As filed with the Securities and Exchange Commission on November 15, 1995
Registration No. 33-73438
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 6 to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
LEHMAN ABS CORPORATION
(Exact name of registrant as specified in governing instruments)
Delaware 13-3447441
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 World Financial Center
New York, New York 10285
(212) 526-5594
(Address of principal executive offices)
TED JANULIS
LEHMAN ABS CORPORATION
3 World Financial Center
New York, New York 10285
(212) 526-5594
(Name and address of agent for services)
_______________
Copy to:
THOMAS RUSSO, Esq. WALTER G. McNEILL, Esq.
General Counsel Weil, Gotshal & Manges
Lehman Brothers Inc. 767 Fifth Avenue
3 World Financial Center New York, New York 10153
New York, New York 10285
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only Securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
_______________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed maximum
Title of securities Amount being maximum aggregate Amount of
being registered registered offering price offering registration
per unit(1) price(1) fee(2)
<S> <C> <C> <C> <C>
Trust Certificates $500,000,000 100% $500,000,000 $100,144.83
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) $344.83 was previously paid.
_______________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
EXPLANATORY NOTE
This Registration Statement includes three different basic prospectuses
with corresponding forms of prospectus supplement for offering Series of
Certificates representing the entire beneficial ownership interest in various
trusts to be created from time to time, the assets of which will consist
primarily of a publicly issued, fixed income debt security or pool of such
debt securities together with certain other assets as described herein
deposited in trust by Lehman ABS Corporation. Following this Explanatory Note
in sequential order are the basic prospectus and form of prospectus
supplement for trusts consisting of obligations of (i) U.S. corporations,
banking organizations and insurance companies subject to the informational
requirements of the Securities Exchange Act of 1934; (ii) the United States
of America and U.S. government sponsored entities; and (iii) certain foreign
governments, subnationals and agencies or instrumentalities thereof.
Subject to Completion Dated November 15, 1995
Prospectus Supplement
(To Prospectus Dated November 15, 1995)
Trust Certificates, Series 1995 -- [ ]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable] Pass Through Rate
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable] Pass Through Rate
Lehman ABS Corporation
Depositor
Each Trust Certificate Series 1995 -- [ ] offered hereby will consist of
classes of Certificates, designated as Class Certificates[,] [and] Class
Certificates [and list others], [all] of which [only the Class
Certificates[,] [and] Class Certificates [and list others]] (collectively,
the "Certificates") and will represent a fractional undivided beneficial
interest in the Series 1995 -- [ ] Trust (the "Trust") to be formed pursuant to
the Trust Agreement dated as of [ ], between Lehman ABS Corporation (the
"Company") and [ ], as trustee (the "Trustee"), as supplemented by the
Series 1995 -- [ ] Supplement dated as of [ ] (collectively, the "Trust
Agreement"). The property of the Trust will consist in part of [$][ ]
aggregate principal amount of [a ( %) [floating rate] [specify publicly
issued debt security] due of [specify issuer]] [a pool of [ %] [floating
rate] publicly issued debt securities having a term of [not less than years
and not more than years] issued by one or more corporations, banking
organizations, or insurance companies organized under the laws of the
United States or any State [(other than the Retained Interest referred to
herein)] (collectively, the "Underlying Securities"), and having the
characteristics described herein under "Description of the Deposited
Assets." Terms used but not otherwise defined herein are defined in the
Prospectus attached hereto (the "Prospectus").
The Underlying Securities will be acquired by the Company and, pursuant to
the Trust Agreement, deposited into the Trust for the benefit of
Certificateholders. [The Underlying Securities were issued and sold as part
of an underwritten public offering in [ ].] The Underlying Securities are
obligations of the Underlying Securities Issuer and [explain whether senior
or subordinate, whether secured or unsecured and whether subject to any
redemption or put rights]. [Describe any required principal payments of
Underlying Securities.]
Distributions on the Certificates will be made [monthly] [quarterly]
[semi-annually] on [[ ] of each year] -- to be conformed to interest payment
dates for Underlying Securities], or, if any such date is not a business day,
then on the immediately following business day (each, a "Distribution Date")
commencing [ ]. The last day on which distributions are scheduled to be made
on the Certificates is [ ] (the "Final Distribution Date"), by which date the
holders of the Certificates will receive a distribution of all amounts
allocable to principal on such Certificates or, to the extent specified
herein, a pro rata share of any remaining Underlying Securities.
See "Risk Factors" herein on pages [__] to [__] and in the Prospectus on
pages 5 to 7.
(cover continued on next page)
__________________
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
AN OBLIGATION OF OR INTEREST IN THE COMPANY OR ANY OF ITS RESPECTIVE
AFFILIATES. THE CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE
UNDERLYING SECURITIES ISSUER OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
The Underwriter has agreed to purchase the Certificates from the Company at
[ ]% of the Certificate Principal Balance thereof ($[ ] aggregate proceeds
to the Company, before deducting expenses estimated at $[ ]) plus accrued
interest, if any, at the Pass-Through Rate calculated from [ ], 1995 (the
"Expected Settlement Date"), subject to the terms and conditions set forth
in the Underwriting Agreement referred to herein under "Underwriting."
The Underwriter proposes to offer the Certificates from time to time for
sale in negotiated transactions or otherwise, at prices determined at the
time of sale. For further information with respect to the plan of
distribution and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting."
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the [specify applicable
classes] Certificates will be made in book-entry form through the facilities
of The Depository Trust Company on or about the Expected Settlement Date.
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
(cover page continued)
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to
Certificateholders [of each class] in the manner and priority described
herein. [The rights of the holders of the Class Certificates [and specify
other classes] to receive distributions of such collections are
subordinated to the rights of the holders of the Class Certificates [and
specify other classes].] As and to the extent described herein, losses
realized on the Deposited Assets will be borne by the holders of the Class
Certificates [and specify other classes] before such losses will be borne
by the holders of the other classes of Offered Certificates [and the Class
Certificates [and specify other classes]]. To the extent described herein,
the relative priorities of each class of Certificates with respect to
collections from and losses on the Deposited Assets may each change over
time, either permanently or temporarily, upon the occurrence of certain
circumstances specified herein. See "Description of the
Certificates--Subordination."
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, this offering.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop
or, if it does develop, that it will continue. See "Risk Factors" in the
Prospectus.
The [specify applicable classes] Certificates initially will be represented
by certificates registered in the name of CEDE & Co., as nominee of The
Depository Trust Company ("DTC"). The interests of beneficial owners of
such Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for
such Certificates only under the limited circumstances described herein.
See "Description of the Certificates--Definitive Certificates."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO
ITS PROSPECTUS DATED NOVEMBER 15, 1995, OF WHICH THIS PROSPECTUS SUPPLEMENT
IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS
CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS
SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" IN THE
PROSPECTUS AND IN THIS PROSPECTUS SUPPLEMENT.
UNTIL , 1995, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
SUMMARY OF PRINCIPAL ECONOMIC TERMS
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including
under the headings "Description of the Certificates", "Description of the
Underlying Securities" and "Description of Credit Support." Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent
not defined herein, have the meanings assigned to such terms in the
Prospectus.
The Certificates
The Trust . . . . . . . . . . Series 1995-[ ]Trust. The Trust will
be formed pursuant to the Trust
Agreement dated as of [ ] (the "Base
Trust Agreement"), between the
Company and the Trustee, as
supplemented by the Series 1995-[ ]
Supplement dated as of the Expected
Settlement Date (the "Series
Supplement" and, together with the
Base Trust Agreement, the "Trust
Agreement").
Securities Offered . . . . . Trust Certificates, Series 1995-[ ],
consisting of Class [ ]
Certificates[,] [and] Class [ ]
Certificates [and specify others]
(collectively, the "Certificates").
[Initial Certificate Principal
Balance] [Notional Amount] . . Class [ ]: [$] [ ]. Class [ ]: [$] [ ].
Final Distribution Date . . . Class [ ]. Class [ ].
Pass-Through Rates . . . . . . [The Variable Pass-Through Rates
applicable to the calculation of the
interest distributable on any
Distribution Date on the
Certificates [(other than the Class
[ ] Certificates)] are equal to
[describe method for determining
variable rates]. The initial
Variable Pass-Through Rates for the
Class [ ] Certificates [,] [and] the
Class [ ] Certificates [and specify
others] are approximately __% [,]
[and] ___% [and ___%] per annum,
respectively.] [The Pass-Through
Rate applicable to the calculation
of the interest distributable on any
Distribution Date on the [specify
classes] Certificates is fixed at
___% [and ___%, respectively,] per
annum.]
S-3
Deposited Assets . . . . . . The Deposited Assets shall consist
of the Underlying Securities [and
describe any assets which are
ancillary or incidental to the
Underlying Securities]. See "--The
Underlying Securities" [, "--Other
Deposited Assets"] and "Descriptions
of the Deposited Assets" below.
Original Issue Date . . . . . [ ].
Cut-off Date . . . . . . . . [ ].
Distribution Dates . . . . . [ ], commencing [ ].
Record Dates . . . . . . . . The [ ] day immediately preceding
each Distribution Date.
Denominations; Specified
Currency . . . . . . . . . . The Class [ ] Certificates [,] [and]
Class [ ] Certificates [and specify
others] will be denominated and
payable in [U.S. dollars] [ ] (the
"Specified Currency") and will be
available for purchase in minimum
denominations of [$][ ] and
[integral multiples thereof]
[multiples of [$][ ] in excess
thereof].
Interest Accrual Periods . . . [Monthly] [Quarterly]
[Semi-annually] (or, in the case of
the first Interest Accrual Period,
from and including the Original
Issue Date to but excluding the
first Distribution Date).
