets
December 31,
2007
Trading debt
Total
(in billions)
and equity
Loans
Other
(b)
assets
(c)
$
6.8
$
$
0.1
$
6.9
2.3
0.2
2.5
2.2
0.3
0.1
2.6
4.1
4.1
3.0
0.5
3.5
$
14.3
$
4.4
$
0.9
$
19.6
Liabilities
December 31,
2007
Beneficial interests
Total
(in billions)
in VIE
Assets
(d)
Other
(e)
liabilities
$
6.2
$
0.6
$
6.8
2.3
0.5
2.8
4.1
4.1
1.4
0.5
1.9
$
14.0
$
1.6
$
15.6
(a)
Excluded from total assets was $1.9 billion of unfunded commitments at December 31, 2007.
There were no unfunded commitments at December 31, 2008.
(b)
Included assets classified as resale agreements and other assets within the Consolidated
Balance Sheets.
(c)
Assets of each consolidated VIE included in the program types above are generally used to
satisfy the liabilities to third parties. The difference between total assets and total liabilities
recognized for consolidated VIEs represents the Firms interest in the consolidated VIEs for each
program type.
(d)
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified
in the line item titled, Beneficial interests issued by consolidated variable interest entities
on the Consolidated Balance Sheets. The holders of these beneficial interests do not have recourse
to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are
long-term beneficial interests of $5.0 billion and $7.2 billion at December 31, 2008 and 2007,
respectively. See Note 23 on page 191 of this Annual Report for the maturity profile of FIN 46
long-term beneficial interests.
(e)
Included liabilities classified as other borrowed funds, long-term debt and other liabilities
in the Consolidated Balance Sheets.
186
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
December 31, (in millions)
2008
2007
$
48,027
$
45,270
9,403
8,632
1,649
2,303
$
743
$
346
1,597
2,067
1,592
1,383
$
3,932
$
3,796
The $2.8 billion increase in goodwill from the
prior year primarily resulted from the dissolution
of the Chase Paymentech Solutions joint venture, the
merger with Bear Stearns, the purchase of an
additional equity interest in Highbridge and the
tax-related purchase accounting adjustments
associated with the Bank One merger, which
increased goodwill attributed to IB. The
decrease in goodwill attributed to TSS
predominantly resulted from the sale of a
previously consolidated subsidiary. For additional
information see Note 2 on pages 123128 of this
Annual Report.
December 31, (in millions)
2008
2007
$
4,765
$
3,578
16,840
16,848
13,977
12,810
2,870
2,873
1,633
1,660
7,565
7,124
377
377
$
48,027
$
45,270
JPMorgan Chase recognizes as intangible assets
mortgage servicing rights, which represent the
right to
perform specified mortgage servicing activities
(predominantly with respect to residential
mortgages) for others. MSRs are either purchased
from third parties or retained upon sale or
securitization of mortgage loans. Servicing
activities include collecting principal, interest,
and escrow payments from borrowers; making tax and
insurance payments on behalf of borrowers;
monitoring delinquencies and executing foreclosure
proceedings; and accounting for and remitting
principal and interest payments to the investors of
the mortgage-backed securities.
JPMorgan Chase & Co. / 2008 Annual Report
187
Table of Contents
Year ended December 31,
(in millions, except where otherwise noted)
2008
2007
2006
$
8,632
$
7,546
$
6,452
230
8,632
7,546
6,682
3,061
2,335
1,512
6,755
(c)
798
627
9,816
3,133
2,139
(6,933
)
(516
)
165
(2,112
)
(1,531
)
(1,440
)
(9,045
)
(d)
(2,047
)
(1,275
)
$
9,403
$
8,632
$
7,546
$
(6,933
)
$
(516
)
NA
$
3,353
$
2,429
$
2,038
$
1,185.0
$
614.7
$
526.7
(a)
Represents MSR asset fair value adjustments due to changes in inputs, such as
interest rates and volatility, as well as updates to assumptions used in the valuation
model. This caption also represents total realized and unrealized gains (losses) included
in net income per the SFAS 157 disclosure for fair value measurement using significant
unobservable inputs (level 3).
(b)
Includes changes in the MSR value due to modeled servicing portfolio runoff (or
time decay). This caption represents the impact of cash settlements per the SFAS
157 disclosure for fair value measurement using significant unobservable inputs (level 3).
(c)
Includes MSRs acquired as a result of the Washington Mutual
transaction (of which, $59
million related to commercial real estate) and the Bear Stearns merger. For further
discussion, see Note 2 on pages 123128 of this Annual Report.
(d)
Includes $4 million related to commercial real estate.
Year ended December 31
(in millions, except rates)
2008
2007
35.21
%
12.49
%
$
(1,039
)
$
(481
)
(1,970
)
(926
)
3.80
%
3.00
%
$
(311
)
$
(311
)
(606
)
(599
)
CPR:
Constant prepayment rate.
During 2008, purchased credit card relationships,
other credit card-related intangibles and core
deposit intangibles decreased $727 million,
primarily as a result of amortization expense,
partially offset by an increase in intangibles
recognized related to the dissolution of the Chase
Paymentech Solutions joint venture. Other
intangibles (net of amortization) increased $209
million primarily as a result of the purchase of an
additional equity interest in Highbridge as well as
the acquisition of an institutional global custody
portfolio.
188
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2008
2007
Net
Net
Gross
Accumulated
carrying
Gross
Accumulated
carrying
December 31, (in millions)
amount
amortization
value
amount
amortization
value
$
5,765
$
4,116
$
1,649
$
5,794
$
3,491
$
2,303
$
852
$
109
$
743
$
422
$
76
$
346
4,280
2,683
1,597
4,281
2,214
2,067
2,376
784
(a)
1,592
2,026
643
(a)
1,383
(a)
Includes amortization expense related to servicing assets on securitized
automobile loans, which is recorded in lending & deposit-related fees, of $5 million and
$9 million for the years ended December 31, 2008 and 2007, respectively.
The following table presents amortization expense related to credit card relationships, core
deposits and all other intangible assets.
Year ended December 31, (in millions)
2008
2007
2006
$
625
$
710
$
731
33
11
6
469
554
568
136
119
123
(a)
$
1,263
$
1,394
$
1,428
(a)
Amortization expense related to the aforementioned selected
corporate trust businesses were reported in income from discontinued
operations for 2006.
The following table presents estimated future amortization expense related to credit card
relationships, core deposits and all other intangible assets at December 31, 2008.
Other credit
Purchased credit
card-related
Core deposit
All other
Year ended December 31, (in millions)
card relationships
intangibles
intangibles
intangible assets
Total
$
419
$
93
$
390
$
123
$
1,025
350
98
329
106
883
287
97
285
96
765
249
98
239
93
679
210
97
196
90
593
JPMorgan Chase & Co. / 2008 Annual Report
189
Table of Contents
December 31, (in millions)
2008
2007
$
210,899
$
129,406
511,077
376,194
7,697
6,342
279,604
228,786
$
1,009,277
$
740,728
December 31, (in millions)
2008
2007
$
147,493
$
134,529
58,247
69,171
$
205,740
$
203,700
December 31, 2008
(in millions)
U.S.
Non-U.S.
Total
$
200,586
$
77,934
$
278,520
5,388
916
6,304
4,299
811
5,110
4,418
429
4,847
2,767
525
3,292
802
226
1,028
$
218,260
$
80,841
$
299,101
December 31, (in millions)
2008
2007
$
70,187
$
450
11,192
51,021
(c)
28,385
$
132,400
$
28,835
(a)
Maturities of advances from the Federal Home Loan Banks were $47.4 billion, $18.5
billion, $2.6 billion, and $714 million in each of the 12-month periods ending December
31, 2009, 2010, 2011, and 2013, respectively, and $1.0 billion maturing after December 31,
2013. Maturities for the 12-month period ending December 31, 2012 were not material.
(b)
On September 19, 2008, the Federal Reserve Board established a temporary lending
facility, the AML Facility, to provide liquidity to eligible U.S. money market mutual
funds (MMMFs). Under the AML Facility, banking organizations must use the loan proceeds
to finance their purchases of eligible high-quality asset-backed commercial paper (ABCP)
investments from MMMFs, which are pledged to secure nonrecourse advances from the Federal
Reserve Bank of Boston (FRBB). Participating banking organizations do not bear any
credit or market risk related to the ABCP investments they hold under this facility;
therefore, the ABCP investments held are not assessed any regulatory capital. The AML
Facility will be in effect until October 30, 2009. The nonrecourse advances from the FRBB
were elected under the fair value option and recorded in other borrowed funds; the
corresponding ABCP investments were also elected under the fair value option and recorded
in other assets.
(c)
Includes $30.0 billion of advances from the Federal Reserve under the Federal
Reserves Term Auction Facility (TAF), pursuant to which the Federal Reserve auctions
term funds to depository institutions that are eligible to borrow under the primary credit
program. The TAF allows all eligible depository institutions to place a bid for an advance
from its local Federal Reserve Bank at an interest rate set by an auction. All advances
are required to be fully collateralized. The TAF is designed to improve liquidity by
making it easier for sound institutions to borrow when the markets are not operating
efficiently. The TAF does not have a fixed expiration date.
December 31, (in millions)
2008
2007
$
48,019
$
39,785
88,585
14,612
51,374
40,079
$
187,978
$
94,476
(a)
Includes payables to customers, brokers, dealers and clearing organizations, and
securities fails.
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
By remaining maturity at
2008
December 31,
Under
After
2007
(in millions, except rates)
1 year
1 5 years
5 years
Total
Total
Fixed rate
$
5,030
$
47,606
(f)
$
27,272
$
79,908
$
29,386
Variable rate
16,999
39,050
(g)
9,185
65,234
47,546
Interest rates
(b)
0.207.63
%
0.427.00
%
1.407.50
%
0.207.63
%
0.757.43
%
Fixed rate
$
3,732
$
8,296
$
16,938
$
28,966
$
27,761
Variable rate
37
1,749
1,786
1,888
Interest rates
(b)
6.009.88
%
5.2510.00
%
1.929.88
%
1.9210.00
%
1.9210.00
%
Subtotal
$
25,761
$
94,989
$
55,144
$
175,894
$
106,581
Fixed rate
$
1,052
$
4,433
$
2,885
$
8,370
$
6,406
Variable rate
(c)
9,213
30,050
18,717
57,980
60,556
Interest rates
(b)
0.034.45
%
0.055.75
%
0.4414.21
%
0.0314.21
%
3.7014.21
%
Fixed rate
$
$
2
$
8,698
$
8,700
$
9,169
Variable rate
1,150
1,150
1,150
Interest rates
(b)
6.25
%
2.338.25
%
2.338.25
%
4.388.25
%
Subtotal
$
10,265
$
34,485
$
31,450
$
76,200
$
77,281
$
36,026
$
129,474
$
86,594
$
252,094
(h)(i)(j)
$
183,862
(j)
FIN 46R long-term beneficial interests:
Fixed rate
$
16
$
486
$
69
$
571
$
701
Variable rate
51
1,002
3,381
4,434
6,508
Interest rates
3.517.75
%
3.058.75
%
3.409.16
%
3.059.16
%
1.7312.79
%
Total FIN 46R long-term beneficial interests
(e)
$
67
$
1,488
$
3,450
$
5,005
$
7,209
(a)
Included are various equity-linked or other indexed instruments. Embedded derivatives,
separated from hybrid securities in accordance with SFAS 133, are reported at fair value
and shown net with the host contract on the Consolidated Balance Sheets. Changes in fair
value of separated derivatives are recorded in principal transactions revenue. Hybrid
securities which the Firm has elected to measure at fair value are classified in the line
item of the host contract on the Consolidated Balance Sheets; changes in fair value are
recorded in principal transactions revenue in the Consolidated Statements of Income.
(b)
The interest rates shown are the range of contractual rates in effect at year-end,
including non U.S. dollar fixed- and variable-rate issuances, which excludes the effects of
the associated derivative instruments used in SFAS 133 hedge accounting relationships, if
applicable. The use of these derivative instruments modifies the Firms exposure to the
contractual interest rates disclosed in the table above. Including the effects of the SFAS
133 hedge accounting derivatives, the range of modified rates in effect at December 31,
2008, for total long-term debt was 0.18% to 14.21%, versus the contractual range of 0.03%
to 14.21% presented in the table above. The interest rate ranges shown exclude structured
notes accounted for at fair value under SFAS 155 or SFAS 159.
(c)
Included $7.8 billion principal amount of U.S. dollar-denominated floating-rate
mortgage bonds issued to an unaffiliated statutory trust, which in turn issued 6.0
billion in covered bonds secured by mortgage loans at December 31, 2008.
(d)
Included $58.2 billion and $70.5 billion of outstanding structured notes accounted
for at fair value at December 31, 2008 and 2007, respectively.
(e)
Included on the Consolidated Balance Sheets in beneficial interests issued by
consolidated VIEs. Also included $1.7 billion and $3.0 billion of outstanding structured
notes accounted for at fair value at December 31, 2008 and 2007, respectively.
(f)
Included $14.1 billion as of December 31, 2008, guaranteed under the TLG Program
whereby newly issued senior, unsecured debt is guaranteed by the FDIC, which is discussed
below.
(g)
Included $6.9 billion as of December 31, 2008, guaranteed by the FDIC under the TLG
Program, which is discussed below.
(h)
At December 31, 2008, long-term debt aggregating $7.4 billion was redeemable at the
option of JPMorgan Chase, in whole or in part, prior to maturity, based upon the terms
specified in the respective notes.
(i)
The aggregate principal amount of debt that matures in each of the five years
subsequent to 2008 is $36.0 billion in 2009, $38.5 billion in 2010, $39.7 billion in 2011,
$32.7 billion in 2012 and $18.6 billion in 2013.
(j)
Included $3.4 billion and $4.6 billion of outstanding zero-coupon notes at December
31, 2008 and 2007, respectively. The aggregate principal amount of these notes at their
respective maturities was $7.1 billion and $7.7 billion, respectively.
JPMorgan Chase & Co. / 2008 Annual Report
191
Table of Contents
Amount of
Principal
Stated maturity
capital debt
amount of
of capital
securities
debenture
securities
Earliest
Interest rate of
Interest
issued
issued
Issue
and
redemption
capital securities
payment/
December 31, 2008
(in millions)
by trust
(a)
to trust
(b)
date
debentures
date
and debentures
distribution dates
$
474
$
764
2000
2030
Any time
(c)
8.75
%
Semiannually
525
554
2001
2031
Any time
(c)
7.20
%
Quarterly
263
262
2001
2031
Any time
(c)
7.80
%
Quarterly
496
511
1997
2027
Any time
(c)
LIBOR + 0.50%
Quarterly
297
306
1997
2027
Any time
(c)
LIBOR + 0.55%
Quarterly
249
256
1998
2028
Any time
(c)
LIBOR + 0.625%
Quarterly
248
256
1997
2027
Any time
(c)
LIBOR + 0.55%
Quarterly
1,000
1,014
2002
2032
Any time
(c)
7.00
%
Quarterly
1,075
995
2003
2033
Any time
(c)
5.88
%
Quarterly
400
388
2003
2033
Any time
(c)
6.25
%
Quarterly
472
487
2004
2034
2014
LIBOR + 0.95%
Quarterly
600
583
2004
2034
2009
6.20
%
Quarterly
995
1,370
2005
2035
Any time
(c)
5.88
%
Semiannually
500
490
2005
2035
2010
6.35
%
Quarterly
496
696
2005
2035
Any time
(c)
5.85
%
Semiannually
748
749
2006
2036
Any time
(c)
6.95
%
Semiannually
562
564
2006
2036
2011
6.63
%
Quarterly
995
996
2006
2036
Any time
(c)
6.55
%
Semiannually
845
846
2007
2037
2012
LIBOR + 0.95%
Quarterly
996
997
2007
2037
Any time
(c)
6.45
%
Semiannually
746
746
2007
2047
2012
LIBOR + 1.00%
Quarterly
700
700
2007
2047
2012
6.88
%
Quarterly
1,492
2,244
2007
2037
2037
6.80
%
Semiannually
1,815
1,815
2008
2048
2013
8.00
%
Quarterly
$
16,989
$
18,589
(a)
Represents the amount of capital securities issued to the public by each trust,
including unamortized original issue discount.
(b)
Represents the principal amount of JPMorgan Chase debentures issued to each trust,
including unamortized original issue discount. The principal amount of debentures issued
to the trusts includes the impact of hedging and purchase accounting fair value
adjustments that were recorded on the Firms Consolidated Financial Statements.
(c)
Subject to Series K Preferred Stock restrictions, which are discussed in Note 24
below.
192
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Share value
Outstanding at
Earliest
Contractual rate
and redemption
December 31, 2008
redemption
in effect at
price per share
(b)
Shares
(in millions)
date
December 31, 2008
$
200
818,113
$
164
Any time
(d)
6.15
%
200
428,825
86
Any time
(d)
5.72
200
511,169
102
Any time
(d)
5.49
10,000
600,000
6,000
4/30/2018
7.90
10,000
180,000
1,800
9/1/2013
8.63
10,000
2,500,000
23,787
(c)
12/1/2011
(e)
5.00
5,038,107
$
31,939
(a)
Represented by depositary shares.
(b)
Redemption price includes amount shown in the table plus any accrued but unpaid
dividends.
(c)
Represents the carrying value as of December 31, 2008. The redemption value is $25.0
billion.
(d)
Subject to Series K Preferred Stock restrictions, which are discussed below.
(e)
Generally, the Firm may not redeem Series K Preferred Stock prior to the first
dividend payment date falling on or after October 28, 2011. However, prior to this date,
the Firm may redeem the securities up to the amount of the aggregate gross proceeds from a
qualified equity offering if it has received aggregate gross proceeds from such
offerings above an amount agreed with the U.S. Treasury and received approval from the
applicable federal banking agencies.
JPMorgan Chase & Co. / 2008 Annual Report
193
Table of Contents
Dividend restrictions
For as long as any shares of Series K Preferred
Stock are outstanding, no dividends may be declared
or paid on stock ranking junior or equally with the
Series K Preferred Stock, unless all accrued and
unpaid dividends for all past dividend periods on
the Series K Preferred Stock are fully paid. Pursuant to the Capital Purchase Program, until October 28, 2011, the U.S. Treasurys
consent is required for any increase in dividends on the Firms common stock from the amount of the last
quarterly stock dividend declared by the Firm prior to October 14, 2008, unless the Series K Preferred Stock is
redeemed in whole before then, or the U.S. Treasury has transferred all of the Series K Preferred Stock it owns to third parties.
The Firm may not repurchase or redeem any common
stock or other equity securities of the Firm, or
any trust preferred capital debt securities issued
by the Firm or any of its affiliates, without the
prior consent of the U.S. Treasury (other than (i)
repurchases of the Series K Preferred Stock and
(ii) repurchases of junior preferred shares or
common stock in connection with any employee
benefit plan in the ordinary course of business
consistent with past practice) until October 28,
2011, unless the Series K Preferred Stock is
redeemed in whole before then, or the U.S. Treasury
has transferred all of the Series K Preferred Stock
it owns to third parties.
December 31, (in millions)
2008
2007
2006
3,657.7
3,657.8
3,618.2
283.9
20.7
39.3
0.6
304.6
39.9
(20.7
)
(0.1
)
(0.3
)
3,941.6
3,657.7
3,657.8
(290.3
)
(196.1
)
(131.5
)
(168.2
)
(90.7
)
(0.5
)
(2.7
)
(8.8
)
26.5
54.4
75.7
34.4
1.1
1.0
0.5
82.0
76.7
34.9
(208.8
)
(290.3
)
(196.1
)
3,732.8
3,367.4
3,461.7
(a)
Participants in the Firms stock-based incentive plans may have shares withheld to
cover income taxes. The shares withheld amounted to 0.5 million, 2.7 million and 8.1
million for 2008, 2007 and 2006, respectively.
194
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31,
(in millions, except per share amounts)
2008
2007
2006
$
3,699
$
15,365
$
13,649
795
$
3,699
$
15,365
$
14,444
1,906
5,605
15,365
14,444
674
4
$
4,931
$
15,365
$
14,440
3,501
3,404
3,470
$
0.86
$
4.51
$
3.93
0.23
0.55
$
1.41
$
4.51
$
4.16
2008
2007
2006
$
4,931
$
15,365
$
14,440
3,501
3,404
3,470
104
104
104
3,605
3,508
3,574
$
0.84
$
4.38
$
3.82
0.22
0.53
$
1.37
$
4.38
$
4.04
(a)
Options issued under employee benefit plans and, in 2008, the warrant issued under
the U.S. Treasurys Capital Purchase Program to purchase an aggregate 209 million, 129
million and 150 million shares of common stock were outstanding for the years ended
December 31, 2008, 2007 and 2006, respectively, but were not included in the computation
of diluted EPS, because the options and warrant were antidilutive.
JPMorgan Chase & Co. / 2008 Annual Report
195
Table of Contents
Net loss and prior
Accumulated
Translation
service costs (credit) of
other
Unrealized gains (losses)
adjustments,
Cash
defined benefit pension
comprehensive
(in millions)
on AFS securities
(a)
net of hedges
flow hedges
and OPEB plans
(e)
income (loss)
$
(224
)
$
(8
)
$
(394
)
$
$
(626
)
253
(b)
13
(95
)
171
(1,102
)
(1,102
)
29
5
(489
)
(1,102
)
(1,557
)
(1
)
(1
)
28
5
(489
)
(1,102
)
(1,558
)
352
(c)
3
(313
)
599
641
380
8
(802
)
(503
)
(917
)
(2,481
)
(d)
(606
)
600
(2,283
)
(4,770
)
$
(2,101
)
$
(598
)
$
(202
)
$
(2,786
)
$
(5,687
)
(a)
Represents the after-tax difference between the fair value and amortized cost of
the AFS securities portfolio and retained interests in securitizations recorded in other
assets.
(b)
The net change during 2006 was due primarily to the reversal of unrealized losses
from securities sales.
(c)
The net change during 2007 was due primarily to a decline in interest rates.
(d)
The net change during 2008 was due primarily to spread widening in credit card
asset-backed securities, non-agency mortgage-backed securities and collateralized loan
obligations.
(e)
For further discussion of SFAS 158, see Note 9 on pages
149155 of this Annual
Report.
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JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2008
2007
2006
Before
Tax
After
Before
Tax
After
Before
Tax
After
Year ended December 31, (in millions)
tax
effect
tax
tax
effect
tax
tax
effect
tax
$
(3,071
)
$
1,171
$
(1,900
)
$
759
$
(310
)
$
449
$
(403
)
$
144
$
(259
)
(965
)
384
(581
)
(164
)
67
(97
)
797
(285
)
512
(4,036
)
1,555
(2,481
)
595
(243
)
352
394
(141
)
253
(1,781
)
682
(1,099
)
754
(281
)
473
590
(236
)
354
820
(327
)
493
(780
)
310
(470
)
(563
)
222
(341
)
(961
)
355
(606
)
(26
)
29
3
27
(14
)
13
584
(226
)
358
(737
)
294
(443
)
(250
)
98
(152
)
402
(160
)
242
217
(87
)
130
93
(36
)
57
986
(386
)
600
(520
)
207
(313
)
(157
)
62
(95
)
(3,579
)
1,289
(2,290
)
934
(372
)
562
NA
NA
NA
14
(7
)
7
59
(22
)
37
NA
NA
NA
(3,565
)
1,282
(2,283
)
993
(394
)
599
NA
NA
NA
$
(7,576
)
$
2,806
$
(4,770
)
$
1,042
$
(401
)
$
641
$
264
$
(93
)
$
171
NA
NA
NA
NA
NA
NA
$
(1,746
)
$
644
$
(1,102
)
(a)
For further discussion of SFAS 158 and details of changes to accumulated other
comprehensive income (loss), see Note 9 on pages 149155 of this Annual Report.
Year ended December 31, (in millions)
2008
2007
2006
$
395
$
2,805
$
5,512
1,009
2,985
1,656
307
343
879
1,711
6,133
8,047
(3,015
)
1,122
(1,628
)
1
(185
)
194
377
370
(376
)
(2,637
)
1,307
(1,810
)
(926
)
7,440
6,237
572
$
(926
)
$
7,440
$
6,809
JPMorgan Chase & Co. / 2008 Annual Report
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Table of Contents
Year ended December 31,
2008
2007
2006
35.0
%
35.0
%
35.0
%
16.0
2.0
2.1
(14.8
)
(2.4
)
(2.2
)
(53.6
)
(1.1
)
(0.5
)
(24.5
)
(2.5
)
(2.5
)
5.7
2.8
1.6
(0.5
)
(33.4
)%
32.6
%
31.4
%
December 31, (in millions)
2008
2007
$
8,029
$
3,800
4,841
3,391
3,686
3,635
2,565
2,504
285
1,383
$
23,008
$
11,111
$
4,681
$
2,966
1,895
2,304
1,015
548
946
1,790
570
202
207
$
8,739
$
8,385
1,266
220
$
13,003
$
2,506
198
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Unrecognized tax benefits
Year ended December 31,
(in millions)
2008
2007
$
4,811
$
4,677
890
434
(109
)
(241
)
1,387
501
903
(1,386
)
(791
)
(181
)
(158
)
(19
)
(13
)
$
5,894
$
4,811
(a)
For purposes of this table, non-U.S. income is defined as income generated from
operations located outside the U.S.
JPMorgan Chase & Co. / 2008 Annual Report
199
Table of Contents
Tier 1
Total
Risk-weighted
Adjusted
Tier 1
Total
Tier 1
(in millions, except ratios)
capital
capital
assets
(c)
average assets
(d)
capital ratio
capital ratio
leverage ratio
$
136,104
$
184,720
$
1,244,659
$
1,966,895
10.9
%
14.8
%
6.9
%
100,594
143,854
1,153,039
1,705,750
8.7
12.5
5.9
11,190
12,901
101,472
87,286
11.0
12.7
12.8
$
88,746
$
132,242
$
1,051,879
$
1,473,541
8.4
%
12.6
%
6.0
%
78,453
112,253
950,001
1,268,304
8.3
11.8
6.2
9,407
10,720
73,169
60,905
12.9
14.7
15.5
6.0
%
10.0
%
5.0
%
(e)
4.0
8.0
3.0
(f)
(a)
Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany
transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of
intercompany transactions.
(b)
As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
(c)
Includes off-balance sheet risk-weighted assets in the amounts of $357.5 billion, $332.2
billion and $18.6 billion, respectively, at December 31, 2008, and $352.7 billion, $336.8 billion
and $13.4 billion, respectively, at December 31, 2007, for JPMorgan Chase, JPMorgan Bank, N.A. and
Chase Bank USA, N.A.
(d)
Adjusted average assets, for purposes of calculating the leverage ratio, include total average
assets adjusted for unrealized gains/losses on securities, less deductions for disallowed goodwill
and other intangible assets, investments in certain subsidiaries and the total adjusted carrying
value of nonfinancial equity investments that are subject to deductions from Tier 1 capital.
(e)
Represents requirements for banking subsidiaries pursuant to regulations issued under the
Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component in the
definition of a well-capitalized bank holding company.
(f)
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending on
factors specified in regulations issued by the Federal Reserve and OCC.
Note:
Rating agencies allow
measures of capital to be adjusted upward for deferred tax liabilities which have resulted from
both nontaxable business combinations and from tax-deductible goodwill. The Firm had deferred tax
liabilities resulting from nontaxable business combinations totaling $1.1 billion at December 31,
2008, and $2.0 billion at December 31, 2007. Additionally, the Firm had deferred tax liabilities
resulting from tax-deductible goodwill of $1.6 billion at December 31, 2008, and $939 million at
December 31, 2007.
200
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December 31, (in millions)
2008
2007
$
166,884
$
123,221
5,084
925
171,968
124,146
17,257
15,005
48,027
45,270
2,358
882
679
782
2,057
3,471
136,104
88,746
31,659
32,817
17,187
10,084
(230
)
595
48,616
43,496
$
184,720
$
132,242
(a)
Primarily includes trust preferred capital debt securities of certain business trusts.
Year ended December 31, (in millions)
$
1,676
1,672
1,543
1,456
1,387
9,134
16,868
(2,266
)
$
14,602
(a)
Lease restoration obligations are accrued in accordance with SFAS 13, and are not
reported as a required minimum lease payment.
Year ended December 31, (in millions)
2008
2007
2006
$
1,917
$
1,380
$
1,266
(415
)
(175
)
(194
)
$
1,502
$
1,205
$
1,072
December 31, (in billions)
2008
2007
$
456.6
$
333.7
31.0
4.5
342.3
160.4
98.0
102.2
$
927.9
$
600.8
(a)
Total assets pledged do not include assets of consolidated
VIEs. These assets are generally used to satisfy liabilities to third
parties. See Note 17 on pages 177186 of this Annual Report
for additional information on assets and liabilities of consolidated
VIEs.
JPMorgan Chase & Co. / 2008 Annual Report
201
Table of Contents
The Firm makes markets in derivatives for customers
seeking to modify, or reduce interest rate, credit,
foreign exchange, equity and commodity and other
market risks or for risk-taking purposes. The Firm
typically manages its exposure from such
derivatives by entering into derivatives or other
financial instruments that partially or fully
offset the exposure from the client transaction.
The Firm actively manages any residual exposure and
seeks to earn a spread between the client
derivatives and offsetting positions. For the
Firms own account, the Firm uses derivatives to
take risk positions or to benefit from differences
in prices between derivative markets and markets
for other financial instruments.
Interest rate contracts, which are generally
interest rate swaps, forwards and futures are
utilized in the Firms risk management activities
to minimize fluctuations in earnings caused by
interest rate volatility. As a result of interest
rate fluctuations, fixed-rate assets and
liabilities appreciate or depreciate in market
value. Gains or losses on the derivative
instruments that are linked to fixed-rate assets
and liabilities and forecasted transactions are
expected to offset substantially this unrealized
appreciation or depreciation. Interest income and
interest expense on variable-rate assets and
liabilities and on forecasted transactions increase
or
decrease as a result of interest rate fluctuations.
Gains and losses on the derivative instruments that
are linked to assets and liabilities and forecasted
transactions are expected to offset substantially
this variability in earnings. Interest rate swaps
involve the exchange of fixed-rate and
variable-rate interest payments based on the
contracted notional amount. Forward contracts used
for the Firms interest rate risk management
activities are primarily arrangements to exchange
cash in the future
202
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Table of Contents
Year ended December 31, (in millions)
2008
2007
2006
$
434
$
111
$
51
18
29
2
15
(b)
(a)
Includes ineffectiveness and the components of hedging instruments that have been
excluded from the assessment of hedge effectiveness.
(b)
During the second half of 2007, the Firm did not issue short-term fixed rate
Canadian dollar denominated notes due to the weak credit market for Canadian short-term
debt.
Credit derivatives are financial instruments whose
value is derived from the credit risk associated
with the debt of a third party issuer (the
reference entity) and which allow one party (the
protection purchaser) to transfer that risk to
another party (the protection seller). Credit
derivatives expose the protection purchaser to the
creditworthiness of the protection seller, as the
protection seller is required to make payments
under the contract when the reference entity experiences a credit event, such
as a bankruptcy, failure to pay its obligation, or
a restructuring. The seller of credit protection
receives a premium for providing protection, but
has the risk that the underlying instrument
referenced in the contract will be subjected to a
credit event.
JPMorgan Chase & Co. / 2008 Annual Report
203
Table of Contents
Credit derivatives may reference the credit of
either a single reference entity (single-name) or
a broad-based index, as described further below. The Firm purchases and sells protection
on both single-name and index-reference
obligations. Single-name credit default swaps
(CDS) and index CDS contracts are both OTC
derivative contracts. Single-name CDS are used to
manage the default risk of a single reference
entity, while CDS index are used to manage credit
risk associated with the broader credit markets or
credit market segments. Like the S&P 500 and other
market indices, a CDS index is comprised of a
portfolio of CDS across many reference entities.
New series of CDS indices are established
approximately every six months with a new
underlying portfolio of reference entities to
reflect changes in the credit markets. If one of
the reference entities in the index experiences a
credit event, then the reference entity that
defaulted is removed from the index and is replaced
with another reference entity. CDS can also be
referenced against specific portfolios of reference
names or against customized exposure levels based
on specific client demands: for example, to provide
protection against the first $1 million of realized
credit losses in a $10 million portfolio of
exposure. Such structures are commonly known as
tranche CDS.
A credit linked note (CLN) is a funded credit
derivative where the issuer of the CLN purchases
credit protection on a referenced entity from the
note investor. Under the contract, the investor
pays the issuer par value of the note at the
inception of the transaction, and in return, the
issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity.
The issuer also repays the investor the par value
of the note at maturity unless the reference entity
experiences a specified credit event. In that
event, the issuer is not obligated to repay the par
value of the note, but rather, the issuer pays the
investor the
difference between the par value of the note and
the fair value of the defaulted reference
obligation at the time of settlement. Neither party
to the CLN has recourse to the defaulting reference
entity. For a further discussion of CLNs, see Note
17 on pages 182183 of this Annual Report.
204
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Maximum payout/Notional amount
Protection purchased with
Net protection
Other protection
December 31, 2008
(in millions)
Protection sold
identical underlyings
(b)
(sold)/purchased
(c)
purchased
(d)
$
(4,194,707
)
$
3,876,890
$
(317,817
)
$
302,160
(4,026
)
(4,026
)
10,096
(4,198,733
)
3,876,890
(321,843
)
312,256
(1,263
)
141
(1,122
)
1,792
$
(4,199,996
)
$
3,877,031
$
(322,965
)
$
314,048
(a)
Primarily consists of total return swaps and options to enter
into credit default swap contracts.
(b)
Represents the notional amount of purchased credit derivatives where the
underlying reference instrument is identical to the reference instrument on which the Firm
has sold credit protection.
(c)
Does not take into account the fair value of the reference obligation at the time
of settlement, which would generally reduce the amount the seller of protection pays to
the buyer of protection in determining settlement value.
(d)
Represents single-name and index CDS protection the Firm purchased primarily to
risk manage the net protection sold.
Total
December 31, 2008
(in millions)
< 1 year
1-5 years
> 5 years
notional amount
Fair value
(c)
$
(177,404
)
$
(1,767,004
)
$
(713,555
)
$
(2,657,963
)
$
(215,217
)
(121,040
)
(992,098
)
(428,895
)
(1,542,033
)
(244,975
)
$
(298,444
)
$
(2,759,102
)
$
(1,142,450
)
$
(4,199,996
)
$
(460,192
)
(a)
The contractual maturity for single-name CDS contract generally ranges from three
months to ten years and the contractual maturity for index CDS is generally five years.
The contractual maturity for CLNs typically ranges from three to five years.
(b)
Ratings scale is based upon the Firms internal ratings, which generally
correspond to ratings defined by S&P and Moodys.
(c)
Amounts are shown on a gross basis, before the benefit of legally enforceable
master netting agreements and cash collateral held by the Firm.
JPMorgan Chase & Co. / 2008 Annual Report
205
Table of Contents
Allowance for
Contractual amount
lending-related commitments
December 31, (in millions)
2008
2007
2008
2007
$
741,507
$
815,936
$
25
$
15
225,863
250,954
349
571
53,729
90,105
9
9
95,352
100,222
274
254
4,927
5,371
2
1
379,871
446,652
634
835
$
1,121,378
$
1,262,588
$
659
$
850
$
169,281
$
385,758
NA
NA
670
NA
NA
NA
83,835
85,262
NA
NA
(a)
Includes credit card and home equity lending-related commitments of $623.7 billion
and $95.7 billion, respectively, at December 31, 2008; and $714.8 billion and $74.2
billion, respectively, at December 31, 2007. These amounts for credit card and home equity
lending-related commitments represent the total available credit for these products. The
Firm has not experienced, and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm can reduce or cancel these
lines of credit by providing the borrower prior notice or, in some cases, without notice
as permitted by law.
(b)
Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion
at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve, unused advised lines are not reportable.
(c)
Represents contractual amount net of risk participations totaling $28.3 billion at
both December 31, 2008 and 2007.
(d)
Excludes unfunded commitments to third-party private equity funds of $1.4 billion
and $881 million at December 31, 2008 and 2007, respectively. Also excludes unfunded
commitments for other equity investments of $1.0 billion and $903 million at December 31,
2008 and 2007, respectively.
(e)
Includes commitments to investment and noninvestment grade counterparties in
connection with leveraged acquisitions of $3.6 billion and $8.2 billion at December 31,
2008 and 2007, respectively.
(f)
Largely represents asset purchase agreements with the Firms administered
multi-seller, asset-backed commercial paper conduits. It also includes $96 million and
$1.1 billion of asset purchase agreements to other third-party entities at December 31,
2008 and 2007, respectively.
(g)
JPMorgan Chase held collateral relating to $31.0 billion and $31.5 billion of
these arrangements at December 31, 2008 and 2007, respectively. Prior periods have been
revised to conform to the current presentation.
(h)
Includes unissued standby letters of credit commitments of $39.5 billion and $50.7
billion at December 31, 2008 and 2007, respectively.
(i)
Collateral held by the Firm in support of securities lending indemnification
agreements was $170.1 billion and $390.5 billion at December 31, 2008 and 2007,
respectively. Securities lending collateral comprises primarily cash, securities issued by
governments that are members of the Organisation for Economic Co-operation and Development
and U.S. government agencies.
(j)
Represents notional amounts of derivatives qualifying as guarantees.
206
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Unfunded commitments to extend credit are
agreements to lend or to purchase securities only
when a customer has complied with predetermined
conditions, and they generally expire on fixed
dates.
FIN 45 establishes accounting and disclosure
requirements for guarantees, requiring that a
guarantor recognize, at the inception of a
guarantee, a liability in an amount equal to the
fair value of the obligation undertaken in issuing
the guarantee. FIN 45 defines a guarantee as a
contract that contingently requires the guarantor
to pay a guaranteed party, based upon: (a) changes
in an underlying asset, liability or equity
security of the guaranteed party; or (b) a third
partys failure to perform under a specified
agreement. The Firm considers the following
off-balance sheet lending-related arrangements to
be guarantees under FIN 45: certain
asset purchase agreements, standby letters of
credit and financial guarantees, securities lending
indemnifications, certain indemnification
agreements included within third-party contractual
arrangements and certain derivative contracts.
These guarantees are described in further detail
below.
The majority of the Firms unfunded commitments are
not guarantees as defined in FIN 45, except for
certain asset purchase agreements that are
principally used as a mechanism to provide
liquidity to SPEs, predominantly multi-seller
conduits, as described in Note 17 on pages 177181
of this Annual Report. The conduits administrative
agent can require the liquidity provider to perform
under their asset purchase agreement with the
conduit at any time. These agreements may cause the
Firm to purchase an asset from the SPE at an amount
above the assets then fair value, in effect
providing a guarantee of the initial value of the
reference asset as of the date of the agreement. In
most instances, third-party credit enhancements of
the SPE mitigate the Firms potential losses on
these agreements.
Standby letters of credit (SBLC) and financial guarantees
are conditional lending commitments issued by the
Firm to guarantee the performance of a customer to
a third party under certain arrangements, such as
commercial paper facilities, bond financings,
acquisition financings, trade and similar
transactions. The majority of SBLCs mature in 5 years or less; as of December 31, 2008 and 2007, 64%
and 52%, respectively, of these arrangements mature
within three years. The Firm has recourse to
recover from the customer any amounts paid under
these guarantees; in addition, the Firm may hold
cash or other highly liquid collateral to support
these guarantees. The carrying value of standby letters of credit of
$673 million and $590 million at December 31, 2008 and
2007, respectively, which is classified in accounts payable and other
liabilities in the Consolidated Balance Sheets, includes
$276 million and $255 million at December 31, 2008 and
2007, respectively for the allowance for lending-related commitments,
and $397 million and $335 million at December 31, 2008
and 2007, respectively for the FIN 45 guarantee.
JPMorgan Chase & Co./2008 Annual Report
207
Table of Contents
2008
2007
Standby letters
Standby letters
of credit and
of credit and
other financial
Other letters
other financial
Other letters
December 31, (in millions)
guarantees
of credit
guarantees
of credit
$
73,394
$
4,165
$
71,904
$
4,153
21,958
762
28,318
1,218
$
95,352
(b)
$
4,927
$
100,222
(b)
$
5,371
$
274
$
2
$
254
$
1
30,972
1,000
31,502
809
(a)
Ratings scale is based upon the Firms internal ratings
which generally correspond to ratings defined by S&P and
Moodys.
(b)
Represents contractual amount net of risk participations totaling $28.3 billion at
both December 31, 2008 and 2007.
In addition to the contracts described above, the
Firm transacts certain derivative contracts that
meet the characteristics of a guarantee under FIN
45. These contracts include written put options
that require the Firm to purchase assets upon
exercise by the option holder at a specified price
by a specified date in the future. The Firm may
enter into written put option contracts in order to
meet client needs, or for trading purposes. The
terms of written put options are typically five
years or less. Derivative guarantees also include
contracts such as stable value derivatives that
require the Firm to make a payment of the
difference between the market value and the book
value of a counterpartys reference portfolio of
assets in the event that market
208
JPMorgan Chase & Co./2008 Annual Report
Table of Contents
Through the Firms securities lending program,
customers securities, via custodial and
non-custodial arrangements, may be lent to third
parties. As part of this program, the Firm provides
an indemnification in the lending agreements which
protects the lender against the failure of the
third-party borrower to return the lent securities
in the event the Firm did not obtain sufficient
collateral. To minimize its liability under these
indemnification agreements, the Firm obtains cash
or other highly liquid collateral with a market
value exceeding 100% of the value of the securities
on loan from the borrower. Collateral is marked to
market daily to help assure that collateralization
is adequate. Additional collateral is called from
the borrower if a shortfall exists, or collateral
may be released to the borrower in the event of
overcollateralization. If a borrower defaults, the
Firm would use the collateral held to purchase
replacement securities in the market or to credit
the lending customer with the cash equivalent
thereof.
In connection with issuing securities to investors,
the Firm may enter into contractual arrangements
with third parties that may require the Firm to
make a payment to them in the event of a change in
tax law or an adverse interpretation of tax law. In
certain cases, the contract also may include a
termination clause, which would allow the Firm to
settle the contract at its fair value in lieu of
making a payment under the indemnification clause.
The Firm may also enter into indemnification
clauses in connection with the licensing of
software to clients (software licensees) or when
it sells a business or assets to a third party
(third-party purchasers), pursuant to which it
indemnifies software licensees for claims of
liability or damages that may occur subsequent to
the licensing of the software, or third-party
purchasers for losses they may incur due to actions
taken by the Firm prior to the sale of the business
or assets. It is difficult to estimate the Firms
maximum exposure under
these indemnification arrangements, since this
would require an assessment of future changes in
tax law and future claims that may be made against
the Firm that have not yet occurred. However, based
upon historical experience, management expects the
risk of loss to be remote.
Indemnifications for breaches of representations and warranties
As part of the Firms loan sale and securitization
activities, as described in Note 14 and Note 16 on
pages 163166 and 168176, respectively, of this
Annual Report, the Firm generally makes
representations and warranties in its loan sale and
securitization agreements that the loans sold meet
certain requirements. These agreements may require
the Firm (including in its roles as a servicer) to
repurchase the loans and/or indemnify the purchaser
of the loans against losses due to any breaches of
such representations or warranties. Generally, the
maximum amount of future payments the Firm would be
required to make for breaches under these
representations and warranties would be equal to
the current amount of assets held by such
securitization-related SPEs plus, in certain
circumstances, accrued and unpaid interest on such
loans and certain expense.
The Firm provides servicing for mortgages and
certain commercial lending products on both a
recourse and nonrecourse basis. In nonrecourse
servicing, the principal credit risk to the Firm is
the cost of temporary servicing advances of funds
(i.e., normal servicing advances). In recourse
servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as the
Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation or a private
investor, insurer or guarantor. Losses on
recourse servicing predominantly occur when foreclosure sales
proceeds of the property underlying a defaulted loan are less than
the sum of the outstanding principal balance, plus accrued interest
on the loan and the cost of holding and disposing of the underlying
property. The Firms loan sale transactions have primarily been
executed on a nonrecourse basis, thereby effectively transferring the risk of
future credit losses to the purchaser of the mortgage-backed
securities issued by the trust. At
December 31, 2008 and 2007, the unpaid principal
balance of loans sold with recourse totaled $15.0
billion and $557 million, respectively. The increase in loans
sold with recourse between December 31, 2008 and 2007, was driven
by the Washington Mutual transaction. The
carrying value of the related liability that the
Firm had recorded, which is representative of the
Firms view of the likelihood it will have to
perform under this guarantee, was $241 million and
zero at December 31, 2008 and 2007, respectively.
Prior to November 1, 2008, the Firm was a partner
with one of the leading companies in electronic
payment services in a joint venture operating under
the name of Chase Paymentech Solutions, LLC (the
joint venture). The joint venture was formed in
October 2005, as a result of an agreement by the
Firm and First Data Corporation, its joint venture
partner, to integrate the companies jointly-owned
Chase Merchant Services and Paymentech merchant
businesses. The joint venture provided merchant
processing services in the United States and
JPMorgan Chase & Co./2008 Annual Report
209
Table of Contents
The Firm holds an equity interest in VISA Inc.
During October 2007, certain VISA-related entities
completed a series of restructuring transactions to
combine their operations, including VISA USA, under
one holding company, VISA Inc. Upon the
restructuring, the Firms membership interest in
VISA USA was converted into an equity interest in
VISA Inc. VISA Inc. sold shares via an initial
public offering and used a portion of the proceeds
from the offering to redeem a portion of the Firms
equity interest in Visa Inc. Prior to the
restructuring, VISA USAs by-laws obligated the
Firm upon demand by VISA USA to indemnify VISA USA
for, among other things, litigation obligations of
Visa USA. The accounting for that guarantee was not
subject to fair value accounting under FIN 45,
because the guarantee was in effect prior to the
effective date of FIN 45. Upon the restructuring
event, the Firms obligation to indemnify Visa Inc.
was limited to certain identified litigations. Such
a limitation is deemed a modification of the
indemnity by-law and, accordingly, is now subject
to the provisions of FIN 45. The value of the
litigation guarantee has been recorded in the
Firms financial statements based on its fair
value; the net amount recorded (within other
liabilities) did not have a material adverse effect
on the Firms financial statements.
In connection with the Bear Stearns merger, the
Firm succeeded to an operating lease arrangement
for the building located at 383 Madison Avenue in
New York City (the Synthetic Lease). Under the
terms of the Synthetic Lease, the Firm is obligated
to make periodic payments based on the lessors
underlying interest costs. The Synthetic Lease
expires on November 1, 2010. Under the terms of the
Synthetic Lease, the Firm has the right to purchase
the building for the amount of the then outstanding
indebtedness of the lessor, or to arrange for the
sale of the building, with the proceeds of the sale
to be used to satisfy the lessors debt obligation.
If the sale does not generate sufficient proceeds
to satisfy the lessors debt obligation, the Firm
is required to fund the shortfall up to a maximum
residual value guarantee. As of December 31, 2008,
there was no expected shortfall, and the maximum
residual value guarantee was approximately $670
million. Under a separate ground lease, the land on
which the building is built was leased to an
affiliate of Bear Stearns which, as part of the
Synthetic Lease, assigned this position to the
Synthetic Lease lessor. The owner of the land sued
the Firm, alleging that certain provisions of the
merger agreement violated a right of first offer
provision of the ground lease. The Firms motion to
dismiss the lawsuit was granted, and a judgment of
dismissal was entered on January 12, 2009. The
owner has filed a notice of appeal.
210
JPMorgan Chase & Co./2008 Annual Report
Table of Contents
2008
2007
On-balance sheet
On-balance sheet
Credit
Off-balance
Credit
Off-balance
December 31, (in millions)
exposure
Loans
Derivatives
sheet
(c)
exposure
Loans
Derivatives
sheet
(c)
$
83,799
$
66,881
$
2,289
$
14,629
$
38,295
$
20,274
$
893
$
17,128
75,577
19,055
33,457
23,065
65,288
16,776
12,502
36,010
49,256
9,640
18,806
20,810
38,554
8,534
7,763
22,257
38,032
7,004
3,723
27,305
30,746
5,644
885
24,217
35,954
5,873
9,427
20,654
31,425
5,699
3,205
22,521
34,246
9,184
4,664
20,398
28,679
5,840
1,870
20,969
32,714
8,433
3,079
21,202
23,969
6,665
517
16,787
29,766
10,081
2,225
17,460
29,941
8,915
1,084
19,942
25,590
6,360
14,111
5,119
23,274
5,120
11,022
7,132
24,746
8,796
2,220
13,730
26,082
10,348
1,570
14,164
17,744
1,942
5,494
10,308
16,782
1,067
2,442
13,273
17,555
5,028
1,361
11,166
18,335
4,674
1,309
12,352
17,254
7,535
1,248
8,471
16,253
4,909
1,268
10,076
15,259
555
10,537
4,167
9,075
583
3,989
4,503
14,980
6,470
1,991
6,519
17,714
7,282
2,673
7,759
278,114
75,252
47,994
154,868
298,803
77,097
24,144
197,562
13,955
13,955
23,649
23,649
16,141
820,682
262,044
162,626
379,871
736,864
213,076
77,136
446,652
238,633
142,890
95,743
169,023
94,832
74,191
99,200
94,121
5,079
47,382
39,988
7,394
22,090
22,090
15,489
15,473
16
40,661
40,661
47,329
42,603
4,726
50,408
42,350
8,058
728,448
104,746
623,702
799,200
84,352
714,848
45,972
33,715
12,257
36,743
25,314
11,429
2,028
2,028
3,989
3,989
1,224,361
482,854
741,507
1,122,234
306,298
815,936
$
2,045,043
$
744,898
$
162,626
$
1,121,378
$
1,859,098
$
519,374
$
77,136
$
1,262,588
(a)
Primarily represents margin loans to prime and retail brokerage customers which
are included in accrued interest and accounts receivable on the Consolidated Balance
Sheets.
