Each capital security will represent an undivided beneficial ownership interest in the assets of the issuer.
The issuer will sell the capital securities to the public and its common securities to J.P. Morgan Chase. The issuer will use the proceeds from those sales to purchase $1,030,927,850 aggregate principal amount of 7.00% Junior Subordinated Deferrable Interest Debentures, Series J, which are a series of the junior subordinated debentures referred to in the attached prospectus and which we refer to in this prospectus supplement as the "subordinated debentures." J.P. Morgan Chase will pay interest on the subordinated debentures at the same rates and on the same dates as the issuer makes payments on the capital securities. The issuer will use payments it receives on the subordinated debentures to make the corresponding payments on the capital securities.
If you purchase capital securities, you will be entitled to receive cumulative cash distributions at the annual rate of 7.00% of the stated liquidation amount of $25 per capital security. Distributions will accumulate from January 31, 2002. The issuer will make distribution payments on the capital securities quarterly in arrears, on each February 15, May 15, August 15 and November 15, beginning May 15, 2002, unless those payments are deferred as described below.
We may elect, on one or more occasions, to defer the quarterly interest payments on the subordinated debentures for a period of up to 20 consecutive quarterly periods. In other words, we can declare one or more interest payment moratoriums on the subordinated debentures, each of which may last for up to five years. However, no interest deferral may (1) extend beyond the stated maturity date of the subordinated debentures or (2) begin during the existence of an event of default with respect to the subordinated debentures.
If we exercise our right to defer interest payments on the subordinated debentures, the issuer will also defer distribution payments on the capital securities.
Although you will not receive distribution payments on the capital securities if interest payments are deferred, interest will continue to accrue, compounded quarterly, on the subordinated debentures, and deferred interest payments will accrue additional interest. As a result, additional distributions will continue to accumulate on the deferred distributions at the annual rate of 7.00%, compounded quarterly.
If we defer payments of interest on the subordinated debentures, the subordinated debentures will be treated as being issued with original issue discount for United States federal income tax purposes. This means that you must include interest income with respect to the deferred distributions on your capital securities in gross income for United States federal income tax purposes, prior to receiving any cash distributions.
The issuer will redeem the capital securities and its common securities on February 15, 2032, the stated maturity date of the subordinated debentures. In addition, if we redeem or repay any subordinated debentures prior to their stated maturity date, the issuer will use the cash it receives to redeem, on a proportionate basis, an equal amount of capital securities and common securities.
Upon any redemption of the capital securities, you will be entitled to receive a redemption price equal to the liquidation amount of the capital securities redeemed, plus any accumulated and unpaid distributions to the date of redemption.
The subordinated debentures will mature on February 15, 2032. They will bear interest at the annual rate of 7.00% of their principal amount. Interest on the subordinated debentures will accrue from January 31, 2002. J.P. Morgan Chase will pay that interest quarterly in arrears on each February 15, May 15, August 15 and November 15, beginning May 15, 2002.
The subordinated debentures will constitute one series of the junior subordinated debentures referred to in the attached prospectus and will be issued by J.P. Morgan Chase under the indenture referred to in the attached prospectus. The subordinated debentures will be unsecured and will rank junior to all of J.P. Morgan Chase's senior debt. For a definition of "senior debt", see page 19 of the attached prospectus. Substantially all of our debt, other than other series of junior subordinated debentures previously issued or that we may issue in the future, constitutes senior debt.
We may elect to redeem any or all of the subordinated debentures at one or more times on or after February 15, 2007. In addition, if certain changes occur relating to the tax or capital treatment of the capital securities, we may elect to redeem all, but not less than all, of the subordinated debentures. For a description of the changes that would permit such a redemption, see "Summary of Terms of Subordinated Debentures -- Conditional Right to Redeem Upon a Tax Event or Capital Treatment Event" below.