Form of Security . . . . . . Book-entry Certificates with The
Depository Trust Company ("DTC"),
except in certain limited
circumstances. See "Description of
the Certificates--Definitive
Certificates." Distributions thereon
will be settled in [immediately
available (same-day)] [clearinghouse
(next-day)] funds.
Trustee . . . . . . . . . . . [ ], as trustee.
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]].
[Specify specific ratings
requirements for particular classes,
including the extent to which the
issuance of the Certificates of a
given class is conditioned upon
satisfaction of the ratings of each
other class of Certificates.] See
"Ratings."
S-4
The Underlying Securities
Underlying Securities . . . . [A [ ]%] [floating rate] [publicly
issued debt security due [ ] [A pool
of publicly issued debt securities
of various issuers, exclusive of the
Retained Interest] [in/having] an
aggregate principal amount of [$][ ].
Underlying Securities
Issuer . . . . . . . . . . . [Specify issuer] [Pool of various
domestic corporations, banking
organizations and insurance
companies.]
Underlying Securities
Original Issue Date . . . . [ ].
Underlying Securities
Final Payment Date . . . . [ ].
Amortization . . . . . . . [describe amortization schedule, if
any].
Denominations; Underlying
Securities Currency . . . . The Underlying Securities are
denominated and payable in [U.S.
dollars] [ ] (the "Underlying
Securities Currency") and are
available in minimum denominations
of [$][ ] and [integral multiples
thereof] [multiples of [$][ ] in
excess thereof].
Underlying Securities
Payment Dates . . . . . . . . [ ], commencing [ ].
Underlying
Securities Rate . . . . . . . [ % per annum.] [A [Weighted
Average] rate per annum equal to
[specify interest rate formula for
debt security].]
Underlying Securities
Interest Accrual Periods . . . [Monthly] [Quarterly]
[Semi-annually].
Priority . . . . . . . . . . . [Describe senior or subordinated
status of Underlying Securities].
Security . . . . . . . . . . . [Describe existence of any security
for obligations or state that
Underlying Securities are
unsecured].
Redemption/Put/ Other
Features . . . . . . . . . . . [Describe existence of any
redemption, put or other material
features applicable to the
Underlying Securities].
Form of Security . . . . . . . Book entry debt securities with DTC
[listed on the [New York] [American]
Stock Exchange [specify other
listing]].
S-5
Underlying Securities
Trustee [Fiscal and
Paying Agent] . . . . . . . . . [ ]. The term Assets have been
issued pursuant to [an indenture
dated as of [ ], 19[ ] (the
"Indenture"), between the Underlying
Securities Trustee and the
Underlying Securities Issuer].
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]]. See
"Description of the Underlying
Securities--Ratings of Underlying
Securities."
Other Deposited Assets
[Provide similar tabular summary description of the principal economic
terms of any credit support or other ancillary or incidental asset]
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary does not purport to be complete and is qualified
in its entirety by reference to the detailed information appearing
elsewhere herein and in the Prospectus.
Depositor . . . . . . . . . . Lehman ABS Corporation (the
"Company"), an indirect wholly-owned
subsidiary of Lehman Brothers Inc.
See "The Company" in the Prospectus.
Certificates . . . . . . . . . The Certificates, each of which
represents a fractional undivided
beneficial interest in the Trust,
will be issued pursuant to the Trust
Agreement. The Certificates will
consist of [ ] classes, designated
as Class [ ] Certificates [and] [,]
Class [ ] Certificates [and [specify
other classes]], [all] of which [all
but the Class [ ] Certificates] are
being offered hereby (collectively,
the "Certificates").
The Certificate Principal Balance of
a Certificate outstanding at any
time represents the maximum amount
that the holder thereof is entitled
to receive as distributions
allocable to principal. The
Certificate Principal Balance of a
Certificate will decline to the
extent distributions allocable to
principal are made to such holder.
[The Notional Amount of the Class [
] Certificates as of any date of
determination is equal to [specify].
Reference to the Notional Amount of
the Class [ ] Certificates is solely
for convenience in determining the
basis on which distributions on the
Class [ ] Certificates are
calculated [and determining the
relative voting rights of
Certificateholders of Class [ ]
Certificates for purposes of voting
on a class-by-class basis or
otherwise]. The Notional Amount does
not represent the right to receive
any distributions allocable to
principal.]
[The Class [ ] Certificates, which
are not being offered hereby, have
in the aggregate as initial
Certificate Principal Balance of [$]
(approximate) and a [Variable]
Pass-Through Rate [of __%]. The
Class [ ] Certificates represent the
right to receive distributions in
respect of their Certificate
Principal Balance and interest
thereon at their applicable
Pass-Through Rate.] Shortfalls in
collections with respect to the
Deposited Assets will be allocated
solely to the Class [ ] Certificates
to the extent provided herein and,
thereafter, will be allocated among
the Certificates and the Class [ ]
Certificates, as provided herein.
[The Class [ ] Certificates will be
transferred by the Company to an
affiliate on or about , 1995 (the
"Closing Date"), and may be sold at
any time in accordance with any
restrictions in the Trust
Agreement.]]
S-7
The Underlying Securities . . Interest on the Underlying
Securities accrues at the Underlying
Securities Rate for each Underlying
Securities Accrual Period and is
payable on each Underlying
Securities Payment Date. The entire
principal amount of the Underlying
Securities will be payable on the
Underlying Securities Final Payment
Date. [The Underlying Securities
have a remaining term to maturity of
approximately years.] [As of the
Cut-off Date, the pool of Underlying
Securities have a weighted average
interest rate of % and a weighted
average remaining term to maturity
of approximately years.
Approximately % [specify if greater
than 10%] of such Underlying
Securities consist of debt
securities of [U.S. corporate
issuers].]
[Name such obligor] is a U.S.
corporation whose principal
executive offices are located at
[specify address]. The obligor is
subject to the informational
requirements of the Exchange Act and
in accordance therewith files
reports and other information
(including financial information)
with the Commission. See
"Description of the Deposited
Assets."
[Other Deposited
Assets and Credit
Support. . . . . . . . . . . The Deposited Assets will also
include [direct obligations of the
United States] [describe any assets
which are ancillary or incidental to
the Underlying Securities, including
hedging contracts such as puts,
calls, interest rate swaps, currency
swaps, floors, caps and collars]
(such assets, together with the
Underlying Securities, the
"Deposited Assets"). See
"Description of the Deposited
Assets."
The Certificateholders of the
[specify particular classes]
Certificates will have the benefit
of [describe credit support] to
support or ensure the [servicing
and] [timely] [ultimate]
distribution of amounts due with
respect to the Deposited Assets,
including providing certain coverage
with respect to losses thereon.]
Distributions . . . . . . . . Holders of the Certificates will be
entitled to receive on each
Distribution Date, to the extent of
available funds on such Distribution
Date, after payment of the expenses
of the Trustee and its respective
agents up to the Allowable Expense
Amount, (i) [in the case of each
class of Certificates other than the
Class [ ] Certificates,]
distributions allocable to interest
at the applicable Pass-Through Rate
on the applicable Certificate
Principal Balance, (ii) [in the case
of each class of Certificates other
than the Class [ ] Certificates,]
distributions allocable to principal
and (iii) [in the case of each class
of Certificates other than the Class
[ ] Certificates,] distributions
allocable to premium (if any) in an
S-8
amount equal to all payments of
premium (if any) received on the
Underlying Securities for the
Collection Period. Distributions
will be made to Certificateholders
only if, and to the extent that,
payments are made with respect to
the Deposited Assets or are
otherwise covered by any Credit
Support. [The holders of the Class
[ ] Certificates will be entitled to
receive on each Distribution Date
distributions allocable to interest
in an amount equal to [describe
Stripped Interest].] [The holders of
the Class [ ] Certificates will not
be entitled to receive any
distributions allocable to principal
or premium (if any).] See
"Description of the Certificates--
Distributions."
Special Distribution Dates . If a payment with respect to the
Underlying Securities is made to the
Trustee after the Underlying
Securities Payment Date on which
such payment was due, then the
Trustee shall distribute any such
amounts received on the next
occurring Business Day (a "Special
Distribution Date") as if such funds
had constituted Available Funds on
the Distribution Date immediately
preceding such Special Distribution
Date; provided, however, that the
Record Date for such Special
Distribution Date shall be [five
Business Days (as such term is
defined in the Prospectus, "Business
Day") prior to the day on] which the
related payment was received from
the Underlying Securities Trustee.
Subordination . . . . . . . . As and to the extent described
herein, the rights of the holders of
the Class [ ] Certificates [and
specify other classes] to receive
distributions of principal, premium
(if any), and interest with respect
to the Deposited Assets will be
subordinated to the rights of the
holders of the other classes of
Certificates with respect to losses
attributable to principal, premium
(if any) and interest realized on a
Deposited Asset (such losses,
"Realized Losses"). See "Description
of the Certificate--Allocation of
Losses; Subordination."
Optional Termination . . . . At its option, the [Company] may
purchase all the Deposited Assets in
the Trust, and thereby cause the
termination of the Trust and early
retirement of the Certificates, on
any Distribution Date on which the
aggregate principal amount of the
Deposited Assets remaining in the
Trust is less than [10%] of the
aggregate principal amount of the
Deposited Assets as of the Cut-off
Date. [Specify any other purchase or
repurchase option of the Company.]
See "Description of the Trust
Agreement--Termination" herein and
"Description of
Certificates--Termination" in the
Prospectus.
S-9
Certain Federal
Income Tax Consequences . . . In the opinion of tax counsel to the
Trust, the Trust will be classified
for Federal income tax purposes [as
a grantor trust] [as a partnership]
and not as an association taxable as
a corporation. See "Certain Federal
Income Tax Consequences."