(b)
Excludes $85.6 billion and $72.7 billion of securitized credit card receivables at
December 31, 2008 and 2007, respectively.
(c)
Represents lending-related financial instruments.
JPMorgan Chase & Co./2008 Annual Report
211
Table of Contents
Income (loss) from continuing
operations before
Year ended December 31, (in millions)
Revenue
(a)
Expense
(b)
income tax expense
(benefit)
Net income
$
11,449
$
8,403
$
3,046
$
2,483
4,097
3,580
517
672
1,353
903
450
274
499
410
89
21
17,398
13,296
4,102
3,450
49,854
51,183
(1,329
)
2,155
$
67,252
$
64,479
$
2,773
$
5,605
$
12,070
$
8,445
$
3,625
$
2,585
4,730
3,117
1,613
945
2,028
975
1,053
630
407
289
118
79
19,235
12,826
6,409
4,239
52,137
35,741
16,396
11,126
$
71,372
$
48,567
$
22,805
$
15,365
$
11,342
$
7,471
$
3,871
$
2,774
3,227
2,649
578
400
1,342
820
522
333
381
240
141
90
16,292
11,180
5,112
3,597
45,707
30,933
14,774
10,847
$
61,999
$
42,113
$
19,886
$
14,444
(a)
Revenue is composed of net interest income and noninterest revenue.
(b)
Expense is composed of noninterest expense and provision for credit losses.
212
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Year ended December 31, (in millions)
2008
2007
2006
$
3,085
$
5,834
$
2,935
1,687
2,463
1,999
4,539
5,082
3,612
212
263
273
244
182
220
95
960
739
(1,038
)
(131
)
(206
)
8,824
14,653
9,572
1,302
1,239
1,025
6,879
6,427
4,536
43
125
519
732
329
295
8,956
8,120
6,375
(132
)
6,533
3,197
2,582
589
982
3,155
8,243
10,265
$
5,605
$
15,365
$
14,444
(a)
Subsidiaries include trusts that issued guaranteed capital debt securities
(issuer trusts). As a result of FIN 46R, the Parent
Company deconsolidated these trusts in 2003.
The Parent Company received dividends of $15 million, $18 million and $23 million from the issuer
trusts in 2008, 2007 and 2006, respectively. For further discussion on these issuer
trusts, see Note 23 on page 191 of this Annual Report.
(b)
Amounts for 2007 have been revised to reflect the pushdown of certain litigation expense,
which had previously been recorded at the parent company level, to the bank
subsidiary level.
There was no change to net income as the increase in Parent Company profitability was
offset by a decrease in the net income of subsidiaries.
(c)
At December 31, 2008, debt that contractually matures in 2009 through 2013 totaled
$25.8 billion, $28.6 billion, $29.3 billion, $25.3 billion and $11.8 billion,
respectively.
(d)
Includes $39.8 billion of Bear Stearns long-term debt assumed by JPMorgan Chase &
Co.
(e)
Includes the conversion of Bear Stearns preferred stock into JPMorgan Chase
preferred stock.
JPMorgan Chase & Co. / 2008 Annual Report
213
Table of Contents
Year ended December 31,
Investment Bank
Retail Financial Services
Card Services
Commercial Banking
(in millions, except ratios)
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
$
1,930
$
14,094
$
18,334
$
9,355
$
6,779
$
4,660
$
2,719
$
3,046
$
2,944
$
1,481
$
1,263
$
1,073
10,284
4,076
499
14,165
10,526
10,165
13,755
12,189
11,801
3,296
2,840
2,727
12,214
18,170
18,833
23,520
17,305
14,825
16,474
15,235
14,745
4,777
4,103
3,800
2,015
654
191
9,905
2,610
561
10,059
5,711
4,598
464
279
160
121
121
121
13,844
13,074
12,860
12,077
9,905
8,927
5,140
4,914
5,086
1,946
1,958
1,979
(3,524
)
4,563
5,903
1,538
4,790
5,337
`
1,275
4,610
5,061
2,367
1,866
1,661
(2,349
)
1,424
2,229
658
1,865
2,124
495
1,691
1,855
928
732
651
(1,175
)
3,139
3,674
880
2,925
3,213
780
2,919
3,206
1,439
1,134
1,010
(1,175
)
3,139
3,674
880
2,925
3,213
780
2,919
3,206
1,439
1,134
1,010
$
(1,175
)
$
3,139
$
3,674
$
880
$
2,925
$
3,213
$
780
$
2,919
$
3,206
$
1,439
$
1,134
$
1,010
$
26,098
$
21,000
$
20,753
$
19,011
$
16,000
$
14,629
$
14,326
$
14,100
$
14,100
$
7,251
$
6,502
$
5,702
832,729
700,565
647,569
304,442
241,112
231,566
173,711
155,957
148,153
114,299
87,140
57,754
(5
)%
15
%
18
%
5
%
18
%
22
%
5
%
21
%
23
%
20
%
17
%
18
%
113
72
68
51
57
60
31
32
34
41
48
52
(a)
In addition to analyzing the Firms results on a reported basis, management
reviews the Firms results and the results of the lines of business on a managed basis,
which is a non-GAAP financial measure. The Firms definition of managed basis starts with
the reported U.S. GAAP results and includes certain reclassifications that do not have any
impact on net income as reported by the lines of business or by the Firm as a whole.
(b)
TSS is charged a credit reimbursement related to certain exposures managed
within IB credit portfolio on behalf of clients shared with TSS.
(c)
Includes merger costs which are reported in the Corporate/Private Equity
segment. Merger costs attributed to the business segments for 2008, 2007 and 2006 were as
follows.
Year ended December 31, (in millions)
2008
2007
2006
$
183
$
(2
)
$
2
90
14
24
20
(1
)
29
4
(1
)
1
121
117
3
20
23
132
58
109
(d)
On September 25, 2008, JPMorgan Chase acquired the banking operations of
Washington Mutual from the FDIC for $1.9 billion. The fair value of the net assets
acquired exceeded the purchase price, which resulted in negative goodwill. In accordance
with SFAS 141, nonfinancial assets that are not held-for-sale, such as premises and
equipment and other intangibles, acquired in the Washington Mutual transaction were
written down against that negative goodwill. The negative goodwill that remained after
writing down nonfinancial assets was recognized as an extraordinary gain.
(e)
Included a $1.5 billion charge to conform Washington Mutuals loan loss reserve
to JPMorgan Chases allowance methodology.
214
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
As a result of the transaction with The Bank of New
York, selected corporate trust businesses have been
transferred from TSS to the Corporate/Private
Equity segment and reported in discontinued
operations for all periods reported.
Treasury &
Asset
Reconciling
Securities Services
Management
Corporate/Private Equity
items
(g)(h)
Total
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
$
5,196
$
4,681
$
4,039
$
6,066
$
7,475
$
5,816
$
(278
)
$
5,056
$
1,058
$
2,004
$
2,572
$
2,833
$
28,473
$
44,966
$
40,757
2,938
2,264
2,070
1,518
1,160
971
347
(637
)
(1,044
)
(7,524
)
(6,012
)
(5,947
)
38,779
26,406
21,242
8,134
6,945
6,109
7,584
8,635
6,787
69
4,419
14
(5,520
)
(3,440
)
(3,114
)
67,252
71,372
61,999
82
19
(1
)
85
(18
)
(28
)
1,981
(e)(f)
(11
)
(1
)
(3,612
)
(2,380
)
(2,210
)
20,979
6,864
3,270
(121
)
(121
)
(121
)
5,223
4,580
4,266
5,298
5,515
4,578
(28
)
1,757
1,147
43,500
41,703
38,843
2,708
2,225
1,723
2,201
3,138
2,237
(1,884
)
2,673
(1,132
)
(1,908
)
(1,060
)
(904
)
2,773
22,805
19,886
941
828
633
844
1,172
828
(535
)
788
(1,179
)
(1,908
)
(1,060
)
(904
)
(926
)
7,440
6,237
1,767
1,397
1,090
1,357
1,966
1,409
(1,349
)
1,885
47
3,699
15,365
13,649
795
795
1,767
1,397
1,090
1,357
1,966
1,409
(1,349
)
1,885
842
3,699
15,365
14,444
1,906
1,906
$
1,767
$
1,397
$
1,090
$
1,357
$
1,966
$
1,409
$
557
$
1,885
$
842
$
$
$
$
5,605
$
15,365
$
14,444
$
3,751
$
3,000
$
2,285
$
5,645
$
3,876
$
3,500
$
53,034
$
54,245
$
49,728
$
$
$
$
129,116
$
118,723
$
110,697
54,563
53,350
31,760
65,550
51,882
43,635
323,227
231,818
218,623
(76,904
)
(66,780
)
(65,266
)
1,791,617
1,455,044
1,313,794
47
%
47
%
48
%
24
%
51
%
40
%
NM
NM
NM
NM
NM
NM
4
%
(i)
13
%
13
%
(i)
64
66
70
70
64
67
NM
NM
NM
NM
NM
NM
65
58
63
(f)
In November 2008, the Firm transferred $5.8 billion of
higher quality credit card loans from the legacy Chase portfolio to a
securitization trust previously established by Washington Mutual
(the Trust). As a result of converting higher credit
quality Chase-originated on-book receivables to the Trusts
sellers interest which has a higher overall loss rate
reflective of the total assets within the Trust, approximately
$400 million of incremental provision expense was recorded
during the fourth quarter. This incremental provision expense was
recorded in the Corporate segment as the action related to the
acquisition of Washington Mutuals banking operations. For
further discussion of credit card securitizations, see Note 16 on
pages 169-170 of this Annual Report.
(g)
Managed results for credit card exclude the impact of CS
securitizations on total net revenue, provision for credit losses and average assets, as
JPMorgan Chase treats the sold receivables as if they were still on the balance sheet in
evaluating the credit performance of the entire managed credit card portfolio as
operations are funded, and decisions are made about allocating resources such as
employees and capital, based upon managed information. These adjustments are eliminated in
reconciling items to arrive at the Firms reported U.S. GAAP results. The related
securitization adjustments were as follows.
Year ended December 31, (in millions)
2008
2007
2006
$
(3,333
)
$
(3,255
)
$
(3,509
)
6,945
5,635
5,719
3,612
2,380
2,210
76,904
66,780
65,266
(h)
Segment managed results reflect revenue on a tax-equivalent basis with the
corresponding income tax impact recorded within income tax expense
(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firms reported U.S. GAAP results.
Tax-equivalent adjustments for the years ended December 31, 2008, 2007 and 2006 were as
follows.
Year ended December 31, (in millions)
2008
2007
2006
$
1,329
$
683
$
676
579
377
228
1,908
1,060
904
(i)
Ratio is based upon net income.
JPMorgan Chase & Co. / 2008 Annual Report
215
Table of Contents
(in millions, except per share, ratio and headcount data)
2008
(i)
2007
As of or for the period ended
4th
3rd
2nd
1st
4th
3rd
2nd
1st
$
3,394
$
5,743
$
10,105
$
9,231
$
10,161
$
9,199
$
12,740
$
12,866
13,832
8,994
8,294
7,659
7,223
6,913
6,168
6,102
17,226
14,737
18,399
16,890
17,384
16,112
18,908
18,968
7,755
3,811
3,455
4,424
2,542
1,785
1,529
1,008
(442
)
1,976
11,255
11,137
12,177
8,931
10,720
9,327
11,028
10,628
(1,342
)
(2,187
)
2,767
3,535
4,122
5,000
6,351
7,332
(719
)
(2,133
)
764
1,162
1,151
1,627
2,117
2,545
(623
)
(54
)
2,003
2,373
2,971
3,373
4,234
4,787
1,325
581
$
702
$
527
$
2,003
$
2,373
$
2,971
$
3,373
$
4,234
$
4,787
$
(0.28
)
$
(0.06
)
$
0.56
$
0.70
$
0.88
$
1.00
$
1.24
$
1.38
0.07
0.11
0.56
0.70
0.88
1.00
1.24
1.38
$
(0.28
)
$
(0.06
)
$
0.54
$
0.68
$
0.86
$
0.97
$
1.20
$
1.34
0.07
0.11
0.54
0.68
0.86
0.97
1.20
1.34
0.38
0.38
0.38
0.38
0.38
0.38
0.38
0.34
36.15
36.95
37.02
36.94
36.59
35.72
35.08
34.45
3,738
3,445
3,426
3,396
3,367
3,376
3,415
3,456
3,738
(h)
3,445
(h)
3,531
3,495
3,472
3,478
3,522
3,560
3,733
3,727
3,436
3,401
3,367
3,359
3,399
3,416
$
50.63
$
49.00
$
49.95
$
49.29
$
48.02
$
50.48
$
53.25
$
51.95
19.69
29.24
33.96
36.01
40.15
42.16
47.70
45.91
31.53
46.70
34.31
42.95
43.65
45.82
48.45
48.38
117,695
174,048
117,881
146,066
146,986
153,901
164,659
165,280
(3
)%
(1
)%
6
%
8
%
10
%
11
%
14
%
17
%
1
1
6
8
10
11
14
17
(0.11
)
(0.01
)
0.48
0.61
0.77
0.91
1.19
1.41
0.13
0.12
0.48
0.61
0.77
0.91
1.19
1.41
10.9
8.9
9.2
8.3
8.4
8.4
8.4
8.5
14.8
12.6
13.4
12.5
12.6
12.5
12.0
11.8
6.9
7.2
6.4
5.9
6.0
6.0
6.2
6.2
65
76
66
53
62
58
58
56
$
509,983
$
520,257
$
531,997
$
485,280
$
491,409
$
453,711
$
450,546
$
423,331
205,943
150,779
119,173
101,647
85,450
97,706
95,984
97,029
744,898
761,381
538,029
537,056
519,374
486,320
465,037
449,765
2,175,052
2,251,469
1,775,670
1,642,862
1,562,147
1,479,575
1,458,042
1,408,918
1,009,277
969,783
722,905
761,626
740,728
678,091
651,370
626,428
252,094
238,034
260,192
189,995
183,862
173,696
159,493
143,274
134,945
137,691
127,176
125,627
123,221
119,978
119,211
117,704
166,884
145,843
133,176
125,627
123,221
119,978
119,211
117,704
224,961
228,452
195,594
182,166
180,667
179,847
179,664
176,314
$
23,823
$
19,765
$
13,932
$
12,601
$
10,084
$
8,971
$
8,399
$
7,853
12,714
9,520
6,233
5,143
3,933
3,009
2,423
2,212
3.18
%
2.56
%
2.57
%
2.29
%
1.88
%
1.76
%
1.71
%
1.74
%
$
3,315
$
2,484
$
2,130
$
1,906
$
1,429
$
1,221
$
985
$
903
1.80
%
1.91
%
1.67
%
1.53
%
1.19
%
1.07
%
0.90
%
0.85
%
0.33
0.10
0.08
0.18
0.05
0.19
(0.07
)
(0.02
)
2.59
3.13
2.77
2.43
1.93
1.62
1.50
1.37
5.56
5.00
4.98
4.37
3.89
3.64
3.62
3.57
(a)
The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages
129143 of this Annual Report for additional information.
(b)
For a discussion of accounting conformity, see provision for
credit losses on page 35 and consumer credit portfolio
discussion on page 91.
(c)
For a discussion of the extraordinary gain, see Note 2 on pages 123128.
(d)
JPMorgan Chases common stock is listed and traded on the New York Stock Exchange,
the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing
prices of JPMorgan Chases common stock are from The New York Stock Exchange Composite
Transaction Tape.
(e)
Excludes purchased wholesale loans held-for-sale.
(f)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
(g)
End-of-period and average loans held-for-sale and loans at fair value were
excluded when calculating the allowance coverage ratios and net charge-off rates,
respectively.
(h)
Common equivalent shares have been excluded from the
computation of diluted earnings per share for the third quarter of
2008, as the effect on income (loss) before extraordinary gain would
be antidilutive.
(i)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
216
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
(in millions, except per share, headcount and ratio data)
As of or for the year ended December 31,
2008
(i)
2007
2006
2005
2004
(j)
$
28,473
$
44,966
$
40,757
$
34,693
$
26,209
38,779
26,406
21,242
19,555
16,527
67,252
71,372
61,999
54,248
42,736
19,445
6,864
3,270
3,483
1,686
1,534
858
43,500
41,703
38,843
38,926
34,336
2,773
22,805
19,886
11,839
5,856
(926
)
7,440
6,237
3,585
1,596
3,699
15,365
13,649
8,254
4,260
795
229
206
3,699
15,365
14,444
8,483
4,466
1,906
$
5,605
$
15,365
$
14,444
$
8,483
$
4,466
$
0.86
$
4.51
$
3.93
$
2.36
$
1.51
1.41
4.51
4.16
2.43
1.59
$
0.84
$
4.38
$
3.82
$
2.32
$
1.48
1.37
4.38
4.04
2.38
1.55
1.52
1.48
1.36
1.36
1.36
36.15
36.59
33.45
30.71
29.61
3,501
3,404
3,470
3,492
2,780
3,605
3,508
3,574
3,557
2,851
3,733
3,367
3,462
3,487
3,556
$
50.63
$
53.25
$
49.00
$
40.56
$
43.84
19.69
40.15
37.88
32.92
34.62
31.53
43.65
48.30
39.69
39.01
117,695
146,986
167,199
138,387
138,727
2
%
13
%
12
%
8
%
6
%
4
13
13
8
6
0.21
1.06
1.04
0.70
0.44
0.31
1.06
1.10
0.72
0.46
10.9
8.4
8.7
8.5
8.7
14.8
12.6
12.3
12.0
12.2
6.9
6.0
6.2
6.3
6.2
65
58
63
72
80
$
509,983
$
491,409
$
365,738
$
298,377
$
288,814
205,943
85,450
91,975
47,600
94,512
744,898
519,374
483,127
419,148
402,114
2,175,052
1,562,147
1,351,520
1,198,942
1,157,248
1,009,277
740,728
638,788
554,991
521,456
252,094
183,862
133,421
108,357
95,422
134,945
123,221
115,790
107,072
105,314
166,884
123,221
115,790
107,211
105,653
224,961
180,667
174,360
168,847
160,968
$
23,823
$
10,084
$
7,803
$
7,490
$
7,812
12,714
3,933
2,341
2,590
3,231
3.18
%
1.88
%
1.70
%
1.84
%
1.94
%
$
9,835
$
4,538
$
3,042
$
3,819
$
3,099
1.73
%
1.00
%
0.73
%
1.00
%
1.08
%
0.18
0.04
(0.01
)
(0.06
)
0.18
2.71
1.61
1.17
1.56
1.56
5.01
3.68
3.33
5.21
5.27
(a)
The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages
129143 of this Annual Report for additional information.
(b)
For a discussion of accounting conformity, see provision for
credit losses on page 35 and consumer credit portfolio
discussion on page 91.
(c)
On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected
corporate trust businesses for the consumer, business banking and middle-market banking
businesses of The Bank of New York Company Inc. The results of operations of these
corporate trust businesses are reported as discontinued operations for each period prior
to 2007.
(d)
For a discussion of the extraordinary gain, see Note 2 on pages 123128.
(e)
JPMorgan Chases common stock is listed and traded on the New York Stock Exchange,
the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices
of JPMorgan Chases common stock are from The New York Stock Exchange Composite
Transaction Tape.
(f)
Excludes purchased wholesale loans held-for-sale.
(g)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
Periods prior to 2007 have not been revised as the impact was
not material.
(h)
End-of-period and average loans held-for-sale and loans at fair value were
excluded when calculating the allowance coverage ratios and net charge-off rates,
respectively.
(i)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128 of this Annual Report.
(j)
On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase.
Accordingly, 2004 results include six months of the combined Firms results and six months
of heritage JPMorgan Chase results.
JPMorgan Chase & Co. / 2008 Annual Report
217
Table of Contents
218
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
Alt-A loans are generally higher in credit quality
than subprime loans but have characteristics that
would disqualify the borrower from a traditional
prime loan. Alt-A lending characteristics may
include one or more of the following: (i) limited
documentation; (ii) high combined-loan-to-value
(CLTV) ratio; (iii) loans secured by non-owner
occupied properties; or (iv) debt-to-income ratio
above normal limits. Perhaps the most important
characteristic is limited documentation. A
substantial proportion of traditional Alt-A loans
are those where a borrower does not provide
complete documentation of his or her assets or the
amount or source of his or her income.
The option ARM home loan product is an
adjustable-rate mortgage loan that provides the
borrower with the option each month to make
JPMorgan Chase & Co. / 2008 Annual Report
219
Table of Contents
Prime mortgage loans generally have low default
risk and are made to borrowers with good credit
records and a monthly income that is at least
three to four times greater than their monthly
housing expense (mortgage payments plus taxes and
other debt payments). These borrowers provide full
documentation and generally have reliable payment
histories.
Subprime loans are designed for customers with one
or more high risk characteristics, including but
not limited to: (i) unreliable or poor payment
histories; (ii) high loan-to-value (LTV) ratio of
greater than 80% (without borrower-paid mortgage
insurance); (iii) high debt-to-income ratio; (iv)
the occupancy type for the loan is
other than the borrowers primary residence; or (v)
a history of delinquencies or late payments on the
loan.
220
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
JPMorgan Chase & Co. / 2008 Annual Report
221
Table of Contents
interest rates and interest differentials
2008
(d)
Year ended December 31,
Average
Average
(Taxable-equivalent interest and rates; in millions, except rates)
balance
Interest
rate
$
54,666
$
1,916
3.51
%
170,006
5,983
3.52
110,598
2,297
2.08
298,266
17,556
5.89
123,551
6,447
5.22
(g)
588,801
38,503
(f)
6.54
27,404
895
3.27
1,373,292
73,597
5.36
(13,477
)
30,323
85,836
121,417
46,068
11,229
1,976
3,803
131,150
$
1,791,617
$
645,058
$
14,546
2.26
%
196,739
4,668
2.37
45,734
1,023
2.24
161,555
5,242
3.24
13,220
405
3.06
234,909
8,355
3.56
1,297,215
34,239
2.64
140,749
93,200
122,199
1,653,363
9,138
129,116
138,254
(e)
$
1,791,617
2.72
%
$
39,358
2.87
(a)
Includes margin loans and the Firms investment in asset-backed commercial paper
under the Federal Reserve Bank of Bostons AML facility.
(b)
For purposes of the consolidated average balance sheet for assets and liabilities
transferred to discontinued operations, JPMorgan Chase used federal funds sold interest
income as a reasonable estimate of the earnings on corporate trust deposits; therefore,
JPMorgan Chase transferred to assets of discontinued operations held-for-sale average
federal funds sold, along with the related interest income earned, and transferred to
liabilities of discontinued operations held-for-sale average corporate trust deposits.
(c)
Includes securities sold but not yet purchased, brokerage customer payables and
advances from federal home loan banks.
(d)
On September 25, 2008, JPMorgan Chase acquired the
banking operations of Washington Mutual Bank. On May 30, 2008,
the Bear Stearns merger was consummated. Each of
these transactions was accounted for as a purchase and their
respective results of operations are included in the Firms results
from each respective transaction date. For additional information on
these transactions, see Note 2 on pages 123-128.
(e)
The ratio of average stockholders equity to average assets was 7.7% for 2008,
8.2% for 2007 and 8.4% for 2006. The return on average stockholders equity was 4.1% for
2008, 12.9% for 2007 and 13.0% for 2006.
(f)
Fees and commissions on loans included in loan interest amounted to $2.0 billion
in 2008, $1.7 billion in 2007 and $1.2 billion in 2006.
(g)
The annualized rate for available-for-sale securities based on amortized cost was
5.17% in 2008, 5.64% in 2007, and 5.49% in 2006, and does not give effect to changes in
fair value that are reflected in accumulated other comprehensive
income (loss).
222
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2007
2006
Average
Average
Average
Average
balance
Interest
rate
balance
Interest
rate
$
29,010
$
1,418
4.89
%
$
27,730
$
1,265
4.56
%
135,677
6,497
4.79
132,118
5,578
4.22
86,072
4,539
5.27
83,831
3,402
4.06
292,846
17,241
5.89
205,506
11,120
5.41
95,290
5,387
5.65
(g)
77,845
4,304
5.53
(g)
13,941
652
4.68
479,679
36,682
(f)
7.65
454,535
33,014
(f)
7.26
1,118,574
71,764
6.42
995,506
59,335
5.96
(7,620
)
(7,165
)
32,781
31,171
88,569
74,573
65,439
57,368
45,226
43,872
8,565
7,484
2,590
3,113
4,094
4,307
96,826
87,068
16,497
$
1,455,044
$
1,313,794
$
535,359
$
21,653
4.04
%
$
452,323
$
17,042
3.77
%
196,500
9,785
4.98
183,783
8,187
4.45
30,799
1,434
4.65
17,710
794
4.49
100,181
4,923
4.91
102,147
5,105
5.00
14,563
580
3.98
28,652
1,234
4.31
170,206
6,606
3.88
129,667
5,503
4.24
1,047,608
44,981
4.29
914,282
37,865
4.14
121,861
124,550
65,198
57,938
101,654
90,506
15,787
1,336,321
1,203,063
34
118,723
110,697
118,723
(e)
110,731
(e)
$
1,455,044
$
1,313,794
2.13
%
1.82
%
$
26,783
2.39
$
21,470
2.16
JPMorgan Chase & Co. / 2008 Annual Report
223
Table of Contents
2008
(b)
Year ended December 31,
Average
Average
(Taxable-equivalent interest and rates; in millions, except rates)
balance
Interest
rate
$
54,666
$
1,916
3.51
%
95,301
3,084
3.24
74,705
2,899
3.88
60,592
985
1.63
50,006
1,312
2.62
169,447
9,614
5.67
128,819
7,942
6.17
108,663
5,859
5.39
14,888
588
3.95
506,513
33,570
6.63
82,288
4,933
5.99
27,404
895
3.27
$
1,373,292
$
73,597
5.36
%
$
407,699
$
8,420
2.07
%
237,359
6,126
2.58
158,054
3,326
2.10
38,685
1,342
3.47
161,509
3,390
2.10
45,780
2,875
6.28
13,220
405
3.06
234,909
8,355
3.56
(17,637
)
(927
)
17,637
927
1,297,215
34,239
2.64
76,077
$
1,373,292
$
34,239
2.49
%
$
39,358
2.87
%
31,651
3.24
7,707
1.95
30.4
28.0
(a)
Represents the amount of noninterest-bearing liabilities funding interest-earning
assets.
(b)
On September 25, 2008, JPMorgan Chase acquired the banking operations of
Washington Mutual Bank. On May 30, 2008, the Bear Stearns
merger was consummated. Each of these transactions was accounted for as a purchase and their
respective results of operations are included in the Firms results from each respective
transaction date. For additional information on these transactions, see Note 2 on pages
123128.
224
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
2007
2006
Average
Average
Average
Average
balance
Interest
rate
balance
Interest
rate
$
29,010
$
1,418
4.89
%
$
27,730
$
1,265
4.56
%
71,467
3,672
5.14
66,627
3,647
5.47
64,210
2,825
4.40
65,491
1,931
2.95
39,855
2,472
6.20
36,016
1,848
5.13
46,217
2,067
4.47
47,815
1,554
3.25
148,071
9,235
6.24
88,492
5,471
6.18
144,775
8,006
5.53
117,014
5,649
4.83
82,405
4,855
5.89
68,477
3,951
5.77
12,885
532
4.13
9,368
353
3.77
13,941
652
4.68
413,507
32,483
7.86
402,295
29,475
7.33
66,172
4,199
6.35
52,240
3,539
6.77
$
1,118,574
$
71,764
6.42
%
$
995,506
$
59,335
5.96
%
$
353,133
$
13,641
3.86
%
$
313,835
$
11,551
3.68
%
182,226
8,012
4.40
138,488
5,491
3.96
148,918
7,826
5.26
137,439
6,729
4.90
47,582
1,959
4.12
46,344
1,458
3.15
76,585
3,897
5.09
55,300
3,368
6.09
54,395
2,460
4.52
64,557
2,531
3.92
14,563
580
3.98
28,652
1,234
4.31
170,206
6,606
3.88
129,667
5,503
4.24
(17,054
)
(555
)
(49,972
)
(2,088
)
17,054
555
49,972
2,088
1,047,608
44,981
4.29
914,282
37,865
4.14
70,966
81,224
$
1,118,574
$
44,981
4.02
%
$
995,506
$
37,865
3.80
%
$
26,783
2.39
%
$
21,470
2.16
%
21,007
2.78
19,430
2.87
5,776
1.59
2,040
0.64
36.5
35.3
34.1
31.8
JPMorgan Chase & Co. / 2008 Annual Report
225
Table of Contents
2008 versus 2007
2007 versus 2006
Increase (decrease) due to change in:
Net
Increase (decrease) due to change in:
Net
(On a taxable equivalent basis; in millions)
Volume
Rate
change
Volume
Rate
change
$
898
$
(400
)
$
498
$
61
$
92
$
153
770
(1,358
)
(588
)
245
(220
)
25
408
(334
)
74
(56
)
950
894
334
(1,821
)
(1,487
)
239
385
624
100
(855
)
(755
)
(70
)
583
513
1,223
(844
)
379
3,711
53
3,764
(991
)
927
(64
)
1,538
819
2,357
1,416
(412
)
1,004
822
82
904
79
(23
)
56
145
34
179
(652
)
(652
)
6,173
(5,086
)
1,087
876
2,132
3,008
972
(238
)
734
879
(219
)
660
895
895
12,277
(10,444
)
1,833
7,738
4,691
12,429
1,100
(6,321
)
(5,221
)
1,525
565
2,090
1,431
(3,317
)
(1,886
)
1,912
609
2,521
206
(4,706
)
(4,500
)
602
495
1,097
(308
)
(309
)
(617
)
51
450
501
1,783
(2,290
)
(507
)
1,082
(553
)
529
(542
)
957
415
(458
)
387
(71
)
(41
)
(134
)
(175
)
(559
)
(95
)
(654
)
2,294
(545
)
1,749
1,570
(467
)
1,103
(31
)
(341
)
(372
)
1,073
460
1,533
31
341
372
(1,073
)
(460
)
(1,533
)
5,923
(16,665
)
(10,742
)
5,725
1,391
7,116
$
6,354
$
6,221
$
12,575
$
2,013
$
3,300
$
5,313
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JPMorgan Chase & Co. / 2008 Annual Report
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December 31, 2008
Due in 1
Due after 1
Due after 5
Due after
(in millions, rates on a taxable-equivalent basis)
year or less
through 5 years
through 10 years
10 years
(d)
Total
$
229
$
112
$
188
$
6,994
$
7,523
229
111
186
7,149
7,675
0.20
%
1.56
%
2.19
%
5.24
%
4.95
%
$
5
$
5,046
$
5,261
$
107,765
$
118,077
5
5,018
5,231
109,813
120,067
4.48
%
2.87
%
3.82
%
5.26
%
5.09
%
$
23,929
$
20,957
$
7,656
$
31,186
$
83,728
23,822
19,946
7,019
27,380
78,167
2.83
%
2.37
%
3.80
%
4.95
%
3.61
%
$
24,163
$
26,115
$
13,105
$
145,945
$
209,328
24,056
25,075
12,436
144,342
205,909
2.80
%
2.46
%
3.78
%
5.19
%
4.49
%
$
$
$
31
$
3
$
34
32
3
35
%
%
6.89
%
5.69
%
6.78
%
(a)
The average yield was based on amortized cost balances at the end of the year and
does not give effect to changes in fair value that are reflected in accumulated other
comprehensive income (loss). Yields are derived by dividing interest income (including the
effect of related derivatives on available-for-sale securities and the amortization of
premiums and accretion of discounts) by total amortized cost. Taxable-equivalent yields
are used where applicable.
(b)
Includes certificates of deposit, debt securities issued by non-U.S. governments,
corporate debt securities, mortgage-backed securities, asset-backed securities and other
debt and equity securities.
(c)
For the amortized cost of the above categories of securities at December 31, 2007,
see Note 12 on page 159. At December 31, 2006, the amortized cost of U.S. government and
federal agency obligations was $2.5 billion, U.S. government-sponsored enterprise
obligations was $75.4 billion and other available-for-sale securities was $14.0 billion.
At December 31, 2006, the amortized cost of U.S. government and federal agency obligations
and U.S. government-sponsored enterprise obligations held-to-maturity securities was $58
million. There were no other held-to-maturity securities at December 31, 2006.
(d)
Securities with no stated maturity are included with securities with a contractual
maturity of ten years or more. Substantially all of JPMorgan Chases mortgaged-backed
securities (MBSs) and collateralized mortgage obligations (CMOs) are due in ten years
or more based on contractual maturity. The estimated duration, which reflects anticipated
future prepayments based on a consensus of dealers in the market, is approximately four
years for MBSs and CMOs.
JPMorgan Chase & Co. / 2008 Annual Report
227
Table of Contents
December 31, (in millions)
2008
2007
(c)
2006
(c)
2005
(c)
2004
(c)
$
72,422
$
69,038
$
47,101
$
43,140
$
46,960
64,450
17,190
18,787
17,170
15,670
20,953
15,113
15,632
13,681
14,080
5,919
5,770
4,964
3,709
1,529
23,032
26,142
32,202
34,365
21,629
186,776
133,253
118,686
112,065
99,868
35,251
33,829
22,332
18,545
13,341
2,859
3,632
2,371
1,393
2,063
17,552
17,245
19,174
8,093
6,959
602
720
2,543
1,296
2,611
19,004
24,397
18,636
8,719
10,225
75,268
79,823
65,056
38,046
35,199
107,673
102,867
69,433
61,685
60,301
67,309
20,822
21,158
18,563
17,733
38,505
32,358
34,806
21,774
21,039
6,521
6,490
7,507
5,005
4,140
42,036
50,539
50,838
43,084
31,854
262,044
213,076
183,742
150,111
135,067
142,890
94,832
85,730
73,866
67,612
157,078
56,031
59,668
58,959
56,116
42,603
42,350
41,009
46,081
58,906
104,746
84,352
85,881
71,738
64,575
35,537
28,733
27,097
18,393
19,838
482,854
306,298
299,385
269,037
267,047
$
744,898
$
519,374
$
483,127
$
419,148
$
402,114
$
8,287
$
18,899
$
55,251
$
34,150
$
24,462
7,696
8,739
$
15,983
$
27,638
$
55,251
$
34,150
$
24,462
(a)
Loans are presented net of unearned income and net deferred loan fees of $694
million, $1.0 billion, $1.3 billion, $3.0 billion and $4.1 billion at December 31, 2008,
2007, 2006, 2005 and 2004, respectively.
(b)
As a result of the adoption of SFAS 159, at January 1, 2007, certain loans are
accounted for at fair value and reported in trading assets and therefore, such loans are
no longer included in loans at December 31, 2007.
(c)
The reporting categories have been modified to reflect the industry categories and client domicile consistent with the reporting provided in the credit risk management section
on pages 80-99. Prior periods have been revised to reflect the current presentation.
228
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
The table below shows, at December 31, 2008, the maturity of the
wholesale loan portfolio, and the distribution between fixed
and floating interest rates based upon the stated terms of the wholesale loan agreements. The
current view has been modified to show the portfolio on the same basis that is presented in Credit Risk
Management on pages 82, 83, and 92, and in Note 14 on page 164. The table does not include the
impact of derivative instruments.
Within
1-5
After 5
December 31, 2008
(in millions)
1 year
(a)
years
years
Total
$
15,079
$
47,459
$
9,884
$
72,422
8,609
13,574
42,267
64,450
11,239
8,579
1,135
20,953
2,675
1,641
1,603
5,919
10,423
8,922
3,687
23,032
48,025
80,175
58,576
186,776
10,507
19,392
5,352
35,251
1,010
1,671
178
2,859
12,489
3,910
1,153
17,552
434
60
108
602
11,210
5,092
2,702
19,004
35,650
30,125
9,493
75,268
$
83,675
$
110,300
$
68,069
$
262,044
$
31,033
$
15,078
79,267
52,991
$
110,300
$
68,069
(a)
Includes demand loans and overdrafts.
JPMorgan Chase & Co. / 2008 Annual Report
229
Table of Contents
The following table sets forth nonperforming assets and contractually
past-due assets, with the presentation in Credit Risk Management on pages
82, 83 and 92. Periods prior to 2007 have been changed to reflect this presentation.
December 31, (in millions)
2008
2007
(d)
2006
(d)
2005
(d)
2004
(d)
$
1,052
$
63
$
238
$
555
$
908
806
216
18
44
26
60
10
5
87
17
1
3
1
205
200
49
130
276
6,571
2,768
(e)
1,686
1,351
1,169
8,694
3,258
1,996
2,170
2,397
45
14
41
105
269
2
115
8
24
51
43
3
99
2
16
14
32
259
24
81
173
346
8,953
3,282
2,077
2,343
2,743
1,079
29
36
50
241
2,682
622
228
197
247
$
12,714
$
3,933
$
2,341
$
2,590
$
3,231
$
12
$
45
$
120
$
136
$
15
20
5
$
32
$
50
$
120
$
136
$
15
$
30
$
7
$
5
$
6
$
76
34
1
1
6
54
28
23
37
6
3,084
1,945
1,708
1,068
998
3,244
2,014
1,737
1,118
1,004
3
6
2
28
23
16
10
31
29
16
10
2
$
3,275
$
2,043
$
1,753
$
1,128
$
1,006
$
$
8
$
$
$
1,834
1,834
8
5
5
$
1,839
$
8
$
$
$
(a)
Excludes wholesale loans held-for-sale purchased as part of the Investment Banks
proprietary activities.
(b)
Represents accruing loans past-due 90 days or more as to principal and interest,
which are not characterized as nonperforming loans.
(c)
Represents troubled debt restructured loans for which concessions, such as the
reduction of interest rates or the deferral of interest or principal payments, have been
granted as a result of a deterioration in the borrowers financial condition as defined in
SFAS 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings.
(d)
The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99.
Prior periods have been revised to reflect the current presentation.
(e)
During the second quarter of 2008, the policy for classifying
subprime mortgage and home equity loans as nonperforming was changed
to conform to all other home lending products. Amounts for 2007 have
been revised to reflect this change. Periods prior to 2007 have not
been revised as the impact was not material.
230
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
The negative impact on interest income from nonperforming loans represents the difference between
the amount of interest income that would have been recorded on such nonperforming loans according
to their contractual terms had they been performing and the amount of interest that actually was
recognized on a cash basis. The following table sets forth this data for the years specified. The
increases in both 2008 and 2007 from the respective prior years in total negative impact on
interest income was primarily driven by the increases in nonperforming loans.
Year ended December 31, (in millions)
2008
2007
(a)
2006
(a)
$
87
$
71
$
27
(7
)
(5
)
(6
)
80
66
21
584
230
(b)
129
(193
)
(8
)
(20
)
391
222
109
471
288
130
11
2
5
(2
)
(1
)
9
1
5
9
1
5
$
480
$
289
$
135
(a)
The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99.
Prior periods have been revised to reflect the current presentation.
(b)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
Amounts for 2006 have not been revised as the impact was not
material.
JPMorgan Chase & Co. / 2008 Annual Report
231
Table of Contents
Cross-border disclosure is based upon the Federal Financial
Institutions Examination Councils (FFIEC)
guidelines governing the determination of
cross-border risk. Based on FFIEC guidelines,
beginning in 2006 securities purchased under resale
agreements are allocated to a country based upon
the domicile of the counterparty. Additionally,
local foreign office commitments are included in
commitments; previously they were excluded from
commitments.
Net local
Total
country
cross-border
Total
(in millions)
December 31,
Governments
Banks
Other
(a)
assets
outstandings
(b)
Commitments
(c)
exposure
2008
$
1,173
$
23,490
$
19,624
$
$
44,287
$
562,980
$
607,267
2007
324
8,245
14,450
23,019
475,046
498,065
2006
507
13,116
11,594
25,217
306,565
331,782
2008
$
6,666
$
25,479
$
24,665
$
28
$
56,838
$
353,074
$
409,912
2007
8,351
9,278
20,303
75
38,007
288,044
326,051
2006
5,218
7,760
12,747
575
26,300
171,407
197,707
2008
$
8,437
$
24,312
$
10,297
$
3,660
$
46,706
$
348,635
$
395,341
2007
10,095
11,468
18,656
40,219
284,879
325,098
2006
9,361
16,384
16,091
41,836
186,875
228,711
2008
$
1,360
$
8,645
$
19,356
$
$
29,361
$
132,574
$
161,935
2007
895
3,945
15,180
20,020
138,136
158,156
2006
1,776
9,699
17,878
29,353
80,337
109,690
2008
$
7,680
$
6,804
$
3,742
$
448
$
18,674
$
134,851
$
153,525
2007
5,301
5,285
5,593
1,401
17,580
120,179
137,759
2006
6,395
3,004
6,328
364
16,091
84,054
100,145
2008
$
906
$
11,867
$
4,466
$
1,161
$
18,400
$
104,956
$
123,356
2007
1,995
3,484
5,728
1,337
12,544
90,135
102,679
2006
722
3,715
5,766
1,136
11,339
55,517
66,856
2008
$
687
$
17,401
$
18,568
$
2,174
$
38,830
$
64,583
$
103,413
2007
12,895
9,687
9,138
31,720
49,407
81,127
2006
6,758
8,158
8,588
23,504
32,781
56,285
2008
$
87
$
115
$
30,869
$
$
31,071
$
6,843
$
37,914
2007
6
41
36,310
36,357
14,054
50,411
2006
20
125
21,492
21,637
10,626
32,263
2008
$
$
514
$
7,863
$
$
8,377
$
28,611
$
36,988
2007
1,718
739
8,832
11,289
24,952
36,241
2006
1,396
1,860
8,592
11,848
15,667
27,515
2008
$
15,944
$
616
$
718
$
$
17,278
$
11,393
$
28,671
2007
9,727
650
690
11,067
8,929
19,996
2006
3,273
87
368
3,728
4,216
7,944
(a)
Consists primarily of commercial and industrial.
(b)
Outstandings includes loans and accrued interest receivable, interest-bearing
deposits with banks, acceptances, resale agreements, other monetary assets, cross-border
trading debt and equity instruments, mark-to-market exposure of foreign exchange and
derivative contracts and local country assets, net of local country liabilities. The
amounts associated with foreign exchange and derivative contracts are presented after
taking into account the impact of legally enforceable master netting agreements.
(c)
Commitments include outstanding letters of credit, undrawn commitments to extend
credit and the notional value of credit derivatives where JPMorgan Chase is a protection
seller.
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Year ended December 31, (in millions)
2008
2007
(e)
2006
(e)
2005
(e)
2004
(d)(e)
$
9,234
$
7,279
$
7,090
$
7,320
$
4,523
2,535
3,123
21,237
6,538
3,153
3,575
2,883
183
34
80
154
238
217
46
10
2
1
17
9
1
2
2
10
2
35
81
36
64
84
10,140
5,181
3,635
4,604
3,262
10,592
5,361
3,764
4,826
3,587
40
2
43
32
84
29
6
3
14
1
128
103
1
63
10
172
6
120
43
218
10,764
5,367
3,884
4,869
3,805
(60
)
(48
)
(89
)
(110
)
(87
)
(5
)
(1
)
(4
)
(4
)
(12
)
(2
)
(3
)
(4
)
(6
)
(8
)
(29
)
(40
)
(48
)
(46
)
(93
)
(793
)
(716
)
(622
)
(717
)
(349
)
(889
)
(808
)
(767
)
(883
)
(549
)
(16
)
(8
)
(26
)
(122
)
(55
)
(1
)
(11
)
(7
)
(19
)
(15
)
(27
)
(7
)
(12
)
(26
)
(22
)
(56
)
(17
)
(12
)
(1
)
(40
)
(21
)
(75
)
(167
)
(157
)
(929
)
(829
)
(842
)
(1,050
)
(706
)
9,835
4,538
3,042
3,819
3,099
6
75
17
(56
)
(13
)
11
3
(3
)
(110
)
(c)
$
23,164
$
9,234
$
7,279
$
7,090
$
7,320
(a)
The 2008 amount relates to the Washington Mutual transaction and 2004 amount relates
to the merger with Bank One.
(b)
While the provision for loan losses increased during 2004 and 2005 due to the July
2004 Bank One merger, the allowance for loan losses as a percentage of total loans
declined from 2004 through 2006 as a result of a relatively benign credit environment.
Deteriorating credit conditions in 2007 and 2008, primarily within
consumer lending, resulted in increasing losses and correspondingly higher loan loss provisions for those
periods. For a more detailed discussion of the 2006 through 2008 provision for credit
losses, see Provision for Credit Losses on page 99.
(c)
Primarily relates to the transfer of the allowance for accrued interest and fees
on reported and securitized credit card loans in 2004.
(d)
On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase.
Accordingly, 2004 results include six months of the combined Firms results and six months
of heritage JPMorgan Chase results.
(e)
The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99.
Prior periods have been revised to reflect the current presentation.
Year ended December 31, (in millions)
2008
2007
2006
2005
2004
(b)
$
850
$
524
$
400
$
492
$
324
66
508
(258
)
326
117
(92
)
(339
)
1
7
(1
)
$
659
$
850
$
524
$
400
$
492
(a)
The 2008 amount relates to the Washington Mutual transaction and 2004 amount relates
to the merger with Bank One.
(b)
On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase.
Accordingly, 2004 results include six months of the combined Firms results and six months
of heritage JPMorgan Chase results.
JPMorgan Chase & Co. / 2008 Annual Report
233
Table of Contents
Year ended December 31, (in millions, except ratios)
2008
(c)
2007
2006
2005
2004
(e)
$
588,801
$
479,679
$
454,535
$
409,988
$
308,249
744,898
519,374
483,127
419,148
402,114
9,835
4,538
3,042
3,819
3,099
21,830
8,454
6,654
6,642
6,617
1,334
780
625
448
703
23,164
9,234
7,279
7,090
7,320
8,953
3,282
(d)
2,077
2,343
2,743
1.73
%
1.00
%
0.73
%
1.00
%
1.08
%
42.46
49.14
41.79
53.86
42.34
3.18
1.88
1.70
1.84
1.94
260
286
(d)
372
321
268
(a)
There were no net charge-offs (recoveries) on lending-related commitments in 2008,
2007, 2006, 2005 or 2004.
(b)
Excludes loans held-for-sale and loans at fair value.
(c)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128.
(d)
During the second quarter of 2008, the policy for classifying subprime mortgage
and home equity loans as nonperforming was changed to conform to all other home lending
products. Amounts for 2007 have been revised to reflect this change.
Periods prior to 2007 have not been revised as the impact was
not material.
(e)
On July 1, 2004, Bank One Corporation merged with and
into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of
heritage JPMorgan Chase results.
Average balances
Average interest rates
(in millions, except interest rates)
2008
(a)
2007
2006
2008
(a)
2007
2006
$
39,476
$
40,359
$
36,099
%
%
%
13,165
10,737
8,036
0.59
1.31
2.73
313,939
270,149
260,645
1.13
2.62
2.52
175,117
147,503
126,927
2.74
4.35
3.75
541,697
468,748
431,707
1.55
2.91
2.68
6,751
6,246
6,645
155,015
102,959
77,624
2.37
4.71
4.35
480
624
513
0.58
0.59
0.53
81,864
78,643
60,384
3.00
4.01
3.50
244,110
188,472
145,166
2.51
4.25
3.78
$
785,807
$
657,220
$
576,873
1.85
%
3.29
%
2.95
%
(a)
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank. On May 30, 2008, the Bear
Stearns merger was consummated. Each of these transactions was
accounted for as a purchase and their respective results of
operations are included in the Firms results from each
respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-128.
By remaining maturity at
3 months
Over 3 months
Over 6 months
Over
December 31, 2008
(in millions)
or less
but within 6 months
but within 12 months
12 months
Total
$
23,559
$
9,471
$
15,545
$
5,050
$
53,625
234
JPMorgan Chase & Co. / 2008 Annual Report
Table of Contents
(in millions, except rates)
2008
2007
2006
$
192,546
$
154,398
$
162,173
196,739
196,500
183,783
224,075
222,119
204,879
0.97
%
4.41
%
5.05
%
2.37
4.98
4.45
$
37,845
$
49,596
$
18,849
45,734
30,799
17,710
54,480
51,791
20,980
0.82
%
4.27
%
4.80
%
2.24
4.65
4.49
$
177,674
$
117,997
$
108,541
118,714
100,181
102,147
244,040
133,871
132,367
3.65
%
4.93
%
5.56
%
4.29
4.91
5.00
$
$
55
$
3,351
3
919
17,851
3,866
35,757
NA
%
4.38
%
4.67
%
3.23
4.82
4.53
$
5,556
$
6,752
$
4,497
5,703
5,361
5,267
7,325
6,752
9,078
1.13
%
3.04
%
1.99
%
2.69
3.02
1.61
(a)
Includes securities sold but not yet purchased.
(b)
Included on the Consolidated Balance Sheets in beneficial interests issued by
consolidated variable interest entities.
JPMorgan Chase & Co. / 2008 Annual Report
235
Table of Contents
JPMorgan Chase & Co.
