JP Morgan Chase 2008 Annual Report Download - page 208

Notes to consolidated financial statements
206 JPMorgan Chase & Co./ 2008 Annual Report
Series K Preferred Stock
Dividend restrictions
For as long as any shares of Series K Preferred Stock are outstand-
ing, 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. Treasury’s consent is
required for any increase in dividends on the Firm’s 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.
Stock repurchase restrictions
The Firm may not repurchase or redeem any common stock or other
equity securities of the Firm, or any trust preferred capital debt secu-
rities issued by the Firm or any of its affiliates, without the prior con-
sent 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.
Note 25 – Common stock
At December 31, 2008, JPMorgan Chase was authorized to issue 9.0
billion shares of common stock with a $1 par value per share.
On September 30, 2008, the Firm issued $11.5 billion of new shares
of common stock at $40.50 per share, representing 284 million shares.
On April 8, 2008, pursuant to the Share Exchange Agreement dated
March 24, 2008, between JPMorgan Chase and Bear Stearns, 20.7
million newly issued shares of JPMorgan Chase common stock were
issued to Bear Stearns in a transaction that was exempt from registra-
tion under the Securities Act of 1933, pursuant to Section 4(2) there-
of, in exchange for 95.0 million newly issued shares of Bear Stearns
common stock (or 39.5% of Bear Stearns common stock after giving
effect to the issuance). Upon the consummation of the Bear Stearns
merger, on May 30, 2008, the 20.7 million shares of JPMorgan Chase
common stock and 95.0 million shares of Bear Stearns common stock
were cancelled. For a further discussion of this transaction, see Note 2
on pages 135–140 of this Annual Report.
Common shares issued (newly issued or distributed from treasury) by
JPMorgan Chase during 2008, 2007 and 2006 were as follows.
December 31, (in millions) 2008 2007 2006
Issued – balance at January 1 3,657.7 3,657.8 3,618.2
Newly issued:
Common stock:
Open market issuance 283.9 ——
Bear Stearns Share Exchange Agreement 20.7 ——
Employee benefits and compensation plans —— 39.3
Employee stock purchase plans ——0.6
Total newly issued 304.6 — 39.9
Canceled shares (20.7) (0.1) (0.3)
Total issued – balance at
December 31 3,941.6 3,657.7 3,657.8
Treasury – balance at January 1 (290.3) (196.1) (131.5)
Purchases of treasury stock —(168.2) (90.7)
Share repurchases related to employee
stock-based awards(a) (0.5) (2.7) (8.8)
Issued from treasury:
Change from the Bear Stearns merger
as a result of the reissuance of
Treasury stock and the Share
Exchange Agreement 26.5 ——
Employee benefits and
compensation plans 54.4 75.7 34.4
Employee stock purchase plans 1.1 1.0 0.5
Total issued from treasury 82.0 76.7 34.9
Total treasury – balance at
December 31 (208.8) (290.3) (196.1)
Outstanding 3,732.8 3,367.4 3,461.7
(a) Participants in the Firm’s 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.
Pursuant to the Capital Purchase Program, the Firm issued to the
U.S. Treasury a Warrant to purchase up to 88,401,697 shares of the
Firm’s common stock at an exercise price of $42.42 per share. Based
upon its fair value relative to the Series K Preferred Stock as dis-
cussed in Note 24 on pages 205–206 of this Annual Report, the
Warrant was recorded in capital surplus at a value of $1.3 billion
and is accounted for as equity. The Warrant is exercisable, in whole
or in part, at any time and from time to time until the tenth anniver-
sary of the issue date.