Ratings . . . . . . . . . . . It is a condition to the issuance of
the Certificates that the
Certificates have the ratings
specified above under "Summary of
Principal Economic Terms--The
Certificates--Ratings." A security
rating is not a recommendation to
buy, sell or hold securities and may
be subject to revision or withdrawal
at any time by the assigning rating
agency. A security rating does not
address the occurrence or frequency
of redemptions or prepayments on, or
extensions of the maturity of, the
Deposited Assets, the corresponding
effect on yield to investors [or
whether investors in the Class [ ]
Certificates may fail to recover
fully their initial investment]. See
"Ratings."
ERISA Considerations. . . . . An employee benefit plan subject to
the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), and an individual
retirement account (each, a "Plan")
may purchase Certificates of any
class if either (i) the Company is
able to confirm the existence of at
least 100 independent purchasers of
such class or (ii) the Plan can
represent that its purchase of the
Certificates would not be prohibited
under ERISA or the Code. See "ERISA
Considerations."
S-10
FORMATION OF THE TRUST
The Trust will be formed pursuant to the Trust Agreement (including
the Series [ ] Supplement) between the Company and the Trustee.
Concurrently with the execution and delivery of the Series [ ] Supplement,
the Company will deposit the Underlying Securities in the Trust. The
Trustee, on behalf of the Trust, will accept such Underlying Securities and
will deliver the Certificates to or upon the order of the Company.
The Underlying Securities will be purchased by the Company in the
secondary market (either directly or through an affiliate of the Company).
The Underlying Securities will not be acquired from the Underlying
Securities Issuer as part of any distribution by or pursuant to any
agreement with the Underlying Securities Issuer. The Underlying Securities
Issuer is not participating in this offering and will not receive any of
the proceeds of the sale of the Underlying Securities to the Company or the
issuance of the Certificates. [Neither the Company nor any of its
affiliates participated in the initial public offering of the Underlying
Securities] [Lehman Brothers Inc., an affiliate of the Company,
participated in the initial public offering of the Underlying Securities as
a [co-underwriter] [underwriter]].
RISK FACTORS
[Describe risk factors applicable to the specific Underlying
Securities, other Deposited Assets and the particular structure of the
Certificates being offered, including factors relating to the yield on the
Certificates and risks associated with the Deposited Assets and the terms
thereof, as described elsewhere herein.] See "Risk Factors" and "Maturity
and Yield Considerations" in the Prospectus.
DESCRIPTION OF THE DEPOSITED ASSETS
General
This Prospectus Supplement sets forth certain relevant terms with respect
to the Underlying Securities, but does not provide detailed information
with respect to the Underlying Securities. This Prospectus Supplement
relates only to the Certificates offered hereby and does not relate to the
Deposited Assets. All disclosure contained herein with respect to the
Underlying Securities is derived from publicly available documents.
[Describe publicly available documents.] [The] [Each] Underlying Securities
Issuer is subject to the information reporting requirements of the Exchange
Act. Although the Company has no reason to believe the information
concerning the Underlying Securities, [the] [each] Underlying Securities
Issuer or each Underlying Securities Prospectus related to the Underlying
Securities is not reliable, neither the Company nor any of the Underwriters
has participated in the preparation of such documents, or made any due
diligence inquiry with respect to the information provided therein. There
can be no assurance that events affecting the Underlying Securities or the
Underlying Securities Issuer have not occurred, which have not yet been
publicly disclosed, which would affect the accuracy or completeness of the
publicly available documents described above.
[Use the following where the Underlying Securities consist of a pool
of obligations of multiple obligors.]
[The Deposited Assets will consist primarily of the Underlying
Securities, which are a pool of publicly issued debt securities of
[domestic corporations, banking organizations and insurance companies]. The
Underlying Securities will be purchased by the Company in the secondary
market (either directly or through an affiliate of the Company) and will be
deposited into the Trust. The Underlying Securities will not be acquired
S-11
either from the respective obligors on the Underlying Securities or
pursuant to any distribution by or agreement with such obligors.
The composition of the Underlying Securities pool and the distribution
by ratings, remaining term to maturity and interest rate of the Underlying
Securities as of the Cut-off Date are as set forth below:
Composition of the Underlying Securities Pool
as of the Cut-off Date
Number of Underlying Securities:
Aggregate Principal Balance: [$]
Average Principal Balance: [$]
Largest Balance: [$]
Weighted Average Interest Rate: %
Weighted Average Original Term
to Maturity: years
Weighted Average Remaining Term
to Maturity: years
Longest Remaining Term
to Maturity: years
Distribution by Industry Classification
of the Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Industry Principal Principal
Classification Number Balance Balance
- -------------- ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
Distribution by Ratings of the
Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Rating Number Balance Balance
------ ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
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Distribution by Remaining Term to Maturity
of the Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Remaining Term Principal Principal
to Maturity Number Balance Balance
-------------- ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
Distribution by Interest Rate of
the Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Interest Rate Range Number Balance Balance
------------------- ------ --------- ----------
% to % [$] %
Greater than %
------ --------- ----------
Total [$] 100%
====== ========= ==========
The Underlying Securities consist of debt securities of [domestic
corporate issuers [specify other]]. As of the Cut-off Date, [all of]
[approximately % of] such Underlying Securities were rated [investment
grade] [specify particular rating] by at least one nationally recognized
rating agency, and no obligor on any Underlying Security was in default in
the payment of any installments of principal, interest or premium (if any)
with respect therein. Any such rating of any of the Underlying Securities
is not a recommendation to purchase, hold or sell such Underlying Security
or the Certificates, and there can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a rating agency if in its judgment circumstances in
the future so warrant. See "Ratings" herein and "Risk Factors--Ratings of
the Certificates" in the accompanying Prospectus regarding certain
considerations applicable to the ratings of the Certificates.
Underlying Securities Indenture
The Underlying Securities have been issued pursuant to [an] agreement[s]
([each,] an "Indenture") between the [various] Underlying Securities
Issuer[s] and Underlying Securities Trustee[s]. The following summary
describes certain general terms of such Indenture[s], but investors should
refer to the Indenture[s] [itself] [themselves] for all the terms governing
the Underlying Securities.
Each of the Indenture[s] limits the [respective] Underlying Securities
Issuer's ability to engage in certain activities and transactions and
requires that the Underlying Securities Issuer perform certain obligations
S-13
with respect to the Underlying Securities. [Describe common restrictive,
financial and other covenants on the Underlying Securities Issuer contained
in the Indentures.]
[The following is a summary of the typical Underlying Security Events of
Default for each series of Outstanding Debt Securities. [Any additional
Underlying Security Events of Default unique to a Concentrated Underlying
Security have been described following the summary]:
(a) failure to make payments of principal (and premium, if any) and
interest to holders of the Outstanding Debt Securities in the time
periods given in the Indentures;
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in any material respect any
covenant or agreement under an Indenture continuing for a specified
period of time after notice thereof is given to the Underlying Securities
Issuer by the Underlying Securities Trustee or the holders of not less
than a specified percentage of the Outstanding Debt Securities;
(c) failure by the Underlying Securities Issuer to make any required
payment of principal (and premium, if any) or interest with respect to
certain of the other outstanding debt obligations of the Underlying
Securities Issuer or the acceleration by or on behalf of the holders
thereof of such securities; [and]
(d) certain events of bankruptcy or insolvency relating to the
Underlying Securities [Issuer]; and
[(e) describe any additional common events of default with respect
to the pool of Underlying Securities].]
As of the Cut-off Date, [all of] [approximately __% of] the Underlying
Securities were [subject to [describe any put, call or other conversion or
redemption options applicable to the Underlying Securities as well as the
nature of the obligation represented by such Underlying Securities (i.e.,
senior, subordinate, secured) and describe commonalities with respect to
any subordination or security provisions or collateral].]
The [pool of] Underlying Securities, together with any other assets
described below and any Credit Support described under "Description of
Credit Support," represent the sole assets of the Trust that are available
to make distributions in respect of the Certificates.]
[Use the following with respect to each obligor the Underlying
Securities of which represent more than 10% of the total Underlying
Securities available to make distributions in respect of the
Certificates--only a single obligor is referred to for purposes of this
section of the form of Prospectus Supplement.]
[A significant portion of] [Virtually all of] [All of] the Deposited
Assets of the Trust will consist of the [___%] [floating rate] [specify
publicly issued debt security] due of [specify issuer][, exclusive of the
interest therein retained by [the Company] as described below (the
"Retained Interest")], having an aggregate principal amount outstanding as
of the Cut-off Date of approximately [$][specify currency] (the "Underlying
Securities"). The Underlying Securities will be purchased by the Company in
the secondary market (either directly or through an affiliate of the
Company) and will be deposited into the Trust. The Underlying Securities
will not be acquired either from [name such obligor] or pursuant to any
distribution by or agreement with [name such obligor]. [Describe any put,
call or other conversion or redemption options applicable to the Underlying
Securities, as well as the nature of the obligation represented by such
Underlying Securities (i.e., senior, subordinate, secured)]. As of the
Cut-off Date, the foregoing debt security comprising [ %] of the Underlying
S-14
Securities was rated [specify investment grade rating] [investment grade]
by [specify nationally recognized rating agency or agencies], and the
obligor thereon was not in default in the payment of any installments of
principal, interest or premium (if any) with respect thereto. Any such
rating of such Underlying Securities is not a recommendation to purchase,
hold or sell such Underlying Securities or the Certificates, and there can
be no assurance that a rating will remain for any given period of time or
that a rating will not be lowered or withdrawn entirely by a rating agency
if in its judgment circumstances in the future so warrant. See "Ratings"
herein and "Risk Factors--Ratings of the Certificates" in the accompanying
Prospectus regarding certain considerations applicable to the ratings of
the Certificates.