(Registrant)
By: /s/ JAMES DIMON
(James Dimon
Chairman and Chief Executive Officer)
Date: March 2, 2009
Capacity
Date
Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
Director
March 2, 2009
Director
Director
Director
Director
Table of Contents
Capacity
Date
Director
Director
Director
March 2, 2009
Director
Director
Executive Vice President
and
Chief Financial Officer
(Principal Financial Officer)
Managing Director and Controller
(Principal
Accounting Officer)
Exhibit 4.1(a)
CHEMICAL BANKING CORPORATION
TO
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
Trustee
CHEMICAL BANKING CORPORATION
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of , 1989
Trust Indenture Act Section Indenture Section ---------------- ----------------- Section 310(a)(1) 609 (a)(2) 609 (a)(3) Not Applicable (a)(4) Not Applicable (b) 608 |
610 Section 311(a) 613(a) (b) 613(b) (b)(2) 703(a)(2) (703)(b) Section 312(a) 701 702(a) (b) 702(b) (c) 702(c) Section 313(a) 703(a) (b) 703(b) (c) 703(a), 703(b) (d) 703(c) Section 314(a) 704 (b) Not Applicable (c)(1) 102 (c)(2) 102 (c)(3) Not Applicable (d) Not Applicable (e) 102 Section 315(a) 601(a) (b) 602 703(a)(6) (c) 601(b) (d) 601(c) (d)(1) 601(a)(1) (d)(2) 601(c)(2) (d)(3) 601(c)(3) (e) 514 Section 316(a) (1)(A) 502 512 (a)(1)(B) 513 |
(a)(2) Not Applicable (b) 508 Section 317 (a)(1) 503 (a)(2) 504 (b) 1003 Section 318 (a) 107 |
TABLE OF CONTENTS
Page Parties 1 Recitals Of The Company * ARTICLE ONE Definitions And Other Provisions Of General Application Section 101. Definitions. * Act...... * Affiliate; control * Attorney-in-Fact * Authenticating Agent * Bank..... * Board of Directors * Board Resolution * Business Day * Commission * Company * |
Company Request; Company Order * Corporate Trust Office * corporation * covenant defeasance * Defaulted Interest * defeasance * Depository * Event of Default * Global Security * Holder * Indebtedness for money borrowed * Indenture * interest * Interest Payment Date * Intermediate Subsidiary * Maturity * Officers' Certificate * Opinion of Counsel * Original Issue Discount Security * Outstanding * Payment Agent * Person * Place of Payment * |
Predecessor Security * Record Date * Redemption Date * Redemption Price * Regular Record Date * Responsible Officer * Securities * Security Register and Security Registrar * Special Record Date * Stated Maturity * Subsidiary * Trustee * Trust Indenture Act * U.S. Government Obligations * Vice President * Voting Stock * Section 102. Compliance Certificates and Opinions. * Section 103. Form of Documents Delivered to Trustee. * Section 104. Acts of Holders. * Section 105. Notices, Etc., to Trustee and Company. * Section 106. Notice to Holders; Waiver. * Section 107. Conflict with Trust Indenture Act. * Section 108. Effect of Headings and Table of Contents.* |
Section 109. Successors and Assigns. * Section 110. Separability Clause. * Section 111. Benefits of Indenture. * Section 112. Governing Law. * Section 113. Legal Holidays. * ARTICLE TWO Security Forms Section 201. Forms Generally. * Section 202. Form of Face of Security. * Section 203. Form of Reverse of Security. * Section 204. Additional Provisions Required in Global Security. * Section 205. Form of Trustee's Certificate of Authentication. * ARTICLE Three The Securities Section 301. Amount Unlimited; Issuable in Series. * Section 302. Denominations. * Section 303. Execution, Authentication, Delivery and Dating. * Section 304. Temporary Securities. * Section 305. Registration, Registration of Transfer and Exchange. * Section 306. Mutilated, Destroyed, Lost and Stolen Securities. * |
Section 307. Payment of Interest; Interest Rights Preserved. * Section 308. Persons Deemed Owners. * Section 309. Cancellation. * Section 310. Computation of Interest. * ARTICLE FOUR Satisfaction And Discharge Section 401. Satisfaction and Discharge of Indenture. * Section 402. Application of Trust Money. * ARTICLE FIVE Remedies Section 501. Events of Default. * Section 502. Acceleration of Maturity; Rescission and Annulment. * Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. * Section 504. Trustee May File Proofs and Claim. * Section 505. Trustee May Enforce Claims Without Possession of Securities. * Section 506. Application of Money Collected. * Section 507. Limitation on Suits. * Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. * Section 509. Restoration of Rights and Remedies. * Section 510. Rights and Remedies Cumulative * |
Section 511. Delay or Omission Not Waiver. * Section 512. Control by Holders. * Section 513. Waiver of Past Defaults. * Section 514. Undertaking for Costs. * ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities. * Section 602. Notice of Defaults. * Section 603. Certain Rights of Trustee. * Section 604. Not Responsible for Recitals or Issuance of Securities. * Section 605. May Hold Securities. * Section 606. Money Held in Trust. * Section 607. Compensation and Reimbursement. * Section 608. Disqualifications; Conflicting Interests.* (a) Elimination of Conflicting Interest or Resignation* (b) Notice of Failure to Eliminate Conflicting Interest or Resign * (c) "Conflict of Interest" Defined * (d) Definitions of Certain Terms Used in This Section * (e) Calculation of Percentages of Securities * Section 609. Corporate Trustee Required; Eligibility. * Section 610. Resignation and Removal; Appointment of Successor. * Section 611. Acceptance of Appointment by Successor. * |
Section 612. Merger, Conversion, Consolidation or Succession to Business. * Section 613. Preferential Collection of Claims Against Company. * (a) Segregation and Apportionment of Certain Collections by Trustee, Certain Exceptions * (b) Certain Creditor Relationships Excluded from Segregation and Apportionment * (c) Definition of Certain Terms Used in this Section * Section 614. Appointment of Authenticating Agent. * ARTICLE SEVEN Holders' Lists And Reports By Trustee And Company Section 701. Company to Furnish Trustee Names and Addresses of Holders. * Section 702. Preservation of Information; Communications to Holders. * Section 703. Reports by Trustee. * Section 704. Reports by Company. * ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer Or Lease Section 801. Company May Consolidate, Etc., Only on Certain Terms. * Section 802. Successor Corporation Substituted. * ARTICLE NINE Supplemental Indentures |
Section 901. Supplemental Indentures Without Consent of Holders. * Section 902. Supplemental Indentures with Consent of Holders. * Section 903. Execution of Supplemental Indentures. * Section 904. Effect of Supplemental Indentures. * Section 905. Conformity with Trust Indenture Act. * Section 906. Reference in Securities to Supplemental Indentures. * ARTICLE TEN |
COVENANTS
Section 1001. Payment of Principal, Premium and Interest. *
Section 1002. Maintenance of Office or Agency. *
Section 1003. Money for Securities Payments to Be Held in Trust. *
Section 1004. Corporate Existence. *
Section 1005. Payment of Taxes and Other Claims. *
Section 1006. Limitation on Disposition of Stock of Bank. *
Section 1007. Statement as to Compliance. *
Section 1008. Waiver of Certain Covenants. *
ARTICLE ELEVEN
Redemption Of Securities
Section 1101. Applicability of Article. *
Section 1102. Election to Redeem; Notice to Trustee. *
Section 1103. Selection by Trustee of Securities to Be Redeemed. *
Section 1104. Notice of Redemption. *
Section 1105. Deposit of Redemption Price. *
Section 1106. Securities Payable on Redemption Date. *
Section 1107. Securities Redeemed in Part. *
ARTICLE TWELVE
Sinking Funds
Section 1201. Applicability of Article. *
Section 1202. Satisfaction of Sinking Fund Payments with Securities. *
Section 1203. Redemption of Securities for Sinking Fund. *
ARTICLE THIRTEEN
Defeasance And Covenant Defeasance
Section 1301. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. *
Section 1302. Defeasance and Discharge. *
Section 1303. Covenant Defeasance. *
Section 1304. Conditions to Defeasance or Covenant Defeasance. *
Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. *
Testimonium * Signatures And Seals * Acknowledgments *
INDENTURE, DATED AS OF DECEMBER 1, 1989, BETWEEN CHEMICAL BANKING
CORPORATION, A CORPORATION DULY ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF DELAWARE (HEREIN CALLED THE "COMPANY"), HAVING ITS PRINCIPAL OFFICE AT 277 PARK AVENUE, NEW YORK, NEW YORK 10172, AND THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
A NATIONAL BANKING ASSOCIATION DULY ORGANIZED AND EXISTING UNDER THE LAWS OF
THE UNITED STATES, AS TRUSTEE (HEREIN CALLED THE "TRUSTEE").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
Now, Therefore, This Indenture Witnesseth:
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:
1.
Definitions and Other Provisions of General Application
1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
1. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
2. All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
3. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and
4. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that Article.
"Act", when used with respect to any Holder, has the meaning specified in Section 104.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Attorney-in-Fact" means an officer of the Bank who has been duly appointed as an attorney-in-fact by the Company.
"Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.
"Bank" means Chemical Bank, a banking corporation duly organized and existing under the laws of the State of New York, and its successors (whether by consolidation, merger, conversion, transfer of substantially all their assets and business or otherwise) so long as Chemical Bank or any successor is a Subsidiary.
"Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to set hereunder or any directors or officers of the Company or Attorneys-in-Fact to whom such board of directors or such committee shall have duly delegated its authority.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law to close.
"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President, its Chief Financial Officer, a Vice President or any Attorney-in-Fact, and by its Controller, an Assistant Controller, its Secretary or an Assistant Secretary and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in the Borough of Manhattan, The City of New York, at which at any particular time its corporate trust business shall be administered, such office being currently located at One New York Plaza, New York, NY 10081.
"corporation" includes corporations, associations, companies and business trusts.
"covenant defeasance" has the meaning specified in
Section 1303.
"Defaulted Interest" has the meaning specified in
Section 307.
"defeasance" has the meaning specified in Section 1302.
"Depository" means, with respect to the Securities of
any series issuable or issued in whole or in part in
the form of one or more Global Securities, the Person
designated as Depository by the Company pursuant to
Section 301.
"Event of Default" has the meaning specified in
Section 501.
"Global Security" means a Security in the form prescribed in Section 204 evidencing all or part of a series of Securities, issued to the Depository for such series or its nominee, and registered in the name of such Depository or nominee.
"Holder" means a Person in whose name a Security is registered in the Security Register.
"Indebtedness for money borrowed", when used with respect to the Company, means any obligation of, or any obligation guaranteed by, the Company for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms or particular series of Securities established as contemplated by Section 301.
"interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
"Intermediate Subsidiary" has the meaning specified in
Section 1006.
"Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman, the President, its Chief Financial Officer, a Vice President or any Attorney-in-Fact, and by the Controller, an Assistant Controller, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel who may be an employee of the Company or other counsel to the Company.
"Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration on the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
i. Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
ii. Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefore satisfactory to the Trustee has been made; and
iii. Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 502, (ii) the principal amount of a Security denominated in a foreign currency or currency unit shall be the U.S. dollar equivalent, determined as of the date of original issuance of such Security, of the principal amount of such Security (or, in the case of an Original Issue Discount Security denominated in a foreign currency or currency unit, the U.S. dollar equivalent as of the date of original issuance of such Security of the amount determined as provided in (i) above), (iii) the principal amount of a Security for which the amount of payments of principal of and any premium or interest on such Security may be determined with reference to an index shall be determined as of the date of original issuance of such Security and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee established to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
"Payment Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means a Regular Record Date or a Special Record Date, as the case may be.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301.
"Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporation trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which the instrument was executed, except as provided in Section 905.
"U.S. Government Obligations" has the meaning specified in Section 1304(1).
"Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".
"Voting Stock" means stock of the class or classes having a general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
2. Compliance Certificates and Opinions.
Under any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include
1. a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
2. a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
3. a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
4. a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters on one or several documents.
Any certificate or opinion of an officer of, or Attorney-in-Fact for, the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by counsel, unless such officer or Attorney-in-Fact knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of, or an Attorney-Fact or Attorneys-in-Fact for, the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
4. Acts of Holders.
a. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
b. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
c. The ownership of Securities shall be proved by the Security Register.
d. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefore or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
5. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished in, or filed with,
1. the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, or
2. the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it, attention: Secretary, at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holder is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give one's notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
7. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.
8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.
12. Governing Law.
This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York.
13. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
2.
Security Forms
1. Forms Generally.
The Securities of each series shall be substantially in the form set forth in this Article, or in such other form (including permanent global form) as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers of the Company or any Attorney-in-Fact executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. If all of the Securities of any series established by action taken pursuant to a Board Resolution are not to be issued at one time, it shall not be necessary to deliver a record of such action at the time of issuance of each Security of such series, but an appropriate record of such action shall be delivered at or before the time of issuance of the first Security of such series.
The Trustee's certificates of authentication shall be in substantially the form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner (provided that if any Securities are to be listed on any securities exchange, then in such manner as may be permitted by the rules of any such securities
exchange), all as determined by the officers of the Company or any Attorney-in-Fact executing such Securities, as evidenced by their execution of such Securities.
2. Form of Face of Security.
[Insert any legend required by the Internal Revenue Code and the regulations thereunder]
CHEMICAL BANKING CORPORATION
No. _________ $_______
CHEMICAL BANKING CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________________________, or registered assigns, the principal sum of ________________________________________ Dollars on ______________________________________ [if the Security is to bear interest prior to Maturity, insert , and to pay interest thereon from _______________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, [insert appropriate period] or _________________ and _______________ in each year, commencing ______________, at the rate of __% per annum, until the principal hereof is paid or made available for payment [if applicable, insert , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium [if applicable, insert and on any overdue instalment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ________ or _______ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of __% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. [Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of __% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand].]
Payment of the principal of (and premium, if any) and [if applicable, insert any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in _____________, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [unless otherwise specifically provided with respect to the Securities of the series, insert ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register].
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof, or an Authenticating Agent, by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
In Witness Whereof, the Company has caused this instrument to be duly executed under its corporate seal.
By_______________________________________
Attest:
3. Form of Reverse of Security.
This Security is one of a duly authorized series of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of December 1, 1989 (herein called the "Indenture"), between the Company and the Chase Manhattan Bank (National Association), as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregated principal amount to $________].
[If applicable, insert The Securities of this series are subject to redemption upon not less than 30 days' nor more than 60 days' notice by mail [if applicable, insert (1) on ________________ in any year commencing with the year _________ and ending with the year __________ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [on or after ______________, 19__], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before ______________, __%, and if redeemed] during the 12-month period beginning ______________ of the years indicated,
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
And thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption [if applicable, insert (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest instalments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Regular Record Dates referred to on the face hereof, all as provided in the Indenture.]
[If applicable, insert The Securities of this series are subject to
redemption upon not less than 30 days' nor more than 60 days' notice
by mail (1) on _____________ in any year commencing with the year
________ and ending with the year ________ through operation of the
sinking fund for this series at the Redemption Prices for redemption
through operation of the sinking fund (expressed as percentages of the
principal amount) set forth in the table below, and (2) at any time
[on or after _____________], as a whole or in part, at the election of
the Company, at the Redemption Prices for redemption otherwise than
through operation of the sinking fund (expressed as percentages of the
principal amount) set forth in the table below: If redeemed during the
12-month period beginning ________________ of the years indicated,
REDEMPTION PRICE FOR REDEMPTION REDEMPTION PRICE FOR THROUGH OPERATION REDEMPTION OTHERWISE OF THE THEN THROUGH OPERATION YEAR SINKING FUND OF THE SINKING FUND |
and thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest instalments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Regular Record Dates referred to on the face hereof, all as provided in the Indenture.]
[Notwithstanding the foregoing, the Company may not, prior to ________________, redeem any Securities of this series as contemplated by [Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practices) of less than __% per annum.]
[The sinking fund for this series provides for the redemption on _____________ in each year beginning with the year _______ and ending with the year ________of [not less than] $_______ [("mandatory sinking fund") and not more than $________] aggregate principal amount of Securities of this series. [Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made [if applicable, insert in the inverse order in which they become due].]
In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation hereof.
[If applicable, insert The Indenture contains provisions for defeasance at any time of [(a)] [the entire indebtedness evidenced by this Security] [and (b)] certain restrictive covenants,] [in each case] upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.]
[If the Security is not an Original Issue Discount Security, insert If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to insert formula for determining the amount.] Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of
(and premium if any)
and interest (if any) on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest (if any) on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $_______ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 202 and 203, bear a legend in substantially the following form:
"This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a
nominee of a Depository. This Security is exchangeable for Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture and may not be transferred except as a whole by the Depository to a nominee of the depository or by a nominee of the Depository to the Depository or another nominee of the Depository.
Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, any Global Security shall provide, in addition to the provisions set forth in Sections 202 and 203 and the preceding paragraph, that the Depository will not sell, assign, transfer or otherwise convey any beneficial interest in such Global Security unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series, and that the Depository, by accepting such Global Security, agrees to be bound by such provision.
5. Form of Trustee's Certificate of Authentication.
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
as Trustee
By____________________________________
Authorized Officer
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
as Trustee
By Chemical Bank
Authenticating Agent
By____________________________________
Authorized Signer
3.
The Securities
1. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to
Section 303, set forth, or determined in the manner provided, in an
Officers' Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any
series,
1. the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);
2. any limit upon the aggregate principal amount or the aggregate initial offering price of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 906 or 1107 and except for any Securities which, pursuant to Section 303, shall not have been issued and sold by the Company and are therefore deemed never to have been authenticated and delivered hereunder);
3. the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;
4. the date or dates on which the principal of the Securities of the series is payable; the provisions, if any, for extension of such date or dates;
5. the rate or rates (or the formula pursuant to which such rate or rates shall be determined) at which the Securities of the series shall bear interest, if any, including that rate of interest applicable to overdue payments of principal, and the rate of interest, if any, applicable to overdue payments of interest if different from the rate of interest stated in the title of the Security; the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date;
6. the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable;
7. if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company;
8. the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
9. if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable;
10. if other than the currency of the United States, the currency or currencies, including composite currencies, in which payment of the principal of and any premium and interest on the Securities of the series shall be payable, which may be different for principal, premium, if any, and interest;
11. if the principal of (and premium, if any) or interest, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies other than that in which the Securities are stated to be payable, the currency or currencies in which payment of the principal of (and premium, if any) or interest, if any, on Securities of such series as to which such election is made shall be payable, and the period or periods within which, and the terms and conditions upon which, such election may be made;
12. if the amount of payments of principal of and any premium or interest on the Securities of the series may be determined with reference to an index, the manner in which such amounts shall be determined;
13. if other than the principal amount thereof, the
portion of the principal amount of Securities of the
series which shall be payable upon declaration of
acceleration of the Maturity thereof pursuant to
Section 502;
14. any Event of Default with respect to the Securities of the series, if not set forth herein;
15. the application, if any, of either or both of Section 1302 and Section 1303 to the Securities of the series.
16. whether the Securities of the series shall be issued in whole or in part in the form of one or more Global Securities and,
in such case, the Depository for such Global Security or Securities, which Depository shall be, if then required by applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended; and
17. any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture), including any covenants to be applicable to Securities of such series if not set forth herein.
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in
or pursuant to the Board Resolution referred to above and (subject to
Section 303) set forth in the Officers' Certificate referred to above
or in any such indenture supplemental hereto. All Securities of any
one series need not be issued at one time, and unless otherwise
provided, a series may be reopened for issuances of additional
Securities of such series.
Unless otherwise specifically provided with respect to the Securities of a series, at the option of the Company, interest on the Securities of any series that bears interest may be paid by mailing a check to the address of the person entitled thereto as such address shall appear in the Security Register.
If any of the terms of Securities of a series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. If all of the Securities of any series established by action taken pursuant to a Board Resolution are not to be issued at one time, it shall not be necessary to deliver a record of such action at the time of issuance of each Security of such series, but an appropriate record of such action shall be delivered at or before the time of issuance of the First Security of such series.
2. Denominations.
The Securities of each series shall be issuable in registered form without coupons in each denominations as shall be specified as contemplated by Section 301. In the absence of any such provisions with respect to the Securities of any particular series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof.
3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairman, its President, its Chief Financial Officer or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimiles.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices a the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee or the Authenticating Agent for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee or the Authenticating Agent in accordance with the Company Order shall authenticate and make available for delivery such Securities. If all of the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate, maturity date, date of issuance and date from which interest shall accrue. In authenticating Securities of any series, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee or the Authenticating Agent, as the case may be, shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating,
a. if the form of such Securities has been established by or pursuant to a Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture;
b. if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and
c. that such Securities, when authenticated and delivered by the Trustee and issued by the Company
in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and, if applicable, to provisions of law which may require that a judgment for money damages rendered by a court in the United States be expressed in Unites States dollars.
If such forms or terms have been so established, the Trustee or the Authenticating Agent, as the case may be, shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's or the Authenticating Agent's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or the Authenticating Agent.
Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the time of authentication upon original issuance of the first Security of such series to be issued. After the original issuance of the first Security of such series to be issued, any separate request by the Company that the Trustee authenticate Securities of such series for original issuance will be deemed to be a certification by the Company that it is in compliance with all conditions precedent provided for in this Indenture relating to the authentication and delivery of such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein
executed by the Trustee or the Authenticating Agent by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee or the Authenticating Agent shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, reproduced or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations of the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor a like principal amount of definitive Securities of the same series and tenor of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the corporate trust office of the Security Registrar designated pursuant to this Section 305 a register (the register maintained in such office being herein sometimes referred to as
the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Bank is hereby initially appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like tenor and aggregate principal amount.
At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of Securities of like tenor and of the series of which such Security is a part and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Securities of such series to be redeemed, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
Notwithstanding the foregoing, any Global Security representing a series of Securities shall be exchangeable pursuant to this Section 305 for Securities registered in the names of Persons other than the Depository or its nominee only if (i) subject to any other terms of the series applicable to such Global Security, such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when such Depository is required to be so registered to act as such Depository, (ii) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to the Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as such Depository shall direct.
Notwithstanding any other provision in this Indenture, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository. Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities evidenced in whole or in part by a Global Security, the Depository may not sell, assign, transfer or otherwise convey any beneficial interest in a Global Security evidencing all or part of the Securities of such series unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series.
6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnify as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same
series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security of the same series, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
7. Payment of Interest; Interest Rights Preserved.
Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
1. The Company may elect to make payment of any Defaulted Interest to the Person or Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interested and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
2. The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
8. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
Notwithstanding the foregoing, with respect to any Global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by a Depository or impair, as between a Depository and holders of beneficial interests in any Global Security, the operation of customary practices governing the exercise of the rights of the Depositary as Holder of such Global Security.
9. Cancellation.
All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed by the Trustee and a certificate of destruction shall be delivered to the Company.
10. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.
4.
Satisfaction and Discharge
1. Satisfaction and Discharge of Indenture.
This Indenture shall upon request by the Company cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
1. either
A. all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or
B. all such Securities not theretofore delivered to the Trustee for cancellation
i. have become due and payable, or
ii. will become due and payable at their Stated Maturity within one year, or
iii. are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expenses of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
2. the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
3. the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the
obligations of the Trustee to any Authenticating Agent under Section
614 and, if money or U.S. Government Obligations shall have been
deposited with the Trustee (or another trustee satisfying the
conditions of Section 609) in accordance with Section 1302, the
obligations of the Company to the Trustee (or other qualifying
trustee) under the fourth paragraph of Section 1305, and, if money
shall have been deposited with the Trustee pursuant to subclause (B)
of clause (1) of this Section, the obligations of the Trustee under
Section 402 and the last paragraph of Section 1003 shall survive.
2. Application of Trust Money.
Subject to provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest, if any, for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except as required by law.
5.
Remedies
1. Events of Default.
"Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
1. default in the payment of interest, if any, upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
2. default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
3. default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series and continuance of such default for a period of 5 days; or
4. default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or any Security of that series (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this
Section specifically death with or which has expressly
been included in this Indenture solely for the benefit of
series of Securities other than that series), and
continuance of such default or breach for a period of 60
days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of that
series a written notice specifying such default or breach
and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder, or
5. a default under any bond, debenture, notice or other evidence of indebtedness for money borrowed by the Company (including a default with respect to Securities of any series other than that series) or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (including this Indenture), whether such indebtedness now exists or shall hereafter be created, which default shall have resulted (i) in a failure to pay an aggregate principal amount exceeding $25,000,000 of such indebtedness for money borrowed at the later of final maturity or upon the expiration of any applicable period of grace with respect to such principal amount, or (ii) in such indebtedness for money borrowed in an aggregate principal amount exceeding $25,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; provided, however, that, subject to the provisions of Sections 601 and 602, the Trustee shall not be deemed to have knowledge of such default unless either (A) a Responsible Officer of the Trustee shall have actual knowledge of such default or (B) the Trustee shall have received written notice thereof from the Company, from any Holder, from the holder of any
such indebtedness for money borrowed or from the trustee under any such mortgage, indenture or other instrument; and provided, further, that any such default shall not be deemed to have occurred if and so long as the Company shall contest the validity thereof in good faith by appropriate proceedings; or
6. the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or the Bank in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or the Bank or of all or substantially all of their respective property, or ordering the winding up or liquidation of their respective affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
7. the commencement by the Company or the Bank of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or the consent by either to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or the Bank or of all or substantially all of their respective property, or the making by either of an assignment for the benefit of creditors, or the admission by either in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or the Bank in furtherance of any such action; or
8. any other Event of Default provided with respect to Securities of that series.
Upon receipt by the Trustee of any Notice of Default pursuant to
Section 501(4) or Section 501(5) with respect to Securities of a
series all or part of which is represented by a Global Security, a
record date shall be established for determining Holders of
Outstanding Securities of such series entitled to join in such Notice
of Default, which record date shall be at the close of business on the
day the Trustee receives such Notice of Default. The Holders on such
record date, or their duly designated proxies, and only such Persons,
shall be entitled to join in such Notice of Default, whether or not
such Holders remain Holders after such record date; provided, that
unless Holders of at least 10% in principal amount of the Outstanding
Securities of such series, or their proxies, shall have joined in
such Notice of Default prior to the date which is 90 days after such record date, such Notice of Default shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new Notice of Default which is identical to a Notice of Default which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 501.
2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable, except that no such declaration shall be required upon the occurrence of an Event of Default specified in Section 501(7).
At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences, and any Event of Default giving rise to such declaration shall not be deemed to have occurred, if
1. the Company has paid or deposited with the Trustee a sum sufficient to pay
A. all overdue interest on all Securities of that series,
B. the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities,
C. to the extent that payment of such interest is lawful, interest, if any, upon overdue interest
at the rate or rates prescribed therefor in such Securities, and
D. all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;
and
1. all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513 or otherwise remedied.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
Upon receipt by the Trustee of any written notice declaring such an acceleration, or rescission and annulment thereof, with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of each 90-day period, a new written notice of declaration of acceleration, or rescission or annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 502.
1. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
1. default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days,
2. default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, or
3. default is made in the making or satisfaction of any sinking fund payment or analogous obligation when the same becomes due pursuant to the terms of any Security and such default continues for 5 days;
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest and, to the extent that the payment of such interest shall be legally enforceable, interest on any overdue principal including any sinking fund payment or analogous obligations (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
2. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
i. to file and prove a claim for the whole amount of principal (and premium, if any) and interest, if any, owing and unpaid in respect of the Securities of all series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
ii. to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
3. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
4. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, if any, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 607; and
Second: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest, if any, on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, if any, respectively.
5. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
1. such Holder has previously given written notice to the Trustee of a continuing Event of Default or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to the Securities of that series;
2. the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
3. such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
4. the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
5. no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
6. Unconditional Right of Holders to Receive Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest, if any, on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
7. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
8. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
9. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
10. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that
1. such direction shall not be in conflict with any rule of law or with this Indenture, and
2. the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
Upon receipt by the Trustee of any written notice directing the time, method or place of conducting any such proceeding or exercising any such trust or power with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless Holders of a majority in principal amount of the Outstanding Securities of such series shall have joined in such notice prior to the day which is 90 days after such record date, such
notice shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new notice identical to a notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 512.
11. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default
1. in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, or
2. in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Person, shall be entitled to waive any default hereunder, whether or not such Holders remain Holders after such record date; provided, that unless such majority in principal amount shall have waived such default prior to the date which is 90 days after such record date, any such waiver of such default previously given shall automatically and without further action by any Holder be canceled and of no further effect.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
12. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest, if any, on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case or redemption, on or after the Redemption Date).
1.
The Trustee
1. Certain Duties and Responsibilities.
a. Except during the continuance of an Event of Default,
1. the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
2. in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
b. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
c. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that
1. this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
2. the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
3. the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority
in principal amount of the Outstanding Securities of any series, determined as provided in Section 512, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and
4. no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
d. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
2. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder known to the Trustee with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such default hereunder, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund instalment with respect to Securities of such series, the Trustee shall be protected in the withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that withholding of such notice is in the interest of the Holders of Securities of such series; and provided, further, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.
3. Certain Rights of Trustee.
Subject to the provisions of Section 601:
a. the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
b. any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
c. whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
d. the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
e. the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
f. the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and
g. the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.
4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The
Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
7. Compensation and Reimbursement.
The Company agrees
1. to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
2. except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
3. to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
8. Disqualifications; Conflicting Interests.
a. If the Trustee has or shall acquire any conflicting interest, as defined in this Section, with respect to the Securities of any series, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign with respect to the Securities of that series in the manner and with the effect hereinafter specified in this Article.
b. In the event that the Trustee shall fail to comply with the provisions of Subsection (a) of this Section with respect to the Securities of any series, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit by mail to all Holders of Securities of that series, as their names and addresses appear in the Security Register, notice of such failure.
c. For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest with respect to the Securities of any series if
1. the Trustee is trustee under this Indenture with respect to the Outstanding Securities of any series other than that series or is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Securities issued under this Indenture, provided that there shall be excluded from the operation of this paragraph this Indenture with respect to the Securities of any series other than that series, the Indenture dated as of November 1, 1982, as supplemented, between the Company and the Trustee, under which the Company's Medium Term Notes at various rates and with various maturity dates, Step-Down Floating Rate Notes due 1990, 9-1/2% Notes due 1991, and 9.55% Senior Notes due 1993 are outstanding as of the date hereof or any other indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if
i. this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act, unless the Commission shall have found and declared by order pursuant to Section 305(b) or Section 307(c) of the Trust Indenture Act that differences exist between the provisions of this Indenture with respect to Securities of that series and one or more other series or the provisions of such other indenture or indentures which are so likely to involve
a
material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to the Securities of that series and such other series or under such other indenture or indentures, or
ii. the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under this Indenture with respect to the Securities of that series and such other series or such other indenture or indentures is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to the Securities of that series and such other series or under such other indenture or indentures;
2. the Trustee or any of its directors or executive officers is an obligor upon the Securities or an underwriter for the Company;
3. the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company;
4. the Trustee or any of its directors or executive officers
is a director, officer, partner, employee, appointee or
representative of the Company, or of an underwriter (other
than the Trustee itself) for the Company who is currently
engaged in the business of underwriting, except that (i)
one individual may be a director or an executive officer,
or both, of the Trustee and a director or an executive
officer, or both, of the Company but may not be at the
same time an executive officer of both the Trustee and the
Company; (ii) if and so long as the number of directors of
the Trustee in office is more than nine, one additional
individual may be a director or an executive officer, or
both, of the Trustee and a director of the Company; and
(iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity of
transfer agent, registrar, custodian, paying agent, fiscal
agent, escrow agent or depositary, or in any other similar
capacity, or, subject to
the provisions of paragraph (1) of this Subsection, to act as trustee, whether under an indenture or otherwise;
5. 10% or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons;
6. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), (i) 5% or more of the voting securities, or 10% or more of any other class of security, of the Company not including the Securities issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (ii) 10% or more of any class of security of an underwriter for the Company;
7. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company;
8. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of the Company; or
9. the Trustee owns, on May 15 in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7) or (8) of this Subsection. As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that
such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after May 15 in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May 15. If the Company fails to make payment in full of the principal of (or premium, if any) or interest on any of the Securities when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive, of this Subsection shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection only, (i) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (ii) an obligation shall be deemed to be "in default" when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (iii) the Trustee shall not be deemed to be the owner or holder of (A) any security which it holds as collateral security, as trustee or otherwise, for an obligation which is not in default as defined in clause (ii) above, or (B) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (C) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity.
d. For the purposes of this Section:
1. The term "underwriter", when used with reference to the Company, means every person who, within three years prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission.
2. The term "director" means any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated.
3. The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.
4. The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person.
5. The term "Company" means any obligor upon the Securities.
6. The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.
e. The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions:
1. A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding
voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
2. A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.
3. The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security.
4. The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition:
i. securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;
ii. securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;
iii. securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and
iv. securities held in escrow if placed in escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.
5. A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.
9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of a least $50,000,000 subject to supervision or examination by Federal or State authority and having its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
10. Resignation and Removal; Appointment of Successor.
a. No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of
Section 611.
b. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
c. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
d. If at any time:
1. the Trustee shall fail to comply with Section 608(a) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
2. the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or
3. the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all securities, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
e. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any Series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
f. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the
Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
11. Acceptance of Appointment by Successor.
a. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
b. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees cotrustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring
Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.
c. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such
rights, powers and trusts referred to in paragraphs (a) and
(b) of this Section, as the case may be.
d. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
13. Preferential Collection of Claims Against Company.
a. Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within four months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities, as defined in Subsection (c) of this Section:
1. an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and
2. all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
A. to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law;
B. to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four months' period;
C. to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four months' period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in Subsection (c) of this Section, would occur within four months; or
D. to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such four months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned among the Trustee, the Holders and the holders of other indenture securities in such manner that the Trustee, the Holders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Holders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account.
As used in this paragraph, with respect to
any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion among the Trustee, the Holders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Holders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such four months' period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four months' period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:
i. the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such four months' period; and
ii. such receipt of property or reduction of claim occurred within four months after such resignation or removal.
b. There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from:
1. the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;
2. advances authorized by a receivership or bankruptcy court of competent jurisdiction or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders at the time and in the manner provided in this Indenture;
3. disbursements made in the ordinary course of business in the capacity of trustee under the indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity;
4. an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as defined in Subsection (c) of this Section;
5. the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; and
6. the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper, as defined in Subsection (c) of this Section.
c. For the purposes of this Section only:
1. the term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable;
2. the term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account;
3. the term "cash transaction" means any transaction in which full payment for goods or securities sold is made within
seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand;
4. the term "self-liquidating paper" means any draft, bull of exchange, acceptance or obligations which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation;
5. the term "Company" means any obligor upon the Securities; and
6. the term "Federal Bankruptcy Act" means the Bankruptcy Act or Title 11 of the United States Code.
14. Appointment of Authenticating Agent.
As of the date of the Indenture and at any time when any of the Securities
remain Outstanding the Trustee may appoint an Authenticating Agent or Agents
(which may be an Affiliate or Affiliates of the Company) with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issuance,
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital surplus as set
forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation, to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice or resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section.
The Bank is initially designated as the Authenticating Agent for the Securities.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
As Trustee
By___________________________________ As Authenticating Agent
By___________________________________ Authorized Officer
2.
Holders' Lists and Reports by Trustee and Company
1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
a. semi-annually, not more than fifteen days after each Regular Record Date, or, in the case of any series of Securities on which no interest is payable, not more than fifteen days after each coupon date or other date specified by the Trustee, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Record Date, and
b. at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee if and so long as it is acting as Security Registrar.
2. Preservation of Information; Communications to Holders.
a. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addressees of Holders received by the Trustee if and so long as it is acting as Security Registrar. The Trustee may
destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.
b. If three or more Holders of the same series (herein referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at its election, either
i. afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or
ii. inform such applicants as to the
approximate number of Holders whose
names and addresses appear in the
information preserved at the time by
the Trustee in accordance with Section
702(a), and as to the approximate cost
of mailing to such Holders the form of
proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to such information. the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 702(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
c. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b).
3. Reports by Trustee.
a. On or before September 15 of each year commencing with the year 1990, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report dated as of the preceding July 15 with respect to:
1. its eligibility under Section 609 and its qualifications under Section 608, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect;
2. the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remain unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities Outstanding on the date of such report;
3. the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description
of any property held as collateral security therefor,
except an indebtedness based upon a creditor
relationship arising in any manner described in
Section 613(b)(2), (3), (4) or (6);
4. the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;
5. any additional issue of Securities which the Trustee has not previously reported; and
6. any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 602.
b. The Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding at such time, such report to be transmitted within 90 days after such time.
c. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange.
4. Reports by Company.
The Company shall:
1. file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;
2. file with the Trustees and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and
3. transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.
3.
Consolidation, Merger, Conveyance, Transfer or Lease
1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:
1. the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, of which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be performed or observed;
2. immediately after giving effect to such transaction, no Event of Default and no event which, after notice or lapse of time or both, would become an Event of Default shall have happened and be continuing; and
3. the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
2. Successor Corporation Substituted.
Upon any consolidation by the Company with or merger by the Company into any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.
4.
Supplemental Indentures
1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
1. to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
2. to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of fewer than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
3. to add any additional Events of Default; or
4. to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in certificated form or global form; or
5. to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or
6. to secure the Securities; or
7. to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or
8. to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611(b); or
9. to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Securities or any series in any material respect.
2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
1. change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or
reduce the principal amount thereof or the rate of, or method of computation of the rate of, interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation, or change any Place of Payment where, or the coin or currency in which, any Security or any premium of the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or
2. reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, of the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
3. modify any of the provisions of this Section, Section 513 or Section 1008, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to the "Trustee", and concomitant changes in this Section and Section 1008, or the deletion of this proviso, in accordance with the requirements of Sections 611(b) and 901(8).
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such
consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect.
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
3. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee may receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
6. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
5.
Covenants
1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture.
The Company shall have the right to require a Holder, in connection with the payment of the principal of (and premium, if any) or interest, if any, on a Security, to present at the office or agency of the Company at which such payment is made a certificate, in such form as the Company may from time to time prescribe, to enable the Company to determine its duties and liabilities with respect to any taxes, assessments or governmental charges which it may be required to deduct or withhold therefrom under any present or future law of the United States of America or of any State, County, Municipality or taxing authority therein, and the Company shall be entitled to determine its duties and liabilities with respect to such deduction or withholding on the basis of information contained in such certificate or, if no such certificate shall be so presented, on the basis of any presumption created by any such law, and shall be entitled to act in accordance with such determination.
2. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New York and in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment (provided, however, that, unless otherwise provided with respect to any series of Securities, at the option of the Company payment of interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register), where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company initially appoints the corporate trust office of the Bank as its agent for purposes of presentation and surrender of Securities for payment, registration of transfer or exchange and for service of notices and demands to or upon the Company in respect of the Securities of a series and this Indenture. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York and in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
3. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
1. hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
2. give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal of (and premium, if any) or interest on the Securities of that series; and
3. at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
4. Corporate Existence.
Except as permitted by the provisions of Article Eight and subject to
Section 1006, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and that of the Bank and material rights (charter and
statutory) and material franchises of the Company and the Bank;
provided, however, that the Company shall not be required to preserve
any such right or franchise if the Board of Directors shall determine
that the preservation
thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries considered as a whole, and that the loss thereof is not disadvantageous in any material respect to the Holders.
5. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company and the Bank or upon the income, profits or property of the Company and the Bank, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company and the Bank; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings.
6. Limitation on Disposition of Stock of Bank.
So long as any Securities shall be Outstanding, neither the Company nor any Intermediate Subsidiary (as hereinafter defined) will (except to the Company or an Intermediate Subsidiary) sell, assign, transfer, grant a security interest in or otherwise dispose of any shares of, securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank, nor will the Company or any Intermediate Subsidiary permit the Bank to issue any shares of, or securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank, nor will the Company permit any Intermediate Subsidiary that owns any shares of, or securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank to cease to be an Intermediate Subsidiary, except that (i) the Company or an Intermediate Subsidiary may make any such sale, assignment, transfer, or grant of a security interest or other disposition for fair market value on the date thereof, as determined by the Board of Directors of the Company or such Intermediate Subsidiary, as the case may be (which determination shall be conclusive), and evidenced by a duly adopted resolution thereof, and (ii) in each such case, after giving effect thereto, the Company and any one or more Intermediate Subsidiaries will own at least 80% of the Voting Stock of the Bank then issued and outstanding free and clear of any security interest. Notwithstanding the foregoing, the Bank may be merged into or consolidated with another banking institution organized under the laws of the United States, any State thereof or the District of Columbia, if after giving effect to such merger or consolidation the Company and any one or more Intermediate Subsidiaries own at least 80% of the Voting Stock of such other banking institution and immediately after giving effect thereto
and treating any such resulting bank thereafter as the Bank for purposes of this Indenture, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing. For purposes of this Section, an "Intermediate Subsidiary" means a Subsidiary (i) that is organized under the laws of the United States, any State thereof or the District of Columbia, and (ii) of which all the shares of each class of capital stock issued and outstanding, and all securities convertible into, and options, warrants and rights to subscribe for or purchase shares of, such capital stock, are owned directly by the Company, free and clear of any security interest.
The provisions of this Section 1006 shall not prohibit the Company from consolidating with or merging into any other Person or from conveying, transferring or leasing the Company's properties and assets substantially as an entirety to any Person as otherwise permitted pursuant to Article Eight.
7. Statement as to Compliance.
The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, a written statement, which need not comply with Section 102, signed by the Chairman of the Board, a Vice Chairman, the President, the Chief Financial Officer or a Vice President and by the Controller, Assistant Controller, the Secretary or an Assistant Secretary of the Company stating, as to each signer thereof, that
1. a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and
2. to the best of his knowledge, based on such review,
(a) the Company has fulfilled all its obligations
under this Indenture throughout such year, or, if
there has been a default in the fulfillment of any
such obligation, specifying each such default known to
him and the nature and status thereof, and (b) no
event has occurred and is continuing which is, or
after notice or lapse of time or both would become, an
Event of Default, or, if such an event has occurred
and is continuing, specifying each such event known to
him and the nature and status thereof.
8. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term, covenant or condition set forth in Sections 1004 to 1006, inclusive, with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance
or
generally waive compliance with such term, covenant or condition, but no such waiver shall extend to or affect such term, covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, covenant or condition shall remain in full force and effect.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any such term, provision or condition. If a record date is fixed, the Holders on such record date or their duly designated proxies, and only such Persons, shall be entitled to waive any such term, provision or condition hereunder, whether or not such Holders remain Holders after such record date; provided, that unless the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall have waived such term, provision or condition prior to the date which is 90 days after such record date, any such waiver previously given shall automatically and without further action by any Holder be canceled and of no further effect.
6.
Redemption of Securities
1. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.
2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of fewer than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the tenor, if applicable, of the Securities to be redeemed, and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction.
3. Selection by Trustee of Securities to Be Redeemed.
If fewer than all the Securities of any series are to be redeemed (unless all of the Securities of a specified tenor are to e redeemed), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series subject to such redemption and not previously called for redemption, by such method as the Trustee shall deem fair and appropriate (but subject to compliance with the rules of any securities exchange on which the securities of such series may be listed) and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If fewer than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
1. the Redemption Date,
2. the Redemption Price,
3. if fewer than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,
4. the CUSIP number of the Securities to be redeemed,
5. that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be
redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,
6. the place or places where such Securities are to be surrendered for payment of the Redemption Price, and
7. that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
5. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.
6. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable
at the Redemption Price therein specified, and from and after such
date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Securities shall cease to
bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of
Section 307.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
7. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security.
7.
Sinking Funds
1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a
"mandatory sinking fund payment", and any payment in excess of such
minimum amount provided for by the terms of Securities of any series
is herein referred to as an "optional sinking fund payment". If
provided for by the terms of Securities of any series, the cash amount
of any sinking fund payment may be subject to reduction as provided in
Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series.
2. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited; provided further that, in the case of (1) above, with respect to any Outstanding Securities so delivered, and in the case of (2) above, with respect to any such Securities so credited, such Outstanding Securities or Securities, as the case may be, be Securities subject to the sinking fund payment required to be made with respect to the Securities of such series. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such
Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
3. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 45 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107.
8.
Defeasance and Covenant Defeasance
1. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance.
If pursuant to Section 301 provision is made for either or both of (a) defeasance of the Securities of a series under Section 1302 or (b) covenant defeasance of the Securities of a series under Section 1303, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article Thirteen, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 1302 (if applicable) or Section 1303 (if applicable) be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article Thirteen.
2. Defeasance and Discharge.
Upon the Company's exercise of the above option applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied but subject to satisfaction of the conditions subsequent set forth below (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Securities of such series
and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which
shall survive until otherwise terminated or discharged hereunder: (A)
the rights of Holders of the series of Securities defeased pursuant to
this Section 1302 to receive, solely from the trust fund described in
Section 1304 and as more fully set forth in such Section, payments of
the principal of (and premium, if any) and interest on such Securities
when such payments are due, (B) the Company's obligations with respect
to such Securities under Sections 304, 305, 306, 1002 and 1003 and
such obligations as shall be ancillary thereto, (C) the rights,
powers, trusts, duties, immunities and other provisions in respect of
the Trustee hereunder and (D) this Article Thirteen. Subject to
compliance with this Article Thirteen, the Company may exercise its
option under this Section 1302 notwithstanding the prior exercise of
its option under Section 1303 with respect to the Securities of such
series. Following a defeasance, payment of the Securities of such
series may not be accelerated because of an Event of Default.
3. Covenant Defeasance.
Upon the Company's exercise of the above option applicable to this
Section, the Company shall be released from its obligations under
Section 1005 and Section 1006, (and any other Sections applicable to
such Securities that are determined pursuant to Section 301 to be
subject to this provision) and the occurrence of an event of default
specified in Section 501(4) (insofar as it is with respect to Section
1005 and Section 1006 or any other Section applicable to such
Securities that are determined pursuant to Section 301 to be subject
to this provision) or Section 501(5) shall be deemed not to be an
Event of Default with respect to the Outstanding Securities of such
series on and after the date the conditions precedent set forth below
are satisfied but subject to satisfaction of the conditions subsequent
set forth below (hereinafter, "covenant defeasance"). For this
purpose, such covenant defeasance means that, with respect to the
Outstanding Securities of such series, the Company may omit to comply
with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section, whether directly or
indirectly by reason of any reference elsewhere herein to any such
Section or by reason of any reference in any such Section to any other
provision herein or in any other document, but the remainder of this
Indenture and such Securities shall be unaffected thereby. Following a
covenant defeasance, payment of the Securities of such series may not
be accelerated because of an Event of Default specified in Section
501(5) or by reference to such other Section specified above in this
Section 1303.
4. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions precedent or, as specifically
noted below, subsequent to application of either Section 1302 or
Section 1303 to the Outstanding Securities of such series:
1. The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 609 who shall
agree to comply with the provisions of this Article
Thirteen applicable to it) as trust funds in trust for
the purpose of making the following payments,
specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such
Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled
payment of principal and interest in respect thereof
in accordance with their terms will provide, not later
than one day before the due date of any payment, money
in an amount, or (C) a combination thereof,
sufficient, without reinvestment, in the opinion of a
nationally recognized firm of independent public
accountants expressed in a written certification
thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee
(or other qualifying trustee) to pay and discharge,
(i) the principal of (and premium, if any) and
interest on the Outstanding Securities of such series
to maturity or redemption, as the case may be, and
(ii) any mandatory sinking fund payments or analogous
payments applicable to the Outstanding Securities of
such series on the due dates thereof. Before such a
deposit the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a
future date or dates in accordance with Article
Eleven, which shall be given effect in applying the
foregoing. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct
obligations of the United States of America for the
payment of which its full faith and credit is pledged
or (y) obligations of a Person controlled or
supervised by and acting as an agency or
instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States
of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities
Act of 1933, as amended) as custodian with respect to
any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt.
2. No Event of Default or event which with notice or
lapse of time or both would become an Event of Default
with respect to the Securities of such series shall
have occurred and be continuing (A) on the date of
such deposit or (B) insofar as subsections 501(6) and
(7) are concerned, at any time during the period
ending on the 123rd day after the date of such deposit
or, if longer, ending on the day following the
expiration of the longest preference period applicable
to the Company in respect of such deposit (it being
understood that the condition in this clause (B) is a
condition subsequent and shall not be deemed satisfied
until the expiration of such period).
3. Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest as defined in Section 608 or for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended.
4. Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound.
5. Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Securities Exchange Act of 1934, as amended, to be delisted.
6. In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of
such series will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred.
7. In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred.
8. Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301.
9. The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with.
5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee collectively, for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (but not including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof.
Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance.
Anything herein to the contrary notwithstanding, if and to the extent the
deposited money or U.S. Government Obligations (or the proceeds thereof) either
(i) cannot be applied by the Trustee in accordance with this Section because of
a court order or (ii) are for any reason insufficient in amount, then the
Company's obligations to pay principal of (and premium, if any) and interest on
the Securities of such series shall be reinstated to the extent necessary to
cover the deficiency on any due date for payment. In any case specified in
clause (i), the Company's interest in the deposited money and U.S. Government
Obligations (and proceeds thereof) shall be reinstated to the extent the
Company's payment obligations are reinstated.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
In Witness Whereof, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
Chemical Banking Corporation
By
[Corporate Seal]
Attest:
The Chase Manhattan Bank
(National Association)
By
[Corporate Seal]
Attest:
State of New York)
)SS.:
County Of New York )
On the day of , , before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of Chemical Banking Corporation one of the corporations described in and which executed the foregoing instruments; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.
Notary Public in and for said State
[Notarial Seal]
State Of New York)
)SS.:
County Of New York)
On the day of , , before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of The Chase Manhattan Bank (National Association) one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority.
Notary Public in and for said State
[Notarial Seal]
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JPMORGAN CHASE & CO.