According to [name such obligor]'s publicly available documents, [name
such obligor] is a [identify form of domestic corporation, banking
organization or insurance company] whose principal executive offices are
located at [specify address]. The Company is not an affiliate of [name such
obligor]. [Name such obligor] is subject to the informational requirements of
the Exchange Act and in accordance therewith files reports and other
information (including financial information) with the Commission [and makes
available to the public upon request certain annual reports containing
financial and other information]. Copies of such reports and other
information [may be inspected and copied at the Commission locations listed
under "Available Information" in the accompanying Prospectus and may be
obtained from the Public Reference Section of the Commission at Washington,
D.C. 20549, at prescribed rates. In addition, such reports and other
information [can be inspected at the offices of the [New York Stock Exchange
at 20 Broad Street, New York, New York 10005] [American Stock Exchange, 86
Trinity Place, New York, New York 10013]] [may be obtained from [name such
obligor], according to its most recent annual report, upon written or oral
request to [name such obligor]].
The Trust will have no other significant assets [other than any Credit
Support or those assets referred to below] from which to make distributions
of amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates
will depend [almost] entirely on the Trust's receipt of payments on the
foregoing Underlying Securities from [name such obligor]. Prospective
purchasers of the Certificates should consider carefully [name such
obligor]'s financial condition and its ability to make payments in respect of
such Underlying Securities. This Prospectus Supplement relates only to the
Certificates being offered hereby and does not relate to the Underlying
Securities of [name such obligor]. All information contained in this
Prospectus Supplement regarding [name such obligor] is derived from the
publicly available documents described in the preceding paragraph. Neither
the Company nor [any of] the Underwriter[s] has participated in the
preparation of such documents, or takes any responsibility for the accuracy
or completeness of the information provided therein.
The Deposited Assets will also include [direct obligations of the
United States of America][describe any assets which are ancillary or
incidental to the Underlying Securities, including hedging contracts such
as puts, calls, interest rate swaps, currency swaps, floors, caps and
collars, and any cash or other security pledged to support the Underlying
Securities] (such assets, together with the Underlying Securities, the
"Deposited Assets").
[DESCRIPTION OF CREDIT SUPPORT]
For the benefit [solely] of the [Offered] [Class [ ] Certificates [and
the Class [ ] Certificates]], Credit Support will be obtained [and will
constitute part of the Trust to the extent provided below] to support or
ensure the [servicing and] [timely] [ultimate] distribution of amounts due
with respect to the Deposited Assets, in the form and amount described
below.
S-15
[The Letter of Credit
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Letter of Credit from [ ] (the "Letter
of Credit Bank") in favor of the Trustee on behalf of the Certificateholders.
The Letter of Credit will be irrevocable and will [support the
[timely][ultimate] remittance of amounts due with respect to the Deposited
Assets]. [The maximum amount that the Trustee may draw under the Letter of
Credit will initially be equal to . The initial amount of the Letter of
Credit will be [$] . Thereafter, the amount of the Letter of Credit with
respect to any Distribution Date will equal [the lesser of (i) % of the
aggregate Certificate Principal Balance outstanding on the preceding
Distribution Date (after giving effect to any payment of principal made on
each preceding Distribution Date) but in any event not less than [$] , and
(ii)] the amount of the Letter of Credit on the preceding Distribution Date,
plus [(a) reimbursement of certain advances under the Letter of Credit and
(b) recoveries on defaulted Deposited Assets] [describe other methods]. The
Letter of Credit expires on , 19 . The Trustee will be obligated, in the
event of a drawing on the Letter of Credit, to pursue appropriate remedies
against the Deposited Assets and other collateral, and any realization
thereon shall be paid to the Letter of Credit Bank to the extent of any
amounts owing, in the manner and priority specified herein.]
[Add language regarding the Letter of Credit Bank with respect to its
debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Letter of Credit
Bank. In addition, to the extent that the Letter of Credit will cover payment
of 20% or more of the aggregate principal amount of the Certificates covered
thereby, provide information of financial and other matters with respect to
the Letter of Credit Bank.]]
[The Surety Bond
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Surety Bond from [ ] (the "Surety") in
favor of the Trustee on behalf of the Certificateholders. The Surety Bond
will guaranty [timely] [ultimate] distributions of the principal of and
premium (if any) and interest with respect to the [Offered][Class[ ]]
Certificates. The Surety Bond expires on , 19 . The Trustee will be
obligated, in the event of a drawing on the Surety Bond, to pursue
appropriate remedies against the Deposited Assets and other collateral, and
any realization thereon shall be paid to the Surety to the extent of any
amounts owing, in the manner and priority specified herein.
[Add language regarding the issuer of the Surety Bond with respect to
its debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Surety. In
addition, to the extent that the Surety Bond will cover payment of 20% or
more of the aggregate principal amount of the Certificates covered thereby,
provide information of financial and other matters with respect to the issuer
of the Surety Bond.]]
[Reserve Account
The Company will deposit with the Trustee on the Closing Date cash,
letters of credit and short-term investments acceptable to the Rating Agency
initially rating the Certificates in the amount of [$] . [Collections with
respect to the Deposited Assets not distributed with respect to the
Certificates shall be deposited in the Reserve Account.] Amounts so deposited
in such Reserve Account will be used by the Trustee to make payments of
principal of and premium (if any) and interest on the Certificates to the
extent that funds are not
S-16
otherwise available. Immediately after any Distribution Date, amounts in the
Reserve Account in excess of [indicate formula] [may be paid to the
Company].]
YIELD ON THE CERTIFICATES
[Describe factors relating to the Deposited Assets, the terms thereof
and the manner and priority in which collections thereon are allocated to
the Certificateholders of each class of the Certificates, as described
elsewhere herein.] See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will consist of [ ] classes of Certificates, designated
as Class [ ][,] [and] Class [ ] [and Class___] Certificates. The Certificates
will be denominated and distributions with respect thereto will be payable in
the Specified Currency. The Certificates represent in the aggregate the
entire beneficial ownership interest in the related Trust. The Class [ ]
Certificates have in the aggregate an initial [Certificate Principal Balance]
[Notional Amount] of [$]________ (approximate) and a [___%] [Variable]
Pass-Through Rate. The Class [ ] Certificates have in the aggregate an
initial [Certificate Principal Balance] [Notional Amount] of [$]________
(approximate) and a [___%] [Variable] Pass-Through Rate. [The Class [ ]
Certificates have in the aggregate an initial [Certificate Principal Balance]
[Notional Amount] of [$]________ (approximate) and a [___%] [Variable]
Pass-Through Rate.] [The Class [ ] Certificates, which are not being offered
hereby, will be transferred by the Company to an affiliate on the Closing
Date, and may be sold at any time by the Company in accordance with the terms
of the Trust Agreement.]
The Certificates [(other than the Class [ ] Certificates [and specify
others] (the "Definitive Classes"))] will be issued, maintained and
transferred on the book-entry records of DTC and its Participants in minimum
denominations of [$ ] and [integral multiples thereof] [multiples of [$ ] in
excess thereof]. [The Class [ ] Certificates [and specify any others] will be
offered in registered, certificated form, in minimum percentage interests
corresponding to the initial Notional Amounts or Certificate Principal
Balances, as applicable, of [$ ] and integral multiples thereof, except that
one Certificate of each such class may be issued with an initial Notional
Amount or Certificate Principal Balance, as applicable, equal to an integral
multiple of [$ ] plus the excess of the initial aggregate Notional Amount or
Certificate Principal Balance, as applicable, of such class over the greatest
integral multiple of [$ ] that is not more than such initial aggregate
Notional Amount or Certificate Principal Balance, as applicable.]
The Certificates [(other than the Definitive Classes of Certificates)]
will each initially be represented by one or more global certificates
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Company, the "Clearing Agency"), except as
provided below. The Company has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No holder of any such Certificate will be entitled to
receive a certificate representing such person's interest, except as set
forth below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See "--Definitive Certificates" below and "Description of
Certificates--Global Securities" in the Prospectus.
S-17
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or
more Participants to whose DTC account such Certificates are credited.
Additionally, DTC will take such actions with respect to specified Voting
Rights only at the direction and on behalf of Participants whose holdings
of such Certificates evidence such specified Voting Rights. DTC may take
conflicting actions with respect to Voting Rights, to the extent that
Participants whose holdings of Certificates evidence such Voting Rights,
authorize divergent action.
Definitive Certificates
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Company advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
each class of Certificates [(other than the Definitive Classes)] and the
Company is unable to locate a qualified successor or (ii) the Company, at its
option, elects to terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates [(other than the
Definitive Classes of Certificates)] and receipt of instructions for re-
registration, the Trustee will reissue such Certificates as Definitive
Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
Distributions
Collections on the Deposited Assets that are received by the Trustee for
a given Collection Period pursuant to the collection procedures described
herein and in the Prospectus and deposited from time to time into the
Certificate Account will be applied by the Trustee on each applicable
Distribution Date to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(i) to the Trustee, all unpaid fees and expenses of the Trustee and
its respective agents, up to the Allowance Expense Amount (as defined
below) for the related Collection Period;
(ii) [to the providers of Credit Support ("Credit Support
Providers"), any amounts required to be paid or reimbursed to, or
deposited with, any such person (collectively, "Credit Support
Payments");
(iii)] to the Certificateholders of each Class of such Series,
first, to the payment of Required Interest [and on a pro rata basis to
the Credit Support Providers for the payment of any Credit Support
Payments], second, to the payment of Required Principal and third, to the
payment of Required Premium, in each case applicable to such Class,
commencing with the most highly ranked Class and, to the extent Available
Funds remain available, to each other Class in accordance with the
ranking specified herein under "--Allocation of Losses; Subordination";
[(iii) to the Credit Support Providers, any Credit Support
Payments;]
[(iv)] to the Trustee, all its remaining unpaid fees and expenses
and those of its respective agents not otherwise paid pursuant to clause
(i) above;
S-18
[(v) all remaining amounts, if any, to the Company].
There can be no assurance that collections received from the Deposited
Assets and any applicable Credit Support relating to the Certificates over a
specified period will be sufficient, after payment of all Allowable Expense
Amounts [and payment of all amounts required to be paid to the Credit Support
Providers] for such period, to make all required distributions to the
Certificateholders of the Certificates. To the extent Available Funds are
insufficient to make any such distributions due to any such Series or Class,
any shortfall will be carried over and will be distributable on the next
Distribution Date on which sufficient funds exist to pay such shortfalls.
For purposes hereof, the following terms have the following
meanings:
"Allowable Expense Amount" means, for any given Collection Period,
the sum of (x) [$]__________ and (y) amounts in respect of the Allowable
Expense Amount from the preceding Collection Period that have not been
applied on the Distribution Date for such preceding Collection Period.
"Available Funds" for any Distribution Date means the sum of (a) all
amounts received on or with respect to the Deposited Assets (including
investment income on Eligible Investments) received during the preceding
Collection Period[,] [and] (b) amounts available as of such Distribution
Date pursuant to the Credit Support described herein [and (c) any
additional amount that the [Company] may remit to the Trustee from time
to time according to the terms of the Trust Agreement for application as
Available Funds].
"Call Premium Percentage" for any given Distribution Date means [a
fixed percentage] [a percentage that varies depending on [describe basis
for variable formula, such as the applicable date or other factors or
indices]].
"Eligible Investments" means, with respect to the Certificates,
those investments acceptable to the Rating Agency as being consistent
with the rating of such Certificates, as specified in the Trust
Agreement. Generally, Eligible Investments must be limited to obligations
or securities that mature not later than the business day prior to the
next succeeding Distribution Date.
"Required Interest" for the Certificates or any Class thereof on any
given Distribution Date means the accrued and unpaid interest on the
outstanding Certificate Principal Balance [or Notional Amount] of such
Certificates, computed at the applicable Pass-Through Rate.
"Required Premium" for the Certificates or any Class thereof for any
Distribution Date means an amount equal to the product of (a) the
Required Principal for such Certificates on such Distribution Date and
(b) the Call Premium Percentage for such Distribution Date.
"Required Principal" for the Certificates or any Class thereof for
any Distribution Date means the amount received on the Deposited Assets
attributable to principal payments thereon during the related Collection
Period, to the extent allocable to such Certificates. The Certificate
Principal Balance of a Certificate outstanding at any time represents the
maximum amount that the holder thereof is entitled to receive as
distributions allocable to principal from the cash flow on the Underlying
Securities, the other assets in the Trust and any Credit Support obtained
for the benefit of such holder. The Certificate Principal Balance of any
class of Certificates [(other than the Class [ ] Certificates)] as of any
date of determination is equal to the initial Certificate Principal
Balance thereof, reduced by the aggregate of (a) all amounts allocable to
principal previously distributed with respect to such Certificate and (b)
any
S-19
reductions in the Certificate Principal Balance thereof deemed to have
occurred in connection with allocations of (i) Realized Losses allocable
to principal on the Deposited Assets and (ii) Extraordinary Trust
Expenses, as described herein. [The Notional Amount of the Class [ ]
Certificates as of any date of determination is equal to [specify
amount].] [Holders of the Class [ ] Certificates are not entitled to
receive any distributions allocable to principal.]
[Notwithstanding the priorities described above, holders of the Class [ ]
Certificates and the Class [ ] Certificates will be entitled to receive on
any Distribution Date 100% of al principal collections received in the
related Collection Period with respect to the Deposited Assets, to be
distributed [on a pro rata basis] in reduction of the Certificate Principal
Balance of the Class [ ] Certificates and the Class [ ] Certificates, if any
of the following conditions shall be satisfied: [describe conditions, if any,
by which a certain class is given 100% of the principal cash flow other than
pursuant to subordination that is in effect from the Closing Date].]
[Advances
Subject to the following limitations, the Trustee will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the
aggregate of payments of principal, premium (if any) and interest, net of
that portion of the Administrative Fee (as defined herein) attributable to
fees and expenses of the Trustee, that were due during the related Collection
Period and that were delinquent on the related Determination Date (any such
advance, an "Advance").
Advances are required to be made only to the extent they are deemed by
the Trustee to be recoverable from related late collections, insurance
proceeds, if any, or Liquidation Proceeds. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Trustee will not be required
to make any Advances with respect to reductions in the amount of the payments
on the Deposited Assets due to bankruptcy proceedings with respect to the
Deposited Assets.
All Advances will be reimbursable to the Trustee from late collections,
insurance proceeds, if any, and any proceeds from the liquidation of the
Deposited Asset ("Liquidation Proceeds") as to which such unreimbursed
Advance was made. In addition, any Advances previously made in respect of any
Deposited Asset that are deemed by the Trustee to be nonrecoverable from
related late collections, insurance proceeds, if any, or Liquidation Proceeds
may be reimbursed to the Trustee out of any funds in the Certificate Account
allocable to any of the Deposited Assets prior to the distributions on the
Certificates. In the event that the Trustee fails in its obligation to make
any such Advance, the Trustee may be obligated to make any such Advance, to
the extent provided in the Trust Agreement.]
Allocation of Losses; Subordination
The subordination described herein provided by the Class [ ]
Certificates [and the Class [ ] Certificates] is designed to protect holders
of the remaining classes of Certificates from certain losses and other
shortfalls with respect to the Deposited Assets. As a result, losses and
other shortfalls with respect to the Deposited Assets will be borne by the
remaining classes of Certificates, to the extent described below, only if
such losses and other shortfalls are not so covered, or the coverage in
respect thereof has been exhausted.
[Realized Losses and Extraordinary Trust Expenses will be allocated on
any Distribution Date as follows: [describe allocation among the various
classes].]
S-20
[An "Extraordinary Trust Expense" is an expense of a given Trust in
excess of the Allowable Expense Amount, including certain reimbursements to
the Company described in the Prospectus under "Description of
Certificates--Certain Matters Regarding the Company" and certain
reimbursements to the Trustee described under "Description of the Trust
Agreement--The Trustee" herein.]
[Restrictions on Transfer of the Class [ ] Certificates
Because the Class [ ] Certificates are subordinate to the Class [ ]
Certificates and the Class [ ] Certificates to the extent set forth herein,
the Class [ ] Certificates may not be purchased by or transferred to a Plan
except upon the delivery of an opinion of counsel as described herein. See
"ERISA Considerations."]
DESCRIPTION OF THE TRUST AGREEMENT
General
The Certificates will be issued pursuant to the Trust Agreement, a form
of which is filed as an exhibit to the Registration Statement. A Current
Report on Form 8-K relating to the Certificates containing a copy of the
Trust Agreement as executed will be filed by the Company with the Commission
following the issuance and sale of the Certificates. The Trust created under
the Trust Agreement (including the Series 1995-[ ] Supplement) will consist
of (i) the Deposited Assets (exclusive of any Retained Interest, which is not
part of the Trust), (ii) all payments on or collections in respect of the
Deposited Assets due after the Cut-off Date, together with any proceeds
thereof[,] [and] [(iii) any Credit Support in respect of any class or classes
of Certificates] [and (iv) the rights of the Company under the Purchase
Agreement between the Company and the Seller]. [In addition, the
Certificateholders of the Certificates may also have the benefit of certain
Credit Support discussed above. See "Description of Credit Support."]
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the
Trust Agreement and the Certificates. The following summaries of certain
provisions of the Trust Agreement do not purport to be complete and are
subject to the detailed provisions contained in the form of Trust Agreement,
to which reference is hereby made for a full description of such provisions,
including the definition of certain terms used herein.
The Trustee
[ ], a [ ] corporation, will act as trustee for the Certificates and the
Trust pursuant to the Trust Agreement. The Trustee's offices are located at
[ ] and its telephone number is [ ].
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Trust
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred
by reason of willful misfeasance, bad faith or negligence in the performance
of the Trustee's duties under the Trust Agreement or as a result of a breach,
or by reason of reckless disregard, of the Trustee's obligations and duties
under the Trust Agreement.
Events of Default
An event of default with respect to any class of Certificates under the
Trust Agreement (an "Event of Default") will consist of [(i) a default in the
payment of any interest on any Underlying Security after the same becomes due
and payable (subject to any applicable grace period); (ii) a default in the
payment of the
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principal of or any installment of principal of any Underlying Security when
the same becomes due and payable; and (iii) the occurrence and continuance of
such other events specified in the applicable series supplement.] [Describe
remedies available to Certificateholders upon the occurrence and continuance
of an Event of Default, including, as applicable, directing the Trustee to
vote the Underlying Securities in favor of declaring the principal balance of
and any accrued interest on the Outstanding Debt Securities to be immediately
due and payable].
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Certificates of any
class, the Trustee will give to the holders of such Certificates notice,
transmitted by mail, of all such uncured or unwaived Events of Default known
to it. However, except in the case of an Event of Default relating to the
payment of principal of or premium, if any, or interest on any of the
Underlying Securities, the Trustee will be protected in withholding such
notice if in good faith it determines that the withholding of such notice is
in the interest of the holders of the Certificates of such class.