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Name: | Tod J. Gordon | |||
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DEUTSCHE BANK TRUST COMPANY
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Exhibit 4.4(a)
THE CHASE MANHATTAN CORPORATION
TO
THE BANK OF NEW YORK
TRUSTEE
JUNIOR SUBORDINATED INDENTURE
DATED AS OF , 1996
THE CHASE MANHATTAN CORPORATION
Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Junior Subordinated Indenture, dated as of , 199 .
Trust Indenture Indenture ACT SECTION SECTION ----------- --------- Section 310 (a) (1), (2) and (5)............ 6.9 (a) (3)......................... Not Applicable (a) (4)......................... Not Applicable (b)............................. 6.8 ................................ 6.10 (c)............................. Not Applicable Section 311 (a)............................. 6.13(a) (b)............................. 6.13(b) (b) (2)......................... 7.3(a) (2) ............................... .7.3(a) (2) Section 312 (a)............................. 7.1 ................................ 7.2(a) (b)............................. 7.2(b) (c)............................. 7.2(c) Section 313 (a)............................. 7.3(a) (b)............................. 7.3(b) (c)............................. 7.3(a), 7.3(b) (d)............................. 7.3(c) Section 314 (a) (1), (2) and (3)............ 7.4 (a) (4)......................... 10.5 (b)............................. Not Applicable (c) (1)......................... 1.2 (c) (2)......................... 1.2 (c) (3)......................... Not Applicable (d)............................. Not Applicable (e)............................. 1.2 (f)............................. Not Applicable Section 315 (a)............................. 6.1(a) (b)............................. 6.2 ................................ 7.3(a) (6) (c)............................. 6.1(b) |
TRUST INDENTURE INDENTURE ACT SECTION SECTION --------------- --------- (d)............................. 6.1(c) (d) (1)......................... 6.1(a) (1) (d) (2)......................... 6.1(c) (2) (d) (3)......................... 6.1(c) (3) (e)............................. 5.14 Section 316 (a)............................. 1.1 (a) (1) (A)..................... 5.12 (a) (1) (B)..................... 5.13 (a) (2)......................... Not Applicable (b)............................. 5.8 (c)............................. 1.4(f) Section 317 (a) (1)......................... 5.3 (a) (2)......................... 5.4 (b)............................. 10.3 Section 318 (a)............................. 1.7 |
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture.
Page ---- ARTICLE I..................... 1 SECTION 1.1. Definitions. .............................................. 1 SECTION 1.2. Compliance Certificate and Opinions. ...................... 9 SECTION 1.3. Forms of Documents Delivered to Trustee. .................. 10 SECTION 1.4. Acts of Holders. .......................................... 10 SECTION 1.5. Notices, Etc. to Trustee and Company. ..................... 12 SECTION 1.6. Notice to Holders; Waiver. ................................ 13 SECTION 1.7. Conflict with Trust Indenture Act. ........................ 13 SECTION 1.8. Effect of Headings and Table of Contents. ................. 13 SECTION 1.9. Successors and Assigns. ................................... 13 SECTION 1.10. Separability Clause. ..................................... 13 SECTION 1.11 Benefits of Indenture. .................................... 13 SECTION 1.12. Governing Law. ........................................... 14 SECTION 1.13. Non-Business Days. ....................................... 14 ARTICLE II..................... 14 SECTION 2.1. Forms Generally. .......................................... 14 SECTION 2.2. Form of Face of Security. ................................. 15 SECTION 2.3. Form of Reverse of Security. .............................. 18 SECTION 2.4. Additional Provisions Required in Global Security. ........ 20 SECTION 2.5. Form of Trustee's Certificate of Authentication. .......... 21 ARTICLE III.................... 21 SECTION 3.1. Title and Terms. .......................................... 21 SECTION 3.2. Denominations. ............................................ 24 SECTION 3.3. Execution, Authentication, Delivery and Dating. ........... 24 SECTION 3.4. Temporary Securities. ..................................... 25 SECTION 3.5. Registration, Transfer and Exchange. ...................... 26 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities. ......... 27 SECTION 3.7. Payment of Interest; Interest Rights Preserved. ........... 28 SECTION 3.8. Persons Deemed Owners. .................................... 29 SECTION 3.9. Cancellation. ............................................. 30 SECTION 3.10. Computation of Interest. ................................. 30 SECTION 3.11. Deferrals of Interest Payment Dates. ..................... 30 SECTION 3.12. Right of Set-Off. ........................................ 31 SECTION 3.13. Agreed Tax Treatment. .................................... 31 SECTION 3.14. Shortening or Extension of Stated Maturity................ 32 SECTION 3.15. CUSIP Numbers. ........................................... 32 |
Page ---- ARTICLE IV.................................................. 32 SECTION 4.1. Satisfaction and Discharge of Indenture. ............................................... 32 SECTION 4.2. Application of Trust Money. ............................................................ 34 ARTICLE V.................................................. 34 SECTION 5.1. Events of Default. ..................................................................... 34 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. .................................... 35 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. ..................................................................................... 36 SECTION 5.4. Trustee May File Proofs of Claim. ...................................................... 37 SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities. ............................ 38 SECTION 5.6. Application of Money Collected. ........................................................ 38 SECTION 5.7. Limitation on Suits. ................................................................... 38 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. .............................. 39 SECTION 5.9. Restoration of Rights and Remedies. .................................................... 40 SECTION 5.10. Rights and Remedies Cumulative. ....................................................... 40 SECTION 5.11. Delay or Omission Not Waiver. ......................................................... 40 SECTION 5.12. Control by Holders. ................................................................... 40 SECTION 5.13. Waiver of Past Defaults. .............................................................. 41 SECTION 5.14. Undertaking for Costs. ................................................................ 41 SECTION 5.15. Waiver of Usury, Stay or Extension Laws. .............................................. 42 ARTICLE VI.................................................. 42 SECTION 6.1. Certain Duties and Responsibilities. ................................................... 42 SECTION 6.2. Notice of Defaults. .................................................................... 43 SECTION 6.3. Certain Rights of Trustee. ............................................................. 43 SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. ................................ 44 SECTION 6.5. May Hold Securities. ................................................................... 44 SECTION 6.6. Money Held in Trust. ................................................................... 45 SECTION 6.7. Compensation and Reimbursement. ........................................................ 45 SECTION 6.8. Disqualification; Conflicting Interests. ............................................... 45 SECTION 6.9. Corporate Trustee Required; Eligibility. ............................................... 46 SECTION 6.10. Resignation and Removal; Appointment of Successor. .................................... 46 SECTION 6.11. Acceptance of Appointment by Successor. ............................................... 48 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. .......................... 49 SECTION 6.13. Preferential Collection of Claims Against Company. .................................... 49 SECTION 6.14. Appointment of Authenticating Agent. .................................................. 49 ARTICLE VII................................................. 51 SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders............................... 51 SECTION 7.2. Preservation of Information, Communications to Holders. ................................ 51 SECTION 7.3. Reports by Trustee. .................................................................... 51 SECTION 7.4. Reports by Company. .................................................................... 52 |
Page ---- ARTICLE VIII................................................. 52 SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms. .................................. 52 Section 8.2. Successor Corporation Substituted. ..................................................... 53 ARTICLE IX.................................................. 54 SECTION 9.1. Supplemental Indentures without Consent of Holders. .................................... 54 SECTION 9.2. Supplemental Indentures with Consent of Holders. ....................................... 55 SECTION 9.3. Execution of Supplemental Indentures.................................................... 56 SECTION 9.4. Effect of Supplemental Indentures. ..................................................... 56 SECTION 9.5. Conformity with Trust Indenture Act. ................................................... 56 SECTION 9.6. Reference in Securities to Supplemental Indentures. .................................... 57 ARTICLE X.................................................. 57 SECTION 10.1. Payment of Principal, Premium and Interest. ........................................... 57 SECTION 10.2. Maintenance of Office or Agency. ...................................................... 57 SECTION 10.3. Money for Security Payments to be Held in Trust. ...................................... 58 SECTION 10.4. Statement as to Compliance. ........................................................... 59 SECTION 10.5. Waiver of Certain Covenants. .......................................................... 59 SECTION 10.6. Additional Sums. ...................................................................... 59 SECTION 10.7. Additional Covenants. ................................................................. 60 ARTICLE XI.................................................. 61 SECTION 11.1. Applicability of This Article. ........................................................ 61 SECTION 11.2. Election to Redeem; Notice to Trustee. ................................................ 61 SECTION 11.3. Selection of Securities to be Redeemed. ............................................... 61 SECTION 11.4. Notice of Redemption. ................................................................. 62 SECTION 11.5. Deposit of Redemption Price. .......................................................... 63 SECTION 11.6. Payment of Securities Called for Redemption. .......................................... 63 SECTION 11.7. Right of Redemption of Securities Initially Issued to a Trust. ........................ 63 ARTICLE XII................................................. 64 SECTION 12.1. Applicability of Article. ............................................................. 64 SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities. ................................ 64 SECTION 12.3. Redemption of Securities for Sinking Fund. ............................................ 64 ARTICLE XIII................................................. 66 SECTION 13.1. Securities Subordinate to Senior Debt. ................................................ 66 SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc. ....................................... 66 SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of Securities........................... 67 SECTION 13.4. No Payment When Senior Debt in Default. ............................................... 68 SECTION 13.5. Payment Permitted If No Default. ...................................................... 68 SECTION 13.6. Subrogation to Rights of Holders of Senior Debt. ...................................... 69 SECTION 13.7. Provisions Solely to Define Relative Rights. .......................................... 69 SECTION 13.8. Trustee to Effectuate Subordination. .................................................. 69 |
Page ---- SECTION 13.9. No Waiver of Subordination Provisions. ................................................ 70 SECTION 13.10. Notice to Trustee. .................................................................. 70 SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent. ....................................................................................... 71 SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt. ................................... 71 SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. ............................................................................ 71 SECTION 13.14. Article Applicable to Paying Agents. ................................................ 71 SECTION 13.15. Certain Conversions or Exchanges Deemed Payment. .................................... 72 |
JUNIOR SUBORDINATED INDENTURE, dated as of , 199 , between THE CHASE MANHATTAN CORPORATION, a Delaware corporation (hereinafter called the "Company") having its principal office at 270 Park Avenue, New York, NY 10017, and THE BANK OF NEW YORK, a national banking association duly organized and existing under the laws of the United States, as Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debt securities in series (hereinafter called the "Securities") of substantially the tenor hereinafter provided, including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more business trusts (each a "Trust," and, collectively, the "Trusts") of preferred trust interests in such Trusts (the "Preferred Securities") and common interests in such Trusts (the "Common Securities" and, collectively with the Preferred Securities, the "Trust Securities"), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted
accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles which are generally accepted at the date or time of such computation; provided, that when two or more principles are so generally accepted, it shall mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which a Trust has become subject from time to time as a result of a Tax Event.
"Administrative Trustee" means, in respect of any Trust, each Person identified as an "Administrative Trustee" in the related Trust Agreement, solely in such Person's capacity as Administrative Trustee of such Trust under such Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, no Trust to which Securities have been issued shall be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Allocable Amounts," when used with respect to any Senior Debt, means all amounts due or to become due on such Senior Debt less, if applicable, any amount which would have been paid to, and retained by, the holders of such Senior Debt (whether as a result of the receipt of payments by the holders of such Senior Debt from the Company or any other obligor thereon or from any holders of, or trustee in respect of, other indebtedness that is subordinate and junior in right of payment to such Senior Debt pursuant to any provision of such indebtedness for the payment over of amounts received on account of such indebtedness to the holders of such Senior Debt or otherwise) but for the fact that such Senior Debt is subordinate or junior in right of payment to (or subject to a requirement that amounts received on such Senior Debt be paid over to obligees on) trade accounts payable or accrued liabilities arising in the ordinary course of business.
"Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series.
"Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to the Securities of a series initially issued to a Trust, the principal office of the Property Trustee under the related Trust Agreement, is closed for business.
"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this Indenture.
"Common Stock" means the common stock[, par value $ per share,] [, without par value,] of the Company.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered.
"corporation" includes a corporation, association, company, joint-stock company or business trust.
"Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for
money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Depositary by the Company pursuant to
Section 3.1 with respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Trust Securities issued by an Trust, means amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as "Distributions."
"Dollar" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts.
"Event of Default" unless otherwise specified in the supplemental indenture creating a series of Securities has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 3.11.
"Global Security" means a Security in the form prescribed in Section 2.4 evidencing all or part of a series of Securities, issued to the Depository or its nominee for such series, and registered in the name of such Depository or its nominee.
"Guarantee" means the guarantee by the Company of distributions on the Preferred Securities of a Trust to the extent provided in the Guarantee Agreement.
"Guarantee Agreement" means the Guarantee Agreement substantially in the form attached hereto as Annex C, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time.
"Holder" means a Person in whose name a Security is registered in the Securities Register.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of each particular series of Securities established as contemplated by Section 3.1.
"Interest Payment Date" means as to each series of Securities the Stated Maturity of an installment of interest on such Securities.
"Junior Subordinated Payment" has the meaning specified in Section 13.2.
"Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors , a Vice Chairman of the Board of Directors, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each Security.
"Outstanding" means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of the Company, or any other obligor on the Securities or any Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment" means, with respect to the Securities of any series, the place or places where the principal of (and premium, if any) and interest on the Securities of such series are payable pursuant to Sections 3.1 and 3.11.
"Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.
"Preferred Securities" has the meaning specified in the first recital of this Indenture.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any Trust, the commercial bank or trust company identified as the "Property Trustee" in the related Trust Agreement, solely in its capacity as Property Trustee of such Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided.
"Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date with respect to the Securities of a series means, unless otherwise provided pursuant to Section 3.1 with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day).
"Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters.
"Rights Plan" means a plan of the Company providing for the issuance by the Company to all holders of its Common Stock of rights entitling the holders thereof to subscribe for or purchase shares of Common Stock or any class or series of preferred stock, which rights (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case until the occurrence of a specified event or events.
"S&P" means Standard & Poor's Ratings Services.
"Securities" or "Security" means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture.
"Securities Register" and "Securities Registrar" have the respective meanings specified in Section 3.5.
"Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Securities or to other Debt which is pari passu with, or subordinated to, the Securities, provided, however, that Senior Debt shall not be deemed to include (a) any Debt of the Company which, when incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Reform Act of 1978, was without recourse to the Company, (b) any Debt of the Company to any of its Subsidiaries, (c) Debt to any employee of the Company, and (d) any Securities.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified pursuant to the terms of such Security as the date on which the principal of such Security or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.
"Tax Event" means the receipt by a Trust of an Opinion of Counsel (as defined in the relevant Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of such Trust, there is more than an insubstantial risk that (i) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the corresponding series of Securities issued by the Company to such Trust, (ii) interest payable by the Company on such corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges.
"Trust" has the meaning specified in the first recital of this Indenture.
"Trust Agreement" means the Trust Agreement substantially in the form attached hereto as Annex A, as amended by the form of Amended and Restated Trust Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder and, if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. " 77aaa-77bbb), as amended and as in effect on the date as of this Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this Indenture.
"Vice President" when used with respect to the Company, means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title "vice president."
SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitute a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.5) shall include:
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
SECTION 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount.
SECTION 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust office, or
(2) the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose (except as otherwise provided in Section 5.1) hereunder if in writing and mailed, first class, postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Securities Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
SECTION 1.7. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the holders of Senior Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York.
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity).
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, or in such other form or forms as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 with respect to the authentication and delivery of such Securities.
The Trustee's certificates of authentication shall be substantially in the form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange on which the Securities may be listed, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be
listed, all as determined by the officers executing such Securities, as evidenced by their execution of such securities.
SECTION 2.2. Form of Face of Security.
THE CHASE MANHATTAN CORPORATION
% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
No. $
THE CHASE MANHATTAN CORPORATION, a corporation organized and existing
under the laws of the state of Delaware (hereinafter called the "Company", which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to , or registered assigns, the
principal sum of Dollars on , 2026; provided that the Company may
(i) shorten the Stated Maturity of the principal of this Security to a date not
earlier than , 2001 and (ii) extend the Stated Maturity of the
principal of this Security at any time on one or more occasions, subject to
certain conditions specified in Section 3.14 of the Indenture, but in no event
to a date later than , 2045. The Company further promises to pay
interest on said principal sum from , or from the most recent interest payment
date (each such date, an "Interest Payment Date") on which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on March 31, June 30, September 30 and December 31 of each year,
commencing March 31, 1997, at the rate of % per annum, until the principal
hereof shall have become due and payable, plus Additional Interest, if any,
until the principal hereof is paid or duly provided for or made available for
payment and on any overdue principal and (without duplication and to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the rate of % per annum, compounded
quarterly. The amount of interest payable for any period shall be computed on
the basis of twelve 30-day months and a 360-day year. The amount of interest
payable for any partial period shall be computed on the basis of the number of
days elapsed in a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on this Security is not a Business Day, then a
payment of the interest payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date the payment was originally payable. A "Business Day" shall mean any
day other than (i) a Saturday or Sunday, (ii) a day on which banking
institutions in The City of New York are authorized or required by law or
exective order to remain closed or (iii) a day on which the Corporate Trust
Office of the Trustee or the Property Trustee under the Trust Agreement
hereinafter referred to for Chase Capital I, is closed for business. The
interest installment so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities is
registered at the close of business on the Regular Record Date for such interest
installment, which shall be, unless otherwise provided pursuant to Section 3.1
of the Junior Subordinated Indenture, dated as of , 199 (herein
called the "Indenture") between the Company and The Bank of New York, as Trustee
(herein called the
"Trustee", which term includes any successor trustee under the Indenture), with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Security to defer payment of interest on this Security, at any time or from time to time, for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each an "Extension Period"), during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to this Security or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiaries of the Company if such guarantee ranks pari passu with or junior in interest to this Security (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any Common Stock or any class or series of preferred stock of the Company under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees. Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period shall exceed beyond the Stated Maturity of the principal of this Security. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Holder of this Security and the Trustee notice of its election to begin any Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral or, with respect to the Securities issued to a Trust, so long as such
Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities would be payable but for such deferral or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date.
Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert C; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payments to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
THE CHASE MANHATTAN CORPORATION
By:-----------------------------
[President or Vice President]
Attest:
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregate principal amount to $ ].
All terms used in this Security that are defined in the Indenture or in the Amended and Restated Trust Agreement, dated as of , 1996, as amended (the "Trust Agreement"), for Chase Capital I among The Chase Manhattan Corporation, as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be.
The Company may at any time, at its option, on or after , , and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time, without premium or penalty, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any to the Redemption Date.
Upon the occurrence and during the continuation of a Tax Event in respect of a Trust, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event redeem this Security, in whole but not in part, subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all
Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form without coupons in denominations of $25.00 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the following form:
"This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Security is exchangeable for Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture and may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary."
SECTION 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned Indenture.
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish the Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder); provided, however, that the authorized aggregate principal amount of such series may be increased above such amount by a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall bear interest, if any, the rate or rates and extent to which Additional Interest, if any, shall be payable in respect of any Securities of such series, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.11 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, and the Regular Record Date for the interest payable on any Interest Payment Date or the method by which any of the foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and interest on the Securities of such series shall be payable, the place or places where the Securities of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which the Securities of such series may be redeemed, in whole or in part, at the option of the Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or purchase the Securities of such series pursuant to any sinking fund, amortization or analogous provisions, or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be issuable, if other than denominations of $25 and any integral multiple thereof;
(i) if other than Dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable, or in which the Securities of the series shall be denominated;
(j) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Securities of such series;
(k) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the Securities of such series as shall be necessary to permit or facilitate the issuance of the Securities of such series in bearer form, registrable or not registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Securities of such series or the manner in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall initially be issuable in the form of a temporary Global Security representing all or such portion of the Securities of such series and provisions for the exchange of such temporary Global Security for definitive Securities of such series;
(o) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.4 and any circumstances in addition to or in lieu of those set forth in Section 3.5 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of such series;
(q) the terms of any right to convert or exchange Securities of such series into any other securities or property of the Company, and the additions or changes, if any, to this Indenture with respect to the Securities of such series to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust Agreement and Guarantee Agreement, if different from the forms attached hereto as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series shall be senior to or be subordinated to other series of Securities in right of payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior Debt as provided in Article XIII.
SECTION 3.2. Denominations.
The Securities of each series shall be in registered form without coupons and shall be issuable in denominations of $25 and any integral multiple thereof, unless otherwise specified as contemplated by Section 3.1.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President or one of its Vice Presidents under its corporate seal reproduced or impressed thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.1, that such form has been established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.1, that such terms have been established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.9, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Securities. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
SECTION 3.5. Registration, Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such register is herein sometimes referred to as the "Securities Register." The Trustee is hereby appointed "Securities Registrar" for the purpose of registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms.
At the option of the Holder, Securities may be exchanged for other Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Securities Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part
may be registered, in the name of any Person other than the Depositary
for such Global Security or a nominee thereof unless (A) such
Depositary (i) has notified the Company that it is unwilling or unable
to continue as Depositary for such Global Security or (ii) has ceased
to be a clearing agency registered under the Exchange Act at a time
when the Depositary is required to be so registered to act as
depositary, in each case unless the Company has approved a successor
Depositary within 90 days, (B) there shall have occurred and be
continuing an Event of Default with respect to such Global Security,
(C) the Company in its sole discretion determines that such Global
Security will be so exchangeable or transferable or (D) there shall
exist such circumstances, if any, in addition to or in lieu of the
foregoing as have been specified for this purpose as contemplated by
Section 3.1.
(3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Security or any portion thereof, whether pursuant to this Section,
Section 3.4, 3.6, 9.6 or 11.6 or otherwise, shall be authenticated and
delivered in the form of, and shall be, a Global Security, unless such
Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section, (a) to issue, transfer or exchange any Security of any series during a period beginning
at the opening of business 15 days before the day of selection for redemption of Securities pursuant to Article XI and ending at the close of business on the day of mailing of notice of redemption or (b) to transfer or exchange any Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity, and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest in respect of Securities of such series, except that, unless otherwise provided in the Securities of such series, interest payable on the Stated Maturity of the principal of a Security shall be paid to the Person to whom principal is paid. The initial payment of interest on any Security of any series which is issued between a Regular Record Date and the related Interest Payment Date shall be payable as provided in such Security or in the Board Resolution pursuant to Section 3.1 with respect to the related series of Securities.
Any interest on any Security which is payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities of such series (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series in respect of which interest is in default (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security of such series at the address of such Holder as it appears in the Securities Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of the series in respect of which interest is in default may be listed and, upon such notice as may be required by such exchange (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 3.7) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 3.9. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be destroyed by the Trustee and the Trustee shall deliver to the Company a certificate of such destruction.
SECTION 3.10. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for Securities of any series, interest on the Securities of each series for any period shall be computed on the basis of a 360- day year of twelve 30-day months and interest on the Securities of each series for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months.
SECTION 3.11. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, so long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of such series, from time to time to
defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an "Extension Period") during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Securities (together with Additional Interest thereon, if any, at the rate specified for the Securities of such series to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities of such series; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock, or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company that by their terms rank pari passu with or junior in interest to the securities of such series (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any Common Stock of any class or series of preferred stock of the Company under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period shall exceed the period or periods specified in such Securities or extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall give the Holders of the Securities of such series and the Trustee notice of its election to begin any such Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on Securities of such series would be payable but for such deferral or, with respect to the Securities of a series issued to a Trust, so long as such Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities of such Trust would be payable but for such deferral or (ii) the date the Administrative Trustees of such Trust are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date.
The Trustee shall promptly give notice of the Company's election to begin any such Extension Period to the Holders of the Outstanding Securities of such series.
SECTION 3.12. Right of Set-Off.
With respect to the Securities of a series issued to a Trust, notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder in respect of any such Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee relating to such Security or under Section 5.8 of the Indenture.
SECTION 3.13. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness.
SECTION 3.14. Shortening or Extension of Stated Maturity.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, the Company shall have the right to
(i) shorten the Stated Maturity of the principal of the Securities of such
series at any time to any date not earlier than the first date on which the
Company has the right to redeem the Securities of such series, and (ii) extend
the Stated Maturity of the principal of the Securities of such series at any
time at its election for one or more periods, but in no event to a date later
than the 49th anniversary of the first Interest Payment Date following the
Original Issue Date of the Securities of such series; provided that, if the
Company elects to exercise its right to extend the Stated Maturity of the
principal of the Securities of such series pursuant to clause (ii), above, at
the time such election is made and at the time of extension (A) the Company is
not in bankruptcy, otherwise insolvent or in liquidation, (B) the Company is not
in default in the payment of any interest or principal on such Securities, (C)
in the case of any series of Securities issued to a Trust, such Trust is not in
arrears on payments of Distributions on the Preferred Securities issued by such
Trust and no deferred Distributions are accumulated and (D) such Securities are
rated not less than BBB- by S&P or Baa3 by Moody's or the equivalent by any
other nationally recognized statistical rating organization. In the event the
Company elects to shorten or extend the Stated Maturity of the Series A
Subordinated Debentures, it shall give notice to the Trustee, and the Trustee
shall give notice of such shortening or extension to the Holders, no less than
30 and no more than 60 days prior to the effectiveness thereof.
SECTION 3.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year of the date of deposit, or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of Clause (B) (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Securities of such series are payable sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest (including any Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or obligations have been deposited with or received by the Trustee.
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default", wherever used herein with respect to the Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that series, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied; or
(4) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit for creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action; or
(6) any other Event of Default provided with respect to Securities of that series.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, in the case of
the Securities of a series issued to a Trust, if, upon an Event of Default, the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series fail to declare the principal of all the
Securities of that series to be immediately due and payable, the holders of at
least 25% in aggregate liquidation amount of the corresponding series of
Preferred Securities then outstanding shall have such right by a notice in
writing to the Company and the Trustee; and upon any such declaration such
principal amount (or specified portion thereof) of and the accrued interest
(including any Additional Interest) on all the Securities of such series shall
become immediately due and payable. Payment of principal and interest (including
any Additional Interest) on such Securities shall remain subordinated to the
extent provided in Article XIII notwithstanding that such amount shall become
immediately due and payable as herein provided. If an Event of Default specified
in Section 5.1(4) or 5.1(5) with respect to Securities of any series at the time
Outstanding occurs, the principal amount of all the
Securities of that series (or, if the Securities of that series are Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms of that series) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:
(A) all overdue installments of interest (including any Additional Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13.
In the case of Securities of a series issued to a Trust, the holders of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of the related series of Preferred Securities issued by such Trust shall also have the right to rescind and annul such declaration and its consequences by written notice to the Company and the Trustee, subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.2.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated.
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors,
(a) the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.7 allowed in any such judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee.
SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due and unpaid upon such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.
SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series issued to a Trust, any holder of the corresponding series of Preferred Securities issued by such Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of such Preferred Securities of the corresponding series held by such holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, the Holders and such holder of Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of Preferred Securities shall continue as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Preferred Securities, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the Outstanding Securities of any series and, in the case of any Securities of a series issued to a Trust, the holders of Preferred Securities issued by such Trust may waive any past default hereunder and its consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the Securities of such series or, in the case of a waiver by holders of Preferred Securities issued by such Trust, by all holders of Preferred Securities issued by such Trust.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security on or after the respective Stated Maturities expressed in such Security.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Securities Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Securities of such series; and provided, further, that, in the case of any default of the character specified in Section 5.1(3), no such notice to Holders of Securities of such series shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Securities Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
SECTION 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including the reasonable compensation and the expenses and disbursements of its agents and counsel) incurred without negligence or bad faith, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement.
To secure the Company's payment obligations in this Section, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(4) or (5) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of said Section 310(b).
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United States of America or of any State or Territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority, or
(b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee for the Securities of any series issued hereunder.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee with respect to all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of that or those series. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of such series as their names and addresses appear in the Securities Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of
that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any State or Territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form:
This is one of the Securities referred to in the within mentioned Indenture.
By:---------------------------------
As Authenticating Agent
By:---------------------------------
Authorized Officer
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after and in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such and , and
(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished,
excluding from any such list names and addresses received by the Trustee in its capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act.
SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than in each calendar year, commencing with the first after the first issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed and also with the Commission. The Company will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 7.4. Reports by Company.
The Company shall file with the Trustee and with the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is required to be filed with the Commission. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the Commission and provide the Trustee with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of (and premium,
if any) and interest (including any Additional Interest) on all the Securities
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a Trust, such consolidation, merger, conveyance, transfer or lease is permitted under the related Trust Agreement and Guarantee and does not give rise to any breach or violation of the related Trust Agreement or Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and any such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1.
SECTION 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance, transfer or lease the Company shall be discharged from all obligations and covenants under the Indenture and the Securities and may be dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; or
(3) to establish the form or terms of Securities of any series as permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
(5) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or
(6) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or
(7) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (7) shall not adversely affect the interest of the Holders of Securities of any series in any material respect or, in the case of the Securities of a series issued to a Trust and for so long as any of the corresponding series of Preferred Securities issued by such Trust shall remain outstanding, the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.11 or as otherwise specified as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of the payment of interest on the Securities of any series, change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Security, or reduce the principal amount thereof or the rate of interest thereon or reduce any premium payable upon the redemption thereof, or reduce the amount of principal of a Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.5, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Security affected thereby; or
(4) modify the provisions in Article XIII of this Indenture with respect to the subordination of Outstanding Securities of any series in a manner adverse to the Holders thereof;
provided, further, that, in the case of the Securities of a series issued to a
Trust, so long as any of the corresponding series of Preferred Securities issued
by such Trust remains outstanding, (i) no such amendment shall be made that
adversely affects the holders of such Preferred Securities in any material
respect, and no termination of this Indenture shall occur, and no waiver of any
Event of Default or compliance with any covenant under this Indenture shall be
effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation preference of such Preferred Securities then
outstanding unless and until the principal (and premium, if any) of the
Securities of such series and all accrued and, subject to Section 3.7, unpaid
interest (including any Additional Interest) thereon have been paid in full and
(ii) no amendment shall be made to Section 5.8 of this Indenture that would
impair the rights of the holders of Preferred Securities provided therein
without the prior consent of the holders of each Preferred Security then
outstanding unless and until the principal (and premium, if any) of the
Securities of such series and all accrued and (subject to Section 3.7) unpaid
interest (including any Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Securities or Preferred Securities, or which modifies the rights of the Holders of Securities or holders of Preferred Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities or holders of Preferred Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of
that series in accordance with the terms of such Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment and an office or agency where Securities of that series may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency.
SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m. New York City time on each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal and premium (if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of each calendar year of the Company ending after the date hereof, an Officers' Certificate covering the preceding calendar year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For the purpose of this Section 10.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to the Securities of any series, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect.
SECTION 10.6. Additional Sums.
In the case of the Securities of a series issued to a Trust, so long as
no Event of Default has occurred and is continuing and except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a
Trust is the Holder of all of the Outstanding Securities of such series, (ii) a
Tax Event in respect of such Trust shall have occurred and be continuing and
(iii) the Company shall not have (A) redeemed the Securities of such series
pursuant to Section 11.7(b) or (B) terminated such Trust pursuant to Section
9.2(b) of the related Trust Agreement, the Company shall pay to such Trust (and
its permitted successors or assigns under the related Trust Agreement) for so
long as such Trust (or its permitted successor or assignee) is the registered
holder of any Securities of such series, such additional amounts as may be
necessary in order that the amount of Distributions (including any Additional
Amounts (as defined in such Trust Agreement)) then due and payable by such Trust
on the related Preferred Securities and Common Securities that at any time
remain outstanding in accordance with the terms thereof shall not be reduced as
a result of any Additional Taxes (the "Additional Sums"). Whenever in this
Indenture or the Securities there is a reference in any context to the payment
of principal of or interest on the Securities, such mention shall be deemed to
include mention of the payments of the Additional Sums provided for in this
paragraph to the extent that, in such context, Additional Sums are, were or
would be payable in respect thereof pursuant to the provisions of this paragraph
and express mention of the payment of Additional Sums (if applicable) in any
provisions hereof shall not be construed as excluding Additional Sums in those
provisions hereof where such express mention is not made; provided, however,
that the deferral of the payment of interest pursuant to Section 3.11 or the
Securities shall not defer the payment of any Additional Sums that may be due
and payable.
SECTION 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of each series that it shall not, and it shall not permit any Subsidiary of the Company to, (a) declare or pay any dividends or distributions on, or redeem purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock, or (b) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Securities (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any rights, of any Common Stock or any class or series of preferred stock of the Company or of any other property under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees) if at such time (i) there shall have occurred any event of which the Company has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default with respect to the Securities of such series and (B) in respect of which the Company shall not have taken reasonable steps to cure, (ii) if the Securities of such series are held by a Trust, the Company shall be in default with respect to its payment of any obligations under the Guarantee relating to the Preferred Securities issued by such Trust or (iii) the Company shall have given notice of its election to begin an Extension Period with respect to the Securities of such series as provided herein and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities of a series issued to a Trust (i) to maintain directly or indirectly 100% ownership of the Common Securities of such Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate such Trust, except (a) in connection with a distribution of the Securities of such series to the holders of Preferred Securities in liquidation of such Trust or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a sinking fund or otherwise) as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. Except as otherwise set forth in the form of Security for such series, each Security of such series shall be subject to partial redemption only in the amount of $25 or, in the case of the Securities of a series issued to a Trust, $25, or integral multiples thereof.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any particular series and having the same terms, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the principal amount of Securities of that series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction.
SECTION 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption.
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the thirtieth day, and not earlier than the sixtieth day, prior to the Redemption Date, to each Holder of Securities to be redeemed, at the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities of such particular series and having the same terms are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date.
SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Securities at a Place of Payment in said notice specified, the said securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 3.1, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7.
Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Security so presented and having the same Original Issue Date, Stated Maturity and terms. If a Global Security is so surrendered, such new Security will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
SECTION 11.7. Right of Redemption of Securities Initially Issued to a Trust.
In the case of the Securities of a series initially issued to a Trust, except as otherwise specified as contemplated by Section 3.1, the Company, at its option, may redeem such Securities (i) on or after the date five years after the Original Issue Date of such Securities, in whole at any time or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event, at any time within 90 days following the occurrence of such Tax Event in respect of such Trust, in whole (but not in part), in each case at a Redemption Price equal to 100% of the principal amount thereof.
ARTICLE XII
SINKING FUNDS
SECTION 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of any Securities of any series is herein referred to as a "mandatory sinking fund payment", and any sinking fund payment in excess of such minimum amount which is permitted to be made by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of such Securities.
SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option, at any time no more than 16 months and no less than 30 days prior to the date on which such sinking fund payment is due, deliver to the Trustee Securities of such series (together with the unmatured coupons, if any, appertaining thereto) theretofore purchased or otherwise acquired by the Company, except Securities of such series that have been redeemed through the application of mandatory or optional sinking fund payments pursuant to the terms of the Securities of such series, accompanied by a Company Order instructing the Trustee to credit such obligations and stating that the Securities of such series were originally issued by the Company by way of bona fide sale or other negotiation for value; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the redemption price for such Securities, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
SECTION 12.3. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash in the currency in which the Securities of such series are payable (except as provided pursuant to Section 3.1) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 12.2 and will also deliver to the Trustee any Securities to be so delivered. Such Officers' Certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, on or before the succeeding sinking fund payment date. In the case of the failure of the Company to deliver such Officers' Certificate (or,
as required by this Indenture, the Securities and coupons, if any, specified in such Officers' Certificate), the sinking fund payment due on the succeeding sinking fund payment date for such series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of the Securities of such series subject to a mandatory sinking fund payment without the right to deliver or credit securities as provided in Section 12.2 and without the right to make the optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made with respect to the Securities of any particular series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent) on the sinking fund payment date on which such payment is made (or, if such payment is made before a sinking fund payment date, on the sinking fund payment date immediately following the date of such payment) to the redemption of Securities of such series at the Redemption Price specified in such Securities with respect to the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee (or, if the Company is acting as its own Paying Agent, segregated and held in trust by the Company as provided in Section 10.3) for such series and together with such payment (or such amount so segregated) shall be applied in accordance with the provisions of this Section 12.3. Any and all sinking fund moneys with respect to the Securities of any particular series held by the Trustee (or if the Company is acting as its own Paying Agent, segregated and held in trust as provided in Section 10.3) on the last sinking fund payment date with respect to Securities of such series and not held for the payment or redemption of particular Securities of such series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent), together with other moneys, if necessary, to be deposited (or segregated) sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 11.6. On or before each sinking fund payment date, the Company shall pay to the Trustee (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 10.3) in cash a sum in the currency in which Securities of such series are payable (except as provided pursuant to Section 3.1) equal to the principal and any interest accrued to the Redemption Date for Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund for such series during the continuance of a default in payment of interest, if any, on any Securities of such series or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to the Securities of such series, except that if the notice of redemption shall have been provided in accordance with the provisions hereof, the Trustee (or the Company, if the Company is then acting as its own Paying Agent) shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee (or segregated by the Company) for that purpose in accordance with the terms of this Article XII. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such
default or Event of Default shall occur and any moneys thereafter paid into such sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of the Securities and coupons, if any, of such series; provided, however, that in case such default or Event of Default shall have been cured or waived herein, such moneys shall thereafter be applied on the next sinking fund payment date for the Securities of such series on which such moneys may be applied pursuant to the provisions of this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the payment of the principal of (and premium, if any) and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt.
SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (each such event, if any, herein sometimes referred to as a "Proceeding"), then the holders of Senior Debt shall be entitled to receive payment in full of all Allocable Amounts of such Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of the Company (including any series of the Securities) subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "Junior Subordinated Payment"), on account of principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary and to that end the holders of Senior Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all Allocable Amounts of all Senior Debt are paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Allocable Amounts of all Senior Debt remaining unpaid, to the extent necessary to pay all Allocable Amounts of all Senior Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt.
For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior Debt to substantially the same extent as the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII.
SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of Securities.
In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Debt outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all Allocable Amounts due on or in respect of such Senior Debt (including any amounts due upon acceleration), or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) by the Company on account of the principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such declaration of acceleration.
In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable.
SECTION 13.4. No Payment When Senior Debt in Default.
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior Debt, or
in the event that any event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, unless and until such event of default
shall have been cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled, or (b) in the event any
judicial proceeding shall be pending with respect to any such default in payment
or such event or default, then no payment or distribution of any kind or
character, whether in cash, properties or securities (including any Junior
Subordinated Payment) shall be made by the Company on account of principal of
(or premium, if any) or interest (including any Additional Interest), if any, on
the Securities or on account of the purchase or other acquisition of Securities
by the Company or any Subsidiary, in each case unless and until all Allocable
Amounts of such Senior Debt are paid in full; provided, however, that nothing in
this Section shall prevent the satisfaction of any sinking fund payment in
accordance with this Indenture or as otherwise specified as contemplated by
Section 3.1 for the Securities of any series by delivering and crediting
pursuant to Section 12.2 or as otherwise specified as contemplated by Section
3.1 for the Securities of any series Securities which have been acquired (upon
redemption or otherwise) prior to such default in payment or event of default.
In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable.
SECTION 13.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 13.2 or under the conditions described in Sections 13.3 and 13.4, from making payments at any time of principal of (and premium, if any) or interest (including Additional Interest) on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest (including any Additional Interest) on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article.
SECTION 13.6. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on all Senior Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Debt of the Company to substantially the same extent as the Securities are subordinated to the Senior Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt) to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt.
SECTION 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article of the holders of Senior Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article and appoints the Trustee his or her attorney-in-fact for any and all such purposes.
SECTION 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Debt may, at any time and from to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Debt, do any one or more of the following: (i) change the manner, place or terms
of payment or extend the time of payment of, or renew or alter, Senior Debt, or
otherwise amend or supplement in any manner Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in
any manner for the collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 13.10. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or from any trustee, agent or representative therefor; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt (or a trustee therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.
SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article or otherwise.
SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.
SECTION 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee.
SECTION 13.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of junior securities upon conversion or exchange of Securities shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest (including any Additional Interest) on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion or exchange of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article.
* * * *
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
THE CHASE MANHATTAN CORPORATION
By:-----------------------------
Attest:
THE BANK OF NEW YORK
as Trustee
By:-----------------------------
Exhibit 10.3
THE CHASE MANHATTAN CORPORATION
Post-Retirement Compensation Plan for Non-Employee Directors
(As amended and restated effective May 21, 1996.)
SECTION 1. Plan. This plan is the Chase Manhattan Corporation Post-Retirement Compensation Plan for Non-Employee Directors.
SECTION 2. Definitions. For purposes of the Plan, the following terms shall have the meanings specified below:
"Administrator" shall mean the person appointed by the Chief Executive Officer of the Corporation to administer the Plan.
"Board" shall mean the Board of Directors of the Corporation.
"Common Stock" shall mean the shares of common stock, par value $1 per share, of the Corporation.
"Corporation" shall mean The Chase Manhattan Corporation, a Delaware corporation.
"Director" shall mean a person serving as a director of the Corporation.
"Fair Market Value" shall mean the mean between the high and low selling prices of Common Stock on the date as of which such value is being determined.
"Outside Director" shall mean any Director of the Corporation who has never been an employee or officer of the Corporation or a Subsidiary.
"Participant" shall have the meaning assigned to such term in Section 3.
"Subsidiary" shall mean any corporation which at the time qualifies as a subsidiary of the Corporation under the definition of "subsidiary corporation" in Section 425(f) of the Internal Revenue Code of 1986, as the same may be amended from time to time.
"Unit" shall mean a unit which is equal in value to the Fair Market Value of a share of Common Stock.
SECTION 3. Participants. Effective as of May 21, 1996, the term "Participant" shall be limited to those Outside Directors who were participating in the Plan and on such date, the Plan shall be frozen, and no further amounts shall accrue in respect of any Participant, except as set forth in Section 4(b).
SECTION 4. Compensation. (a) Commencing upon a Participant's retirement, resignation or removal from service as a Director on the Board, or any failure of a Participant to be reelected as a Director after accepting a nomination for election, in each case (i) after attaining the age of 70 (or such other age as may be established from time to time by the Board as the retirement age), (ii) with the consent of the Board or (iii) because of disability or health reasons, the Corporation shall pay on May 1 of each year (or on such other date or dates as the Administrator shall so designate in his sole discretion) during the Participant's lifetime to each Participant an amount equal to the dollar value of the annual retainer fee (such dollar value to be determined by the Administrator from time to time) payable to Directors of the Corporation at the date the Participant retires, resigns, or is removed from service as a Director or is not reelected as a Director after accepting a nomination for election, which amount shall be not less than $25,000 for Participants ceasing to serve the Corporation in the capacity of Director on or after January 1, 1990; provided, however, such amount shall be reduced for each Participant with fewer than ten years of service to the Board as an Outside Director by ten percent for each year, or part thereof, less than ten years of service. In calculating the number of years a Participant has served on the Board, all years served prior to the effectiveness of this Plan and for Participants who were Directors of Manufacturers Hanover Corporation or who were Directors of The Chase Manhattan Corporation at the time of its merger with Chemical Banking Corporation, all years such Participants had served as directors of such corporation prior to becoming Directors of the Corporation. shall be included in the calculation.
(b) For purposes of determining the amount payable hereunder to any Participant retiring, resigning or being removed on or after May 20, 1996, the following rules shall apply:
(i) any Participant retiring, resigning or being removed on
May 20, 1996, shall be permitted to elect to (A) receive the compensation set
forth in Section 4(a), except that the age specified in Section 4(a) (i) shall
be 65 and such Participant shall be deemed to have performed ten years of
service to the Board as an Outside Director (regardless of his or her actual
years of service); or (B) be treated in the manner set forth in Section 4(b)
(ii) below;
(ii) any Participant retiring, resigning, being removed or otherwise terminating service as an Outside Director after May 20, 1996 shall, in lieu of the compensation payable under this Section 4(a), receive an amount determined pursuant to Section 5; provided that in determining the amount to be initially credited to the Participant's account under Section 5, each Participant shall be considered to have performed ten years of service to the Board as an Outside Director (regardless of his or her actual years of service).
SECTION 5. Deferred Account. (a) The compensation otherwise payable under Section 4(a) to Participants described in Section 4(b) (ii) or electing to be so treated under the provisions of Section 4(b) (i) shall be converted to a present value dollar amount, based on actuarial assumptions satisfactory to the Administrator, and such dollar amount converted into a number of Units by dividing such dollar amount by
the average of the Fair Market Value of the Common Stock during the period commencing July 18, 1996 and ending August 5, 1996, inclusive.
(b) The amount so determined pursuant to Section 5(a) shall be treated as deferred in accordance with Appendix A hereto.
SECTION 6. Nontransferability. No amount due to any Participant shall be assignable or transferable by a Participant, except by will or the laws of descent and distribution, and no right or interest of any Participant shall be subject to any lien, obligation or liability. Any attempted assignment or alienation of payments hereunder shall be void and of no force or effect.
SECTION 7. Amendment. The Board may amend, suspend or terminate the Plan or any portion hereof at any time; provided, however, no right under the Plan of any Participant (including the right to receive future compensation in specified amounts) immediately prior to any amendment of the Plan shall in any way be amended, modified, suspended or terminated without such Participant's prior written consent.
SECTION 8. Withholding. The Corporation shall have the right to deduct from any and all amounts paid to any Participant under this Plan any taxes required by law to be withheld therefrom.
SECTION 9. Administration. The Plan shall be administered by the Administrator who shall have the authority to adopt rules and regulations for carrying out the Plan, and who shall interpret, construe and implement the provisions of the Plan.
SECTION 10. Participant's Rights Unsecured. The right of any Participant to receive future payments under the provisions of the Plan shall be an unsecured claim against the general assets of the Corporation.
SECTION 11. Effective Date. This Plan became effective on May 13, 1988.
Appendix A
SECTION A1. Participants' Account Balances. The Corporation shall maintain an
individual book account under the Plan for each Participant having a deferred
account. Each Participant shall initially have credited to his or her account
the number of Units calculated in respect of such Participant pursuant to
Section 5 hereof. Such account shall continue to be expressed in Units until an
Outside Director has ceased to render services to the Corporation as an Outside
Director. Any dividends paid on Common Stock shall be credited to a
Participant's account in respect of each Unit and deemed to be reinvested in
additional Units based on the Fair Market Value of Common Stock on the dividend
payment date. In addition, the number of Units allocated to a Participant's
account shall be adjusted to reflect stock dividends, splits and
reclassifications, and similar transactions affecting the value of Common Stock.
At the time that the Participant's services as an Outside Director cease,
subject to Section 5 hereof, the account balance will, until such time as it is
paid to the Participant in accordance with the Participant's payment elections,
be allocated among the hypothetical investments permitted under the Plan for
Participants who have ceased to render service as an Outside Director, as such
allocation may be elected by the Participant.
SECTION A2. Payment Elections. (a) General Provisions. In connection with the commencement of participation in this Plan, each Participant shall make an election (the "Payment Election") concerning the timing and form of distribution of the amounts credited to his or her Plan account. Any payment from the Plan shall commence following termination of the Participant's services to the Corporation as an Outside Director, but in no event prior to one year after receipt by the Corporation of the Outside Director's initial Payment Election. The forms of benefit available under the Plan shall be a lump sum payment or quarterly, semi-annual or annual installments over a period not to exceed 15 years from the earliest date the director may commence receiving payments hereunder.
(b) Special Rules. (i) Subsequent Payment Elections may be made by a Participant, which shall supersede the initial Payment Election, but any such subsequent Payment Election shall not be valid unless it is made prior to May of the calendar year preceding the calendar year in which payments to the Director hereunder are otherwise due to commence.
(ii) If a Participant has elected to receive installment payments of the amount in his or her account, the Participant may, at the Participant's option, elect to allocate the account, on or after the date on which he or she ceases to perform services as an Outside Director, among such forms of hypothetical investment as may be made available hereunder by the Administrator with reference to the hypothetical investments made available under the Deferred Compensation Plan for Non-Employee Directors of The Chase Manhattan Corporation (the "Deferred Compensation Plan"). Reallocations may be made among hypothetical investments on the same basis as is permitted under the Deferred Compensation Plan.
SECTION A3. Payments to a Deceased Participant's Estate. (a) In the event of a Participant's death before the balance of his or her account is fully paid, payment of the balance of the Participant's account shall then be made to his or her estate in accordance with the manner selected by the Participant prior to death, which manner shall provide that: (i) payment shall be made to the Participant's estate in the same manner as provided with respect to the payments to the Participant or (ii) the balance of the Participant's account shall be determined as soon as practicable following his or her death and this amount shall be paid in a single payment to the Participant's estate as soon as reasonably practicable thereafter. In the event no election has been made, payment shall be made in accordance with clause (ii) of the preceding sentence.
(b) In the event of a Participant's death before the balance of his or her account is fully paid to the estate in installments, the Administrator may, upon consideration of the application of the duly appointed administrator or executor of the Participant's estate, direct that the balance of the Participant's account be paid to the estate in a single payment. The payment shall be made at the time specified by the Administrator.
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1.1 | Account means the bookkeeping account established by the Company with respect to a Participant under Article IV of the Plan. Such Account shall be credited with Deferred Amounts, including investment experience thereon, in accordance with the Participants Deferral Election and any investment experience from Deemed Investments. Within an Account, each Deferred Amount, including investment experience, shall be separately accounted for; and each Deferred Amount shall be subject to separate Distribution Elections. | ||
1.2 | Annual Installments shall mean an amount payable annually on a Distribution Date or Initial Distribution Date based on value of the Account as of the Valuation Date. The amount of each installment shall be calculated by multiplying such Account balance by a fraction the numerator is 1 and denominator is the remaining installments. Each installment shall be a separate payment for purposes of the Treasury Regulations issued pursuant to Section 409A of the Code. | ||
1.3 | Administrator means the individual holding the title Compensation and Benefits Executive of the Company or such other individual designated by the Committee, who shall be responsible for those functions assigned to him under the Plan; provided that the term Administrator shall mean the Committee with respect to any discretionary act hereunder which affects any person subject to Section 16(a) of the Securities Exchange Act of 1934, as amended. | ||
1.4 | Affiliate means any corporation that is included in a controlled group of corporations (within the meaning of Section 414(b)of the Code). This would include the Company, any trade or business (whether or not incorporated) under common control with the Company (within the meaning of Section 414(c) of the Code), any organization that is part of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Company and any other entity required to be aggregated with the Company pursuant to the Treasury Regulations under Section 414(o) of the Code; provided that for this purpose, the Plan shall retain the 80% benchmark in defining an Affiliate. | ||
1.5 | Allocation/Transfer Election means an election by a Participant in accordance with the provisions of Article V of the Plan as to the allocation, reallocation or the transfer of the Participants future deferrals and/or existing Account balances among the Investment Options. | ||
1.6 | Allocation/Transfer Election Form means such form or other designated means by which the Participant makes an Allocation Election. Such other designated means may include, but not be limited to, interactive voice response, internet, intranet and other electronic means. | ||
1.7 | Bank means JPMorgan Chase Bank National Association. |
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1.8 | Beneficiary or Beneficiaries means, with respect to a Participant, any natural person(s), estate or trust(s) designated by the Participant on the form provided by the Administrator to receive the benefits specified under the Plan in the event of the Participants death. The Participants estate shall be the Beneficiary if: (i) the Participant has not designated any natural person(s) or trust(s) as Beneficiary, or (ii) all designated Beneficiaries have predeceased the Participant. Designations made under the Program or under Bank One Corporation Deferred Compensation Plan shall apply to amounts deferred under the Plan until a new designation is filed. | ||
1.9 | Board shall mean the Board of Directors of the Company; provided that any action taken by a duly authorized committee of the Board of Directors within the scope of authority delegated to it by the Board shall be considered an action of the Board of Directors for the purpose of this Plan. | ||
1.10 | Bonus means the annual incentive compensation payable in the form of an annual cash bonus pursuant to a calendar year performance program, including any Performance-Based Bonus but before reduction for taxes and any other amounts as the Administrator may specify. | ||
1.11 | Code means the Internal Revenue Code of 1986, as it may be amended from time to time, as well as Treasury Regulations promulgated thereunder. | ||
1.12 | Commissions means commissions and production overrides earned by a Participant for services rendered, but before reduction for (i) taxes, (ii) any before-tax contributions made on the Participants behalf under any tax-qualified employee benefit plans established by the Company and (iii) any amount not included in the Participants income pursuant to Section 125, 129, or 132 of the Code. Base salary shall be considered part of Commissions for these purpose, except that it shall include base salary earned for the month December. | ||
1.13 | Committee means the Compensation and Management Development Committee of the Board. | ||
1.14 | Deemed Investment or Deemed Invested means the notional conversion of the balance held in a Participants Account into shares or units of the Investment Options that are used as measuring devices for determining the value of a Participants Account. | ||
1.15 | Deferral Election means an election by a Participant to defer a portion of the Participants Commissions, Bonus and/or Other Compensation in accordance with Article III of the Plan. | ||
1.16 | Deferral Election Form means such form or other designated means by which a Participant elects the amount of Commissions, Bonus and/or Other Compensation to defer (in dollar amount or percentage). Such other designated means may include, but not be limited to, an offer letter, interactive voice response, internet, intranet, and other electronic means. |
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1.17 | Deferred Amounts means, with respect to a Participant, the Commissions, Bonus and Other Compensation amounts that the Participant has elected to defer under the Plan and includes investment experience following the date of deferral. | ||
1.18 | Distribution Election means elections by the Participant made at the same time as his/her Deferral Election (i) as to the form of payment of the Deferred Amount (including investment experience thereon) subject to the Deferral Election and (ii) date(s) when such payments shall commence. | ||
1.19 | Distribution Election Form means such form or other designated means by which a Participant makes a Distribution Election. Such other designated means may include, but not be limited to, an offer letter, interactive voice response, internet, intranet, and other electronic means. | ||
1.20 | DSIB means the Deferred Supplemental Income Benefit Investment Option, which was only available for Deferred Amounts attributable to deferrals credited to such Deemed Investment in January 2005. See Appendix B for a full description of this Deemed Investment. | ||
1.21 | Distribution Date means any time during the calendar year (i) for which a Participant elected a specified year for a distribution or (ii) the calendar year following the Initial Distribution Date. | ||
1.22 | Eligible Employee means an Employee who is designated by the Administrator as eligible to participate in the Plan in accordance with Section II hereof, provided that a rehired Employee who was a Participant shall not become Eligible Employee for purposes of 30 day rule set forth in Section 3.1 until 24 months have elapsed. | ||
1.23 | Employee means an individual whose employment classification is that of a regular full-time employee and who is on a United States payroll of a Participating Company. | ||
1.24 | ERISA means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, as well as Treasury Regulations promulgated thereunder. | ||
1.25 | FICA Amount means Federal Insurance Contributions Act tax imposed under Section 3101, Section 3121(a) and Section 3121(v)(2) of the Code, where applicable, on Deferred Amounts. | ||
1.26 | Full Career Eligibility means a Separation from Service that occurs on or after the completion of 15 years of recognized service with the Company as set forth in the Companys human resource data basis relating to service related policies. | ||
1.27 | Initial Distribution Date means the calendar year immediately following the calendar year in which a Separation from Service occurs with respect to a Participant who: |
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| did not made a Distribution Election with respect to a Deferred Amount, | ||
| elected a lump sum or Installment following Separation from Service with respect to a Deferred Amount, | ||
| is subject to automatic distribution rules of Section 7.7(a) with respect to a Deferred Amount, including investment experience, or | ||
| made a Distribution Election of a specific year that immediately precedes the calendar year of the Participants Separation from Service. |
1.28 | Investment Options mean the hypothetical securities or other investments as may be provided, from time to time, under the Plan, from which a Participant may select to be used as measuring devices to determine the Deemed Investment earnings or losses of the Participants Account. A Participant shall have no real or beneficial ownership in the security or other investment represented by the Investment Options. | ||
1.29 | Other Compensation means compensation to which an Employee has a legal binding right within the meaning Section 409A of the Code and which is payable in a future calendar year. Other Compensation may include awards of restricted stock units and dividends thereon that are not subject to a substantial risk of forfeiture as defined by Section 409A of the Code. It may also include Deferral Elections and Distribution Elections set forth in letters offering employment; provided that the Employee does not have a legally binding right to such amounts prior to accepting such offer of employment. | ||
1.30 | Participant means an Eligible Employee who has elected to make Commission and/or Bonus deferrals in accordance with the Plan. | ||
1.31 | Participating Employer means the Company and any Affiliate that has been authorized by the Administrator to have its Employees eligible to participate in the Plan. | ||
1.32 | Performance-Based Bonus means any performance-based Bonus that meets the requirements of Section 409A of the Code with respect to performance-based compensation based on services performed over a period of at least twelve months. |
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1.33 | Plan means this JPMorgan Chase & Co. 2005 Deferred Compensation Plan as documented herein and as may be amended from time to time hereafter. In employee communications, it is referred to as the Voluntary Bonus Deferral Plan and/or Voluntary Compensation Deferral Plan. | ||
1.34 | Plan Year means the twelve-month period beginning each January 1 and ending each December 31. | ||
1.35 | Prior Program means the JPMorgan Chase Deferred Compensation Program as in effect through December 31, 2004 with respect to amounts deferred and vested on or prior to December 31, 2004. | ||
1.36 | Separation from Service means a termination of employment with the Company or an Affiliate as set forth in Treasury Regulation 1.409A-1(h), using the 20% bench mark set forth therein. For purposes of a good faith compliance with Section 409A of the Code and Notice 2005-1 and period through December 31, 2008, it means a termination of employment as set forth on the books and records of the Company. | ||
1.37 | Specified Employee means a specified employee as defined in Section 409A (a)(2)(B)(i) of the Code. For this purpose and all other plans of deferred compensation, the specified employee identification date for determining a whether a Participant is a Specified Employee shall be each December 31st and W-2 compensation for that year, as permitted by Treasury Regulation 1.409A-1(i)(2), shall be used. An individual who is a Specified Employee on the specified identification date shall be considered to be in such status from the April 1 immediately following the identification date up to and including the next March 31 s provided that a non-resident alien employee of an Affiliate shall not be included . The Plan determines specified employees based on the top paid fifty employees. | ||
1.38 | 2005 Deferred Amount means, for purposes of Article VI, any vested amount credited to a Participants Account with respect to Bonus, Commissions and Other Compensation deferred during calendar year 2005, including investment experience thereon; provided that the investment experience for any 2005 Deferred Amount treated as if invested in DSIB and the Private Equity Investment Options shall be the rate of return of the Short-Term Investment Option and the investment experience for the Multi-Strategy Investment Option shall be credited through October 31, 2005. | ||
1.39 | Unforeseeable Emergency means a severe financial hardship of the Participant resulting from an illness or accident of the Participant or beneficiary, the Participants spouse, or the Participants dependent (as defined in Section 152(a) of the Cole); loss of the Participants property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, as determined under Section 409A. |
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1.40 | Valuation Date means any date specified by the Administrator with respect to valuing an Account of a Participant for purposes of a distribution during that month, which shall be the fifth business day in which a distribution occurs; provided that if a dividend has been declared on the common stock of the Company during a month in which a distribution shall occur, the Valuation Date shall be the dividend record date plus one day. |
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| designated by the Administrator or his delegatee as an officer and/or other key employee of a Participating Company, and | ||
| notified in writing by the Administrator or his delegatee that he or she is eligible to participate in the Plan. |
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Exhibit 10.8
As Amended
December 11, 1996
1995 Stock Incentive Plan of
J.P. Morgan & Co. Incorporated and Affiliated Companies
Article I
Purpose
The purpose of the 1995 Stock Incentive Plan (the "Plan") is to afford an incentive to key employees of J.P. Morgan & Co. Incorporated (the "Company") and its affiliates to acquire a proprietary interest in the Company, to encourage such employees to increase their efforts on behalf of the Company and remain in its employ, and to more closely align the interests of such key employees with those of the Company's stockholders.
Article II
Definitions
2.1. The following terms shall have the meanings described below when used in the Plan:
(a) "Award" shall refer to a Restricted Stock Award granted under Article VIII or a Stock Unit Award granted under Article IX.
(b) "Board of Directors" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(d ) "Committee" shall mean the committee appointed by the Board of Directors to administer the Plan pursuant to Article III.
(e) "Common Stock" shall mean common stock, par value $2.50, of the Company.
(f) "Company" shall mean J.P. Morgan & Co. Incorporated or any successor to it in ownership of all or substantially all of its assets.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(h) "Fair Market Value" of Common Stock on any day shall mean the average of the highest and lowest price of Common Stock as reported on the composite tape for such day, unless the Committee determines that another procedure for determining Fair Market Value would be more appropriate.
(i) "Incentive Stock Option" shall mean a stock option granted under Article VI which is intended to meet the requirements of Section 422 of the Code.
(j) "Nonqualified Stock Option" shall mean a stock option granted under Article VI which is not intended to be an Incentive Stock Option.
(k) "Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option.
(l) "Optionee" shall mean a Participant who is granted an Option.
(m) "Participant" shall mean an eligible employee who has been granted an Option, Stock Appreciation Right or Award under the Plan.
(n) "Participating Company" shall mean the Company, the Trust Company or any subsidiary or other affiliated entity (whether or not incorporated).
(o) "Plan" shall mean this 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies.
(p) "Related Right" shall mean a Stock Appreciation Right described in
Section 7.2.
(q) "Restricted Period" shall mean the period during which a Restricted Stock Award is being earned in accordance with Section 8.3.
(r) "Restricted Stock Award" shall mean an award granted under Article VIII.
(s) "Stand Alone Right" shall mean a Stock Appreciation Right described in Section 7.3.
(t) "Stock Appreciation Right" shall mean a right granted under Article VII.
(u) "Stock Unit Award" shall mean an award granted under Article IX.
(v) "Trust Company" shall mean Morgan Guaranty Trust Company of New York or any successor to it in ownership of all or substantially all of its assets.
Article III
3.1. (a) The Board of Directors shall appoint not less than three Directors to the Committee which shall administer the Plan. With respect to determinations regarding the grant, amount, acceleration or forfeiture of Options, Stock Appreciation Rights or awards with respect to an eligible employee who is a member of the Board of Directors, the Committee shall be composed of all directors of the Company who are not employees of the Company or any other Participating Company. No individual shall be a member of the Committee unless such individual is disinterested within the meaning of Rule 16b-3 under the Exchange Act. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be issued or adopted by the Board of Directors, to grant to eligible persons Options, Stock Appreciation Rights and Awards under the Plan; to waive any restrictions or limitations, or impose additional limitations or restrictions, on previously granted Options, Stock Appreciation Rights, or Awards (within the parameters of the Plan); to interpret the provisions of the Plan and any agreements relating to Options, Stock Appreciation Rights or Awards granted under the Plan; to supervise the administration of the Plan and to delegate to senior officers of the Company or the Trust Company the power to act for the Committee as the Committee shall specify.
(b) All decisions made by the Committee (or such persons acting under a delegation by the Committee pursuant to subsection 3.1 (a) ) pursuant to the provisions of the Plan and related orders of the Board of Directors shall be within the absolute discretion of the Committee or its delegate, as the case may be, and shall be conclusive and binding on all persons, including the Company, stockholders, employees and beneficiaries of employees.
Article IV
Shares Subject To The Plan
4.1. (a) Subject to adjustment pursuant to subsection 4.1 (d), the maximum number of shares of Common Stock with respect to which Options, Stock Appreciation Rights and Awards may be granted shall be 28,000,000 shares of Common Stock. Shares of Common Stock may be made available from the authorized but unissued shares of the Company or from shares reacquired by the Company, including shares purchased in the open market. If an Option, Stock Appreciation Right or Award granted under the Plan shall expire or terminate for any reason other than the exercise of a Related Right (to the extent set forth in subsection 7.2(c) ), the shares subject to such Option, Stock Appreciation Right or Award shall be
available for other Options, Stock Appreciation Rights and Awards to the same Participant or other eligible employees. Any shares delivered in payment of the exercise price of an Option shall be available for other Options, Stock Appreciation Rights and Awards to the same Participant or other eligible employees.
(b) Subject to adjustment pursuant to subsection 4.1 (d), of the total shares of Common Stock referred to in subsection 4.1 (a), the number of shares of Common Stock with respect to which Awards may be granted shall not exceed 7,000,000 shares of Common Stock.
(c) Subject to adjustment pursuant to subsection 4.1 (d), of the total shares of Common Stock referred to in subsection 4.1 (a), the number of shares of Common Stock with respect to which Options or Stock Appreciation Rights may be granted to any Participant during the term of the Plan shall not exceed 2,800,000 shares of Common Stock.
(d) In the event that the Committee shall determine that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or other similar corporate event affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under this Plan, then the Committee shall, in its sole discretion, and in such manner as the Committee may deem equitable, adjust any or all of ( 1 ) the number and kind of shares which thereafter may be awarded or optioned and sold or made the subject of Stock Appreciation Rights under the Plan, (2) the number and kind of shares subject to outstanding Options, Stock Appreciation Rights and Awards, and (3) the option price with respect to any of the foregoing and/or, if deemed appropriate, make provision for a cash payment to a Participant. The number of shares subject to any Option, Stock Appreciation Right or Award shall always be a whole number.
Article V
Eligibility
5.1. The employees eligible to participate in the Plan and receive Options, Stock Appreciation Rights and Awards under the Plan shall consist of key employees of the Company and other Participating Companies.
Article VI
Stock Options
6.1. Grant of Options. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Options and determine the time when each Option shall be granted and the number of shares subject to each Option. Options may be either Incentive Stock Options or Nonqualified Stock Options and more than one Option may be granted to the same person. Options shall be evidenced in such manner as may be approved by the Committee. Options may be amended or supplemented from time to time as approved by the Committee, provided that the terms of such Options after being amended or supplemented conform to the terms of the Plan.
6.2. Option Price. The price at which shares may be purchased upon exercise of a particular Option shall be not less than 100% of the Fair Market Value of such shares on the date such Option is granted.
6.3. Medium and Time of Payment. No shares shall be delivered pursuant to any exercise of an Option until payment in full of the Option price therefor is received by the Company. Such payment shall be made in cash or, unless prohibited by the Committee, through the delivery of shares of Common Stock of the Company with a Fair Market Value equal to the total Option price or a combination of cash and shares. The Committee may prescribe additional methods of payment to the extent permitted by applicable law. Any shares so delivered shall be valued at their Fair Market Value on the exercise date, or on such other date as determined by the Committee for administrative convenience. No Optionee, transferee, legal representative, legatee or distributee of any Optionee shall be deemed to be a holder of any shares subject to any Option prior to the issuance of such shares upon exercise of such Option or any related Stock Appreciation Right.
6.4. Term and Exercisability of Options. An Option shall be exercisable ratably on each of the first three anniversaries of the date of grant of such Option or as otherwise determined by the Committee, but in no event shall such Option be exercised earlier than one year or later than ten years from the date the Option is granted. The Committee may require that an Option only be exercised upon the achievement of such performance objectives as the Committee shall designate. An Option shall be subject to earlier termination as provided in Section 6.6 with respect to death, retirement and termination of employment or as provided in Section 10.6.
6.5. Transferability of Options. (a) Except as provided in subsection
(b) below, an Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution and, during the lifetime of the
Optionee, may be exercised only by such Optionee.
(b) Notwithstanding subsection (a) above, the Committee may determine that an Option may be transferred by the Optionee to one or more members of the Optionee's immediate family, to a partnership of which the only partners are members of the Optionee's immediate family, or to a trust established by the Optionee for the benefit of one or more members of the Optionee's immediate family. For this purpose immediate family means the Optionee's spouse, parents, children, grandchildren and the spouses of such parents, children and grandchildren. A transferee described in this subsection may not further transfer an Option. An Option transferred pursuant to this subsection shall remain subject to the provisions of the Plan, including, but not limited to, the provisions of Section 6.6 relating to the exercise of the Option upon the death, retirement or termination of employment of the Optionee, and shall be subject to such other rules as the Committee shall determine.
6.6. Death, Retirement and Termination of Employment. Subject to the condition that no Option be exercised in whole or in part after the expiration of the Option period specified by the Committee, and subject to the Committee's right to cancel any Option in accordance with Section 10.6, unless otherwise determined by the Committee:
(a) Upon termination of employment prior to an Optionee's attainment of age 55 but after the Optionee is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, an Optionee or a transferee described in subsection 6.5(b), may, within three years after the date of such termination, purchase any or all of the shares subject to an Option granted at least one year prior to such termination of employment, at or after the time or times the Optionee would have been entitled to purchase such shares had the Optionee not terminated employment;
(b) Upon termination of employment on or after an Optionee's attainment of age 55 and after the Optionee is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, an Optionee or a transferee described in subsection 6.5(b), may, at any time prior to the expiration of the Option period, purchase any or all of the shares subject to an Option granted at least one year prior to such termination of employment, at or after the time or times the Optionee would have been entitled to purchase such shares had the Optionee not terminated employment;
(c) Upon the death of an Optionee after a termination of employment
described in subsections (a) or (b) above, the Optionee's designated
beneficiary, or if none, the person or persons to whom such Optionee's rights
under the Option are transferred by will or the laws of descent and
distribution, or a transferee described in subsection 6.5(b), may, at any time
prior to the expiration of the Option period determined under subsection (a) or
(b), as the case may be, purchase any or all of the shares subject to an Option
at or after the time the Optionee would have been entitled to purchase such
shares had the Optionee survived;
(d) Upon the death of an Optionee while employed, the Optionee's designated beneficiary, or if none, the person or persons to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution, or a transferee described in subsection 6.5(b), may, within three years after the date of such death, but no later than the expiration of the Option period, purchase any or all of the shares subject to an Option at or after the time the Optionee would have been entitled to purchase such shares had the Optionee survived; and
(e) Upon termination of employment for any reason other than death or retirement as aforesaid, an Optionee's Options, including any Options transferred pursuant to subsection 6.5(b), shall be cancelled to the extent not theretofore exercised. In addition, the Optionee shall repay to the Company the value of the difference between the Fair Market Value on the date of exercise over the Option price of any Options exercised within the six month period preceding the date of such termination and the value of any Related Right described in Section 7.2 exercised during such period.
Article VII
Stock Appreciation Rights
7.1. Grant of Stock Appreciation Rights. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Stock Appreciation Rights and determine the time when each Stock Appreciation Right shall be granted and such other terms of each Stock Appreciation Right pursuant to this Article VII. Stock Appreciation Rights may be granted either alone ("Stand Alone Rights") or in conjunction with all or part of any Option granted under the Plan ( "Related Rights" ) . In the case of a Nonqualified Stock Option, Related Rights may be granted either at or after the time of the grant of the Nonqualified Stock Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option.
7.2. Related Rights. (a) A Related Right shall be exercisable only at such time or times and to the extent that the Option to which it relates shall be exercisable in accordance with Article 6, provided that the Committee may, for administrative convenience, determine that, for any Related Right which can only be exercised during a limited period of time in order to satisfy rules imposed by the Securities and Exchange Commission, the exercise of any such Related Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Common Stock is the highest. A Related Right granted with respect to an Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option, provided that, unless otherwise provided by the Committee, a Related Right granted with
respect to less than the full number of shares covered by a related Option shall only be reduced if and to the extent that the number of shares covered by the exercise or termination of the related Option exceeds the number of shares not covered by the Related Right, provided further that, in the event of the death of the Participant, the Related Right shall be cancelled to the extent not theretofore exercised, whether or not the related Option is cancelled.
(b) Upon the exercise of a Related Right, a Participant shall be entitled to receive up to, but not more than, an amount in cash or shares of Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option price per share of Common Stock of the related Option multiplied by the number of shares of Common Stock in respect of which the Related Right shall have been exercised. The Committee shall have the right to determine the form of payment. Any shares delivered in payment shall be valued at their Fair Market Value on the date of exercise. No fractional shares shall be issued and the Participant shall receive cash in lieu thereof.
(c) Upon the exercise of a Related Right, the Option or part thereof to which such Related Right is related shall be deemed to have been exercised for the purpose of the limitations set forth in Section 4.1 on the number of shares of Common Stock to be issued under the Plan, but only to the extent of the number of shares of Common Stock issued under the Related Right.
7.3. Stand Alone Rights. (a) A Stand Alone Right shall be exercisable ratably on each of the first three anniversaries of the grant of such Stand Alone Right or as otherwise determined by the Committee, but in no event shall such Stand Alone Right be exercised earlier than one year or later than ten years from the date the Stand Alone Right is granted. The Committee may require that a Stand Alone Right only be exercised upon the achievement of such performance objectives as the Committee shall designate. The Committee may, for administrative convenience, determine that, for any Stand Alone Right which can only be exercised during a limited period of time in order to satisfy rules imposed by the Securities and Exchange Commission, the exercise of any such Stand Alone Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Common Stock is the highest. A Stand Alone Right shall be subject to earlier termination as provided in subsection 7.3(c) with respect to death, retirement and termination of employment.
(b) Upon the exercise of a Stand Alone Right, a Participant shall be entitled to receive up to, but not more than, an amount in cash or shares of Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the Fair Market Value of one share of Common Stock on the date of grant multiplied by the number of shares in respect of which the right is being exercised. The Committee shall have the right to determine the form of payment. Any shares delivered in payment shall be valued at their Fair Market Value on the date of exercise. No fractional shares shall be issued and the
Participant shall receive cash in lieu thereof.
(c) Subject to the condition that no Stand Alone Right may be exercised in whole or in part after the expiration of the period specified by the Committee, and subject to the Committee's right to cancel any Stock Appreciation Right in accordance with Section 10.6, unless otherwise determined by the Committee:
(i) Upon termination of employment prior to a Participant's attainment of age 55 but after the Participant is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, a Participant may, within three years after the date of such termination, exercise any or all of the Stand Alone Right granted at least one year prior to such termination of employment, at or after the time or times the Participant would have been entitled to exercise such Stand Alone Right had the Participant not terminated employment;
(ii) Upon termination of employment on or after a Participant's attainment of age 55 and after the Participant is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, a Participant may, at any time prior to the expiration of the Stock Appreciation Right exercise period, exercise any or all of the Stand Alone Right granted at least one year prior to such termination of employment, at or after the time or times the Participant would have been entitled to exercise such Stand Alone Right had the Participant not terminated employment; and
(iii) Upon termination of employment for any reason other than retirement as aforesaid, a Participant's Stand Alone Rights shall be cancelled to the extent not theretofore exercised. In addition, except in the event of death, the Participant shall repay to the Company the value of any Stand Alone Right exercised within the six month period preceding the date of such termination.
7.4. Transfer of Stock Appreciation Rights. A Stock Appreciation Right may not be transferred to anyone and may only be exercised by the Participant to whom it is granted
Article VIII
Restricted Stock Awards
8.1. Grant of Restricted Stock Awards. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Restricted Stock Awards and determine the time when each Award shall be granted, the vesting date or vesting dates for each Award, the time or times as of which vested Awards shall be paid and the number of share credits (each of which shall be equivalent to one share of Common Stock) subject to each Award. Restricted Stock Awards
shall be evidenced in such manner as may be approved by the Committee. Restricted Stock Awards may be amended or supplemented from time to time as approved by the Committee, provided that the terms of such Awards after being amended or supplemented conform to the terms of the Plan. No provision of this Plan shall be interpreted to prohibit the grant of a Restricted Stock Award hereunder in connection with awards granted pursuant to the 1995 Executive Officer Performance Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies or any other plan of the Company, provided that any such Award conforms to the terms of this Plan.
8.2. Number of Share Credits. Each Restricted Stock Award shall state the number of share credits to be subject to the Award.
8.3. Restrictions. A Restricted Stock Award may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for a period of five years from the date
of grant of the Award or such other period as the Committee shall determine, and
for such further period as the payment of Awards may be deferred pursuant to
Section 8.5. The Committee may define the Restricted Period in terms of the
passage of time, the satisfaction of performance criteria, a combination of time
and performance, or in any other manner it deems appropriate. Restricted Stock
Awards shall not be paid until the successful completion of the Restricted
Period except as may be otherwise provided in circumstances of death or
retirement pursuant to Section 8.4, or until the end of any deferral period
described in subsection 8.5(b).
8.4. Death, Retirement and Termination of Employment. Unless otherwise determined by the Committee:
(a) Upon termination of a Participant's employment prior to the end of the Restricted Period for any reason except for death, as described below, the Participant's Awards shall be forfeited and the Participant shall have no right with respect to such Award.
(b) Upon the death of a Participant, an Award granted to such Participant shall be (i) 100% (or such other percentage as the Committee shall have determined at the time of grant of such Award) vested and nonforfeitable and (ii) shall be payable to the Participant's beneficiary, or if none, the person or persons to whom such Participant's rights under the Award are transferred by will or the laws of descent and distribution, subject to any further deferral of the Award in accordance with subsection 8.5(b), provided that with respect to an Award subject to performance restrictions, the Committee shall make such determination with respect to such Award as it deems appropriate.
8.5. Payment of Awards. (a) Subject to the provisions of subsection (b) hereof, as soon as practicable after the successful completion of the Restricted Period, such Award shall be paid to the Participant or, in the case of the death of the Participant, the Participant's beneficiary, or if none, the person or persons to whom such Participant's rights under the
Award are transferred by will or the laws of descent and distribution.
(b) The Committee may, in its discretion, provide that payment of Awards be deferred until such time or times as the Committee shall specify, or such time or times as the Participant may elect. Any election of a Participant pursuant to the preceding sentence shall be filed with the Committee in accordance with such rules and regulations, including any deadline for the making of such an election, as the Committee may provide.
(c) Except as otherwise determined pursuant to subsection 8.6(c), payments pursuant to this Section 8.5, including any dividend equivalents determined under subsection 8.6(b), shall be made in shares of Common Stock, except there may be paid in cash the value of any partial shares of Common Stock and that part of the total payment determined by the Company to be necessary to satisfy tax withholding requirements.
8.6. Dividend Equivalents. (a) Except as may be otherwise determined by the Committee, in addition to the payment provided for in Section 8.5, each Participant (or beneficiary) entitled to payment under Section 8.5 shall receive the dividend equivalent amount calculated under subsection (b) hereof.
(b) The dividend equivalent amount is the number of additional share credits attributable to the number of share credits awarded plus additional share credits calculated hereunder. Such additional share credits shall be determined and credited as of the end of each calendar year by dividing (1) the aggregate cash dividends which would have been paid had the share credits awarded or credited under this subsection (b), as the case may be, been actual shares of Common Stock on the record date for each such dividend during such calendar year by (2) the average market prices per shares of Common Stock on the last trading day of each calendar month during the 12 months ending on the November 30 preceding the date such determination is being made. For this purpose, the market price on any day shall be the average of the highest and lowest price of a share of Common Stock as reported on the composite tape for such day. The Committee may designate any other manner for determining and crediting dividend equivalents as it deems appropriate.
(c) In such cases as the Committee may deem advisable, the Committee may, in lieu of the crediting provided for in subsection (b), determine to pay all or part of the dividend equivalent amount in cash or stock as dividends are actually paid on Common Stock, or at such other time or times as the Committee may otherwise determine.
Article IX
Stock Unit Awards
9.1. Grant of Stock Unit Awards. The Committee shall have authority to grant to eligible employees Stock Unit Awards which can be in the form of Common Stock or units, the value of which is based, in whole or in part, on the value of Common Stock. Subject to the provisions of the Plan, including Section 9.2 below, Stock Unit Awards shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules (all of which are sometimes hereinafter collectively referred to as "rules" ) as the Committee may determine in its sole discretion, all such rules applicable to a particular Stock Unit Award to be reflected in writing and furnished to the Participant. In no event shall any Award vest less than one year from the date of grant. The rules need not be identical for each Stock Unit Award. No provision of this Plan shall be interpreted to prohibit the grant of a Stock Unit Award hereunder in connection with awards granted pursuant to the 1995 Executive Officer Performance Plan or any other plan of the Company, provided that any such Award conforms to the terms of the Plan.
9.2. Rules. In the sole discretion of the Committee, a Stock Unit Award shall be granted subject to the following rules
(a) Any shares of Common Stock which are part of a Stock Unit Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the date on which the shares are issued or such other date provided by the Committee at the time of grant of the Award or thereafter.
(b) Stock Unit Awards may provide for the payment of cash consideration by the person to whom such Award is granted or provide that the Award, and Common Stock to be issued in connection therewith, if applicable, shall be delivered without the payment of cash consideration.
(c) Stock Unit Awards may relate in whole or in part to performance criteria established by the Committee at the time of grant.
(d) Stock Unit Awards may provide for deferred payment schedules, vesting over a specified period of employment, the payment (on a current or deferred basis) of dividend equivalent amounts, with respect to the number of shares of Common Stock covered by the Award, and elections by the Participant to defer payment of the Award or the lifting of restrictions on the Award, if any.
Article X
General Provisions
10.1. Change in Control. (a) (i) In the case of a Change in Control (as defined below) of the Company, each Option and Stock Appreciation Right then outstanding shall (unless the Committee determines otherwise) immediately be nonforfeitable and exercisable in full;
(ii) In the case of a Change in Control (as defined below) of the Company, each Award shall (unless the Committee determines otherwise) immediately be fully vested and nonforfeitable and shall thereupon be paid as soon as practicable.
(b) Any determination by the Committee made pursuant to this Section
10.1 may be made as to all outstanding Options, Stock Appreciation Rights or
Awards or only as to certain Options, Stock Appreciation Rights or Awards
specified by the Committee, and all such determinations shall be made in cases
covered by paragraphs (c) (i) or (ii) below, prior to or as soon as practicable
after the occurrence of such event and in the cases covered by paragraphs (c)
(iii) and (iv) below, prior to the occurrence of such event.
(c) A Change in Control shall occur if:
(i) any "person" or "group of persons" as such terms are used in
Section 13(d) and 14(d) of the Exchange Act directly or indirectly purchases or
otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) or has the right to acquire such beneficial ownership (whether or
not such right is exercisable immediately, with the passage of time, or subject
to any condition), of voting securities representing 25% or more of the combined
voting power of all outstanding voting securities of the Company;
(ii) during any period of two consecutive years, the individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority of the members thereof, unless ( 1 ) there are seven or more directors then still in office who were directors at the beginning of the period, and (2) the election, or the nomination for election by the Company's stockholders, of each new director was approved by at least two-thirds of the directors then still in office who were directors at the beginning of the period;
(iii) the stockholders of the Company shall approve an agreement to merge or consolidate the Company with or into another corporation as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are or are to be owned by the former shareholders of the Company (excluding from former shareholders, a shareholder who is or, as a result of the transaction in question, becomes an "affiliate," as defined in Rule 12b-2 under the Exchange Act, of any party to such consolidation or merger); or
(iv) the stockholders of the Company shall approve the sale of all or substantially all of the Company's business and/or assets to a person or entity which is not a wholly-owned subsidiary of the Company.
10.2. Designation of Beneficiary. Subject to such rules and regulations as the Committee may prescribe, including the right of the Committee to limit the types of designations which are acceptable for purposes of the Plan, each Participant who shall be granted an Option or Award under the Plan may designate a beneficiary or beneficiaries and may change such designation from time to time by filing a written designation of beneficiaries with the Committee on a form to be prescribed by it, provided that no such designation shall be effective unless so filed prior to the death of such Participant.
10.3. No Right of Continued Employment. Neither the establishment of the Plan, the granting of Options, Stock Appreciation Rights or Awards, nor the payment of any benefits hereunder nor any action of the Company or of the Board of Directors or of the Committee shall be held or construed to confer upon any person any legal right to be continued in the employ of the Company or its subsidiaries, each of which expressly reserves the right to discharge any employee whenever the interest of any such company in its sole discretion may so require without liability to such company, the Board of Directors or the Committee except as to any rights which may be expressly conferred upon such employee under the Plan.
10.4. No Segregation of Cash or Shares. The Company shall not be required to segregate any cash or any shares of Common Stock which may at any time be represented by Options, Stock Appreciation Rights, Awards, share credits or dividend equivalent amounts and the Plan shall constitute an "unfunded" plan of the Company. No employee shall have voting or other rights with respect to shares of Common Stock prior to the delivery of such shares. The Company shall not, by any provisions of the Plan, be deemed to be a trustee of any Common Stock or any other property, and the liabilities of the Company to any employee pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any employee, former employee or beneficiary under the Plan shall be limited to those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations of the Company and each other Participating Company under the Plan, provided, however, that existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.
10.5. Delivery of Shares. No shares shall be delivered pursuant to any exercise of an Option or Stock Appreciation Right or pursuant to the payment of any Award until the requirements of such laws and regulations as may be deemed by the Committee to be applicable thereto are satisfied.
10.6. Cancellation of Options, Stock Appreciation Rights and Awards.
(a) Prior to the occurrence of a Change in Control, but not thereafter, the Committee may, in its sole discretion and with or without cause, cancel any Option, Stock Appreciation Right or Award in whole or in part to the extent it has not theretofore been exercised or, in the case of Awards, become vested. Such cancellation shall be effective as of the date specified by the Committee.
(b) Notwithstanding subsection (a) above, prior to payment of any Award, the Committee may, in its sole discretion, in cases involving a serious breach of conduct by an employee or former employee, or activity of a former employee in competition with the business of a Participating Company, cancel any Award, whether or not vested, in whole or in part. Such cancellation shall be effective as of the date specified by the Committee. The determination of whether an employee or former employee has engaged in a serious breach of conduct or activity in competition with the business of a Participating Company shall be determined by the Committee in good faith and in its sole discretion.
10.7. Transfer, Leave of Absence, etc. For purposes of the Plan: (1 ) a
transfer of a Participant from a Participating Company to an affiliated company,
(2) a leave of absence, duly authorized in writing by the Participating Company,
for military service or sickness, or for any other purpose approved by the
Participating Company H the period of such leave does not exceed ninety days,
and (3) a leave of absence in excess of ninety days, duly authorized in writing
by the Participating Company, provided the Participant's right to reemployment
is guaranteed either by a statute or by contract, shall not be deemed a
termination of employment.
10.8. New York Law to Govern. All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of New York.
10.9. Payments and Tax Withholding. The delivery of any shares of Common Stock and the payment of any amount in respect of a Stock Appreciation Right or Award shall be of the account of the applicable Participating Company and any such delivery or payment shall not be made until the recipient shall have made satisfactory arrangements for the payment of any applicable withholding taxes.
Article XI
Amendment and Termination
11.1. Amendments, Suspension or Discontinuance. The Board of Directors may amend, suspend or discontinue the Plan, provided, however, that the Board of Directors may not, without the prior approval of the stockholders of the Company, make any amendment for which stockholder approval is necessary to comply with any applicable tax
or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief under Section 16(b) of the Exchange Act, and provided, further, that upon or following the occurrence of a Change in Control no amendment may adversely affect the rights of any person in connection with any Option, Stock Appreciation Right or Award previously granted.
11.2. Termination. No Option, Stock Appreciation Right or Award shall be granted under the Plan after expiration of ten years from the date upon which the Plan is approved by vote of the stockholders of the Company.
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(i) | a termination of employment for Cause; | ||
(ii) | within 2 years of a termination of employment, the solicitation of the customers, or clients of the Employer or any affiliate of the Employer by the Participant in order to compete with his/her Employer or any affiliate of the Employer; | ||
(iii) | within 2 years of termination of employment, the hiring of, or the attempt to hire, the Employees of the Employer or any affiliate of the Employer; | ||
(iv) | at any time after a termination of employment, a release to any party unrelated to an Employer of secret or confidential information obtained by the Participant in the course of his/her employment, except as the case may be required by law; or | ||
(v) | at any time, an attempt to assign, encumber or hypothecate benefits as provided in Section 7.1. |
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(A) | the amount of the cash dividend declared by the Corporation for each outstanding Share of the Corporation, and | ||
(B) | the number of Stock Units credited to the Director and still outstanding, |
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(a) | Award includes, without limitation, stock options (including incentive stock options under Section 422 of the Code), stock appreciation rights, performance share or unit awards, dividend or equivalent rights, stock awards, restricted share or unit awards, or other awards that are valued in whole or part by reference to, or are otherwise based on, the Corporations Common Stock (other Common Stock-based Awards), all on a stand alone, combination or tandem basis, as described in or granted under this Plan. | |
(b) | Award Summary means a written summary setting forth the terms and conditions of each Award made under this Plan. | |
(c) | Board means the Board of Directors of the Corporation, excluding any member who is an officer or Employee of the Corporation or who otherwise would not be considered a Non-Employee Director within the meaning of Rule 16b-3 of the Securities and Exchange Commission. | |
(d) | Code means the Internal Revenue Code of 1986, as amended from time to time. | |
(e) | Committee means the Organization, Compensation and Nominating Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. | |
(f) | Common Stock means the Common Stock, par value $.01 per share, of the Corporation. | |
(g) | Corporation means BANK ONE CORPORATION, a Delaware corporation. | |
(h) | Employee means an employee of BANK ONE CORPORATION or a Subsidiary. | |
(i) | Exchange Act means the Securities Exchange Act of 1934, as amended. | |
(j) | Fair Market Value means the closing price of Common Stock as listed on the New York Stock Exchange Composite Transaction Tape for the trading day immediately preceding the valuation date (or, if no closing price is listed for Common Stock on such date, the next immediately preceding date for which a closing price is listed); provided, however, that the Committee may modify the definition of Fair Market Value with respect to any particular Award. |
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(k) | Participant means an Employee who has been granted an Award under the Plan. | |
(l) | Plan means the BANK ONE CORPORATION Stock Performance Plan. | |
(m) | Plan Year means a twelve-month period beginning with January 1 of each year. | |
(n) | Subsidiary means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, an ownership interest of at least 50% by reason of stock ownership or otherwise. |
(a) | Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate. | |
(b) | The Committee shall have authority to interpret and construe the provisions of the Plan and the Award Summaries and to make determinations pursuant to any Plan provision or Award Summary. Any such interpretation or determination shall be final and binding on all parties. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporations Restated Certificate of Incorporation, as it may be amended from time to time. | |
(c) | The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. | |
(d) | The Committee shall have the authority at any time prior to a Change of Control (as defined in Section 12 below) to cancel Awards for reasonable cause and to provide for the conditions and circumstances under which Awards shall be forfeited. |
(a) | The stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock, subject to adjustment in accordance with the provisions of Section 10, and subject to Section 5(b) below, the total number of shares of Common Stock available for grants of Awards in any Plan Year shall not exceed 2% of the outstanding Common Stock as reported in the Corporation? Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year. |
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(b) | There shall be available for Awards under the Plan in any Plan Year, in addition to shares available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5 for any prior Plan Year; (ii) shares represented by Awards which are canceled, surrendered, forfeited, terminated, paid in cash or expire unexercised; (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations; (iv) any shares of Common Stock that are used to pay the purchase price or any withholding taxes associated therewith upon the exercise of an option, to the extent such shares result in the grant of a replacement option; provided, however, that the total number of shares of Common Stock which may be available for Awards under the Plan Year may not exceed 5% of the outstanding Common Stock as reported in the Corporations Annual Report on Form 10-K for the fiscal year ending immediately prior to the applicable Plan Year. | |
(c) | The exercise of an option or stock appreciation right granted in tandem therewith will reduce proportionately the number of shares subject to the tandem stock appreciation right or option. In addition, any shares ceasing to be subject to the related option or right because of such reduction shall not increase the number of shares of Common Stock available for future Awards granted under the Plan. The grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares available for Awards granted under the Plan. |
(a) | Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of such Award; provided further that no more than 10,000,000 stock options and stock appreciation rights in the aggregate (except that a stock option issued in tandem with a stock appreciation right shall be counted as one stock option for purposes of this maximum) may be granted to any Employee during any five-year period. | |
(b) | Incentive Stock Option. An Award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor Section of the Code as it may be amended from time to time. Subject to adjustment in accordance with the provisions of Section 10, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed 16,200,000 shares, subject in any Plan Year to the limitations of Section 5 of this Plan. | |
(c) | Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted; provided that no more than 10,000,000 stock options and stock appreciation rights in the aggregate (except that a stock appreciation right issued in tandem with a stock option shall be counted as one stock option for purposes of this maximum) may be granted to any Participant during any five-year period. | |
(d) | Restricted and Performance Share. A transfer of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine; provided that no more than 5,000,000 performance shares (determined based upon the maximum number of shares of Common Stock that may be earned) may be granted to any Employee during any five-year period. |
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(e) | Restricted and Performance Share Unit. A fixed or variable share or dollar-denominated unit subject to conditions of vesting, performance and time of payment as the Committee may determine, which are valued at the Committees discretion in whole or in part by reference to, or otherwise based on, the Fair Market Value of Common Stock and which may be paid in Common Stock, cash or a combination of both. | |
(f) | Dividend or Equivalent Right. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. | |
(g) | Stock Award. An unrestricted transfer of ownership of Common Stock which may only be made to Employees other than Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. | |
(h) | Other Stock-Based Awards . Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section 6. |
(a) | Assignability. Except to the extent permitted by Rule 16b-3 under the Exchange Act, or Section 422 of the Code, and as otherwise provided in the Award Summary, no Award shall be assignable or transferable except by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code, and during the lifetime of a Participant, the Award shall be exercisable only by the Participant or such Participants guardian, legal representative or assignee under a qualified domestic relations order. In the event that any Award is transferred as permitted by the preceding sentence, the permitted transferee thereof shall be deemed the Award recipient hereunder. Stock options, incentive stock options and stock appreciation rights shall be exercisable during the transferees lifetime only by the Award recipient or by the Award recipients guardian, legal representative or similar person. Notwithstanding the foregoing, effective May 15, 2001, Awards under the Plan shall not be assignable pursuant to a qualified domestic relations order, nor shall an assignee under a qualified domestic relations order have any right to exercise an Award hereunder. |
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(b) | Termination of Employment. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participants employment. | |
(c) | Rights As A Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant or his nominee, or guardian or legal representative becomes the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. | |
(d) | No Obligation To Exercise. The grant of an Award shall impose no obligation upon Participant to exercise the Award. | |
(e) | Payments By Participants. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate. | |
(f) | Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. The Committee may provide for shares of Common Stock to be withheld for tax withholding purposes in excess of the required minimum amount but not in excess of a Participants maximum marginal tax rate. | |
(g) | Restrictions on Sale and Exercise. With respect to Employees who are officers and directors of the Corporation for purposes of Section 16 of the Exchange Act, and if required to comply with rules promulgated thereunder, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of Common Stock by the Participant for at least six months from the date of grant, and (ii) Common Stock acquired pursuant to this Plan (other than Common Stock acquired as a result of the granting of a derivative security may not be sold for at least six months after acquisition. | |
(h) | Designation of Beneficiaries. Effective May 15, 2001, a Participant may designate a beneficiary to receive outstanding Awards upon the Participants death. If a Participant fails to designate a beneficiary, Awards that are outstanding at the time of the Participants death shall be transferred to the Participants surviving spouse (to the extent the Awards do not expire upon the Participants death). If the Participant does not have a surviving spouse, Awards shall be transferred to the Participants estate. |
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(a) | A Change of Control of the Corporation shall be deemed to have occurred in accordance with the Change of Control definition and standards adopted by the Board from time to time. | |
(b) | The effect of a Change of Control on any and all Awards granted on or after November 1, 2000 that are outstanding as of the date such Change of Control occurs shall be set forth in the applicable Award Summaries, as may be amended from time to time prior to the Change of Control. | |
(c) | Notwithstanding anything contained in the Plan or any Award Summary to the contrary, the effect of a Change of Control on any and all Awards granted before November 1, 2000 shall be determined in accordance with the terms of the Plan as in effect prior to November 1, 2000. |
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EXHIBIT 10.14
REVISED AND RESTATED
BANC ONE CORPORATION
1989 STOCK INCENTIVE PLAN
SECTION 1. Establishment, Purpose, and Effective Date of Plan
1.1 Establishment. BANC ONE CORPORATION, a Delaware corporation, (the "Corporation") hereby establishes the "1989 STOCK INCENTIVE PLAN" (the "Plan")for key employees of the Corporation and its subsidiaries and for directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Plan permits the grant of Director Stock Options to such directors and the grant of Stock-Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares, and Performance Awards to such employees.
1.2 Purpose. The purpose of the Plan is to advance the interests of the Corporation by encouraging and providing for the acquisition of an equity interest in the Corporation by directors of the Corporation and key employees of the Corporation and its subsidiaries and by enabling the Corporation to attract and retain the services of such directors and key employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.
1.3 Effective Date. The Plan shall become effective as of January 18, 1989, the date of its adoption by the Board of Directors of the Corporation, subject to ratification by the shareholders of the Corporation within twelve months of the adoption date.
SECTION 2. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Awards, Performance Share, or Performance Award.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee of the Corporation's Board of Directors which shall consist of two or more non-employee directors, within the meaning set forth in Rule 16b-3 of the Securities Exchange Act of 1934, appointed by the Board.
(e) "Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio.
(f) "Disability" means disability as determined by the Committee.
(g) "Director Stock Option" means an Option granted to an Eligible Director. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to fall under the provisions of Section 422A of the Code.
(h) "Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any of its subsidiaries.
(i) "Fair Market Value" means the closing price of the Stock as reported by the New York Stock Exchange on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.
(j) "Option" means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option, other than a Director Stock Option, may be either (i) an incentive stock option within the meaning of Section 422A of the Code or (ii) a nonqualified stock option whose grant is intended not to fall under the provisions of Section 422A.
(k) "Option Agreement" means an agreement entered into between the Corporation and an employee or an Eligible Director in the form prescribed by the Committee.
(l) "Option Price" means the price at which each share of Stock subject to an Option may be purchased, determined in accordance with Section 8.4 herein.
(m) "Participant" means any individual, other than an Eligible Director, designated by the Committee to participate in the Plan pursuant to Section 3.1 herein.
(n) "Period of Restriction" means the period during which the transfer of shares of Restricted Stock and/or Performance Shares is restricted pursuant to Section 10 and/or Section 11 of the Plan.
(o) "Performance Awards" means awards of cash granted to a Participant pursuant to Section 12 of the Plan.
(p) "Performance Objective" shall mean the performance measure(s) and the achievement goals of the Corporation or one or more of its subsidiaries set by the Committee.
(q) "Performance Period" shall mean two or more successive fiscal years of the Corporation with respect to which a Performance Share or Performance Award may be earned pursuant to this Plan. Performance Periods shall begin with the first day of the fiscal year in which a Performance Share or Performance Award is granted. The length of a Performance Period shall be at the discretion of the Committee. For each Performance Share and Performance Award, no more than one Performance Period shall begin in any one fiscal year of the Corporation.
(r) "Performance Shares" means Stock granted to a Participant pursuant to Section 11 of the Plan. Each Performance Share shall be the equivalent of one share of Stock.
(s) "Restricted Stock" means Stock granted to a Participant pursuant to
Section 10 of the Plan.
(t) "Restricted Stock Agreement" means an agreement entered into between the Corporation and the Employee in the form prescribed by the Committee.
(u) "Retirement," "Normal Retirement," and "Early Retirement" means termination of employment as defined in the BANC ONE CORPORATION Retirement Plan.
(v) "Stock" means the common stock of the Corporation, without par value.
(w) "Stock Appreciation Right" and "SAR" means the right to receive a cash payment from the Corporation equal to the excess of the Fair Market Value of a share of Stock at the date of exercise over a specified price fixed by the Committee which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of a Stock Appreciation Right which is granted in conjunction with an Option, the specified price shall be the Option exercise price.
2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.