No holder of any Certificate will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such holder
previously has given to the Trustee written notice of a continuing breach,
(ii) the holders of Certificates of such Series evidencing not less than the
"Required Percentage -- Remedies" specified in the applicable series supplement
of the aggregate Voting Rights of such Series have requested in writing that
the Trustee institute such proceeding in its own name as Trustee, (iii) such
holder or holders have offered the Trustee reasonable indemnity, (iv) the
Trustee has for 15 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the
Trustee during such 15-day period by the holders of Certificates of such
Series evidencing not less than the Required Percentage -- Remedies of the
aggregate Voting Rights of such Series.
Voting Rights
[At all times,] [Subject to the succeeding paragraph,] [ ]% of all
Voting Rights will be allocated among all holders of the Class [ ]
Certificates[,] [and] the Class [ ] Certificates [and specify other classes]
in proportion to the then outstanding Certificate Principal Balances [or
Notional Amounts] of their respective Certificates and [ ]% of all Voting
Rights will be allocated among all holders of the Class [ ] Certificates in
proportion to the then outstanding [Certificate Principal Balances] [Notional
Amounts] of their respective Certificates. [Specify whether and under what
circumstances voting will be class-by-class.]
[Specify conditions, if any, under which allocation of Voting Rights
might change from the foregoing percentages.]
Voting of Underlying Securities, Modification of Indenture
The Trustee, as holder of the Underlying Securities, has the right to
vote and give consents and waivers in respect of such Underlying Securities
as permitted by DTC and except as otherwise limited by the Trust Agreement.
In the event that the Trustee receives a request from DTC, the Underlying
Securities Trustee or the Underlying Securities Issuer for its consent to any
amendment, modification or waiver of the Underlying Securities, the Indenture
or any other document thereunder or relating thereto, or receives any other
solicitation for any action with respect to the Underlying Securities, the
Trustee shall mail a notice of such proposed amendment, modification, waiver
or solicitation to each Certificateholder of record as of such date. The
Trustee shall request instructions from the Certificateholders as to whether
or not to consent to or vote to accept such amendment, modification, waiver
or solicitation. The Trustee shall consent or vote, or refrain from
consenting or voting, in the same proportion (based on the relative
Certificate Principal Balances and Notional Amounts of the Certificates, as
applicable) as the Certificates of the Trust were actually voted or not voted
by the Certificateholders thereof as of a date determined by the Trustee
prior to the date on which such consent or vote
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is required; provided, however, that, notwithstanding anything to the
contrary, the Trustee shall at no time vote or consent to any matter (i)
unless such vote or consent would not (based on an opinion of counsel) alter
the status of the Trust as a grantor trust for Federal income tax purposes,
(ii) which would alter the timing or amount of any payment on the Underlying
Securities, including, without limitation, any demand to accelerate the
Underlying Securities,) except in the event of a Underlying Security Event of
Default or an event which with the passage of time would become a Underlying
Security Event of Default and with the unanimous consent of all holders of
Outstanding Certificates or (iii) which would result in the exchange or
substitution of any of the outstanding Underlying Securities pursuant to a
plan for the refunding or refinancing of such Underlying Securities except in
the event of a default under the Indenture and only with the consent of
Certificateholders representing 100% of the aggregate voting rights of each
outstanding Class of the Certificates. The Trustee shall have no liability
for any failure to act resulting from Certificateholders' late return of, or
failure to return, directions requested by the Trustee from the
Certificateholders.
In the event that an offer is made by the Underlying Securities Issuer
to issue new obligations in exchange and substitution for any of the
Underlying Securities, pursuant to a plan for the refunding or refinancing of
the Outstanding Debt Securities or any other offer is made for the Underlying
Securities, the Trustee shall notify the Certificateholders of such offer as
promptly as practicable. The Trustee must reject any such offer unless an
event of default under the Indenture has occurred, the Trustee is directed by
the affirmative vote of all of the Certificateholders to accept such offer
and the Trustee has received the tax opinion described above. Accordingly, a
Certificateholder generally would be required to effect a withdrawal of
Requested Underlying Securities from the Trust in order to accept such offer.
See "--Optional Exchange of Certificates."
If an event of default under the Indenture occurs and is continuing and
if directed by all the holders of outstanding Class [ ] Certificates and,
unless the Class [ ] Certificates are no longer outstanding, by all the
holders of outstanding Class [ ] Certificates, the Trustee shall vote the
Underlying Securities in favor of directing, or take such other action as may
be appropriate to direct, the Underlying Securities Trustee to declare the
unpaid principal amount of the Underlying Securities and any accrued and
unpaid interest thereon to be due and payable. In connection with a vote
concerning whether to declare the acceleration of the Underlying Securities,
the Certificateholders' interests of each Class may differ and the interests
of either Class may differ from holders of other Outstanding Debt Securities.
Termination
The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the Prospectus. The Company will
have the right to purchase all remaining Deposited Assets in the Trust and
thereby effect early retirement of the Certificates on any Distribution Date,
[(a)] once the aggregate principal amount of the Deposited Assets at the time
of any such purchase is less than [10%] of the aggregate principal amount of
the Deposited Assets as of the Cut-off Date [and (b) at the option of the
Company at [specify when and on what terms any such option may be
exercised]]; provided, however, that the right to exercise any such option is
contingent on such exercise being consistent with the Company's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7
under the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder. In the event the Company
exercises any such option, the portion of the purchase price allocable to the
Certificates of each class will be, to the extent of available funds, [100%
of their then aggregate outstanding Certificate Principal Balance or Notional
Amount, as applicable, plus with respect to the Certificates [one month's]
[three month's] [specify other period] interest thereon at the Fixed
Pass-Through Rate or the then applicable Variable Pass-Through Rate, as the
case may be, plus, with respect to each class of Certificates, any previously
accrued but unpaid interest thereon.] [Specify alternative allocation method
if different from above.] In no event will the Trust created by the Trust
Agreement for the Certificates continue beyond the expiration of 21
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years from the death of the survivor of the person or persons named in
the Trust Agreement. See "Description of Certificates--Termination" in the
Prospectus.
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS
[Describe any applicable legal aspects of the Deposited Assets or
relating to the enforceability by the Certificateholders of the security
interest, if any, securing such Deposited Assets.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of all material Federal income tax
consequences of the purchase, ownership and disposition of the Certificates
by an initial holder of Certificates. Such consequences will depend on the
terms of the Certificate, whether the Trust is treated as a grantor trust or
as a partnership for Federal income tax purposes, and the assets
collateralizing or otherwise supporting such Certificate. The consequences of
owning Certificates which are deemed for Federal income tax purposes to be
interests in a grantor trust or in a partnership are discussed separately
below under the captions "Grantor Trust Certificates" and "Partnership
Certificates", respectively. The applicable Trust Agreement would include
provisions approriate to the particulars of the transaction and to the
relevant Federal income tax status of the Trust and related Certificates.
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), and who do not hold
their Certificates as part of a "straddle," a "hedge" or a "conversion
transaction." Investors should consult their own tax advisors to determine
the Federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Certificates. [The Prospectus Supplement for
each series of Certificates will describe additional consequences that relate
to the specific Certificates issued pursuant thereto.]
The Trust will be provided with an opinion of Weil, Gotshal & Manges (a
partnership including professional corporations), special Federal tax counsel
to the Company ("Federal Tax Counsel") regarding certain Federal income tax
matters discussed below. An opinion of Federal Tax Counsel, however, is not
binding on the Internal Revenue Service (the "Service") or the courts.
Prospective investors should note that no rulings have been or will be sought
from the Service with respect to any of the Federal income tax consequences
discussed below, and no assurance can be given that the Service will not take
contrary positions.
Tax Status of Trust
In the opinion of Federal Tax Counsel, the Trust will be classified as a
grantor trust and not as an association (or publicly traded partnership)
taxable as a corporation for Federal income tax purposes. Accordingly, each
owner of a Certificate (a "Certificate Owner") will be subject to Federal
income taxation as if it owned directly the portion of the Deposited Assets
allocable to such Certificates, and as if it paid directly its share of
reasonable expenses paid by the Trust. The following discussion assumes that
the Underlying Securities were not issued with original issue discount
("OID") and, accordingly, the Certificate owners will not realize OID except
with respect to a "stripped interest" (as defined below).
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Income of Certificate Owners
In General. A Certificate Owner will allocate the amount it pays for its
Certificate among the Underlying Securities and the Deposited Assets in the
Trust other than the Underlying Securities (the "other Deposited Assets")
allocable to such Certificate, in proportion to their relative fair market
values on the date of purchase of the Certificate. A Certificate Owner would
calculate separately its income, gain, loss or deduction realized with
respect to each such asset.
The Federal income tax treatment of a holder of a particular class of
Certificates will depend upon whether the interest in the Underlying
Securities represented by such class will be considered, in whole or in part,
to be a "stripped bond" or "stripped coupon" (together a "stripped interest")
within the meaning of Section 1286 of the Code. A class of Certificates will
not be considered to represent a stripped interest in the underlying
Underlying Securities to the extent the Certificate is entitled to receive a
proportionate amount of all principal and interest on the Underlying
Securities. A class of Certificates will be considered in its entirety to
represent a stripped interest in the underlying Underlying Securities if it
is entitled to receive interest on the Underlying Securities which is
disproportionately less than the principal which it is entitled to receive on
the Underlying Securities, or if it is entitled to receive all or part of the
interest on the Underlying Securities but no principal on the Underlying
Securities. In addition, if a class of Certificates is entitled to receive
interest and principal on the Underlying Securities, but the interest it is
entitled to receive on the Underlying Securities is disproportionately more
than the principal it is entitled to receive on the Underlying Securities, it
could be argued that the Certificates represents (a) an interest in the
Underlying Securities that is not a stripped interest to the extent it
represents a proportional amount of all the principal and interest on the
Underlying Securities and (b) a stripped interest in the Underlying
Securities to the extent of any additional interest to which it is entitled
on the Underlying Securities. If a Certificate represents in part a stripped
interest and in part not a stripped interest, such interests will be treated
as two separate items for tax purposes and a purchaser of Certificates will
be required to allocate its purchase price among the two items (as well as
any other Deposited Assets) in proportion to their relative fair market
values on the date of purchase.