SECTION 3. Eligibility and Participation
3.1 Eligibility and Participation. Participants in the Plan shall be selected by the Committee from among those employees of the Corporation and its subsidiaries who are recommended for participation by the Chief Executive Officer of the Corporation and who, in the opinion of the Committee, are in a position to contribute materially to the Corporation's continued growth, development, and long-term financial success. Persons serving on the Committee shall not be eligible to be a Participant.
3.2 Eligible Directors. Eligible Directors are entitled to participate in the Plan solely with respect to the grant of Director Stock Options and may not receive any other Award under the Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options.
SECTION 4. Administration
4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Corporation, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the explicit provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever.
SECTION 5. Stock Subject to Plan
5.1 Number. The total number of shares of Stock subject to issuance under the Plan may not exceed six million three hundred thousand (6,300,000) subject to adjustment upon occurrence of any of the events indicated in Subsection 5.3. Of this total number, up to six million (6,000,000) shares of Stock may be granted in Restricted Stock or in common stock as a payout medium to Participants under the Plan and up to three hundred thousand (300,000) shares may be issued pursuant to the exercise of Director Stock Options. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or issued stock reacquired and held as treasury Stock not reserved for any other purpose.
5.2 Unused Stock. In the event any shares of Stock that are subject to an Option which, for any reason, expires or is terminated unexercised as to such shares, or any shares of Stock subject to a Restricted Stock or Performance Share grant made under the Plan are reacquired by the Corporation pursuant to the Plan, such shares again shall become available for issuance under the Plan except as provided in Section 9.4.
5.3 Adjustment in Capitalization. In the event that subsequent to the date of adoption of the Plan by the Board the shares of Stock should as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change, be increased or decreased or changed into or exchanged for a different number or kind of shares of Stock or other securities of the Corporation or of another corporation, then (a) there shall automatically be substituted for each share of Stock subject to an unexercised Option (in whole or in part) granted under the Plan and each share of Stock available for additional grants of Options under the Plan the number and kind of shares of Stock or other securities into which each outstanding share of Stock shall be changed or for which each such shares shall be exchanged, (b) the Option Price shall
be increased or decreased proportionately so that the aggregate purchase price for the securities subject to the Option shall remain the same as immediately prior to such event and (c) the Board shall make such other adjustments to the securities subject to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable. Any such adjustment may provide for the elimination of fractional shares. In such event, the Committee also shall have discretion to make appropriate adjustments in the number and type of shares subject to Restricted and Performance Share grants then outstanding under the Plan pursuant to the terms of such grants or otherwise.
SECTION 6. Stock Appreciation Rights Subject to Plan
6.1 Unexercised Rights. In the event any Stock Appreciation Rights expire unexercised, such Stock Appreciation Rights again shall become available for issuance under the Plan.
6.2 Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after ratification of the Plan by the shareholders of the Corporation by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the Committee shall make appropriate adjustments in the number of outstanding Stock Appreciation Rights and the related grant values.
SECTION 7. Duration of Plan
The Plan shall remain in effect, subject to the Board's right to earlier terminate the Plan pursuant to Section 16 hereof, until all Stock subject to it shall have been purchased or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Option, Stock Appreciation Right, Restricted Stock, Performance Share or Performance Award may be granted under the Plan on or after the tenth (10th) anniversary of the Plan's effective date.
SECTION 8. Stock Options
8.1 Grant of Options Other than Director Stock Options. Subject to the provisions of Sections 5 and 7, Options other than Director Stock Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee also shall determine, whether an Option is to be an incentive stock option within the meaning of Code Section 422A, or a nonqualified stock option whose grant is intended not to fall within the provisions of Section 422A. However, in no event shall the aggregate Fair Market Value (determined at the date of grant) of the stock for which incentive stock options are first exercisable in a particular calendar year exceed $100,000, computed in accordance with Section 422A(b)(7) of the Code. An incentive stock option shall not be granted to any person who owns, directly or indirectly, Stock possessing more than 10% of the total combined voting power of all classes of Stock of the Corporation. Nothing in this Section 8 shall be deemed to prevent the grant of nonqualified stock options in excess of the maximum established by Section 422A of the Code.
8.2 Grant of Director Stock Options. Subject to the provisions of Sections 5 and 7, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8.2 and the Committee shall have no discretion with respect to any matters set forth in this Section 8.2.
(a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant.
(b) Number of Shares. Director Stock Options shall be granted as follows:
(i) Each Eligible Director on the effective date of the Plan shall automatically be granted a Director Stock Option for 3,000 shares of Stock.
(ii) Each other person who is elected or appointed to serve as a director of the Corporation after the effective date of the Plan and who is an Eligible Director shall, upon his initial appointment or election as an Eligible Director, automatically be granted a Director Stock Option for 3,000 shares of Stock;
(iii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1990 and immediately after the adjournment of the Annual Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted a Director Stock Option for 1,000 shares of Stock if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%.
8.3 Option Agreement. Each Option shall be evidenced by an Option Agreement that shall specify the type of Option granted, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other provisions as the Committee shall determine.
8.4 Option Price. No Option granted pursuant to the Plan shall have an Option Price that is less than the Fair Market Value of the Stock on the date the Option is granted.
8.5 Duration of Options. Each Option, other than Director Stock Options, shall expire at such time as the Committee shall determine at the time it is granted; provided, however, that no Option, other than incentive stock options within the meaning of Section 422A of the Code, shall be exercisable later than twenty years and one day from the date of its grant and no such incentive stock option shall be exercisable more than ten years and one day from the date of grant. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant.
8.6 Exercise of Options. Options granted under the Plan other than Director Stock Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for all Participants.
8.7 Payment. The Option Price upon exercise of any Option shall be payable to the Corporation in full either (i) in cash or its equivalent, or (ii) by tendering shares of previously acquired Stock having a Fair Market Value at the time of exercise equal to the total Option Price, or (iii) by a combination of (i) and (ii). The proceeds from such a payment shall be added to the general funds of the Corporation and shall be used for general corporate purposes. As soon as practicable after receipt of full payment (including the necessary tax withholding), the Corporation shall deliver to the Participant or the Eligible Director, as the case may be, Stock certificates in an appropriate amount based upon the number of Options exercised, issued in the name of the Participant or the Eligible Director, as the case may be.
8.8 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares.
8.9 Termination of Employment. If the employment of a Participant terminates, other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section.
(a) Retirement Under the Retirement Plan. When a Participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any award may be accelerated.
(b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancellation pursuant to Section 8.10 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest.
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement.
(ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability.
(iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries.
(iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 8.9, the Committee's determination shall be binding and conclusive.
(d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants.
8.10 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement.
8.11 Termination of Eligible Director Shares. In the event that an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to the Plan which are exercisable as of the date he ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8.5, above, or three months after such cessation date, whichever first occurs; provided, however, that if he ceases to be an Eligible Director by reason of death, the three-month period shall be extended to the sooner of twelve (12) months and five (5) days or the expiration date of the Director Stock Option.
8.12 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. All Options granted to a Participant or an Eligible Director under the Plan shall be exercisable during his lifetime only by such Participant or Eligible Director.
SECTION 9. Stock Appreciation Rights
9.1 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 6 and 7, Stock Appreciation Rights may be granted to Participants at any time and from time to time as shall be determined by the Committee. An SAR may be granted, in the discretion of the Committee, in any of the following forms:
(a) In lieu of Options,
(b) In addition to Options,
(c) Upon lapse of Options, or
(d) Independent of Options.
9.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of Options may be exercised for all or part of the shares of Stock subject to the related Option upon the surrender of the right to exercise an equivalent number of Options. The SAR may be exercised only with respect to the shares of Stock for which its related Option is then exercisable. SARs granted in lieu of Options will lapse in the event and to the extent that the related Option is exercised.
9.3 Exercise of SARs in Addition to Options. SARs granted in addition to Options shall be deemed to be exercised upon the exercise of the related Options.
9.4 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of Options shall be deemed to have been exercised upon the lapse of the related Options as to the number of shares of Stock subject to the Options.
9.5 Exercise of SARs Independent of Options. SARs granted independent of Options may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon the SARs.
9.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to receive payment of an amount (subject to Section 9.8 below) determined by multiplying:
(a) The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant, by
(b) The number of shares with respect to which the SAR is exercised.
9.7 Form and Timing of Payment. At the discretion of the Committee, payment for SARs may be made in cash or stock, or in a combination thereof. If payment is made in Stock, the value of such Stock shall be the Fair Market Value determined as of the date of exercise.
9.8 Limit on Appreciation. At the time of grant, the Committee may establish, in its sole discretion, a maximum amount per share which will be payable upon exercise of an SAR.
9.9 Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Rule 16b-3 (or any successor rule), under the Securities Exchange Act of 1934.
9.10 Term of SAR. The term of an SAR granted under the Plan shall not exceed ten years and one day.
9.11 Termination of Employment. In the event the employment of a Participant is terminated by reason of Death, Disability, Retirement, or any other reason, any SARs outstanding shall terminate in the same manner as specified for Options under Sections 8.9 and 8.10 herein.
9.12 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
SECTION 10. Restricted Stock Awards.
10.1 Grant of Restricted Stock. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may award shares of Restricted Stock under the Plan to such Participants and in such amounts as it shall determine. Each Restricted Stock Award shall be evidenced by a Restricted Stock Agreement that shall specify the Period or Periods of Restriction, the number of Restricted Stock shares awarded, and such other provisions as the Committee shall determine.
10.2 Transferability. Except as provided in this Section 10, the shares of Restricted Stock awarded hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the Restricted Stock Agreement, or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement.
10.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock awarded pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable federal or state securities or tax laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.
10.4 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 10.3 hereof, each certificate representing shares of Restricted Stock granted pursuant to the Plan shall bear a legend which is comparable to the following:
"The sale or other transfer of this certificate or the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer and other terms and conditions set forth in the BANC ONE CORPORATION 1989 Stock Incentive Plan and a Restricted Stock Agreement dated , 19 . A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271-0261."
10.5 Removal of Restrictions. Except as otherwise provided in this
Section 10, shares of Restricted Stock covered by each Restricted Stock Award
made under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction. Once the shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 10.4 removed from his Stock certificates.
10.6 Voting Rights. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder may exercise full voting rights with respect to those shares.
10.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid.
10.8 Termination of Employment. If the employment of a Participant terminates other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section.
(a) Retirement Under the Retirement Plan. When a participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any Award may be accelerated.
(b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancelation pursuant to Section 10.9 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest.
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement.
(ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability.
(iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries.
(iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 10.8, the Committee's determination shall be binding and conclusive.
(d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants.
10.9 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement.
SECTION 11. Performance Shares
11.1 Grant of Performance Shares. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Shares to such Participants and in such amounts as it shall determine. Each grant of Performance Shares shall be in writing.
11.2 Performance Period. The period over which Performance Shares may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee, in its sole discretion, but shall not be less than two years.
11.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the number of the Performance Shares payable at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period.
The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives.
11.4 Payment of Awards. All payments pursuant to Performance Share grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in Stock. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan.
11.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination.
In the event that a Participant terminates his employment with the Corporation because of Early Retirement, any Performance Shares outstanding at the date of such Early Retirement automatically shall be forfeited; provided, however, that the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Shares as it deems appropriate. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination.
11.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination.
11.7 Termination of Employment for Reasons Other Than Death, Disability or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 1 1.5 and 11.6 hereof during the Performance Period, then any Performance Shares still outstanding at the date of such termination automatically shall be forfeited; provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Shares as it deems appropriate, and pay a prorated award.
11.8 Nontransferability of Performance Shares. No Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent
and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
SECTION 12. Performance Awards
12.1 Grant of Performance Awards. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Awards under the Plan to Such Participants and in such amounts as it shall determine. Each grant of Performance Awards shall be in writing.
12.2 Performance Period. The period over which Performance Awards may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee in its sole discretion but shall not be less than two years.
12.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the value of the Performance Awards at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period.
The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives.
12.4 Payment of Awards. All payments pursuant to Performance Award grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in cash. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan.
12.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payment of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination.
In the event that a Participant terminates his employment with the Corporation because of Early Retirement, the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Awards as it deems appropriate. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination.
12.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination.
12.7 Termination of Employment for Reasons Other Than Death, Disability, or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 12.5 and 12.6 hereof during the Performance Period, then any Performance Awards still outstanding at the date of such termination automatically shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Awards as it deems appropriate and pay a prorated award.
12.8 Nontransferability of Performance Awards. No Performance Awards granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
SECTION 13. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his estate.
SECTION 14. Rights of Employees
14.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Corporation to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation.
14.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.
SECTION 15. Change in Control
15.1 In General. In the event that (a) the Corporation is a party to a merger or consolidation agreement, (b) the Corporation is a party to an agreement to sell substantially all of its assets, or (c) there is a change in control of the Corporation as defined in Section 15.3 below, the Committee may, in its sole discretion, provide that all outstanding Awards shall become 100% vested, that all outstanding Options and SARs shall become immediately exercisable and that any Period of Restriction shall immediately lapse. Performance Share and Performance Award values shall be computed as if the most recently completed full fiscal year was the end of the Performance Period, except that no Performance Share or Performance Award payable under this Section, except as limited by Section 15.2 hereof, may be less than would have been paid had the Corporation achieved 100% of its Performance Objectives.
15.2 Limitation on Payments. If the receipt of any payment under this
Section by any Participant shall, in the opinion of independent tax counsel of
recognized standing selected by the Corporation, result in the payment by such
Participant of any excise tax provided for in Section 280G and Section 4999 of
the Code, then the amount of such payment shall be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the imposition
of such excise tax.
15.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the following events:
(i) The acquisition of "beneficial ownership", as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), of twenty percent (20%) or more of the total voting capital Stock of the Corporation then issued and outstanding, by any person, or "group", as defined in Section 13(d)(3) of the Exchange Act, or
(ii) Individuals who were members of the Board of the Corporation immediately prior to a meeting of the shareholders of the Corporation involving a contest for the election of directors do not constitute a majority of the Board immediately following such election, unless the election of such new directors was recommended to the shareholders by management of the Corporation.
The Board has final authority to determine the exact date on which a change in control has been deemed to have occurred under (i) and (ii) above.
SECTION 16. Amendment, Modification, and Termination of Plan
The Board may at any time terminate and, from time to time, may amend or modify the Plan, provided, however, that no such action of the Board, without approval of the shareholders, may:
(a) Increase the total amount of Stock which may be issued under the Plan, except as provided in Subsections 5.1 and 5.3 of the Plan.
(b) Change the provisions of the Plan regarding the Option Price except as permitted by Subsection 5.3.
(c) Materially increase the cost of the Plan or materially increase the benefits to Participants.
(d) Extend the period during which Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards may be granted.
(e) Extend the maximum period after the date of grant during which Options may be exercised.
No amendment, modification, or termination of the Plan shall in any manner adversely affect any Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards theretofore granted under the Plan, without the consent of the Participant or the Eligible Director, as the case may be.
SECTION 17. Tax Withholding
(a) The Corporation shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant or an Eligible Director, as the case may be, is required to pay to the Corporation an amount required to be withheld under applicable income tax laws In connection with a distribution of common stock or upon exercise of an Option or SAR, the Participant or an Eligible Director, as the case may be, may satisfy this obligation in whole or in part by electing (the "Election") to have the Corporation withhold from the distribution shares of common stock having a value equal to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the common stock on the date that the amount of tax to be withheld shall be determined ("Tax Date").
(b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any grant that the right to make Elections shall not apply to such Grant. An Election is irrevocable.
SECTION 18. Indemnification
Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, Suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of Indemnification, shall not be exclusive of any other rights of Indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless.
SECTION 19. Requirements of Law
19.1 Requirements of Law. The granting of Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or performance Awards, and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
19.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and be governed by the laws of the State of Ohio.
Amended: Oct., 1996 - Section 2 - Definition of Committee Sections 8.9, 8.10 & 10.8 - Matters re: Termination of Employment Section 17(c) Deleted Apr., 1992 - Section 5.1 Stock Subject to Plan Increased |
Exhibit 10.15
REVISED AND RESTATED
BANC ONE CORPORATION
1995 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of the BANC ONE CORPORATION 1995 Stock Incentive Plan is to provide incentives and rewards for Employees and Eligible Directors of the Corporation and its Subsidiaries (i) to support the execution of the Corporation's business and human resource strategies and the achievement of its goals and (ii) to associate the interests of Employees and Eligible Directors with those of the Corporation's shareholders.
2. DEFINITIONS
"Award" includes, without limitation, stock options (including incentive stock options under Section 422 of the Code and Director Stock Options), stock appreciation rights, restricted and performance shares, restricted and performance share units, Performance Stock Awards, dividend or equivalent rights, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand alone, combination or tandem basis, as described in or granted under this Plan.
"Award Agreement" means a written agreement entered into between the Corporation and a Participant setting forth the terms and conditions of an Award made to such Participant under this Plan, in the form prescribed by the Committee.
"Board" means the Board of Directors of the Corporation.
"Change of Control" shall have the meaning specified in Section 12(b).
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the Committee appointed by the Board, each member of
which shall be a "non-employee director" within the meaning of Rule 16b-3 under
the Exchange Act and shall be an "outside director" within the meaning of
Section 162(m) of the Code. The Committee shall be composed of no fewer than the
minimum number of disinterested persons as may be required by Rule 16b-3.
"Common Stock" means the common stock of the Corporation, without par value.
"Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio.
"Director Stock Option" means the right, granted to an Eligible Director, to purchase Common Stock at a stated price for a specified period of time. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to comply with the requirements of Section 422 of the Code or any successor Section as it may be amended from time to time.
"Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any Subsidiary.
"Employee" means an employee of the Corporation or a Subsidiary.
"Employee Award" means an Award (other than a Director Stock Option) to an Employee under this Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing price of the Common Stock as reported on the New York Stock Exchange Composite Transactions Tape on the relevant valuation date or, if there were no Common Stock transactions on the valuation date, on the next preceding date on which there were Common Stock transactions; provided, however, that the Committee may specify some other definition of Fair Market Value with respect to any particular Employee Award.
"Negative Discretion" means other factors to be applied by the Committee in reducing the number of restricted shares to be issued pursuant to a Performance Stock Award if the Performance Goals have been met or exceeded if, in the Committee's sole judgment, such application is appropriate in order to act in the best interest of the Corporation and its shareholders. The Negative Discretion factors include, but are not limited to, the achievement of measurable individual performance objectives established by the Committee and communicated to the Employee in advance of the Performance Period, and competitive pay practices.
"Participant" means an Employee or an Eligible Director who has been granted an Award under this Plan.
"Performance Goals" means, with respect to any Performance Period,
performance goals based on any of the following criteria and established by the
Committee prior to the beginning of such Performance Period or performance goals
based on any of the following criteria and established by the Committee after
the beginning of such Performance Period that meet the requirements to be
considered pre-established performance goals under Section 162(m) of the Code:
earnings or earnings growth; return on equity, assets or investment; revenues;
expenses; stock price; market share; charge-offs; or reductions in
non-performing assets. Such Performance Goals may be particular to an Employee
or the division, department, branch, line of business, Subsidiary or other Unit
in which the Employee works, or may be based on the performance of the
Corporation generally.
"Performance Period" means the period of time designated by the Committee applicable to a Performance Stock Award during which the Performance Goals shall be measured.
"Performance Stock Award" shall have the meaning specified in Section 6(g).
"Plan" means this BANC ONE CORPORATION 1995 Stock Incentive Plan.
"Plan Year" means a twelve-month period beginning with January 1 of each year.
"Reporting Person" means an officer or director of the Corporation subject to the reporting requirements of Section 16 of the Exchange Act.
"Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise.
3. ELIGIBILITY
(a) Any Employee selected by the Committee is eligible to receive an Employee Award.
(b) Eligible Directors are entitled to participate in this Plan solely with respect to the grant of Director Stock Options and may not receive any other Awards under this Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options.
4. PLAN ADMINISTRATION
(a) This Plan shall be administered by the Committee. The Committee shall periodically make determinations with respect to the participation of Employees in this Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, performance standards (including Performance Goals), length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons.
(b) The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Reporting Persons.
5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The stock subject to the provisions of this Plan shall either be shares
of authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Corporation,
including shares purchased on the open market. Subject to adjustment in
accordance with the provisions of Section 11, and subject to Section 5(d), (i)
the total number of shares of Common Stock available for grants of Awards
(including, without limitation, Awards of restricted and performance shares) in
any Plan Year shall not exceed one percent of the outstanding Common Stock as
reported in the Corporation's Annual Report on Form 10-K for the fiscal year
ending immediately prior to such Plan Year and (ii) the total number of shares
of Common Stock available for grants of restricted and performance shares
(including restricted shares to be issued pursuant to Performance Stock Awards)
in any Plan Year shall not exceed one fourth of one percent of the outstanding
Common Stock as reported in the Corporation's Annual Report on form 10- K for
the fiscal year ending immediately prior to such Plan Year.
(b) Subject to adjustment in accordance with Section 11, and subject to
Section 5(a), (i) the total number of shares of Common Stock available for
grants of Awards in any Plan Year to any Participant shall not exceed one half
of one percent of the outstanding Common Stock as reported in the Corporation's
Annual Report on Form 10-K for the fiscal year ending immediately prior to such
Plan Year and (ii) the total number of shares of Common Stock available for
grants of restricted shares to be issued pursuant to Performance Stock Awards in
any Plan Year to any Employee shall not exceed one eighth of one percent of the
outstanding Common Stock as reported in the Corporation's Annual Report on form
10-K for the fiscal year ending immediately prior to such Plan Year.
(c) For purposes of calculating the total number of shares of Common Stock available for grants of Awards, (i) the grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares of Common Stock which may be issued under the Award and (ii) where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares of Common Stock available for Awards granted under this Plan.
(d) There shall be carried forward and be available for Awards under this
Plan in each succeeding Plan Year, in addition to shares of Common Stock
available for grant under paragraph (a) of this Section 5, all of the following:
(i) any unused portion of the limit set forth in paragraph (a) of this Section 5
for the two immediately preceding Plan Years; (ii) shares of Common Stock
represented by Awards which have been canceled, forfeited, surrendered,
terminated or expire unexercised during that Plan Year or the two immediately
preceding Plan Years; (iii) the excess amount of variable Awards which become
fixed at less than their maximum limitations; (iv) authorized shares of Common
Stock as to which stock options, stock appreciation rights, restricted stock
awards, performance shares or performance awards were not granted under the BANC
ONE CORPORATION 1989 Stock Incentive Plan; and (v) shares of Common Stock under
the BANC ONE CORPORATION 1989 Stock Incentive Plan subject to stock options,
stock appreciation rights, restricted stock awards, performance shares or
performance awards which have been canceled, forfeited, surrendered, terminated
or expire unexercised during that Plan Year or the two immediately preceding
Plan Years.
6. EMPLOYEE AWARDS UNDER THIS PLAN
As the Committee may determine, the following types of Employee Awards may be granted under this Plan to Employees on a stand alone, combination or tandem basis:
(a) Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the Award.
(b) Incentive Stock Option. An award in the form of a stock option which
shall comply with the requirements of Section 422 of the Code or any successor
Section as it may be amended from time to time.
(c) Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted.
(d) Restricted and Performance Shares. A transfer of shares of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine.
(e) Restricted and Performance Share Unit. A fixed or variable share or dollar denominated unit subject to conditions of vesting, performance and time of payment as the Committee may determine, which may be paid in shares of Common Stock, cash or a combination of both.
(f) Dividend or Equivalent Right. A right to receive dividends or their equivalent in value in shares of Common Stock, cash or in a combination of both with respect to any new or previously existing Employee Award.
(g) Performance Stock Awards. A right, granted to an Employee, to receive restricted shares (as defined in Section 6(d) hereof) that are not to be issued to the Employee until after the end of the related Performance Period, subject to satisfaction of the Performance Goals for such Performance Period.
(h) Other Common Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Employee Awards set forth in this Section 6.
In addition to granting Employee Awards for purposes of incentive compensation, Employee Awards may also be made in tandem with or in lieu of current or deferred Employee compensation.
7. PERFORMANCE STOCK AWARDS.
(a) Administration. Performance Stock Awards may be granted to Employees either alone or in addition to other Employee Awards granted under this Plan. The Committee shall determine the Employees to whom Performance Stock Awards shall be awarded for any Performance Period, the duration of the applicable Performance Period, the number of restricted shares to be awarded at the end of a Performance Period to Employees if the Performance Goals are met or exceeded and the terms and conditions of the Performance Stock Award in addition to those contained in this Section 7.
(b) Payment of Award. After the end of a Performance Period, the financial performance of the Corporation during such Performance Period shall be measured against the Performance Goals. If the Performance Goals are not met, no restricted shares shall be issued pursuant to the Performance Stock Award. If the Performance Goals are met or exceeded, the Committee shall certify that fact in writing in the Committee minutes or elsewhere and certify the number of restricted shares to be issued under each Performance Stock Award in accordance with the related Award Agreement. The Committee may, in its sole discretion, apply Negative Discretion to reduce the number of restricted shares to be issued under a Performance Stock Award.
(c) Requirement of Employment. To be entitled to receive a Performance Stock Award, an Employee must remain in the employment of the Corporation through the end of the Performance Period, except that the Committee may provide for partial or complete exceptions to this requirement as it deems equitable in its sole discretion.
8. DIRECTOR STOCK OPTIONS
Subject to the provisions of Section 5, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8 and the Committee shall have no discretion with respect to any matters set forth in this Section 8.
(a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant.
(b) Number of Shares. Director Stock Options shall be granted as follows:
(i) Each person who is first elected or appointed to serve as a director of the Corporation after the effective date of this Plan and who is an Eligible Director shall, upon such person's initial appointment or election as an Eligible Director, automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $100,000 on the date the Director Stock Options are granted; and
(ii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1995 and immediately after the adjournment of the Annual
Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $60,000 on the date the Director Stock Options are granted if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%.
(c) Option Price. Each Director Stock Option shall have an option price ("Option Price") that is equal to the Fair Market Value of the Common Stock on the date the Director Stock Option is granted.
(d) Duration of Options. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant.
(e) Payment. The Option Price upon exercise of any Director Stock Option
shall be payable to the Corporation in full either (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the
Corporation, by money transfers or direct account debits, (ii) through the
delivery or deemed delivery based on attestation of ownership of shares of
Common Stock with a Fair Market Value at the time of exercise equal to the total
Option Price or (iii) by a combination of the methods described in items (i) and
(ii) above.
(f) Termination of Director Stock Options. If an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to this Plan which are exercisable as of the date such person ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8(d), above, or three years after such cessation date, whichever first occurs. Any then outstanding Director Stock Option granted to such Eligible Director which is not exercisable as of the date such person ceases to be an Eligible Director shall terminate on and as of such date.
9. OTHER TERMS AND CONDITIONS
(a) Assignability. Except to the extent, if any, as may be permitted by the Code and rules promulgated under Section 16 of the Exchange Act, (i) no Award shall be assignable or transferable except by will, by the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Code and as determined or established by the Committee, and (ii) during the lifetime of a Participant, an Award shall be exercisable only by such Participant, such Participant's guardian, legal representative or assignee pursuant to a qualified domestic relations order or as determined or established by the Committee. An Award shall not otherwise be assignable.
(b) Award Agreement. Each Award under this Plan shall be evidenced by an Award Agreement.
(c) Rights As A Shareholder. Except as otherwise provided herein or in any Award Agreement, a Participant shall have no rights as a shareholder with respect to shares of Common Stock covered by an Award until the date the Participant or his nominee (which, for purposes of this Plan, shall include any third party agent selected by the Committee to hold such shares on behalf of a Participant), guardian or legal representative is the holder of record of such shares.
(d) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Employee Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate.
(f) Tax Withholding. The Corporation shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Corporation an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Corporation withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date and (ii) the election must be subject to the disapproval of the Committee.
(g) Restrictions On Sale and Exercise. With respect to Reporting Persons, and if required to comply with rules promulgated under Section 16 of the Exchange Act, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of shares of Common Stock by the Participant for at least six months from the date of grant, and (ii) shares of Common Stock acquired pursuant to this Plan (other than shares of Common Stock acquired as a result of the granting of a "derivative security") may not be sold or otherwise disposed of for at least six months after acquisition.
(h) Requirements of Law. The granting of Awards and the issuance of shares of Common Stock upon the exercise of Awards shall be subject to all applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed. As a condition precedent to the issuer of shares of Common Stock pursuant to the grant or exercise of an Award, the Corporation may require the Participant to take any reasonable action to meet such requirements.
10. AMENDMENTS
(a) Except as otherwise provided in this Plan, the Board may at any time terminate and, from time to time, may amend or modify this Plan. Any such action of the Board may be taken without the approval of the Corporation's shareholders, but only to the extent that such shareholder approval is not required by applicable law or regulation, including specifically Rule 16b-3 under the Exchange Act.
(b) No amendment, modification or termination of this Plan shall in any manner adversely affect any Awards theretofore granted to a Participant under this Plan without the consent of such Participant.
11. RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change. Any such adjustment may provide for the elimination of fractional shares.
12. NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Corporation or a Subsidiary. Nothing in this Plan shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation or any Subsidiary.
13. CHANGE OF CONTROL
(a) Subject to the provisions of Section 13(c) below, notwithstanding anything contained in this Plan, the provisions of Section 13(a)(iii) below or any Award Agreement to the contrary, in the event of a Change of Control, as defined below, the following (x) may, in the sole discretion of the Committee, occur with respect to any and all Employee Awards outstanding as of such Change of Control and (y) shall occur with respect to any and all Director Stock Options outstanding as of such Change of Control:
(i) automatic maximization of performance standards, lapse of all restrictions and acceleration of any time periods relating to the exercise, realization or vesting of such Awards so that such Awards may be immediately exercised, realized or vested in full on or before the relevant date fixed in the Award Agreement;
(ii) performance shares or performance units shall be paid entirely in cash;
(iii) upon exercise of a stock option or an incentive stock option (collectively, an "Option") during the 60-day period from and after the date of a Change of Control, the Participant exercising the Option may in lieu of the receipt of Common Stock upon the exercise of the Option, elect by written notice to the Corporation to receive an amount in cash equal to the excess of the aggregate Value (as defined below) of the shares of Common Stock covered by the Option or portion thereof surrendered determined on the date the Option is exercised, over the aggregate exercise price of the Option (such excess is referred to herein as the "Aggregate Spread"); provided, however, and notwithstanding any other provision of this Plan, if the end of such 60-day period from and after the date of a Change of Control is within six months of the date of grant of an Option held by a Participant who is a Reporting Person, such Option shall be canceled in exchange for a cash payment to the Participant equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Option. As used in this Section 13(a)(iii) the term "Value" means the higher of (i) the highest Fair Market Value during the 60-day period from and after the date of a Change of Control and (ii) if the Change of Control is the result of a transaction or series of transactions described in paragraphs (i) or (iii) of the definition of Change of Control, the highest price per share of the Common Stock paid in such transaction or series of transactions (which in the case of paragraph (i) shall be the highest price per share of the Common Stock as reflected in a Schedule 13D filed by the person having made the acquisition);
(iv) if a Participant's employment terminates for any reason other than retirement or death following a Change of Control, any Options held by such Participant may be exercised by such Participant until the earlier of three months after the termination of employment or the expiration date of such Options; and
(v) all Awards become non-cancelable.
(b) A "Change of Control" of the Corporation shall be deemed to have occurred upon the happening of any of the following events:
(i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership of 20% or more of either the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; provided, however, that any acquisition by the Corporation or any of its Subsidiaries, or any employee benefit plan (or related trust) of the Corporation or its Subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Stock and voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, as the case may be, shall not constitute a Change of Control;
(ii) individuals who, as of January 1, 1995, constitute the Board as of the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to such date whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) approval by the shareholders of the Corporation of a reorganization, merger or consolidation of the Corporation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Corporation or of the sale or other disposition of all or substantially all of the assets of the Corporation.
(c) If any right granted pursuant to Section 13(a) would make a Change of
Control transaction ineligible for pooling of interests accounting that but for
Section 13(a) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute the cash payable pursuant to
Section 13(a) with Common Stock with a Fair Market Value equal to the cash that
would otherwise be payable thereunder.
14. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the law of the State of Ohio.
15. INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless.
16. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Employees who are Reporting Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by laws, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are Reporting Persons without so restricting, limiting or conditioning this Plan with respect to other Participants.
17. EFFECTIVE DATE AND TERM
The effective date of this Plan is April 17, 1995 subject to its approval by the Corporation's shareholders at their next annual meeting or at any adjournment thereof, within twelve months following the date of its adoption by the Board. This Plan shall remain in effect until terminated by the Board.
Amended:
Oct. 1996 - Section 2 - Definition of Committee
Section 9(f) - Tax Withholding
Jan. 1997 - Section 9(a) - Assignability
Jan. 1998 - Section 10 - Amendments - former Section 10(b) deleted
Section 13(a) - Change of Control
Section 13(c) - Change of Control added
Revised 5/30/97
Revised 6/2/97 (tab spacing change only)
Revised 2/27/98
Revised 3/10/98 (correct two typos)
Award Agreement |
These terms and conditions are made part of the Award Agreement dated as of
January 20, 2009 (Grant Date) awarding Stock Appreciation Rights pursuant
to the terms of the JPMorgan Chase & Co. Long-Term Incentive Plan (Plan).
To the extent the terms of the Award Agreement (all references to which
will include these terms and conditions) conflict with the Plan, the Plan
will govern. The Award Agreement, the Plan and Prospectus supersede any
other agreement, whether written or oral, that may have been entered into
by the Firm and you relating to this award.
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This award was granted on the Grant Date subject to the Award Agreement.
Unless you decline by the deadline and in the manner specified in the Award
Agreement, you will have agreed to be bound by these terms and conditions,
effective as of the Grant Date.
If you decline the award, it will be
cancelled as of the Grant Date.
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Capitalized terms that are not defined in the Award Agreement will have the
same meaning as set forth in the Plan.
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JPMorgan Chase & Co. will be referred to throughout the Award Agreement as
JPMorgan Chase, and together with its subsidiaries as the Firm.
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Form and Purpose of Award |
Stock Appreciation Rights represent the right, following exercise, to
receive (without payment), a number of shares of JPMorgan Chase Common
Stock, the Fair Market Value of which, as of the date of exercise, is equal
to the excess of the Fair Market Value of one share of such Common Stock on
such exercise date over the Exercise Price, multiplied by the number of
Stock Appreciation Rights being exercised. The Firm will retain from each
distribution the number of shares of Common Stock required to satisfy tax
withholding obligations.
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The purpose of this award is, in part, to motivate your future performance
and to align your interests with those of the Firm and its shareholders.
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Exercisable Dates/Expiration
Date |
Your award will become exercisable on the Exercisable Dates set forth in
your Award Agreement, provided that you are continuously employed by the
Firm from the date of grant through the relevant Exercisable Date or you
meet the requirements to allow your award to remain outstanding upon
termination of employment as described below. Your award will remain
exercisable until the
earlier of
the tenth anniversary of the Grant Date
(the Expiration Date) or the date the award is cancelled pursuant to this
Award Agreement. No Stock Appreciation Right may be exercised after its
Expiration Date.
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Termination of Employment |
Except as explicitly set forth below under Job Elimination, Full Career
Eligibility and Death or Total Disability, any Stock Appreciation Rights
outstanding under this award will be cancelled effective on the date your
employment with the Firm terminates for any reason.
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Job Elimination:
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In the event that the Director Human Resources of the Firm or nominee in
their sole discretion determine that the Firm terminated your employment
because your job was eliminated, and provided that you continue to provide
services in a cooperative and professional manner as requested by the Firm
until the date your employment terminates (and subject to Your
Obligations and the other terms of this award), then any Stock
Appreciation Rights that were exercisable on your termination date will
remain exercisable for the ninety-day period immediately following your
termination date, but in no event beyond the Expiration Date.
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You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance
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above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled.
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Full Career Eligibility:
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Any Stock Appreciation Rights that were exercisable as of the date of your
employment termination will remain exercisable for a two year period
following your termination date but in no event beyond the Expiration Date
in the event that:
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you leave the Firm voluntarily, have completed at least five years
of continuous service with the Firm immediately preceding your termination
date,
and
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the sum of your age and Recognized Service (as defined below) on
your date of termination equals or exceeds 60,
and
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you provide at least 90 days advance written notice to the Firm of
your intention to voluntarily terminate your employment under this
provision during which notice period you provide such services as requested
by the Firm in a cooperative and professional manner and you do not perform
any services for any other employer,
and
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for the two year period following your termination date, you do not
(i) perform services in any capacity (including self-employment) for a
Financial Services Company (as defined below) or (ii) work in your
profession (whether or not for a non-Financial Services Company); provided
that you may work for a government, education or Not-for-Profit
Organization (as defined below).
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After receipt of such advance written notice, the Firm may choose to have
you continue to provide services during the 90-day period or shorten the
length of the 90-day notice period at the Firms discretion, but to a date
no earlier than the date you would otherwise meet the age and service
requirements.
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Additional advance notice requirements may apply in certain business units
(or equivalent organizational unit or department).
(See Special Notice
Period below.)
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You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled.
With respect to full career eligibility, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
Failure to provide such notification could impact your right to exercise.
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Death or Total Disability:
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If you die while employed by the Firm, or in the event your employment
terminates as a result of your permanent and total disability as defined in
the JPMorgan Chase & Co. Long Term Disability Plan (or for non-U.S.
employees the equivalent local country plan), then any Stock Appreciation
Rights that were exercisable as of the date of your termination will remain
exercisable for a two year period following your termination date but in no
event beyond the Expiration Date.
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In the case of your total disability, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
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In the case of death, your beneficiary is the designated beneficiary on
file with the Human Resources Department, or if no beneficiary has been
designated or survives you, then your
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estate.
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Any Stock Appreciation Rights that are not exercised within the applicable
two year period set forth above will be cancelled.
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Termination for Cause |
In the event your employment is terminated for Cause (as defined below), or
in the event that the Firm determines after the termination of your
employment that your employment could have been terminated for Cause, any
outstanding Stock Appreciation Rights as of your termination date will be
cancelled and you may be required to return to the Firm the value of
certain shares previously delivered to you. See Remedies for additional
information.
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Restriction on Disposition of Shares Derived from an Exercise Under this Award |
If you exercise any part of your award before the fifth anniversary of the
Grant Date, then you may not sell, assign, transfer, pledge or encumber the
net number of shares of Common Stock derived from such exercise until the
fifth anniversary of the Grant Date. Notwithstanding the foregoing, this
restriction on disposition and transfer of shares shall not apply to your
beneficiary in the event of your death.
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Your Obligations |
As consideration for the grant of this award, you agree to comply with and
be bound by the following:
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Non-Solicitation of Employees and Customers:
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During your employment by the Firm and for one year following the
termination of your employment (or if longer, the exercise period), you
will not directly or indirectly, whether on your own behalf or on behalf of
any other party, without the prior written consent of the Director Human
Resources of JPMorgan Chase: (i) solicit, induce or encourage any of the
Firms then current employees to leave the Firm or to apply for employment
elsewhere; (ii) hire any employee or former employee who was employed by
the Firm at the date your employment terminated, unless the individuals
employment terminated more than six months before the date of hire or
because his or her job was eliminated; or (iii) solicit or induce or
attempt to induce to leave the Firm, or divert or attempt to divert from
doing business with the Firm, any then current customers, suppliers or
other persons or entities that were serviced by you or whose names became
known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers,
suppliers or other persons or entities. This does not apply to publicly
known institutional customers that you service after your employment with
the Firm without the use of the Firms confidential or proprietary
information.
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These restrictions do not apply to authorized actions you take in the
normal course of your employment with the Firm, such as employment
decisions with respect to employees you supervise or business referrals in
accordance with the Firms policies
.
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Confidential Information:
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You may not, either during your employment with the Firm or thereafter,
directly or indirectly use or disclose to anyone any confidential
information related to the Firms business, except as explicitly permitted
by the JPMorgan Chase Code of Conduct and applicable policies or law or
legal process. Confidential information shall have the same meaning for
the Award Agreement as it has in the JPMorgan Chase Code of Conduct.
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Non-Disparagement:
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You may not, either during your employment with the Firm or thereafter,
make or encourage others to make any public statement or release any
information that is intended to, or reasonably could be foreseen to,
embarrass or criticize the Firm or its employees, directors or shareholders
as a group. This shall not preclude you from reporting to the Firms
management or directors or to the government or a regulator conduct you
believe to be in violation of the law or the Firms Code of Conduct or
responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or
regulatory investigation or proceeding.
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Cooperation
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You agree to cooperate fully with and provide full and accurate information
to the Firm and its counsel with respect to any matter (including any
audit, tax proceeding, litigation or
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governmental proceeding with respect
to which you may have knowledge or information, subject to reimbursement
for actual, appropriate and reasonable expenses incurred by you.
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Compliance with
Award Agreement:
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You agree that you will provide the Firm with any information reasonably
requested to determine compliance with the Award Agreement, and you
authorize the Firm to disclose the terms of the Award Agreement to any
third party who might be affected thereby, including your prospective
employer.
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Special Notice
Period:
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If you are a managing director, executive director or vice president (or
comparable title) of a business unit or equivalent organizational unit or
department (business unit) that requires as a condition of your continued
employment that you provide advance written notice (Special Notice
Period) of your intention to terminate your employment for any reason,
then as consideration for this Award, you shall provide the Firm advance
written notice of your election to terminate your employment as specified
by such business unit. In business units that require this Special Notice
Period, the current notice period is 90 days for managing directors (or
comparable title), 60 days for executive directors (or comparable title)
and 30 days for vice presidents (or comparable title). Please note that in
some cases, individuals may have specific agreements providing for longer
notice periods than those stated above. In those cases, the longer notice
period shall apply.
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After receipt of such notice, the Firm may choose to have you continue to
provide services during the applicable Special Notice Period or may place
you on a paid leave for all or part of the applicable Special Notice
Period. During the Special Notice Period, you shall continue to devote
your full time and loyalty to the Firm by providing services in a
cooperative and professional manner and not perform any services for any
other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to
waive or modify the length of the Special Notice Period.
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Regardless of whether the Special Notice Period applies to you, you must
comply with the 90-day advance notice period described under Full Career
Eligibility in the event you wish to terminate employment under the Full
Career Eligibility provision.
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Remedies |
In addition to the cancellation of the award as provided for in
Termination of Employment and Termination for Cause, if the Firm in its
sole discretion determines that (i) you are not in compliance with any of
the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or (ii) you have not returned
the applicable release of claims or other documents specified above within
the specified deadline, or (iii) you violated any of the provisions as set
forth above in Your Obligations, all outstanding Stock Appreciation
Rights under your award and any shares that are subject to the restriction
on disposition of shares described above will be immediately cancelled.
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In addition, if you received shares under this award resulting from an
exercise during the one year prior to (i) the violation of any of the
provisions as set forth above in Your Obligations or (ii) the termination
of your employment for Cause as described under Termination for Cause,
including a later determination by the Firm that your employment could have
been terminated for Cause (in which case the one year will be measured from
your actual termination date), you will be required to pay the Firm
liquidated damages by returning to the Firm an amount equal to the gain on
exercise (as of the exercise date), less withholding taxes. Payment may be
made in shares of Common Stock or in cash.
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You agree that this payment will be liquidated damages and is not to be
construed in any manner as a penalty. You acknowledge that a violation or
attempted violation of the obligations set forth herein will cause
immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any
court of competent jurisdiction, restraining any violation or further
violation of such obligations; such right to an injunction, however, shall
be cumulative and in addition to whatever other remedies the Firm may have
under law or equity. In any action or proceeding by the Firm to enforce
the terms and
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conditions of this Award Agreement where the Firm is the
prevailing party, the Firm shall be entitled to recover from you its
reasonable attorneys fees and expenses incurred in such action or
proceeding.
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Not a Shareholder Until
Exercise |
You shall not be deemed for any purpose to be or have rights as a
shareholder of JPMorgan Chase with respect to the shares of Common Stock
subject to Stock Appreciation Rights until such Stock Appreciation Rights
are exercised. No adjustments shall be made for cash dividends or
distributions or other rights for which the record date is prior to the
date you become a shareholder of record of JPMorgan Chase. Shares upon
exercise will be issued in accordance with JPMorgan Chases procedures for
issuing stock.
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Additional Conditions |
Notwithstanding any terms of this Award Agreement to the contrary:
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JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from the exercise of, all or any portion of this
award to the extent provided under the JPMorgan Chase Bonus Recoupment
Policy as in effect from time to time.
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JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from exercise of, all or any portion of this award
if JPMorgan Chase determines that this award was based on materially
inaccurate performance metrics or on any misrepresentation by you.
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If you are subject to Section 111 of the Emergency Economic
Stabilization Act of 2008 and any regulations or interpretations
promulgated thereunder or any other applicable statute or regulation
affecting your compensation (EESA or Other Applicable Law), then any
payment of any kind provided for by this Award Agreement must comply with
EESA or Other Applicable Law, and this Award Agreement shall be interpreted
or reformed to so comply.
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Administrative Provisions |
Binding Agreement:
The Award Agreement will be binding upon any successor
in interest to JPMorgan Chase, by merger or otherwise.
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Not a Contract of Employment:
Nothing contained herein constitutes a
contract of employment or continued employment. Employment is at-will and
may be terminated by either you or JPMorgan Chase for any reason at any
time. This award does not confer any right or entitlement to, nor does the
award impose any obligation on the Firm to provide, the same or any similar
award in the future.
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Exercise Procedures/Withholding Taxes
: The exercise of Stock Appreciation
Rights shall be in accordance with the Firms procedures for exercises of
such awards. The date of exercise shall be the date when the properly
completed notice of exercise is received and accepted by the Firm or its
designee in accordance with the Firms procedures.
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Following each exercise, the Firm will retain from each distribution the
number of shares of Common Stock required to satisfy applicable tax
obligations (including, to the extent legally permissible, recovery by the
Firm of fringe benefit taxes). If, according to local country tax
regulations, a withholding tax liability arises at a time after the date of
exercise, JPMorgan Chase may implement any procedures necessary to ensure
that the withholding obligation is fully satisfied, including, but not
limited to, restricting transferability of the shares.
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Assignment or Transfer:
Except as otherwise provided in this Award
Agreement, ,Stock Appreciation Rights shall not be assignable or
transferable or subject to any lien, obligation or liability. You may make
a gift of unexpired, unexercised Stock Appreciation Rights, subject to the
Firms prior consent, to an immediate family member or a trust (or similar
vehicle) for the benefit of these immediate family members (or
beneficiaries) as defined below. JPMorgan Chase may condition its prior
consent to receipt of an agreement by you and proposed transferee
containing such terms and conditions and undertakings as JPMorgan Chase
deems appropriate in its sole and absolute discretion. No attempted
transfer will be valid without the Firms prior consent. Immediate family
members include your parents, parents-in-law, children
|
5
(including adopted
children), grandchildren, and siblings or a trust exclusively for the
benefit of one or more of these immediate family members. Your spouse is an
Immediate Family Member but only if Stock Appreciation Rights are
transferred to a trust (or similar vehicle) for the benefit of such spouse,
which trust includes one or more other Immediate Family Members as
beneficiaries.
|
||
|
||
Right to Set Off:
The Firm may, to the maximum extent permitted by
applicable law, retain for itself funds or securities otherwise payable to
you pursuant to this award to satisfy any obligation or debt that you owe
to the Firm. Other than in the case of forfeiture or cancellation of an
award, the Firm may not retain such funds or securities until such time as
they would otherwise be distributable to you in accordance with the Award
Agreement.
|
||
|
||
Cancellation/Substitution
: JPMorgan Chase may, in its sole discretion and
for any reason, cancel outstanding unexercised Stock Appreciation Rights
and substitute an equal number of non-qualified stock options to purchase
the same number of shares of common stock of JPMorgan Chase represented by
the cancelled Stock Appreciation Rights. Such substituted options shall
have the same exercise price, Expiration Date and other terms and
conditions that were applicable to the Stock Appreciation Rights; provided
that the method of exercise and the payment of exercise price, as well as
the method of payment of withholding taxes, may be changed by JPMorgan
Chase.
|
||
|
||
Change in Outstanding Shares:
In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend or
split, recapitalization, issuance of a new class of common stock, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to stockholders of Common Stock
other than regular cash dividends, the Committee will make an equitable
substitution or proportionate adjustment, in the number or kind of shares
of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan and to any Stock Appreciation Rights (including but
not to limited to their Exercise Price) outstanding under this award for
such corporate events.
|
||
|
||
Interpretation/Administration:
The Director Human Resources has sole and
complete authority to interpret and administer this Award Agreement,
including, without limitation, the power to (i) interpret the Plan and the
terms of this Award Agreement; (ii) determine the reason for termination of
employment and application of the post-employment obligations; (iii) decide
all claims arising with respect to this Award; and (iv) delegate such
authority as he deems appropriate. Any determination by the Director Human
Resources shall be binding on all parties.
|
||
|
||
Notwithstanding anything herein to the contrary, the Firms determinations
under the Plan and the Award Agreements are not required to be uniform. By
way of clarification, the Firm shall be entitled to make non-uniform and
selective determinations and modifications under Award Agreements and the
Plan.
|
||
|
||
Amendment:
The Firm by action of its Director Human Resources reserves the
right to amend this Award Agreement in any manner, at any time and for any
reason so long as there has not been a change in control of JPMorgan
Chase, as such term is defined by the JPMorgan Chase Board of Directors
from time to time. After a change in control of JPMorgan Chase, this Award
Agreement may not be amended in any way that is adverse to your interests
without your prior written consent. This Award Agreement may not be amended
except in writing signed by the Director Human Resources JPMorgan Chase.
|
||
|
||
Severability:
If any portion of the Award Agreement is found to be
unenforceable, any court of competent jurisdiction may reform the
restrictions (e.g. as to length of service, geographical area or scope) to
the extent required to make the provision enforceable under applicable law.
|
||
|
||
Governing Law:
By accepting this award, you are agreeing (i) to the
extent not preempted by federal law, the laws of the state of New York
(without reference to conflict of law principles) will
|
6
apply to the award
and the Plan;(ii) to waive the right to a jury trial with respect to any
judicial proceeding brought in connection with this award; and (iii) that
any dispute related to this award shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion.
|
||
|
||
Definitions |
Cause
means a determination by the Firm that your employment terminated
as a result of your (i) violation of any law, rule or regulation (including
rules of self-regulatory bodies) related to the Firms business; (ii)
indictment or conviction of a felony; (iii) commission of a fraudulent act;
(iv) violation of the JPMorgan Code of Conduct or other Firm policies or
misconduct related to your duties to the Firm (other than an immaterial
and inadvertent violation or misconduct); (v) inadequate performance of
the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to
act that is or might reasonably be expected to be injurious to the
interests of the Firm or its relationship with a customer, client or
employee.
|
|
|
||
Financial Services Company
means a business enterprise that employs you
in any capacity (as an employee, contractor, consultant, advisor,
self-employed individual, etc. whether paid or unpaid) and engages in:
|
||
|
||
commercial or retail banking, including, but not limited to,
commercial, institutional and personal trust, custody and/or lending and
processing services, originating and servicing mortgages, issuing and
servicing credit cards;
|
||
|
||
insurance , including but not limited to, guaranteeing against
loss, harm damage, illness, disability or death, providing and issuing
annuities, acting as principal, agent or broker for purpose of the
forgoing;
|
||
|
||
financial, investment or economic advisory services, including but
not limited to, investment banking services (such as advising on mergers or
dispositions, underwriting, dealing in, or making a market in securities or
other similar activities), brokerage services, investment management
services, asset management services, and hedge funds;
|
||
|
||
issuing, trading or selling instruments representing interests in
pools of assets or in derivatives instruments;
|
||
|
||
advising on, or investing in, private equity or real estate, or
|
||
|
||
any similar activities that JPMorgan Chase determines in its sole
discretion constitutes financial services.
|
||
|
||
Not-for-Profit Organization
means an entity exempt from tax under state
law and under Section 501(c) (3) of the Internal Revenue Code. Section
501(c) (3) includes entities organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or
educational purposes, or to foster national or international amateur sports
competition or for the prevention of cruelty to children or animals.
|
||
|
||
Recognized Service
means the period of service as an employee set forth
in the Firms applicable service-related policies.
|
7
Award Agreement |
These terms and conditions are made part of the Award Agreement dated as of
January 20, 2009 (Grant Date) awarding Stock Appreciation Rights pursuant
to the terms of the JPMorgan Chase & Co. Long-Term Incentive Plan (Plan).
To the extent the terms of the Award Agreement (all references to which
will include these terms and conditions) conflict with the Plan, the Plan
will govern. The Award Agreement, the Plan and Prospectus supersede any
other agreement, whether written or oral, that may have been entered into
by the Firm and you relating to this award.
|
|
|
||
This award was granted on the Grant Date subject to the Award Agreement.
Unless you decline by the deadline and in the manner specified in the Award
Agreement, you will have agreed to be bound by these terms and conditions,
effective as of the Grant Date.
If you decline the award, it will be
cancelled as of the Grant Date.
|
||
|
||
Capitalized terms that are not defined in the Award Agreement will have the
same meaning as set forth in the Plan.
|
||
|
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as
JPMorgan Chase, and together with its subsidiaries as the Firm.
|
||
|
||
Form and Purpose of Award |
Stock Appreciation Rights represent the right, following exercise, to
receive (without payment), a number of shares of JPMorgan Chase Common
Stock, the Fair Market Value of which, as of the date of exercise, is equal
to the excess of the Fair Market Value of one share of such Common Stock on
such exercise date over the Exercise Price, multiplied by the number of
Stock Appreciation Rights being exercised. The Firm will retain from each
distribution the number of shares of Common Stock required to satisfy tax
withholding obligations.
|
|
|
||
The purpose of this award is, in part, to motivate your future performance
and to align your interests with those of the Firm and its shareholders.
|
||
|
||
Exercisable Dates/
Expiration Date |
Your award will become exercisable on the Exercisable Dates set forth in
your Award Agreement, provided that you are continuously employed by the
Firm from the date of grant through the relevant Exercisable Date or you
meet the requirements to allow your award to remain outstanding upon
termination of employment as described below, and subject to the following:
|
|
|
||
Although it is intended and expected that this award will become
exercisable as scheduled, the award may be reduced or cancelled or
Exercisable Dates may be deferred in the event that the Chief Executive
Officer (CEO) of JPMorgan Chase determines, as part of JPMorgan Chases
annual performance assessment process, based on the CEOs assessment of
your performance and the performance of the Firm (which may include more
than one performance year), that you have not achieved satisfactory
progress toward your priorities or that the Firm has not achieved
satisfactory progress toward the Firms priorities for which you share
responsibility as a member of the Operating Committee. Such a determination
is subject to ratification by the Compensation and Management Development
Committee of the Board of Directors of JPMorgan Chase.
|
||
|
||
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from the exercise of, all or any portion of this
award to the extent provided under the JPMorgan Chase Bonus Recoupment
Policy as in effect from time to time.
|
||
|
||
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from exercise of, all or any portion of this award
if JPMorgan Chase determines that this award was based on materially
inaccurate performance metrics or on any misrepresentation by you.
|
||
|
||
If you are subject to Section 111 of the Emergency Economic
Stabilization Act of 2008 and any regulations or interpretations
promulgated thereunder, or any successor or other
|
applicable statute
affecting your compensation (EESA or Other Applicable Law), then any
payment of any kind provided for by this Award Agreement must comply with
EESA or Other Applicable Law, and this Award Agreement shall be interpreted
or reformed to so comply.
|
||
|
||
Your award will remain exercisable until the
earlier of
the tenth
anniversary of the Grant Date (the Expiration Date) or the date the award
is cancelled pursuant to this Award Agreement. No Stock Appreciation Right
may be exercised after its Expiration Date.
|
||
|
||
Termination of Employment |
Except as explicitly set forth below under Job Elimination, Full Career
Eligibility and Death or Total Disability, any Stock Appreciation Rights
outstanding under this award will be cancelled effective on the date your
employment with the Firm terminates for any reason.
|
|
|
||
Job Elimination:
|
||
|
||
In the event that the Director Human Resources of the Firm or nominee in
their sole discretion determine that the Firm terminated your employment
because your job was eliminated, and provided that you continue to provide
services in a cooperative and professional manner as requested by the Firm
until the date your employment terminates, then any Stock Appreciation
Rights that were exercisable on your termination date will remain
exercisable for the ninety-day period immediately following your
termination date, but in no event beyond the Expiration Date.
|
||
|
||
You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled.
|
||
|
||
Full Career Eligibility:
|
||
|
||
Any Stock Appreciation Rights that were exercisable as of the date of your
employment termination will remain exercisable for a two year period
following your termination date but in no event beyond the Expiration Date
in the event that:
|
||
|
||
you leave the Firm voluntarily, have completed at least five years
of continuous service with the Firm immediately preceding your termination
date,
and
|
||
|
||
the sum of your age and Recognized Service (as defined below) on
your date of termination equals or exceeds 60,
and
|
||
|
||
you provide at least 90 days advance written notice to the Firm of
your intention to voluntarily terminate your employment under this
provision during which notice period you provide such services as requested
by the Firm in a cooperative and professional manner and you do not perform
any services for any other employer,
and
|
||
|
||
for the two year period following your termination date, you do not
(i) perform services in any capacity (including self-employment) for a
Financial Services Company (as defined below) or (ii) work in your
profession (whether or not for a non-Financial Services Company); provided
that you may work for a government, education or Not-for-Profit
Organization (as defined below).
|
||
|
||
After receipt of such advance written notice, the Firm may choose to have
you continue to provide services during the 90-day period or shorten the
length of the 90-day notice period at the Firms discretion, but to a date
no earlier than the date you would otherwise meet the age and service
requirements.
|
||
|
||
Additional advance notice requirements may apply in certain business units
(or equivalent organizational unit or department).
(See Special Notice
Period below.)
|
||
|
||
You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award
|
2
remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled
|
||
|
||
With respect to full career eligibility, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
Failure to provide such notification could impact your right to exercise.
|
||
|
||
Death or Total Disability:
|
||
|
||
If you die while employed by the Firm, or in the event your employment
terminates as a result of your permanent and total disability as defined in
the JPMorgan Chase & Co. Long Term Disability Plan (or for non-U.S.
employees the equivalent local country plan), then any Stock Appreciation
Rights that were exercisable as of the date of your termination will remain
exercisable for a two year period following your termination date but in no
event beyond the Expiration Date.
|
||
|
||
In the case of your total disability, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
|
||
|
||
In the case of death, your beneficiary is the designated beneficiary on
file with the Human Resources Department, or if no beneficiary has been
designated or survives you, then your estate.
|
||
|
||
Any Stock Appreciation Rights that are not exercised within the applicable
two year period set forth above will be cancelled.
|
||
|
||
Termination for Cause:
|
||
|
||
In the event your employment is terminated for Cause (as defined below), or
in the event that the Firm determines after the termination of your
employment that your employment could have been terminated for Cause, any
outstanding Stock Appreciation Rights as of your termination date will be
cancelled and you may be required to return to the Firm the value of
certain shares previously delivered to you. See Remedies for additional
information.
|
||
|
||
Restriction on Disposition of Shares Derived from an Exercise Under this Award |
If you exercise any part of your award before the fifth anniversary of the
Grant Date, then you may not sell, assign, transfer, pledge or encumber the
net number of shares of Common Stock derived from such exercise until the
fifth anniversary of the Grant Date. Notwithstanding the foregoing, this
restriction on disposition and transfer of shares shall not apply to your
beneficiary in the event of your death.
|
|
|
||
Your Obligations |
As consideration for the grant of this award, you agree to comply with and
be bound by the following:
|
|
|
||
Non-Solicitation of
Employees and Customers:
|
During your employment by the Firm and for one year following the
termination of your employment (or if longer, the exercise period), you
will not directly or indirectly, whether on your own behalf or on behalf of
any other party, without the prior written consent of the Director Human
Resources of JPMorgan Chase: (i) solicit, induce or encourage any of the
Firms then current employees to leave the Firm or to apply for employment
elsewhere; (ii) hire any employee or former employee who was employed by
the Firm at the date your employment terminated, unless the individuals
employment terminated more than six months before the date of hire or
because his or her job was eliminated; or (iii) solicit or induce or
attempt to induce to leave the Firm, or divert or attempt to divert from
doing business with the Firm, any then current customers, suppliers or
other persons or entities that were serviced by you or whose names became
known to you by virtue of your employment with the Firm, or otherwise
interfere with the
|
3
relationship between the Firm and such customers,
suppliers or other persons or entities. This does not apply to publicly
known institutional customers that you service after your employment with
the Firm without the use of the Firms confidential or proprietary
information.
|
||
|
||
These restrictions do not apply to authorized actions you take in the
normal course of your employment with the Firm, such as employment
decisions with respect to employees you supervise or business referrals in
accordance with the Firms policies
.
|
||
|
||
Confidential
Information:
|
You may not, either during your employment with the Firm or thereafter,
directly or indirectly use or disclose to anyone any confidential
information related to the Firms business, except as explicitly permitted
by the JPMorgan Chase Code of Conduct and applicable policies or law or
legal process. Confidential information shall have the same meaning for
the Award Agreement as it has in the JPMorgan Chase Code of Conduct.
|
|
|
||
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter,
make or encourage others to make any public statement or release any
information that is intended to, or reasonably could be foreseen to,
embarrass or criticize the Firm or its employees, directors or shareholders
as a group. This shall not preclude you from reporting to the Firms
management or directors or to the government or a regulator conduct you
believe to be in violation of the law or the Firms Code of Conduct or
responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or
regulatory investigation or proceeding.
|
|
|
||
Cooperation
|
You agree to cooperate fully with and provide full and accurate information
to the Firm and its counsel with respect to any matter (including any
audit, tax proceeding, litigation or governmental proceeding with respect
to which you may have knowledge or information, subject to reimbursement
for actual, appropriate and reasonable expenses incurred by you.
|
|
|
||
Compliance with
Award Agreement:
|
You agree that you will provide the Firm with any information reasonably
requested to determine compliance with the Award Agreement, and you
authorize the Firm to disclose the terms of the Award Agreement to any
third party who might be affected thereby, including your prospective
employer.
|
|
|
||
Special Notice
Period:
|
If you are at or above the level of managing director, executive director
or vice president (or comparable title) of a business unit or equivalent
organizational unit or department (business unit) that requires as a
condition of your continued employment that you provide advance written
notice (Special Notice Period) of your intention to terminate your
employment for any reason, then as consideration for this Award, you shall
provide the Firm advance written notice of your election to terminate your
employment as specified by such business unit. In business units that
require this Special Notice Period, the current notice period is 90 days
for managing directors (or comparable title), 60 days for executive
directors (or comparable title) and 30 days for vice presidents (or
comparable title). Please note that in some cases, individuals may have
specific agreements providing for longer notice periods than those stated
above. In those cases, the longer notice period shall apply.
|
|
|
||
After receipt of such notice, the Firm may choose to have you continue to
provide services during the applicable Special Notice Period or may place
you on a paid leave for all or part of the applicable Special Notice
Period. During the Special Notice Period, you shall continue to devote
your full time and loyalty to the Firm by providing services in a
cooperative and professional manner and not perform any services for any
other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to
waive or modify the length of the Special Notice Period.
|
||
|
||
Regardless of whether the Special Notice Period applies to you, you must
comply with the 90-day advance notice period described under Full Career
Eligibility in the event you wish to terminate employment under the Full
Career Eligibility provision.
|
4
Remedies |
In addition to the cancellation of the award as provided for in
Termination of Employment and Termination for Cause, if the Firm in its
sole discretion determines that (i) you are not in compliance with any of
the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or (ii) you have not returned
the applicable release of claims or other documents specified above within
the specified deadline, or (iii) you violated any of the provisions as set
forth above in Your Obligations, all outstanding Stock Appreciation
Rights under your award and any shares that are subject to the restriction
on disposition of shares described above will be immediately cancelled.
|
|
|
||
In addition, if you received shares under this award resulting from an
exercise during the one year prior to (i) the violation of any of the
provisions as set forth above in Your Obligations or (ii) the termination
of your employment for Cause as described under Termination for Cause,
including a later determination by the Firm that your employment could have
been terminated for Cause (in which case the one year will be measured from
your actual termination date), you will be required to pay the Firm
liquidated damages by returning to the Firm an amount equal to the gain on
exercise (as of the exercise date), less withholding taxes. Payment may be
made in shares of Common Stock or in cash.
|
||
|
||
You agree that this payment will be liquidated damages and is not to be
construed in any manner as a penalty. You acknowledge that a violation or
attempted violation of the obligations set forth herein will cause
immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any
court of competent jurisdiction, restraining any violation or further
violation of such obligations; such right to an injunction, however, shall
be cumulative and in addition to whatever other remedies the Firm may have
under law or equity. In any action or proceeding by the Firm to enforce
the terms and conditions of this Award Agreement where the Firm is the
prevailing party, the Firm shall be entitled to recover from you its
reasonable attorneys fees and expenses incurred in such action or
proceeding.
|
||
|
||
Administrative Provisions |
Binding Agreement:
The Award Agreement will be binding upon any successor
in interest to JPMorgan Chase, by merger or otherwise.
|
|
|
||
Not a Contract of Employment:
Nothing contained herein constitutes a
contract of employment or continued employment. Employment is at-will and
may be terminated by either you or JPMorgan Chase for any reason at any
time. This award does not confer any right or entitlement to, nor does the
award impose any obligation on the Firm to provide, the same or any similar
award in the future.
|
||
|
||
Exercise Procedures/Withholding Taxes
: The exercise of Stock Appreciation
Rights shall be in accordance with the Firms procedures for exercises of
such awards. The date of exercise shall be the date when the properly
completed notice of exercise is received and accepted by the Firm or its
designee in accordance with the Firms procedures.
|
||
|
||
Following each exercise, the Firm will retain from each distribution the
number of shares of Common Stock required to satisfy applicable tax
obligations (including, to the extent legally permissible, recovery by the
Firm of fringe benefit taxes). If, according to local country tax
regulations, a withholding tax liability arises at a time after the date of
exercise, JPMorgan Chase may implement any procedures necessary to ensure
that the withholding obligation is fully satisfied, including, but not
limited to, restricting transferability of the shares.
|
||
|
||
Assignment or Transfer:
Except as otherwise provided in this Award
Agreement, ,Stock Appreciation Rights shall not be assignable or
transferable or subject to any lien, obligation or liability. You may make
a gift of unexpired, unexercised Stock Appreciation Rights, subject to the
Firms prior consent, to an immediate family member or a trust (or similar
vehicle) for the benefit of these immediate family members (or
beneficiaries) as defined below. JPMorgan
|
5
Chase may condition its prior
consent to receipt of an agreement by you and proposed transferee
containing such terms and conditions and undertakings as JPMorgan Chase
deems appropriate in its sole and absolute discretion. No attempted
transfer will be valid without the Firms prior consent. Immediate family
members include your parents, parents-in-law, children (including adopted
children), grandchildren, and siblings or a trust exclusively for the
benefit of one or more of these immediate family members. Your spouse is an
Immediate Family Member but only if Stock Appreciation Rights are
transferred to a trust (or similar vehicle) for the benefit of such spouse,
which trust includes one or more other Immediate Family Members as
beneficiaries.
|
||
|
||
Right to Set Off:
The Firm may, to the maximum extent permitted by
applicable law, retain for itself funds or securities otherwise payable to
you pursuant to this award to satisfy any obligation or debt that you owe
to the Firm. Other than in the case of forfeiture or cancellation of an
award, the Firm may not retain such funds or securities until such time as
they would otherwise be distributable to you in accordance with the Award
Agreement.
|
||
|
||
Cancellation/Substitution
: JPMorgan Chase may, in its sole discretion and
for any reason, cancel outstanding unexercised Stock Appreciation Rights
and substitute an equal number of non-qualified stock options to purchase
the same number of shares of common stock of JPMorgan Chase represented by
the cancelled Stock Appreciation Rights. Such substituted options shall
have the same exercise price, Expiration Date and other terms and
conditions that were applicable to the Stock Appreciation Rights; provided
that the method of exercise and the payment of exercise price, as well as
the method of payment of withholding taxes, may be changed by JPMorgan
Chase.
|
||
|
||
Change in Outstanding Shares:
In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend or
split, recapitalization, issuance of a new class of common stock, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to stockholders of Common Stock
other than regular cash dividends, the Committee will make an equitable
substitution or proportionate adjustment, in the number or kind of shares
of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan and to any Stock Appreciation Rights (including but
not to limited to their Exercise Price) outstanding under this award for
such corporate events.
|
||
|
||
Interpretation/Administration:
The Director Human Resources has sole and
complete authority to interpret and administer this Award Agreement,
including, without limitation, the power to (i) interpret the Plan and the
terms of this Award Agreement; (ii) determine the reason for termination of
employment and application of the post-employment obligations; (iii) decide
all claims arising with respect to this Award; and (iv) delegate such
authority as he deems appropriate. Any determination by the Director Human
Resources shall be binding on all parties.
|
||
|
||
Notwithstanding anything herein to the contrary, the Firms determinations
under the Plan and the Award Agreements are not required to be uniform. By
way of clarification, the Firm shall be entitled to make non-uniform and
selective determinations and modifications under Award Agreements and the
Plan.
|
||
|
||
Amendment:
The Firm by action of its Director Human Resources reserves the
right to amend this Award Agreement in any manner, at any time and for any
reason so long as there has not been a change in control of JPMorgan
Chase, as such term is defined by the JPMorgan Chase Board of Directors
from time to time. After a change in control of JPMorgan Chase, this Award
Agreement may not be amended in any way that is adverse to your interests
without your prior written consent. This Award Agreement may not be amended
except in writing signed by the Director Human Resources JPMorgan Chase.
|
||
|
||
Severability:
If any portion of the Award Agreement is found to be
unenforceable, any court of competent jurisdiction may reform the
restrictions (e.g. as to length of service, geographical area
|
6
or scope) to
the extent required to make the provision enforceable under applicable law.
|
||
|
||
Governing Law:
By accepting this award, you are agreeing (i) to the
extent not preempted by federal law, the laws of the state of New York
(without reference to conflict of law principles) will apply to the award
and the Plan;(ii) to waive the right to a jury trial with respect to any
judicial proceeding brought in connection with this award; and (iii) that
any dispute related to this award shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion.
|
||
|
||
Definitions |
Cause
means a determination by the Firm that your employment terminated
as a result of your (i) violation of any law, rule or regulation (including
rules of self-regulatory bodies) related to the Firms business; (ii)
indictment or conviction of a felony; (iii) commission of a fraudulent act;
(iv) violation of the JPMorgan Code of Conduct or other Firm policies or
misconduct related to your duties to the Firm (other than an immaterial
and inadvertent violation or misconduct); (v) inadequate performance of
the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to
act that is or might reasonably be expected to be injurious to the
interests of the Firm or its relationship with a customer, client or
employee.
|
|
|
||
Financial Services Company
means a business enterprise that employs you
in any capacity (as an employee, contractor, consultant, advisor,
self-employed individual, etc. whether paid or unpaid) and engages in:
|
||
|
||
commercial or retail banking, including, but not limited to,
commercial, institutional and personal trust, custody and/or lending and
processing services, originating and servicing mortgages, issuing and
servicing credit cards;
|
||
|
||
insurance , including but not limited to, guaranteeing against
loss, harm damage, illness, disability or death, providing and issuing
annuities, acting as principal, agent or broker for purpose of the
forgoing;
|
||
|
||
financial, investment or economic advisory services, including but
not limited to, investment banking services (such as advising on mergers or
dispositions, underwriting, dealing in, or making a market in securities or
other similar activities), brokerage services, investment management
services, asset management services, and hedge funds;
|
||
|
||
issuing, trading or selling instruments representing interests in
pools of assets or in derivatives instruments;
|
||
|
||
advising on, or investing in, private equity or real estate, or
|
||
|
||
any similar activities that JPMorgan Chase determines in its sole
discretion constitutes financial services.
|
||
|
||
Not-for-Profit Organization
means an entity exempt from tax under state
law and under Section 501(c) (3) of the Internal Revenue Code. Section
501(c) (3) includes entities organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or
educational purposes, or to foster national or international amateur sports
competition or for the prevention of cruelty to children or animals.
|
||
|
||
Recognized Service
means the period of service as an employee set forth
in the Firms applicable service-related policies.
|
7
Award Agreement |
These terms and conditions are made part of the Award Agreement dated as of January 20,
2009 (Grant Date) awarding restricted stock units pursuant to the terms of the
JPMorgan Chase & Co. Long-Term Incentive Plan (Plan). To the extent the terms of the
Award Agreement (all references to which will include these terms and conditions)
conflict with the Plan, the Plan will govern. The Award Agreement, the Plan and
Prospectus supersede any other agreement, whether written or oral, that may have been
entered into by the Firm and you relating to this award.
|
|
|
||
This award was granted on the Grant Date subject to the Award Agreement.
Unless you
decline by the deadline and in the manner specified in the Award Agreement, you will
have agreed to be bound by these terms and conditions, effective as of the Grant Date.
If you decline the award, it will be cancelled as of the Grant Date.
|
||
|
||
Capitalized terms that are not defined in the Award Agreement will have the same
meaning as set forth in the Plan.
|
||
|
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as JPMorgan
Chase, and together with its subsidiaries as the Firm.
|
||
|
||
Form and Purpose of Award |
Each restricted stock unit represents a non-transferable right to receive one share of
Common Stock following the applicable vesting date.
|
|
|
||
The purpose of this award is, in part, to motivate your future performance and to align
your interests with those of the Firm and its shareholders.
|
||
|
||
Dividend Equivalents |
If dividends are paid on Common Stock while restricted stock units under this award are
outstanding, you will be paid an amount equal to the dividend paid on one share of
Common Stock, multiplied by the number of restricted stock units outstanding to you
under this award.
|
|
|
||
Vesting Dates/
Vesting Periods |
This award will vest according to the schedule on your Award Agreement, provided that
you are continuously employed by the Firm, or you meet the requirements for continued
vesting described below, through the relevant vesting date. The period from the Grant
Date to each vesting date will be a separate vesting period.
|
|
|
||
Termination of Employment |
Except as explicitly set forth below under Job Elimination, Full Career
Eligibility, Total Disability, and Death, any restricted stock units outstanding
under this award will be cancelled effective on the date your employment with the Firm
terminates for any reason.
|
|
|
||
Job Elimination, Full Career Eligibility, Total Disability |
Subject to your compliance with the terms and conditions of this Award Agreement
(including without limitation Your Obligations set forth below), you will be eligible
to continue to vest in your outstanding restricted stock units under this award
following the termination of your employment if one of the following circumstances
applies to you.
|
|
|
||
Job Elimination:
|
||
|
||
This award will continue to vest on the original schedule following termination of
employment in the event that:
|
||
|
||
the Director Human Resources of the Firm or nominee in their sole discretion
determine that the Firm terminated your employment because your job was eliminated,
and
|
||
|
||
after you are notified that your job will be eliminated, you provide such
services as requested by the Firm in a cooperative and professional manner.
|
Full Career Eligibility:
|
||
|
||
This award will continue to vest on the original schedule following termination of
employment in the event that:
|
||
|
||
you leave the Firm voluntarily, have completed at least five years of
continuous service with the Firm immediately preceding your termination date, and the
sum of your age and Recognized Service (as defined below) on your date of termination
equals or exceeds 60,
and
|
||
|
||
you provide at least 90 days advance written notice to the Firm of your
intention to voluntarily terminate your employment under this provision, during which
notice period you provide such services as requested by the Firm in a cooperative and
professional manner and you do not perform any services for any other employer,
and
|
||
|
||
for the remainder of the relevant vesting period, you do not (i) perform
services in any capacity (including self-employment) for a Financial Services Company
(as defined below) or (ii) work in your profession (whether or not for a Financial
Services Company); provided that you may work for a government, education or
Not-for-Profit Organization (as defined below).
|
||
|
||
After receipt of such advance written notice, the Firm may choose to have you continue
to provide services during such 90-day period or shorten the length of the 90-day
period at the Firms discretion, but to a date no earlier than the date you would
otherwise meet the age and service requirements.
|
||
|
||
Additional advance notice requirements may apply in certain business units (or
equivalent organizational unit or department).
(See Special Notice Period below.)
|
||
|
||
Total Disability:
|
||
|
||
In the event your employment terminates as a result of your permanent and total
disability as defined in the JPMorgan Chase & Co. Long Term Disability Plan (or for
non-U.S. employees the equivalent local country plan), your outstanding units will
continue to vest on the original schedule during such period of disability provided
that you remain unemployed for such period.
|
||
|
||
For both Full Career Eligibility and Total Disability, you must notify JPMorgan Chase
in writing in advance if you plan to perform services for any party or if you will be
self-employed during the vesting periods. Failure to provide such notification could
impact award vesting.
|
||
|
||
Release/Certification |
In order to qualify for continued vesting after termination of your employment under
any of the foregoing circumstances:
|
|
|
||
you must timely execute and deliver a release of claims in favor of the Firm,
having such form and terms as the Firm shall specify,
|
||
|
||
with respect to Full Career Eligibility, prior to the termination of your
employment, you must confirm with management that you meet the eligibility criteria
(including providing at least 90 days advance written notification) and advise that you
are seeking to be treated as an individual eligible for Full Career Eligibility, and
|
||
|
||
except in the case of a job elimination, it is your responsibility to take the
appropriate steps to certify to the Firm prior to each vesting date on the authorized
form of the Firm that you have complied with the employment restrictions applicable to
you (as described above) throughout the vesting period and otherwise complied with all
other terms of the Award Agreement. (See Your Obligations.)
|
||
|
||
Death |
If you die while you are eligible to vest in your outstanding units under this award,
the units will immediately vest and will be distributed in shares of Common Stock
(after applicable tax withholding) to your designated beneficiary on file with the
Firms Stock Administration Department, or if no beneficiary has been designated or
survives you, then to your estate. Any shares will be distributed by the later of the
end of the calendar year in which you die or the 15
th
day of the third month
following your date of death.
|
2
Termination for Cause |
In the event that your employment is terminated for Cause (as defined below), or in the
event that JPMC determines after the termination of your employment that your
employment could have been terminated for Cause, your outstanding restricted stock
units shall be forfeited. In addition, you may be required to return to the Firm the
value of certain shares delivered to you prior to or after your termination. See
Remedies for additional information.
|
|
|
||
Your Obligations |
As consideration for the grant of this award, you agree to comply with and be bound by the following:
|
|
|
||
Non-Solicitation
of Employees and
Customers:
|
During your employment by the Firm and for one year following the termination of your
employment, or if longer, during all remaining vesting periods if you continue to vest
after your employment with the Firm terminates, you will not directly or indirectly,
whether on your own behalf or on behalf of any other party, without the prior written
consent of the Director Human Resources of JPMorgan Chase: (i) solicit, induce or
encourage any of the Firms then current employees to leave the Firm or to apply for
employment elsewhere; (ii) hire any employee or former employee who was employed by the
Firm at the date your employment terminated, unless the individuals employment
terminated more than six months before the date of hire or because his or her job was
eliminated; or (iii) solicit or induce or attempt to induce to leave the Firm, or
divert or attempt to divert from doing business with the Firm, any then current
customers, suppliers or other persons or entities that were serviced by you or whose
names became known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers, suppliers or other
persons or entities. This does not apply to publicly known institutional customers
that you service after your employment with the Firm without the use of the Firms
confidential or proprietary information.
|
|
|
||
These restrictions do not apply to authorized actions you take in the normal course of
your employment with the Firm, such as employment decisions with respect to employees
you supervise or business referrals in accordance with the Firms policies.
|
||
|
||
Confidential
Information: |
You may not, either during your employment with the Firm or thereafter, directly or
indirectly use or disclose to anyone any confidential information related to the Firms
business, except as explicitly permitted by the JPMorgan Chase Code of Conduct and
applicable policies or law or legal process. Confidential information shall have the
same meaning for the Award Agreement as it has in the JPMorgan Chase Code of Conduct.
|
|
|
||
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter, make or
encourage others to make any public statement or release any information that is
intended to, or reasonably could be foreseen to, embarrass or criticize the Firm or its
employees, officers, directors or shareholders as a group. This shall not preclude you
from reporting to the Firms management or directors or to the government or a
regulator conduct you believe to be in violation of the law or the Firms Code of
Conduct or responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or regulatory
investigation or proceeding.
|
|
|
||
Cooperation:
|
You agree to cooperate fully with and provide full and accurate information to the Firm
and its counsel with respect to any matter (including any audit, tax proceeding,
litigation, investigation or governmental proceeding) with respect to which you may
have knowledge or information, subject to reimbursement for actual, appropriate and
reasonable expenses incurred by you.
|
|
|
||
Compliance with
Award Agreement: |
You agree that you will provide the Firm with any information reasonably requested to
determine compliance with the Award Agreement, and you authorize the Firm to disclose
the terms of the Award Agreement to any third party who might be affected thereby,
including your prospective employer.
|
|
|
||
Special Notice Period:
|
If you are a managing director, executive director or vice president (or comparable
title) of a business unit or equivalent organizational unit or department (business
unit) that requires as a
|
3
condition of your continued employment that you provide
advance written notice (Special Notice Period) of your intention to terminate your
employment for any reason, then as consideration for this Award, you shall provide the
Firm advance written notice of your election to terminate your employment as specified
by such business unit. In business units that require this Special Notice Period, the
current notice period is 90 days for managing directors (or comparable title), 60 days
for executive directors (or comparable title) and 30 days for vice presidents (or
comparable title). Please note that in some cases, individuals may have specific
agreements providing for longer notice periods than those stated above. In those cases,
the longer notice period shall apply.
|
||
|
||
After receipt of such notice, the Firm may choose to have you continue to provide
services during the applicable Special Notice Period or may place you on a paid leave
for all or part of the applicable Special Notice Period. During the Special Notice
Period, you shall continue to devote your full time and loyalty to the Firm by
providing services in a cooperative and professional manner and not perform any
services for any other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to waive or
modify the length of the Special Notice Period.
|
||
|
||
Regardless of whether the Special Notice Period applies to you, you must comply with
the 90-day advance notice period described under Full Career Eligibility in the event
you wish to terminate employment under the Full Career Eligibility provision.
|
||
|
||
Remedies
Cancellation
|
In addition to the provisions described under Termination of Employment and
Termination for Cause, your outstanding restricted stock units will be cancelled if:
|
|
|
||
the Firm in its sole discretion determines that you are not in compliance with
any of the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or
|
||
|
||
you fail to return the required forms specified under Release/Certification
within the specified deadline, including the certification required immediately prior
to a vesting date under Full Career Eligibility and Total Disability, or
|
||
|
||
you violate any of
the provisions as set forth above in Your Obligations.
|
||
|
||
Damages
|
In addition, you will be required to pay the Firm as liquidated damages an amount equal
to the Fair Market Value (determined as of the vesting date) of the net number of
shares of Common Stock distributed to you under this award as follows:
|
|
|
||
shares distributed within the one year period prior to your violation of any of
the provisions as set forth above in Your Obligations;
|
||
|
||
shares distributed at any time following termination of employment when you
were not in compliance with the employment restrictions then applicable to you during
the vesting period, and
|
||
|
||
shares distributed within the one year period immediately preceding and any
time after your termination of employment if your employment was terminated or the Firm
determines that your employment could have been terminated for Cause (as described
under Termination for Cause).
|
||
|
||
Payment may be made in shares of Common Stock or in cash. You agree that this payment
will be liquidated damages and is not to be construed in any manner as a penalty. You
acknowledge that a violation or attempted violation of the obligations set forth herein
will cause immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any court of
competent jurisdiction, restraining any violation or further violation of such
obligations; such right to an injunction, however, shall be cumulative and in addition
to whatever other remedies the Firm may have under law or equity. In any action or
proceeding by the Firm to enforce the terms and conditions of this Award Agreement
where the Firm is the prevailing party, the Firm shall be entitled to recover from you
its reasonable attorneys fees and expenses incurred in such action or proceeding.
|
4
Additional Conditions |
Notwithstanding any terms of this Award Agreement to the contrary:
|
|
|
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, this award to the extent provided under the
JPMorgan Chase Bonus Recoupment Policy as in effect from time to time.
|
||
|
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distribution you received under, all or any portion of this award if JPMorgan
Chase determines that this award was based on materially inaccurate performance metrics
or on any misrepresentation by you.
|
||
|
||
If you are subject to Section 111 of the Emergency Economic Stabilization Act
of 2008 and any regulations or interpretations promulgated thereunder, or any successor
or other applicable statute or regulation affecting your compensation (EESA or Other
Applicable Law), then any payment of any kind provided for by this Award Agreement
must comply with EESA or Other Applicable Law, and this Award Agreement shall be
interpreted or reformed to the extent required to so comply.
|
||
|
||
Administrative Provisions |
Withholding Taxes:
The Firm will retain from each distribution the number of shares of
Common Stock required to satisfy applicable tax obligations (including, to the extent
legally permissible, recovery by the Firm of fringe benefit taxes). For U.S. tax
purposes, dividend equivalents are treated as wages and subject to tax withholding when
paid. If, according to local country tax regulations, a withholding tax liability
arises at a time after the date of distribution, JPMorgan Chase may implement any
procedures necessary to ensure that the withholding obligation is fully satisfied,
including but not limited to, restricting transferability of the shares.
|
|
|
||
Right to Set Off:
The Firm may, to the maximum extent permitted by applicable law,
retain for itself funds or securities otherwise payable to you pursuant to this award
to satisfy any obligation or debt that you owe to the Firm. The Firm may not retain
such funds or securities until such time as they would otherwise be distributable to
you in accordance with the Award Agreement.
|
||
|
||
No Ownership Rights
: Restricted stock units do not convey the rights of ownership of
Common Stock and do not carry voting rights. No shares of Common Stock will be issued
to you until after the restricted stock units have vested and all applicable
restrictions have lapsed. Shares will be issued in accordance with JPMorgan Chases
procedures for issuing stock. JPMorgan Chases obligation hereunder is unfunded.
|
||
|
||
Binding Agreement
: The Award Agreement will be binding upon any successor in interest
to JPMorgan Chase, by merger or otherwise.
|
||
|
||
Not a Contract of Employment
: Nothing contained in the Award Agreement constitutes a
contract of employment or continued employment. Employment is at-will and may be
terminated by either you or JPMorgan Chase for any reason at any time. This award
does not confer any right or entitlement to, nor does the award impose any obligation
on the Firm to provide, the same or any similar award in the future.
|
||
|
||
Section 409A Compliance
: Notwithstanding anything herein to the contrary, if you (i)
are subject to taxation under the United States Internal Revenue Code (Code), (ii)
are a specified employee as defined in the JPMorgan Chase 2005 Deferred Compensation
Plan and (iii) have incurred a separation from service and if any shares under this
award represent deferred compensation as defined in Section 409A and are distributable
to you as a result your separation from service, then those shares will be delivered to
you on first business day of the first calendar month after the expiration of six
full months from date of your separation from service. Further, if prior to any
vesting date, your award is not subject to a substantial risk of forfeiture as defined
by Section 409A of the Code, then the remainder of each calendar year immediately
following (i) each vesting date shall be a payment date for purposes of
distributing the vested portion of the award and (ii) each date that JPMorgan Chase
specifies for payment of dividends declared on its common stock shall be the payment
date(s) for purposes of dividend equivalent payments.
|
5
Change in Outstanding Shares
: In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization, issuance of a
new class of common stock, merger, consolidation, spin-off, combination or exchange of
shares or other similar corporate change, or any distributions to stockholders of
Common Stock other than regular cash dividends, the Compensation & Management
Development Committee of the Board will make an equitable substitution or proportionate
adjustment, in the number or kind of shares of Common Stock or other securities issued
or reserved for issuance pursuant to the Plan and to any Restricted Stock Units
outstanding under this award for such corporate events.
|
||
|
||
Interpretation/Administration
: The Director Human Resources has sole and complete
authority to interpret and administer this Award Agreement, including, without
limitation, the power to (i) interpret the Plan and the terms of this Award Agreement;
(ii) determine the reason for termination of employment and application of the
post-employment obligations; (iii) decide all claims arising with respect to this
Award; and (iv) delegate such authority as he deems appropriate. Any determination by
the Director Human Resources shall be binding on all parties.
|
||
|
||
Notwithstanding anything herein to the contrary, the Firms determinations under the
Plan and the Award Agreements are not required to be uniform. By way of clarification,
the Firm shall be entitled to make non-uniform and selective determinations and
modifications under Award Agreements and the Plan.
|
||
|
||
Amendment
: The Firm by action of its Director Human Resources reserves the right to
amend the Award Agreement in any manner, at any time and for any reason so long as
there has not been a change in control of JPMorgan Chase, as such term is defined by
the JPMorgan Chase Board of Directors from time to time. After a change in control of
JPMorgan Chase, this Award Agreement may not be amended in any way that is adverse to
your interests without your prior written consent. This Award Agreement may not be
amended except in writing signed by the Director Human Resources of JPMorgan Chase.
|
||
|
||
Severability
: If any portion of the Award Agreement is determined by the Firm to be
unenforceable in any jurisdiction, any court of competent jurisdiction or the Director
Human Resources may reform the relevant provisions (e.g., as to length of service,
time, geographical area or scope) to the extent the Firm considers necessary to make
the provision enforceable under applicable law.
|
||
|
||
Governing Law
: By accepting this award, you are agreeing (i) to the extent not
preempted by federal law, the laws of the state of New York (without reference to
conflict of law principles) will apply to this award and the Plan; (ii) to waive the
right to a jury trial with respect to any judicial proceeding brought in connection
with this award; and (iii) that any dispute related to this award shall be submitted to
arbitration in accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion.
|
||
|
||
Definitions |
Cause means a determination by the Firm that your employment terminated as a result
of your (i) violation of any law, rule or regulation (including rules of
self-regulatory bodies) related to the Firms business; (ii) indictment or conviction
of a felony; (iii) commission of a fraudulent act; (iv) violation of the JPMorgan Code
of Conduct or other Firm policies or misconduct related to your duties to the Firm
(other than immaterial and inadvertent violations or misconduct); (v) inadequate
performance of the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to act that is
or might reasonably be expected to be injurious to the interests of the Firm or its
relationship with a customer, client or employee.
|
|
|
||
Financial Services Company means a business enterprise that employs you in any
capacity (as an employee, contractor, consultant, advisor, self-employed individual,
etc. whether paid or unpaid) and engages in:
|
6
commercial or retail banking, including, but not limited to, commercial,
institutional and personal trust, custody and/or lending and processing services,
originating and servicing mortgages, issuing and servicing credit cards;
|
||
|
||
insurance, including but not limited to, guaranteeing against loss, harm
damage, illness, disability or death, providing and issuing annuities, acting as
principal, agent or broker for purpose of the forgoing;
|
||
|
||
financial, investment or economic advisory services, including but not limited
to, investment banking services (such as advising on mergers or dispositions,
underwriting, dealing in, or making a market in securities or other similar
activities), brokerage services, investment management services, asset management
services, and hedge funds;
|
||
|
||
issuing, trading or selling instruments representing interests in pools of
assets or in derivatives instruments;
|
||
|
||
advising on, or investing in, private equity or real estate, or
|
||
|
||
any similar activities that JPMorgan Chase determines in its sole discretion
constitute financial services.
|
||
|
||
Not-for-Profit Organization means an entity exempt from tax under state law and under
Section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) includes entities
organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes, or to foster national or international
amateur sports competition or for the prevention of cruelty to children or animals.
|
||
|
||
Recognized Service means the period of service as an employee set forth in the Firms
applicable service-related policies.
|
7
Award Agreement |
These terms and conditions are made part of the Award Agreement dated as of January 20,
2009 (Grant Date) awarding restricted stock units pursuant to the terms of the
JPMorgan Chase & Co. Long-Term Incentive Plan (Plan). To the extent the terms of the
Award Agreement (all references to which will include these terms and conditions)
conflict with the Plan, the Plan will govern. The Award Agreement, the Plan and
Prospectus supersede any other agreement, whether written or oral, that may have been
entered into by the Firm and you relating to this award.
|
|
|
||
This award was granted on the Grant Date subject to the Award Agreement.
Unless you
decline by the deadline and in the manner specified in the Award Agreement, you will
have agreed to be bound by these terms and conditions, effective as of the Grant Date.
If you decline the award, it will be cancelled as of the Grant Date.
|
||
|
||
Capitalized terms that are not defined in the Award Agreement will have the same
meaning as set forth in the Plan.
|
||
|
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as JPMorgan
Chase, and together with its subsidiaries as the Firm.
|
||
|
||
Form and Purpose of Award |
Each restricted stock unit represents a non-transferable right to receive one share of
Common Stock following the applicable vesting date.
|
|
|
||
The purpose of this award is, in part, to motivate your future performance and to align
your interests with those of the Firm and its shareholders.
|
||
|
||
Dividend Equivalents |
If dividends are paid on Common Stock while restricted stock units under this award are
outstanding, you will be paid an amount equal to the dividend paid on one share of
Common Stock, multiplied by the number of restricted stock units outstanding to you
under this award.
|
|
|
||
Vesting Dates |
This award will vest according to the schedule on your Award Agreement, provided that
you are continuously employed by the Firm, or you meet the requirements for continued
vesting described below, through the relevant vesting date, and subject to the
following:
|
|
|
||
Although it is intended and expected that this award will vest as scheduled,
the award may be reduced or cancelled or vesting dates may be deferred in the event
that the Chief Executive Officer (CEO) of JPMorgan Chase determines, as part of
JPMorgan Chases annual performance assessment process, based on the CEOs assessment
of your performance and the performance of the Firm (which may include more than one
performance year), that you have not achieved satisfactory progress toward your
priorities or that the Firm has not achieved satisfactory progress toward the Firms
priorities for which you share responsibility as a member of the Operating Committee.
Such a determination is subject to ratification by the Compensation and Management
Development Committee of the Board of Directors of JPMorgan Chase.
|
||
|
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, all or any portion of this award to the extent
provided under the JPMorgan Chase Bonus Recoupment Policy as in effect from time to
time.
|
||
|
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, all or any portion of this award if JPMorgan
Chase determines that this award was based on materially inaccurate performance metrics
or on any misrepresentation by you.
|
||
|
||
If you are subject to Section 111 of the Emergency Economic Stabilization Act
of 2008 and any regulations or interpretations promulgated thereunder, or any successor
or
|
other applicable statute affecting your compensation (EESA or Other Applicable
Law), then any payment of any kind provided for by this Award Agreement must comply
with EESA or Other Applicable Law, and this Award Agreement shall be interpreted or
reformed to so comply.
|
||
|
||
Vesting Periods |
The period from the Grant Date to each vesting date will be a separate vesting period.
|
|
|
||
Termination of Employment |
Except as explicitly set forth below under Job Elimination, Full Career
Eligibility, Total Disability, and Death, any restricted stock units outstanding
under this award will be cancelled effective on the date your employment with the Firm
terminates for any reason.
|
|
|
||
Job Elimination, Full Career Eligibility, Total Disability |
Subject to Vesting Dates and the terms and conditions of this Award Agreement
(including without limitation Your Obligations ), you will be eligible to continue to
vest in your outstanding restricted stock units under this award following the
termination of your employment if one of the following circumstances applies to you.
|
|
|
||
Job Elimination
:
|
||
|
||
This award will continue to vest on the original schedule following termination of
employment in the event that:
|
||
|
||
the Director Human Resources of the Firm or nominee in their sole discretion
determine that the Firm terminated your employment because your job was eliminated, and
|
||
|
||
after you are notified that your job will be eliminated, you provide such
services as requested by the Firm in a cooperative and professional manner.
|
||
|
||
Full Career Eligibility
:
|
||
|
||
This award will continue to vest on the original schedule following termination of
employment in the event that:
|
||
|
||
you leave the Firm voluntarily, have completed at least five years of
continuous service with the Firm immediately preceding your termination date, and the
sum of your age and Recognized Service (as defined below) on your date of termination
equals or exceeds 60,
and
|
||
|
||
you provide at least 90 days advance written notice to the Firm of your
intention to voluntarily terminate your employment under this provision, during which
notice period you provide such services as requested by the Firm in a cooperative and
professional manner and you do not perform any services for any other
employer,
and
|
||
|
||
for the remainder of the relevant vesting period, you do not (i) perform
services in any capacity (including self-employment) for a Financial Services Company
(as defined below) or (ii) work in your profession (whether or not for a Financial
Services Company); provided that you may work for a government, education or
Not-for-Profit Organization (as defined below).
|
||
|
||
After receipt of such advance written notice, the Firm may choose to have you continue
to provide services during such 90-day period or shorten the length of the 90-day
period at the Firms discretion, but to a date no earlier than the date you would
otherwise meet the age and service requirements.
|
||
|
||
Additional advance notice requirements may apply in certain business units (or
equivalent organizational unit or department).