Tax Treatment of Certificates to the Extent They Are Not Stripped
Interests. To the extent a class of Certificates does not represent a
stripped interest in the underlying Underlying Securities, each Certificate
Owner will be required to report on its Federal income tax return, in a
manner consistent with its method of accounting, its share of the gross
income of the Trust, including interest and discount earned on the Underlying
Securities, income derived from the other Deposited Assets held by the Trust,
and any gain or loss upon collection or disposition of the Underlying
Securities or other Deposited Assets. The portion of each monthly payment to
a Certificate Owner that is allocable to principal on the Underlying
Securities (other than amounts representing discount, as described below)
will represent a recovery of capital, which will reduce the tax basis of such
Certificate Owner's undivided interest in the Underlying Securities.
To the extent that the portion of the purchase price of a Certificate
allocated to a Certificate Owner's undivided interest in a Underlying
Security is greater than or less than the portion of the principal balance of
the Underlying Security allocable to the Certificate, such interest in the
Underlying Security will have been acquired at a premium or discount, as the
case may be. In determining whether a Certificate Owner has purchased its
interest in the Underlying Securities at a premium or discount, a portion of
the purchase price for a Certificate will be allocated to (i) the other
Deposited Assets (including any accrued interest thereon) held by the Trust
and (ii) the accrued interest on the Underlying Securities at the time of
purchase as though such accrued interest were a separate asset, thus, in each
case, reducing the portion of the purchase price allocable to the Certificate
Owner's undivided interest in the Underlying Securities (the "allocated
Purchase Price"). To the extent that the allocated Purchase Price is less
than the principal balance of an Underlying Security, the Certificate Owner's
interest in such Underlying Security will be treated as purchased at a
"market discount." The market
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discount on a Underlying Security will, however, be considered to be zero if
it is less than a statutorily defined de minimis amount. Conversely, to the
extent that the allocated Purchase Price exceeds the principal balance of an
Underlying Security, the Certificate Owner's interest therein will be treated
as purchased with "bond premium." See discussion the below under "Bond
Premium."
For example, if the allocated Purchase Price paid by a Certificate Owner
who purchases a Certificate in the initial public offering were equal or
almost equal to the portion of the principal balance of the Underlying
Security that is allocable to the Certificate, there would be no significant
amount of discount or premium with respect to its interest in such Underlying
Security. Moreover, if the total purchase price of a Certificate is equal to
the principal amount of the Underlying Securities allocable to the
Certificate, because a portion of such purchase price will be allocated to
the other Deposited Assets of the Trust, in the aggregate a Certificate
Owner's interest in the Underlying Securities will have been purchased at a
discount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized
upon a sale or other disposition of a Underlying Security or upon the sale or
other disposition of a Certificate Owner, will be taxable as ordinary income
to the extent of accrued market discount, and a portion of the interest
deduction attributable to any indebtedness treated as incurred or continued
to purchase or carry a Underlying Security (or a Certificate) must be
deferred. The ordinary income treatment on dispositions and deferral of
interest deductions described in the preceding sentence will not apply if a
Certificate Owner elects to include market discount in income currently as it
accrues for each taxable year during which it holds the Certificate. Any such
election will also apply to all debt instruments held by the Certificate
Owner during the year in which the election is made and all debt instruments
acquired thereafter. Market discount will accrue in the manner to be provided
in Treasury regulations, but the Conference Report accompanying the Tax
Reform Act of 1986 states that, until such regulations are issued, taxpayers
may elect to accrue market discount either (i) under a constant yield
(economic accrual) method or (ii) in the proportion that the stated interest
paid on the obligation for the current period bears to total remaining
interest on the obligation.
Tax Treatment of Certificates to the Extent They Are Stripped Interests.
To the extent a class of Certificates represents a stripped interest in the
underlying Underlying Securities, each such Certificate will be subject to
the OID rules. The amount of OID on a stripped interest is equal to the
excess of all amounts payable on the stripped interest (other than qualified
stated interest) over the portion of the purchase price for the Certificate
allocable to the stripped interest.
Under the Treasury regulations issued under Section 1286 of the Code
(the "Regulations"), the interest payable with respect to the stripped
interest will be treated as "qualified stated interest" if it represents a
fixed periodic payment on principal on the Underlying Securities to which the
stripped interest (i.e., the Certificate Owner) is also entitled. If none of
the amounts payable to a Certificate Owner with respect to a stripped
interest constitute qualified stated interest, then the stripped interest
will have OID in an amount equal to all payments to be received on the
stripped interest over the purchase price for the Certificate allocable to
the stripped interest. Moreover, in determining the amount paid for the
stripped interest, a portion of the purchase price for a Certificate must be
allocated to the Certificate Owner's share of other Deposited Assets and to
accrued interest.
The tax treatment of a Certificate Owner will depend upon whether the
amount of OID on the stripped interest represented by the Certificate is less
than a statutorily defined de minimis amount. In general, under the
Regulations, the amount of OID with respect to the stripped interest will be
de minimis if it is less than 1/4 of one percent multiplied by the product of
the "stated redemption price at maturity" and the number of full years
remaining after the purchase date until the maturity of such stripped
interest. However, if the stripped
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interest provides for amortization of principal, the amount of OID will be de
minimis if it is less than 1/4 of one percent multiplied by the product of
the stated redemption price at maturity and the weighted average maturity
(i.e., the sum of the amounts obtained by multiplying the amount of each
payment under the stripped interest (other than a payment of qualified stated
interest) by a fraction, the numerator of which is the number of complete
years from the purchase date until the payment is made and the denominator of
which is the stated redemption price at maturity) of the stripped interest.
In general, "stated redemption price at maturity" means the sum of all
amounts payable on the stripped interest other than qualified stated
interest.
If the amount of OID on the stripped interest represented by the
Certificate is de minimis under the rules discussed above, the stripped
interest would not be treated as having OID. Each Certificate Owner would be
required to report on its Federal income tax return its share of the gross
income of the Trust, including interest on the Underlying Securities and any
gain upon sale or disposition by the Trust of the Underlying Securities. Such
gross income would exceed the Pass Through Rate on the Certificate by an
amount equal to the Certificate Owner's share of the expenses of the Trust
for the period during which it owns a Certificate. Each Certificate Owner
would be required to include the de minimis OID in income as each principal
payment on the stripped interest is received, in proportion to the amount
that each principal payment bears to the stated principal amount of the
stripped interest; such income would be capital gain, short-term or long-term
depending upon the Certificate Owner's holding period in the Certificate. The
Certificate Owner would be entitled to deduct its share of expenses of the
Trust to the extent described below. Any amounts received by a Certificate
Owner from any Credit Support or any subordination feature will be treated
for Federal income tax purposes as having the same characteristics as the
payments they replace.
A Certificate Owner would report its share of the income of the Trust
under its usual method of accounting. Accordingly, interest on an underlying
Underlying Security would be includible in a Certificate Owner's gross income
when it accrues on the Underlying Securities, or, in the case of Certificate
Owners who are cash basis taxpayers, when received by the Administrative
Agent, if any, or otherwise the Trustee on behalf of Certificate Owners.
Because the interest collected on the Underlying Securities generally is paid
to Certificate Owners in the following month, the amount of interest
includible in a Certificate Owner's gross income during any calendar month
will not equal the interest distributed in that month.
If the OID with respect to the stripped interest in the Underlying
Securities represented by a Certificate is not treated as being de minimis, a
Certificate Owner will be required to include in income, in addition to any
qualified stated interest on the stripped interest as described above, any
OID on the stripped interest. OID must be included in income as it accrues on
a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield as described below. Such treatment could result
in the accrual of income by such Certificate Owner prior to the receipt of
cash by such Certificate Owner. Under the rules described below, the amounts
includible in income by a Certificate Owner on a stripped interest that has
OID are lesser in the early years and greater in the later years than the
amounts that would be includible on a straight-line basis.
In general, if a stripped interest has OID the Certificate Owner will be
required, whether such Certificate Owner uses the cash or the accrual method
of tax accounting, to include in ordinary gross income the sum of the "daily
portions" of OID on the stripped interest for all days during the taxable
year that the Certificate Owner owns the Certificate. The daily portions of
OID on a stripped interest are determined by allocating to each day in any
"accrual period" a ratable portion of the OID allocable to that accrual
period. The amount of OID on a stripped interest allocable to each accrual
period is determined by (i) multiplying the "adjusted issue price" (as
defined below) of the stripped interest by a fraction, the numerator of which
is the annual yield to maturity of the stripped interest and the denominator
of which is the number of accrual periods in a year and (ii) subtracting from
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that product the amount of qualified stated interest (if any) payable on the
stripped interest during (or allocable to) such accrual period.
An "accrual period" would generally be each period ending on an interest
payment date on the Underlying Securities, although Treasury regulations
allow a Certificate Owner to elect other accrual periods of no more than a
year in length, as long as each scheduled payment on the Underlying
Securities occurs at the end of an accrual period.
The "adjusted issue price" of a stripped interest at the beginning of
any accrual period is the purchase price for a Certificate allocable to the
stripped interest (including accrued interest, if any) (i) increased by the
amount of OID allocable to all prior accrual periods and (ii) reduced by the
amount of all payments other than qualified stated interest payments (if any)
in all prior accrual periods. In addition, if an interval between payments of
qualified stated interest contains more than one accrual period, the adjusted
issue price at the beginning of each accrual period in the interval is
increased by the amount of qualified stated interest that has accrued prior
to the first day of the accrual period but that is not payable until the end
of the interval.