(See Special Notice Period below.)
|
||
|
||
Total Disability
:
|
||
|
||
In the event your employment terminates as a result of your permanent and total
disability as defined in the JPMorgan Chase & Co. Long Term Disability Plan (or for
non-U.S. employees the equivalent local country plan), your outstanding units will
continue to vest on the original schedule during such period of disability provided
that you remain unemployed for such period.
|
||
|
||
For both Full Career Eligibility and Total Disability, you must notify JPMorgan Chase
in writing in
|
2
advance if you plan to perform services for any party or if you will be
self-employed during the vesting periods. Failure to provide such notification could
impact award vesting.
|
||
|
||
Release/Certification |
In order to qualify for continued vesting after termination of your employment under
any of the foregoing circumstances:
|
|
|
||
you must timely execute and deliver a release of claims in favor of the Firm,
having such form and terms as the Firm shall specify,
|
||
|
||
with respect to Full Career Eligibility, prior to the termination of your
employment, you must confirm with management that you meet the eligibility criteria
(including providing at least 90 days advance written notification) and advise that you
are seeking to be treated as an individual eligible for Full Career Eligibility, and
|
||
|
||
except in the case of a job elimination, it is your responsibility to take the
appropriate steps to certify to the Firm prior to each vesting date on the authorized
form of the Firm that you have complied with the employment restrictions applicable to
you (as described above) throughout the vesting period and otherwise complied with all
other terms of the Award Agreement. (See Your Obligations.)
|
||
|
||
Death |
If you die while you are eligible to vest in your outstanding units under this award,
the units will immediately vest and will be distributed in shares of Common Stock
(after applicable tax withholding) to your designated beneficiary on file with the
Firms Stock Administration Department, or if no beneficiary has been designated or
survives you, then to your estate. Any shares will be distributed by the later of the
end of the calendar year in which you die or the 15
th
day of the third month
following your date of death.
|
|
|
||
Termination for Cause |
In the event that your employment is terminated for Cause (as defined below), or in the
event that JPMC determines after the termination of your employment that your
employment could have been terminated for Cause, your outstanding restricted stock
units shall be forfeited. In addition, you may be required to return to the Firm the
value of certain shares delivered to you prior to or after your termination. See
Remedies for additional information.
|
|
|
||
Your Obligations |
As consideration for the grant of this award, you agree to comply with and be bound by
the following:
|
|
|
||
Non-Solicitation
of Employees and
Customers:
|
During your employment by the Firm and for one year following the termination of your
employment, or if longer, during all remaining vesting periods if you continue to vest
after your employment with the Firm terminates, you will not directly or indirectly,
whether on your own behalf or on behalf of any other party, without the prior written
consent of the Director Human Resources of JPMorgan Chase: (i) solicit, induce or
encourage any of the Firms then current employees to leave the Firm or to apply for
employment elsewhere; (ii) hire any employee or former employee who was employed by the
Firm at the date your employment terminated, unless the individuals employment
terminated more than six months before the date of hire or because his or her job was
eliminated; or (iii) solicit or induce or attempt to induce to leave the Firm, or
divert or attempt to divert from doing business with the Firm, any then current
customers, suppliers or other persons or entities that were serviced by you or whose
names became known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers, suppliers or other
persons or entities. This does not apply to publicly known institutional customers
that you service after your employment with the Firm without the use of the Firms
confidential or proprietary information.
|
|
|
||
These restrictions do not apply to authorized actions you take in the normal course of
your employment with the Firm, such as employment decisions with respect to employees
you supervise or business referrals in accordance with the Firms policies.
|
||
|
||
Confidential
Information: |
You may not, either during your employment with the Firm or thereafter, directly or
indirectly use or disclose to anyone any confidential information related to the Firms
business, except as explicitly permitted by the JPMorgan Chase Code of Conduct and
applicable policies or law or
|
3
legal process. Confidential information shall have the
same meaning for the Award Agreement as it has in the JPMorgan Chase Code of Conduct.
|
||
|
||
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter, make or
encourage others to make any public statement or release any information that is
intended to, or reasonably could be foreseen to, embarrass or criticize the Firm or its
employees, officers, directors or shareholders as a group. This shall not preclude you
from reporting to the Firms management or directors or to the government or a
regulator conduct you believe to be in violation of the law or the Firms Code of
Conduct or responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or regulatory
investigation or proceeding.
|
|
|
||
Cooperation:
|
You agree to cooperate fully with and provide full and accurate information to the Firm
and its counsel with respect to any matter (including any audit, tax proceeding,
litigation, investigation or governmental proceeding) with respect to which you may
have knowledge or information, subject to reimbursement for actual, appropriate and
reasonable expenses incurred by you.
|
|
|
||
Compliance with
Award Agreement:
|
You agree that you will provide the Firm with any information reasonably requested to
determine compliance with the Award Agreement, and you authorize the Firm to disclose
the terms of the Award Agreement to any third party who might be affected thereby,
including your prospective employer.
|
|
|
||
Special Notice
Period: |
If you are at or above the level of managing director, executive director or vice
president (or comparable title) of a business unit or equivalent organizational unit or
department (business unit) that requires as a condition of your continued employment
that you provide advance written notice (Special Notice Period) of your intention to
terminate your employment for any reason, then as consideration for this Award, you
shall provide the Firm advance written notice of your election to terminate your
employment as specified by such business unit. In business units that require this
Special Notice Period, the current notice period is 90 days for managing directors (or
comparable title), 60 days for executive directors (or comparable title) and 30 days
for vice presidents (or comparable title). Please note that in some cases, individuals
may have specific agreements providing for longer notice periods than those stated
above. In those cases, the longer notice period shall apply.
|
|
|
||
After receipt of such notice, the Firm may choose to have you continue to provide
services during the applicable Special Notice Period or may place you on a paid leave
for all or part of the applicable Special Notice Period. During the Special Notice
Period, you shall continue to devote your full time and loyalty to the Firm by
providing services in a cooperative and professional manner and not perform any
services for any other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to waive or
modify the length of the Special Notice Period.
|
||
|
||
Regardless of whether the Special Notice Period applies to you, you must comply with
the 90-day advance notice period described under Full Career Eligibility in the event
you wish to terminate employment under the Full Career Eligibility provision.
|
||
|
||
Remedies
Cancellation
|
In addition to the provisions described under Termination of Employment and Termination for Cause, your outstanding restricted stock units will be cancelled if: |
|
|
||
the Firm in its sole discretion determines that you are not in compliance with
any of the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or
|
||
|
||
you fail to return the required forms specified under Release/Certification
within the specified deadline, including the certification required immediately prior
to a vesting date under Full Career Eligibility and Total Disability, or
|
||
|
||
you violate any of the provisions as set forth above in Your Obligations.
|
4
Damages
|
In addition, you will be required to pay the Firm as liquidated damages an amount equal
to the Fair Market Value (determined as of the vesting date) of the net number of
shares of Common Stock distributed to you under this award as follows:
|
|
|
||
shares distributed within the one year period prior to your violation of any of
the provisions as set forth above in Your Obligations;
|
||
|
||
shares distributed at any time following termination of employment when you
were not in compliance with the employment restrictions then applicable to you during
the vesting period, and
|
||
|
||
shares distributed within the one year period immediately preceding and any
time after your termination of employment if your employment was terminated or the Firm
determines that your employment could have been terminated for Cause (as described
under Termination for Cause).
|
||
|
||
Payment may be made in shares of Common Stock or in cash. You agree that this payment
will be liquidated damages and is not to be construed in any manner as a penalty. You
acknowledge that a violation or attempted violation of the obligations set forth herein
will cause immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any court of
competent jurisdiction, restraining any violation or further violation of such
obligations; such right to an injunction, however, shall be cumulative and in addition
to whatever other remedies the Firm may have under law or equity. In any action or
proceeding by the Firm to enforce the terms and conditions of this Award Agreement
where the Firm is the prevailing party, the Firm shall be entitled to recover from you
its reasonable attorneys fees and expenses incurred in such action or proceeding.
Notwithstanding any terms of this Award Agreement to the contrary:
|
||
|
||
Administrative Provisions |
Withholding Taxes:
The Firm will retain from each distribution the number of shares of
Common Stock required to satisfy applicable tax obligations (including, to the extent
legally permissible, recovery by the Firm of fringe benefit taxes). For U.S. tax
purposes, dividend equivalents are treated as wages and subject to tax withholding when
paid. If, according to local country tax regulations, a withholding tax liability
arises at a time after the date of distribution, JPMorgan Chase may implement any
procedures necessary to ensure that the withholding obligation is fully satisfied,
including but not limited to, restricting transferability of the shares.
|
|
|
||
Right to Set Off:
The Firm may, to the maximum extent permitted by applicable law,
retain for itself funds or securities otherwise payable to you pursuant to this award
to satisfy any obligation or debt that you owe to the Firm. The Firm may not retain
such funds or securities until such time as they would otherwise be distributable to
you in accordance with the Award Agreement.
|
||
|
||
No Ownership Rights
: Restricted stock units do not convey the rights of ownership of
Common Stock and do not carry voting rights. No shares of Common Stock will be issued
to you until after the restricted stock units have vested and all applicable
restrictions have lapsed. Shares will be issued in accordance with JPMorgan Chases
procedures for issuing stock. JPMorgan Chases obligation hereunder is unfunded.
|
||
|
||
Binding Agreement
: The Award Agreement will be binding upon any successor in interest
to JPMorgan Chase, by merger or otherwise.
|
||
|
||
Not a Contract of Employment
: Nothing contained in the Award Agreement constitutes a
contract of employment or continued employment. Employment is at-will and may be
terminated by either you or JPMorgan Chase for any reason at any time. This award
does not confer any right or entitlement to, nor does the award impose any obligation
on the Firm to provide, the same or any similar award in the future.
|
||
|
||
Section 409A Compliance
: Notwithstanding anything herein to the contrary, if you (i)
are subject to taxation under the United States Internal Revenue Code (Code), (ii)
are a specified employee as defined in the JPMorgan Chase 2005 Deferred Compensation
Plan and (iii) have
|
5
6
violation of the JPMorgan Code
of Conduct or other Firm policies or misconduct related to your duties to the Firm
(other than immaterial and inadvertent violations or misconduct); (v) inadequate
performance of the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to act that is
or might reasonably be expected to be injurious to the interests of the Firm or its
relationship with a customer, client or employee.
|
||
|
||
Financial Services Company means a business enterprise that employs you in any
capacity (as an employee, contractor, consultant, advisor, self-employed individual,
etc. whether paid or unpaid) and engages in:
|
||
|
||
commercial or retail banking, including, but not limited to, commercial,
institutional and personal trust, custody and/or lending and processing services,
originating and servicing mortgages, issuing and servicing credit cards;
|
||
|
||
insurance, including but not limited to, guaranteeing against loss, harm
damage, illness, disability or death, providing and issuing annuities, acting as
principal, agent or broker for purpose of the forgoing;
|
||
|
||
financial, investment or economic advisory services, including but not limited
to, investment banking services (such as advising on mergers or dispositions,
underwriting, dealing in, or making a market in securities or other similar
activities), brokerage services, investment management services, asset management
services, and hedge funds;
|
||
|
||
issuing, trading or selling instruments representing interests in pools of
assets or in derivatives instruments;
|
||
|
||
advising on, or investing in, private equity or real estate, or
|
||
|
||
any similar activities that JPMorgan Chase determines in its sole discretion
constitute financial services.
|
||
|
||
Not-for-Profit Organization means an entity exempt from tax under state law and under
Section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) includes entities
organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes, or to foster national or international
amateur sports competition or for the prevention of cruelty to children or animals.
|
||
|
||
Recognized Service means the period of service as an employee set forth in the Firms
applicable service-related policies.
|
7
Year ended December 31, | ||||||||||||||||||||
(in millions, except ratios) | 2008 (b) | 2007 | 2006 | 2005 | 2004 (c) | |||||||||||||||
|
||||||||||||||||||||
Excluding interest on deposits
|
||||||||||||||||||||
|
||||||||||||||||||||
Income from continuing operations before income taxes
|
$ | 2,773 | $ | 22,805 | $ | 19,886 | $ | 11,839 | $ | 5,856 | ||||||||||
Fixed charges:
|
||||||||||||||||||||
Interest expense
|
19,693 | 23,328 | 20,823 | 15,534 | 9,418 | |||||||||||||||
One-third of rents, net of income from subleases
(a)
|
507 | 400 | 357 | 349 | 334 | |||||||||||||||
Total fixed charges
|
20,200 | 23,728 | 21,180 | 15,883 | 9,752 | |||||||||||||||
Less: Equity in undistributed income of affiliates/Add: Equity in undistributed loss of affiliates
|
623 | (159 | ) | (152 | ) | 6 | 149 | |||||||||||||
Income from continuing operations before income taxes and fixed charges, excluding capitalized interest
|
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Fixed charges, as above
|
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Ratio of earnings to fixed charges
|
1.17 | 1.95 | 1.93 | 1.75 | 1.62 | |||||||||||||||
|
||||||||||||||||||||
Including interest on deposits
|
||||||||||||||||||||
|
||||||||||||||||||||
Fixed charges as above
|
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Add: Interest on deposits
|
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total fixed charges and interest on deposits
|
$ | 34,746 | $ | 45,381 | $ | 38,222 | $ | 25,869 | $ | 14,267 | ||||||||||
Income from continuing operations before income taxes and fixed charges, excluding
capitalized interest, as above
|
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Add: Interest on deposits
|
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total income from continuing operations before income taxes, fixed charges and interest on deposits
|
$ | 38,142 | $ | 68,027 | $ | 57,956 | $ | 37,714 | $ | 20,272 | ||||||||||
Ratio of earnings to fixed charges
|
1.10 | 1.50 | 1.52 | 1.46 | 1.42 | |||||||||||||||
(a) | The proportion deemed representative of the interest factor. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. | |
(c) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
238
Year ended December 31, | ||||||||||||||||||||
(in millions, except ratios) | 2008 (b) | 2007 | 2006 | 2005 | 2004 (c) | |||||||||||||||
|
||||||||||||||||||||
Excluding interest on deposits
|
||||||||||||||||||||
|
||||||||||||||||||||
Income from continuing operations before income taxes
|
$ | 2,773 | $ | 22,805 | $ | 19,886 | $ | 11,839 | $ | 5,856 | ||||||||||
Fixed charges:
|
||||||||||||||||||||
Interest expense
|
19,693 | 23,328 | 20,823 | 15,534 | 9,418 | |||||||||||||||
One-third of rents, net of income
from subleases
(a)
|
507 | 400 | 357 | 349 | 334 | |||||||||||||||
Total fixed charges
|
20,200 | 23,728 | 21,180 | 15,883 | 9,752 | |||||||||||||||
Less: Equity in undistributed income
of affiliates/Add: Equity in undistributed
loss of affiliates
|
623 | (159 | ) | (152 | ) | 6 | 149 | |||||||||||||
Income from continuing operations
before income taxes and fixed charges,
excluding capitalized interest
|
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Fixed charges, as above
|
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Preferred stock dividends (pretax)
|
803 | | 6 | 18 | 68 | |||||||||||||||
Fixed charges including preferred
stock dividends
|
$ | 21,003 | $ | 23,728 | $ | 21,186 | $ | 15,901 | $ | 9,820 | ||||||||||
Ratio of earnings to fixed charges
and preferred stock dividend
requirements
|
1.12 | 1.95 | 1.93 | 1.74 | 1.60 | |||||||||||||||
|
||||||||||||||||||||
Including interest on deposits
|
||||||||||||||||||||
|
||||||||||||||||||||
Fixed charges including preferred stock
dividends, as above
|
$ | 21,003 | $ | 23,728 | $ | 21,186 | $ | 15,901 | $ | 9,820 | ||||||||||
Add: Interest on deposits
|
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total fixed charges including preferred
stock dividends and interest on deposits
|
$ | 35,549 | $ | 45,381 | $ | 38,228 | $ | 25,887 | $ | 14,335 | ||||||||||
Income from continuing operations before
income taxes and fixed charges, excluding
capitalized interest, as above
|
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Add: Interest on deposits
|
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total income from continuing operations
before income taxes, fixed charges and
interest on deposits
|
$ | 38,142 | $ | 68,027 | $ | 57,956 | $ | 37,714 | $ | 20,272 | ||||||||||
Ratio of earnings to fixed charges and
preferred stock dividend requirements
|
1.07 | 1.50 | 1.52 | 1.46 | 1.41 | |||||||||||||||
(a) | The proportion deemed representative of the interest factor. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. | |
(c) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
239
Percentage of voting | ||||||||
Organized under the | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Banc One Building Management Corporation
|
Wisconsin | 100 | ||||||
Banc One Capital Holdings LLC
|
Delaware | 100 | ||||||
BOCP Holdings Corporation
|
Ohio | 100 | ||||||
Banc One Capital Partners IV, Ltd.
|
Ohio | 100 | ||||||
Banc One Capital Partners VIII, Ltd.
|
Ohio | 83 | ||||||
BOCP Energy Partners, L.P.
|
Ohio | 95 | ||||||
Banc One Stonehenge Capital Fund Wisconsin, LLC
|
Delaware | 100 | ||||||
BOCF, LLC
|
Delaware | 100 | ||||||
BOCNY, LLC
|
Delaware | 100 | ||||||
JPM Mezzanine Capital, LLC
|
Delaware | 100 | ||||||
Chase Investment Services Corp.
|
Delaware | 100 | ||||||
Banc One Deferred Benefits Corporation
|
Ohio | 98 | ||||||
Banc One Financial LLC
|
Delaware | 100 | ||||||
JPMorgan Capital Corporation
|
Delaware | 100 | ||||||
Bank One Investment Corporation
|
Delaware | 100 | ||||||
OEP Holding Corporation
|
Delaware | 100 | ||||||
Banc One Equity Capital Fund II, L.L.C.
|
Delaware | 99.5 | ||||||
Banc One Equity Capital II, L.L.C.
|
Delaware | 100 | ||||||
One Equity Partners II, L.P.
|
Cayman Islands | 99.9 | (1) | |||||
One Equity Partners III, L.P.
|
Cayman Islands | 99.7 | ||||||
One Equity Partners LLC
|
Delaware | 99.9 | (2) | |||||
First Chicago Capital Corporation
|
Delaware | 100 | ||||||
JPMorgan Capital (Canada) Corp.
|
Canada | 100 | ||||||
One Mortgage Partners Corp.
|
Vermont | 100 | ||||||
First Chicago Leasing Corporation
|
Delaware | 100 | ||||||
First Chicago Lease Holdings, Inc.
|
Delaware | 100 | ||||||
Palo Verde
Leasing Corporation
|
Delaware | 100 | ||||||
First Chicago Lease Investments, Inc.
|
Delaware | 100 | ||||||
FM Holdings I, Inc.
|
Delaware | 100 | ||||||
GHML Holdings I, Inc.
|
Delaware | 100 | ||||||
GHML Holdings II, Inc.
|
Delaware | 100 | ||||||
GTC Fund III Holdings, Inc.
|
Delaware | 100 | ||||||
GTC Fund IV Holdings, Inc.
|
Delaware | 100 | ||||||
GTC Fund V Holdings, Inc.
|
Delaware | 100 | ||||||
JPMorgan Housing Corporation
|
Delaware | 100 | ||||||
Cooper Project, L.L.C.
|
Delaware | 100 | ||||||
J.P. Morgan Structured Fund Management SAS
|
France | 100 | ||||||
Protech Tax Credit Fund II, LLC
|
United States | 0.01 | (3) | |||||
NLTC Fund Holdings I, Inc.
|
Delaware | 100 | ||||||
OX FCL Two, Inc.
|
Delaware | 100 | ||||||
SAHP 130 Holdings, Inc.
|
Delaware | 100 | ||||||
Banc One Neighborhood Development Corporation
|
Ohio | 100 | ||||||
BOI Leasing Corporation
|
Indiana | 100 | ||||||
Bridge Acquisition Holdings, Inc.
|
Delaware | 100 | ||||||
CCC Holding Inc.
|
Delaware | 100 | ||||||
Chase Commercial Corporation
|
Delaware | 100 | ||||||
Chase Capital Holding Corporation
|
Delaware | 100 | ||||||
Chase Capital Corporation
|
Delaware | 100 | ||||||
Chase Capital Credit Corporation
|
Delaware | 100 | ||||||
Chase Lincoln First Commercial Corporation
|
Delaware | 100 | ||||||
Chase Manhattan Realty Leasing Corporation
|
New York | 100 |
240
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Palo Verde 1-PNM August 50 Corporation
|
Delaware | 100 | ||||||
Palo Verde 1-PNM December 75 Corporation
|
Delaware | 100 | ||||||
PV2-APS 150 Corporation
|
Delaware | 100 | ||||||
PV2-PNM December 35 Corporation
|
Delaware | 100 | ||||||
Chatham
Ventures, Inc.
|
New York | 100 | ||||||
J.P. Morgan
Partners (BHCA), L.P.
|
California | 80 | (4) | |||||
CVCA, LLC
|
Delaware | 100 | ||||||
Chemical Equity Incorporated
|
New York | 100 | ||||||
Chemical
Investments, Inc.
|
Delaware | 100 | ||||||
Clintstone Properties Inc.
|
New York | 100 | ||||||
CMRCC, Inc.
|
New York | 100 | ||||||
Credit Markets Investment Corporation
|
Delaware | 100 | ||||||
Custodial Trust Company
|
New Jersey | 99 | ||||||
Hambrecht & Quist California
|
California | 100 | ||||||
H&Q Holdings Inc.
|
Delaware | 100 | ||||||
Hatherley Insurance Ltd.
|
Bermuda | 100 | ||||||
Homesales, Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Capital Financing Limited
|
England | 100 | ||||||
Aldermanbury Investments Limited
|
England | 100 | ||||||
J.P. Morgan Chase International Financing Limited
|
England | 100 | ||||||
Robert Fleming Holdings Limited
|
England | 100 | ||||||
Robert Fleming Investment Trust Limited
|
England | 100 | ||||||
J.P. Morgan Chase Community Development Corporation
|
Delaware | 100 | ||||||
J.P. Morgan
Chase National Corporate Services, Inc.
|
New York | 100 | ||||||
J.P. Morgan Corporate Services Limited
|
England | 100 | ||||||
Robert Fleming Holdings Inc.
|
Delaware | 100 | ||||||
J.P. Morgan
Equity Holdings, Inc.
|
Delaware | 100 | ||||||
CMC Holding Delaware Inc.
|
Delaware | 100 | ||||||
Chase Bank
USA, National Association
|
United States | 100 | ||||||
Chase
BankCard Services, Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Investor Services Co.
|
Delaware | 100 | ||||||
Ixe
Tarjetas, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad Regulada
|
Mexico | 50 | (5) | |||||
J.P. Morgan Trust Company of Delaware
|
Delaware | 100 | ||||||
JPMorgan
Bank and Trust Company, National Association
|
United States | 100 | ||||||
JPM Capital Corporation
|
Delaware | 100 | ||||||
JPMC Wind Assignor Corporation
|
Delaware | 100 | ||||||
JPMC Wind Investment LLC
|
Delaware | 49.995 | (6) | |||||
J.P. Morgan Finance Holdings (Japan) LLC
|
Delaware | 100 | ||||||
J.P. Morgan Finance Japan YK
|
Japan | 100 | ||||||
J.P. Morgan Funding Corp.
|
England | 99.99 | (7) | |||||
J.P. Morgan Futures Inc.
|
Delaware | 100 | ||||||
J.P. Morgan GT Corporation
|
Delaware | 100 | ||||||
J.P. Morgan
Insurance Holdings, L.L.C.
|
Arizona | 100 | ||||||
Banc One Insurance Company
|
Vermont | 100 | ||||||
Chase
Insurance Agency, Inc.
|
Wisconsin | 100 | ||||||
J.P. Morgan International Holdings LLC
|
Delaware | 100 | ||||||
J.P. Morgan Trust Company (Bahamas) Limited
|
Bahamas, The | 100 | ||||||
J.P. Morgan Trust Company (Cayman) Limited
|
Cayman Islands | 100 | ||||||
JPMAC Holdings Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Invest Holdings LLC
|
Delaware | 100 | ||||||
J.P. Morgan Retirement Plan Services LLC
|
Delaware | 100 | ||||||
J.P. Morgan
Partners (23A Manager), Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Private Investments Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Securities Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Clearing Corp.
|
Delaware | 100 | ||||||
J.P. Morgan
Services Asia Holdings, Inc.
|
Delaware | 100 | ||||||
J.P. Morgan Services Asia Holdings Limited
|
Mauritius | 100 | ||||||
J.P. Morgan Services India Private Limited
|
India | 99.99957515 | (8) | |||||
J.P. Morgan Services Inc.
|
Delaware | 100 | ||||||
JPM International Consumer Holding Inc.
|
Delaware | 100 | ||||||
Brysam
Global Partners, L.P.
|
Cayman Islands | 98.0392 | ||||||
Brysam BPO Ltd
|
Mauritius | 100 | ||||||
Brysam
Mexico II, LLC
|
Delaware | 100 | ||||||
JPMorgan Asset Management Holdings Inc.
|
Delaware | 100 | ||||||
Highbridge
Capital Management, LLC
|
Delaware | 77.5 |
241
242
Percentage of voting
Organized under
securities owned by
Name
the laws of
immediate parent
Hong Kong
100
England
100
Delaware
100
England
100
England
50
(9)
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Singapore
100
Hong Kong
99.99998
(10)
Hong Kong
99.9999998
(11)
Taiwan
100
Japan
100
Taiwan
100
Canada
100
England
100
England
100
England
100
Luxembourg
100
Luxembourg
100
Italy
99.9
(12)
Luxembourg
99.99
(13)
Luxembourg
99.97
(14)
England
100
England
100
Scotland
100
England
100
England
100
England
100
England
100
Delaware
100
Delaware
100
Michigan
100
United States
100
Ohio
100
Arizona
100
Illinois
100
Delaware
100
United States
0.01
(15)
Indiana
100
Kentucky
100
Kentucky
100
Delaware
100
Delaware
100
Ohio
100
Louisiana
100
New York
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Delaware
100
Nevada
100
Delaware
100
Delaware
100
Delaware
100
Nevada
100
California
100
Delaware
100
Delaware
100
Delaware
100
Ohio
100
Delaware
100
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Chase Home Finance Inc.
|
Delaware | 100 | ||||||
Chase Home Finance LLC
|
Delaware | 100 | ||||||
Chase
Mortgage Holdings, Inc.
|
Delaware | 100 | ||||||
Chase New Markets Corporation
|
Delaware | 100 | ||||||
Chase Preferred Capital Corporation
|
Delaware | 100 | ||||||
CPCC Delaware Statutory Trust
|
Delaware | 100 | ||||||
CPCC Texas Limited Partnership
|
Texas | 99.5 | (16) | |||||
CPCC Massachusetts Business Trust
|
Massachusetts | 100 | ||||||
Chase Student Loan Services, Inc.
|
Delaware | 100 | ||||||
Collegiate
Funding Services, L.L.C.
|
Virginia | 100 | ||||||
CFS
Servicing, LLC
|
Delaware | 100 | ||||||
Chase
Student Loan Servicing, LLC
|
United States | 100 | ||||||
Chase Student Loans, Inc.
|
United States | 100 | ||||||
Collegiate
Funding of Delaware, L.L.C.
|
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2003A
|
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2003B
|
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2004A
|
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2005A
|
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2005B
|
United States | 100 | ||||||
Chase Ventures Holdings, Inc.
|
United States | 100 | ||||||
Commercial Loan Partners L.P.
|
United States | 58.6275 | (17) | |||||
Cross Country Insurance Company
|
United States | 100 | ||||||
CSL Leasing, Inc.
|
United States | 100 | ||||||
DNT Asset Trust
|
United States | 100 | ||||||
Ventures Business Trust
|
United States | 100 | ||||||
FA Out-of-State Holdings, Inc.
|
United States | 100 | ||||||
Ahmanson Marketing, Inc.
|
United States | 100 | ||||||
FA California Aircraft Holding Corp.
|
United States | 100 | ||||||
Pacific Centre Associates LLC
|
United States | 54.86 | (18) | |||||
WMRP Delaware Holdings LLC
|
United States | 97.84 | (19) | |||||
Irvine Corporate Center, Inc.
|
United States | 100 | ||||||
Rivergrade Investment Corp.
|
United States | 32.8 | (20) | |||||
Savings of America, Inc.
|
United States | 100 | ||||||
WaMu Insurance Services, Inc.
|
United States | 100 | ||||||
Washington Mutual Community Development, Inc.
|
United States | 100 | ||||||
FC Energy Finance I, Inc.
|
United States | 100 | ||||||
FC Energy Finance II, Inc.
|
United States | 100 | ||||||
FDC Offer Corporation
|
United States | 100 | ||||||
Paymentech, Inc.
|
United States | 100 | ||||||
FNBC Leasing Corporation
|
United States | 100 | ||||||
ICIB Fund I Holdings, Inc.
|
United States | 100 | ||||||
Georgetown/Chase Phase I LLC
|
United States | 99 | (21) | |||||
Georgetown/Chase Phase II, LLC
|
United States | 99 | (22) | |||||
Harvest Opportunity Holdings Corp.
|
United States | 100 | ||||||
HCP Properties, Inc.
|
United States | 100 | ||||||
J.P. Morgan Electronic Financial Services, Inc.
|
United States | 100 | ||||||
J.P. Morgan International Inc.
|
United States | 100 | ||||||
Bank One International Holdings Corporation
|
United States | 100 | ||||||
Bank One Europe Limited
|
England | 100 | ||||||
J.P. Morgan International Finance Limited
|
United States | 100 | ||||||
Banco J.P. Morgan S.A.
|
Brazil | 99.27 | (23) | |||||
J.P. Morgan Corretora de Cambio e Valores Mobiliarios S.A.
|
Brazil | 100 | ||||||
J.P. Morgan
S.A. Distribuidora de Titulos e Valores Mobiliarios
|
Brazil | 100 | ||||||
BOL (C) II, Inc.
|
Delaware | 100 | ||||||
BOL Canada II Sub, Inc.
|
United States | 100 | ||||||
BOL Canada II Trust
|
United States | 100 | ||||||
BO Leasing II ULC
|
Canada | 100 | ||||||
BOL Canada I, Inc.
|
United States | 100 | ||||||
BOL Canada I Sub, Inc.
|
United States | 100 | ||||||
BO Leasing I ULC
|
Canada | 100 | ||||||
BOL Canada III, Inc.
|
United States | 100 | ||||||
BOL Canada III Sub, Inc.
|
United States | 100 | ||||||
BO Leasing III ULC
|
Canada | 100 | ||||||
Brysam
Global Partners (AV-1), L.P.
|
Cayman Islands | 98.0392 | ||||||
AEF, LLC
|
United States | 100 |
243
244
Percentage of voting
Organized under
securities owned by
Name
the laws of
immediate parent
Mexico
100
Russia
99
(24)
Brazil
99.99
Canada
100
Canada
51
(25)
Canada
100
Chile
99.942
(26)
Switzerland
100
Ireland
100
Ireland
100
Ireland
100
Canada
100
Luxembourg
99.99
(27)
Germany
99.8
(28)
Germany
100
England
72.727
(29)
England
100
England
100
England
100
South Africa
100
England
100
England
79
(30)
England
36.02
(31)
England
65
(32)
England
50.01
England
98.947
(33)
Italy
100
England
100
England
100
England
100
Netherlands
100
Malaysia
100
Chile
99.8
(34)
Singapore
100
Singapore
100
Mexico
99.66
(35)
Mexico
99.99
(36)
Mexico
100
Mexico
99.99
(37)
Mexico
99
(38)
Hong Kong
99.8
(39)
Mauritius
100
Korea, South
100
Hong Kong
99.9999999
(40)
Hong Kong
99.99999
(41)
China, Peoples Republic of
49
Jersey
100
Cayman Islands
100
Mauritius
55.714
(42)
India
99.9999726
(43)
British Virgin Islands
100
Singapore
100
British Virgin Islands
100
Thailand
99.9997
Thailand
50.100001
(44)
British Virgin Islands
100
Malaysia
100
Brazil
99.79
(45)
Luxembourg
100
Malaysia
100
United States
100
Australia
100
Australia
100
Australia
100
Australia
100
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
J.P. Morgan Portfolio Services Limited
|
Australia | 100 | ||||||
JFOM Pty Limited
|
Australia | 100 | ||||||
OMG Australia Pty Limited
|
Australia | 100 | ||||||
J.P. Morgan Securities Australia Limited
|
Australia | 100 | ||||||
JPMorgan Investments Australia Limited
|
Australia | 100 | ||||||
J.P. Morgan Markets Australia Pty Limited
|
Australia | 100 | ||||||
J.P. Morgan Espana S.A.
|
Spain | 100 | ||||||
J.P. Morgan International Bank Limited
|
England | 100 | ||||||
J.P. Morgan Securities Canada Inc.
|
Canada | 100 | ||||||
J.P. Morgan Whitefriars Inc.
|
United States | 100 | ||||||
J.P. Morgan Whitefriars (UK)
|
England | 99.99 | (46) | |||||
JPMorgan Corporacion Financiera S.A.
|
Colombia | 90 | (47) | |||||
PT J.P. Morgan Securities Indonesia
|
Indonesia | 42.5 | (48) | |||||
J.P. Morgan Pakistan Broking (Private) Limited
|
Pakistan | 99.999 | ||||||
J.P. Morgan Partners (CMB Reg K GP), Inc.
|
United States | 100 | ||||||
J.P. Morgan Saudi Arabia Limited
|
Saudi Arabia | 95 | (49) | |||||
J.P. Morgan Securities (C.I.) Limited
|
Jersey | 100 | ||||||
J.P. Morgan (Jersey) Limited
|
Jersey | 100 | ||||||
J.P. Morgan Securities (Taiwan) Limited
|
Taiwan | 72.3 | (50) | |||||
J.P. Morgan Securities Asia Private Limited
|
Singapore | 100 | ||||||
J.P. Morgan Securities Holdings (Hong Kong) Limited
|
Hong Kong | 86.38172 | (51) | |||||
J.P. Morgan Securities (Asia Pacific) Limited
|
Hong Kong | 99.99999 | (52) | |||||
J.P. Morgan Securities Holdings (Caymans) Limited
|
Cayman Islands | 99.9999 | (53) | |||||
J.P. Morgan Securities India Private Limited
|
India | 89.99999 | (54) | |||||
J.P. Morgan Securities Philippines, Inc.
|
Philippines | 99.9997 | ||||||
J.P. Morgan Securities South Africa (Proprietary) Limited
|
South Africa | 100 | ||||||
JPMorgan Administration Services (Proprietary) Limited
|
South Africa | 100 | ||||||
J.P. Morgan Structured Products B.V.
|
Netherlands | 100 | ||||||
J.P. Morgan Trust Company (Jersey) Limited
|
Jersey | 100 | ||||||
JPMorgan Holdings (Japan) LLC
|
United States | 100 | ||||||
JPMorgan
Securities Japan Co., Ltd.
|
Japan | 85.042735 | (55) | |||||
Bear Stearns (Japan), LLC
|
United States | 100 | ||||||
JPMorgan Trust Bank Limited
|
Japan | 72.1625613 | (56) | |||||
Norchem Holdings e Negocios S.A.
|
Brazil | 48.97 | (57) | |||||
NorChem Participacoes e Consultoria S.A.
|
Brazil | 50 | ||||||
Vastera Bermuda LP
|
Bermuda | 99.99 | (58) | |||||
Vastera Netherlands B.V.
|
Netherlands | 100 | ||||||
J.P. Morgan Mortgage Acquisition Corp.
|
United States | 100 | ||||||
J.P. Morgan Treasury Technologies Corporation
|
United States | 100 | ||||||
JPMorgan Chase Bank (China) Company Limited
|
China, Peoples Republic of | 100 | ||||||
JPMorgan
Chase Bank, N.A. - Asia Pacific Area Office
|
Hong Kong | 0 | ||||||
JPMorgan Chase Vastera Inc.
|
United States | 100 | ||||||
JPMorgan Chase Vastera Professional Services Inc.
|
United States | 100 | ||||||
JPMorgan Investment Advisors Inc.
|
United States | 100 | ||||||
JPMorgan Xign Corporation
|
United States | 100 | ||||||
Manufacturers Hanover Leasing International Corp.
|
United States | 100 | ||||||
Meliora Holding Corp.
|
United States | 100 | ||||||
Pike Street Holdings, Inc.
|
United States | 100 | ||||||
Providian Bancorp Services
|
United States | 100 | ||||||
Seafair Securities Holding Corp.
|
United States | 100 | ||||||
Second and Union, LLC
|
United States | 100 | ||||||
South Cutler Corporation
|
United States | 100 | ||||||
Stockton
Plaza, Incorporated
|
United States | 100 | ||||||
Washington Mutual Brokerage Holdings, Inc.
|
United States | 100 | ||||||
WaMu Investments, Inc.
|
United States | 100 | ||||||
Washington Mutual Mortgage Securities Corp.
|
United States | 100 | ||||||
WM Marion Holdings, LLC
|
United States | 100 | ||||||
Cranbrook Real Estate Investment Trust
|
United States | 100 | ||||||
Washington Mutual Preferred Funding LLC
|
United States | 100 | ||||||
WM Specialty Mortgage LLC
|
United States | 100 | ||||||
WM Winslow Funding LLC
|
United States | 100 | ||||||
WMB Baker LLC
|
United States | 100 | ||||||
WMICC Delaware Holdings LLC
|
United States | 100 | ||||||
JPMorgan Chase Funding Inc.
|
United States | 100 | ||||||
J.P. Morgan Ventures Energy Corporation
|
United States | 100 |
245
246
Percentage of voting
Organized under
securities owned by
Name
the laws of
immediate parent
United States
100
United States
100
United States
99
(59)
United States
100
United States
99
(60)
United States
100
United States
100
United States
100
United States
100
Singapore
100
Cayman Islands
99.9
(61)
United States
100
United States
100
United States
100
Cayman Islands
100
Cayman Islands
100
Mauritius
100
United States
100
United States
100
United States
100
United States
100
United States
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
Mauritius
100
India
99.9999995
(62)
British Virgin Islands
100
United States
100
United States
100
United States
99.5
(63)
United States
100
Belgium
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
99.9
(64)
United States
100
United States
90
United States
80
United States
85
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
100
United States
59.63
(65)
United States
100
United States
1
(66)
United States
1
(67)
United States
1
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Bear Stearns Access Fund VI, L.P.
|
United States | 1 | ||||||
Bear Stearns Access Fund VII, L.P.
|
United States | 1 | ||||||
Bear Stearns Private Equity Opportunity Fund II, L.P.
|
United States | 1 | ||||||
Bear Stearns Fund of Hedge Funds Associates LLC
|
United States | 100 | ||||||
BX, L.P.
|
United States | 100 | ||||||
Bear Stearns Private Opportunity Ventures, L.P.
|
United States | 1.07 | ||||||
Bear Stearns Venture Partners, L.P.
|
United States | 100 | ||||||
BSAM Capital Investments Limited
|
England | 100 | ||||||
Measurisk, LLC
|
United States | 80 | ||||||
Bear Stearns Capital Markets Inc.
|
United States | 100 | ||||||
Bear Stearns Alternative Assets II Inc.
|
United States | 100 | ||||||
Bear Stearns Alternative Assets III Inc.
|
United States | 100 | ||||||
Bear Stearns Global Alternative Assets International Limited
|
Cayman Islands | 100 | ||||||
Bear Stearns Alternative Assets International Limited
|
Cayman Islands | 100 | ||||||
Bear Stearns Caribbean Asset Holdings Ltd.
|
Barbados | 100 | ||||||
Bear Stearns Corporate Lending Inc.
|
United States | 100 | ||||||
Bear Stearns Equity Strategies RT LLC
|
United States | 100 | ||||||
Bear Stearns Financial Products Inc.
|
United States | 100 | ||||||
Bear Stearns Global Lending Limited
|
Cayman Islands | 100 | ||||||
Bear Stearns International Funding I, Inc.
|
United States | 100 | ||||||
Bear Stearns International Funding (Bermuda) Limited
|
Bermuda | 50 | (68) | |||||
Bear Stearns Overseas Funding Unlimited
|
England | 100 | ||||||
Bear Stearns International Funding II, Inc.
|
United States | 100 | ||||||
Bear Stearns Investment Products Inc.
|
United States | 100 | ||||||
Aircraft Certificate Seller LLC
|
United States | 100 | ||||||
Alpha Financing BS LLC
|
United States | 100 | ||||||
Bear Stearns Irish Holdings Inc.
|
United States | 100 | ||||||
Bear Stearns International Funding I S.à r.l.
|
Luxembourg | 100 | ||||||
Bear Stearns International Funding II S.à r.l.
|
Luxembourg | 100 | ||||||
Bear Stearns International Funding III S.à r.l.
|
Luxembourg | 100 | ||||||
Bear Stearns Ireland Limited
|
Ireland | 100 | ||||||
Bear Stearns Bank plc
|
Ireland | 100 | ||||||
Bear Stearns Services Inc.
|
United States | 100 | ||||||
Bear Stearns UK Holdings Limited
|
England | 100 | ||||||
Bear Stearns Holdings Limited
|
England | 100 | ||||||
Bear Stearns International Trading Limited
|
England | 100 | ||||||
Bear, Stearns International Limited
|
England | 100 | ||||||
Bear Strategic Investments Corp.
|
United States | 100 | ||||||
Bear Stearns Singapore Holdings Pte Ltd
|
Singapore | 100 | ||||||
Bear Stearns
Singapore Management Pte. Ltd.
|
Singapore | 100 | ||||||
Bear Stearns Financial Services (India) Private Ltd.
|
India | 99.9999983 | (69) | |||||
Bear UK Mortgages Limited
|
England | 100 | ||||||
Rooftop Funding Limited
|
England | 100 | ||||||
Rooftop Mortgages Limited
|
England | 100 | ||||||
Bear, Stearns International Holdings Inc.
|
United States | 100 | ||||||
Bear Stearns Hong Kong Limited
|
Hong Kong | 99.999 | (70) | |||||
Bear Stearns Asia Limited
|
Hong Kong | 99.9999667 | (71) | |||||
BSG Insurance Holdings Limited
|
England | 93 | ||||||
Minster Insurance Company Limited
|
England | 100 | ||||||
Bear, Stearns Netherlands Holding B.V.
|
Netherlands | 100 | ||||||
Bear, Stearns Realty Investors, Inc.
|
United States | 100 | ||||||
BSC Life Settlement Holdings, LLC
|
United States | 100 | ||||||
Thyme Settlements Limited
|
Ireland | 100 | ||||||
CL II Holdings LLC
|
United States | 100 | ||||||
Commercial Lending II LLC
|
United States | 99 | (72) | |||||
Commercial Lending III LLC
|
United States | 99 | (73) | |||||
Community Capital Markets LLC
|
United States | 100 | ||||||
Commercial Lending LLC
|
United States | 99 | (74) | |||||
Constellation Venture Capital II, L.P.
|
United States | 0.89 | ||||||
Constellation Venture Capital Offshore II, L.P.
|
United States | 0.56 | ||||||
eCAST Settlement Corporation
|
United States | 100 | ||||||
EMC Mortgage Corporation
|
United States | 100 | ||||||
EMC Mortgage SFJV 2005, LLC
|
United States | 70 | ||||||
SFJV 2005, LLC
|
United States | 70 | ||||||
Gregory/Madison Avenue LLC
|
United States | 100 |
247
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Indiana Four Holdings LLC
|
United States | 99 | (75) | |||||
Indiana Four LLC
|
United States | 99 | (76) | |||||
Madison Insurance Company, Inc.
|
United States | 100 | ||||||
Madison
Vanderbilt Holdings, LLC
|
United States | 100 | ||||||
MV Partners Fund I, L.P.
|
United States | 100 | ||||||
Max Recovery Australia Pty Limited
|
Australia | 100 | ||||||
MAX Recovery Inc.
|
United States | 100 | ||||||
MAX Flow Corp.
|
United States | 100 | ||||||
Max Recovery Limited
|
England | 100 | ||||||
MLP Investment Holdings, Inc.
|
United States | 100 | ||||||
New Castle Holding, Inc.
|
United States | 100 | ||||||
Plymouth Park Tax Services LLC
|
United States | 100 | ||||||
Madison Tax Capital, LLC
|
United States | 100 | ||||||
Principal Real Estate Funding Corporation Limited
|
England | 100 | ||||||
Strategic Mortgage Opportunities REIT Inc.
|
United States | 100 | ||||||
Max Recovery Canada Company
|
United States | 100 | ||||||
(1) | OEP General Partner II, L.P. owns 0.1% | |
(2) | OEP Management LLC owns 0.1% | |
(3) | First Chicago Leasing Corporation owns 99.99% | |
(4) | JPMP Master Fund Manager, L.P. owns 20% | |
(5) | Ixe Banco, S.A., Institucion de Banca Multiple, Ixe Grupo Financiero owns 50% | |
(6) | JPMC Wind Assignor Corporation owns 50.005% | |
(7) | J.P. Morgan Financial Investments Limited owns 0.01% | |
(8) | J.P. Morgan International Finance Limited owns 0.00042485% | |
(9) | Highbridge Principal Strategies (UK) II, Ltd owns 50% | |
(10) | JPMorgan Asset Management Holdings Inc. owns 0.00002% | |
(11) | JPMorgan Asset Management (Asia) Inc. owns 0.0000002% | |
(12) | JPMorgan Asset Management (Europe) S.à r.l. owns 0.1% | |
(13) | JPMorgan Asset Management (Europe) S.à r.l. owns 0.01% | |
(14) | JPMorgan Asset Management Holdings (Luxembourg) S.à r.l. owns 0.03% | |
(15) | FNBC Leasing Corporation owns 99.99% | |
(16) | CPCC Massachusetts Business Trust owns 0.5% | |
(17) | Savings of America, Inc. owns 41.3725% | |
(18) | Stockton Plaza, Incorporated owns 32.4% and Irvine Corporate Center, Inc. owns 12.74% | |
(19) | Stockton Plaza, Incorporated owns 2.16% | |
(20) | Ahmanson Marketing, Inc. owns 1.4% and Commercial Loan Partners L.P. owns 25% and JPMorgan Chase Bank, National Association owns 25.8% and Savings of America, Inc. owns 15% | |
(21) | Easton Phase I SPE Corp. owns 1% | |
(22) | Easton Phase II SPE Corp. owns 1% | |
(23) | Chase Manhattan Holdings Limitada owns 0.4226% | |
(24) | J.P. Morgan plc owns 1% | |
(25) | First Data/Paymentech Canada Partner ULC owns 49% | |
(26) | J.P. Morgan International Inc. owns 0.008% and Chase Manhattan Overseas Finance Corporation owns 0.05% | |
(27) | Chase Manhattan Overseas Finance Corporation owns 0.01% | |
(28) | J.P. Morgan AG owns 0.2% | |
(29) | J.P. Morgan Overseas Capital Corporation owns 27.272% and J.P. Morgan International Inc. owns 0.001% | |
(30) | J.P. Morgan Chase International Holdings owns 21% | |
(31) | J.P. Morgan plc owns 27.07% and J.P. Morgan Securities Ltd. owns 27.29% and J.P. Morgan Whitefriars (UK) owns 9.62% | |
(32) | J.P. Morgan Securities Ltd. owns 35% | |
(33) | J.P. Morgan Capital Financing Limited owns 1.053% | |
(34) | J.P. Morgan Overseas Capital Corporation owns 0.2% | |
(35) | J.P. Morgan Overseas Capital Corporation owns 0.34% | |
(36) | J.P. Morgan International Finance Limited owns 0.01% | |
(37) | J.P. Morgan International Inc. owns 0.01% | |
(38) | J.P. Morgan International Finance Limited owns 1% | |
(39) | Fledgeling Nominees International Limited owns 0.2% | |
(40) | Fledgeling Nominees International Limited owns 0.0000001% | |
(41) | J.P. Morgan Holdings (Hong Kong) Limited owns 0.00001% | |
(42) | Fledgeling Nominees International Limited owns 44.286% | |
(43) | J.P. Morgan International Finance Limited owns 0.0000274% | |
(44) | Fledgeling Nominees International Limited owns 0.000003% and J.P. Morgan Holdings (Hong Kong) Limited owns 0.000003% and J.P. Morgan International Finance Limited owns 30.283423% and J.P. Morgan International Holdings Limited owns 19.616564% and J.P. Morgan Secretaries (B.V.I.) Limited owns 0.000003% and J.P. Morgan Securities (Far East) Limited owns 0.000003% | |
(45) | J.P. Morgan Overseas Capital Corporation owns 0.21% | |
(46) | J.P. Morgan Financial Investments Limited owns 0.01% | |
(47) | J.P. Morgan International Finance Limited owns 10% | |
(48) | J.P. Morgan Securities Asia Private Limited owns 13.75% and J.P. Morgan Indonesia Holdings (B.V.I.) Limited owns 42.5% | |
(49) | J.P. Morgan International Inc. owns 5% | |
(50) | J.P. Morgan International Holdings Limited owns 27.7% | |
(51) | Fledgeling Nominees International Limited owns 0.0001% and J.P. Morgan Holdings (Hong Kong) Limited owns 0.00001% and J.P. Morgan Securities (Far East) Limited owns 2.84613% and JPMorgan Securities Japan Co., Ltd. owns 10.77214% | |
(52) | Chase Manhattan Overseas Finance Corporation owns 0.00001% | |
(53) | Fledgeling Nominees International Limited owns 0.0001% | |
(54) | J.P. Morgan Overseas Capital Corporation owns 10.00001% | |
(55) | J.P. Morgan Luxembourg International S.à r.l. owns 14.957265% |
248
(56) | J.P. Morgan Chase International Holdings owns 27.8374387% | |
(57) | Chase Manhattan Holdings Limitada owns 29.2735% | |
(58) | Vastera Bermuda, LLC owns 0.01% | |
(59) | Arroyo Power GP Holdings LLC owns 1% | |
(60) | Arroyo Power GP Holdings LLC owns 1% | |
(61) | J.P. Morgan Ventures Investment Corporation owns 0.01% | |
(62) | JPMorgan Special Situations Asia Corporation owns 0.0000005% | |
(63) | J.P. Morgan Capital Management Company, L.P. owns 0.5% | |
(64) | JPMREP General Partner, L.P. owns 0.1% | |
(65) | Bear Strategic Investments Corp. owns 40.37% | |
(66) | The Bear Stearns Companies LLC owns 99% | |
(67) | The Bear Stearns Companies LLC owns 99% | |
(68) | Bear Stearns International Funding II, Inc. owns 50% | |
(69) | Bear Stearns Singapore Holdings Pte Ltd owns 0.0000017% | |
(70) | The Bear Stearns Companies LLC owns 0.001% | |
(71) | The Bear Stearns Companies LLC owns 0.0000333% | |
(72) | CL II Management LLC owns 1% | |
(73) | CL III Management LLC owns 1% | |
(74) | NMTC Management LLC owns 1% | |
(75) | Bear Stearns N.Y., Inc. owns 1% | |
(76) | Bear Stearns N.Y., Inc. owns 1% | |
249
250
1. | I have reviewed this annual report on Form 10-K of JPMorgan Chase & Co.; | |
2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ James Dimon | ||||
James Dimon | ||||
Chairman and Chief Executive Officer | ||||
251 | JPMorgan Chase & Co. / 2008 Annual Report |
1. | I have reviewed this annual report on Form 10-K of JPMorgan Chase & Co.; | |
2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Michael J. Cavanagh | ||||
Michael J. Cavanagh | ||||
Executive Vice President and Chief Financial Officer | ||||
252
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of JPMorgan Chase & Co. |
Date: March 2, 2009 | By: | /s/ James Dimon | ||
James Dimon | ||||
Chairman and Chief Executive Officer | ||||
Date: March 2, 2009 | By: | /s/ Michael J. Cavanagh | ||
Michael J. Cavanagh | ||||
Executive Vice President and Chief Financial Officer | ||||
253