The Trustee intends to account for OID, if any, reportable by
Certificate Owners by reference to the price paid for a Certificate by an
initial purchaser, although the amount of OID will differ for subsequent
purchasers. Such subsequent purchasers should consult their tax advisors
regarding the proper calculation of OID.
Bond Premium. In the event that a Certificate represents either an
unstripped interest in an underlying Underlying Security, or a stripped
interest which includes qualified stated interest, and the stripped or
unstripped interest is treated as purchased at a premium (i.e., the purchase
price of a Certificate allocable to the interest exceeds the total amount
payable on the Underlying Security to the Certificateholder other than
qualified stated interest), such premium will be amortizable by the
Certificate Owner as an offset to interest income (with a corresponding
reduction in the Certificate Owner's basis) under a constant yield method
over the term of the underlying Underlying Security if an election under
Section 171 of the Code is made or was previously in effect. Any such
elections will also apply to all debt instruments held by the Certificate
Owner during the year in which the election is made and all debt instruments
acquired thereafter.
Election to Treat All Interest as Original Issue Discount. Any
Certificate Owner may elect to include in gross income all interest
(including stated interest, OID, de minimis OID, market discount and de
minimis market discount, as adjusted by any bond premium or acquisition
premium) that accrues on an unstripped or stripped interest using the
constant yield method described above, treating the instrument as having been
issued on the Certificate Owner's acquisition date at an issue price equal to
such owner's adjusted basis with no interest payments being qualified stated
interest. Such an election with respect to a unstripped or stripped interest
having amortizable bond premium or market discount would constitute,
respectively, an election to apply the market discount rules or bond premium
rules with respect to all other debt instruments with market discount or
amortizable bond premium, as the case may be, of such Certificate Owner.
Modification or Exchange of Underlying Securities. Depending upon the
circumstances, it is possible that a modification of the terms of the
Underlying Securities, or a substitution of other assets for the Underlying
Securities following a default on the Underlying Securities, would be a
taxable event to Certificate Owners on which they would recognize gain or
loss.
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Other Deposited Assets of the Trust
[Describe tax consequences of the other Deposited Assets.]
Deductibility of Trust's Fees and Expenses
In computing its Federal income tax liability, a Certificate Owner will
be entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees paid or incurred
by the Trust as provided in Section 162 or 212 of the Code and any allowable
amortization deductions with respect to certain other assets of the Trust. If
a Certificate Owner is an individual, estate or trust, the deduction for his
share of fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
Purchase and Sale of a Certificate
A Certificate Owner's tax basis in a Certificate generally will equal
the cost of such Certificate increased by any amounts of undistributed
taxable income (e.g., OID or market discount) and reduced by any amortized
premium (each as described above) and any payments other than payments of
qualified stated interest on an underlying Underlying Security made on such
Certificate.
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the proceeds of sale allocable to each of the assets of
the Trust and the Certificate Owner's adjusted basis in each of the
foregoing. Any gain or loss will be a capital gain or loss if the Certificate
was held as a capital asset, except that gain will be treated in whole or in
part as ordinary interest income to the extent of the Certificate Owner's
interest in accrued market discount not previously taken into income on
Underlying Securities.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless,
in general, the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
Foreign Certificate Owners
To the extent that amounts paid to Certificate Owners that are not
United States persons ("Foreign Certificate Owners") are treated as interest
with respect to Underlying Securities originated after July 18, 1984, such
amounts generally will not be subject to the annual 30% withholding tax,
provided that such Foreign Certificate Owner fulfills certain certification
requirements. Under such requirements, the holder must certify, under
penalties of perjury, that it is not a "United States person" and provide its
name and address.
[Describe the Federal income tax consequences to Foreign Certificate
Owners of an interest in any other Deposited assets of the Trust.]
A "United States person" means a citizen or resident of the U.S., a
corporation, partnership or other entity created or organized in or under the
laws of the U.S. or any political subdivision thereof, or an estate or trust
the income of which is includible in gross income for U.S. Federal income tax
purposes, regardless of its source.]
S-29
[Tax Characterization of the Trust
The Company and the Administrative Agent, if any, have agreed, and the
Certificate Owners will agree by their purchase of Certificates, to treat the
Trust as a partnership for purposes of Federal, state and local income,
franchise and any other tax measured in whole or in part by income. However,
the proper characterization of the arrangement involving the Trust, the
Certificate Owners, the Company and the Administrative Agent, if any, is not
entirely clear because there is no directly comparable authority.
Were the Trust not to be deemed a partnership for Federal income tax
purposes, but instead an association taxable as a corporation, the Trust
would be subject to corporate income tax. Any such corporate income tax could
materially reduce or eliminate cash that would otherwise be distributable
with respect to the Certificates (and Certificate Owners could be liable for
any such tax that is unpaid by the Trust). However, in the opinion of Federal
Tax Counsel, the Trust should not be classified as an association taxable as
a corporation because it will lack certain characteristics necessary for a
business trust to be an association taxable as a corporation.
Even were the Trust not an association taxable as a corporation, it
would be subject to corporate income tax if it were deemed a "publicly traded
partnership." A publicly traded partnership is taxed in the same manner as a
corporation unless at least 90% of its gross income consists of specified
types of "qualifying income." Such qualifying income includes, among other
things, interest income not derived in the conduct of a financial or
insurance business, dividend income, and gain from the disposition of assets
producing such income. In the opinion of Federal Tax Counsel, because of the
nature of the income of the Trust, the Trust will not be a publicly traded
partnership taxable as a corporation.
Partnership Taxation
As a partnership, the Trust will not be subject to Federal income tax,
but each Certificate Owner will be required to separately take into account
such holder's allocable share of income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of [ ] and
any gain upon collection or disposition [ ]. The Trust's deductions will
consist primarily of [ ].
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide that each class of Certificate Owners will be allocated taxable
income of the Trust for each monthly period equal to the sum of (i) the
amount payable (or accruing) at the Pass Through Rate on such class of
Certificates for such month (to the extent such amount would not economically
represent a return of capital); (ii) an amount equivalent to interest that
accrues during such month on amounts previously due on such class of
Certificates but not yet distributed; (iii) any Trust income for such month
attributable to discount on the Underlying Securities that corresponds to any
excess of the principal amount of such class of Certificates over their
initial issue price; and (iv) [any other income economically accruing for
such class of Certificates during such month. [All remaining taxable income
of the Trust will be allocated to the [ ]]. It is believed that this
allocation will be valid under applicable Treasury regulations, although no
assurance can be given that the Service would not require a greater amount of
income to be allocated to Certificate Owners. Moreover, even under the
foregoing method of allocation, holders may be allocated income equal to the
entire Pass Through Rate plus the other items described above even though the
Trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders in effect could be required to report
income from the Certificates on the accrual basis. In addition, tax
allocations and tax reporting will be done on a uniform basis for all
Certificate Owners, even though their Certificates may have been purchased at
different times and at different prices.
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An individual taxpayer's miscellaneous itemized deductions (which do not
include interest expenses) are subject to limitations and as a result may be
disallowed in whole or in part. Those limitations, which also apply to
estates and trusts, would apply to a Certificate Owner's share of expenses of
the Trust (including fees to the Administrative Agent, if any) and might
result in such holder being taxed on an amount of income that exceeds the
amount of cash actually distributed to such holder over the life of the
Trust.
If the Trust holds a large number of Underlying Securities, it intends
to make all tax calculations relating to income and allocations to
Certificate Owners on an aggregate basis. Were the Service to require that
such calculations be made separately for each Underlying Security, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificate Owners.
A Certificate Owner would increase or decrease its tax basis in its
Certificate for its allocable share of the Trust's income or loss,
respectively. Any cash distributions by the Trust to a Certificate Owner will
constitute (i) first, a return of capital to the extent of such Certificate
Owner's tax basis in the Certificate (with a corresponding dollar-for-dollar
reduction in such tax basis), and (ii) thereafter, to the extent in excess
thereof, gain on the sale or exchange of such Certificate Owner's
Certificate. See "Disposition of Certificates" below.
Discount and Premium
It is believed that the Underlying Securities were not issued with
original issue discount ("OID") and, therefore, the Trust should not have OID
income. However, the purchase price paid by the Trust for the Underlying
Securities may be greater or less than the remaining principal balance of the
Underlying Securities at the time of purchase. If so, the Underlying
Securities will have been acquired at a premium or discount, as the case may
be. (As indicated above, if the Trust acquires a large number of Underlying
Securities it will make this calculation on an aggregate basis, but might be
required to recompute it on an instrument-by-instrument basis.)
The Trust will make an election that will result in any market discount
on the Underlying Securities being included in income currently as such
discount accrues over the life of the Underlying Securities. As indicated
above in the discussion of "Partnership Taxation," a portion of such market
discount income may be allocated to Certificate Owners.
Modification or Exchange of Underlying Securities
Depending upon the circumstances, it is possible that a modification of
the terms of the Underlying Securities, or a substitution of other assets for
the Underlying Securities following a default on the Underlying Securities,
would be a taxable event to Certificate Owners on which they would recognize
gain or loss.
Tax Consequences of Other Assets Held by Trust
The manner in which income with respect to the other assets of the Trust
should be accrued will depend on the nature of those assets.
[Discuss specific tax consequences of other assets.]
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Section 708 Termination
Under Section 708 of the Code, the Trust will be deemed to terminate for
Federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Were
such a termination to occur, the Trust would be considered to have
distributed its assets to the partners, the Certificate Owners, who would
then be treated as having recontributed those assets to the Trust, as a new
partnership. If any such constructive termination occurs, the Trust does not
intend to comply with certain technical requirements that might be applicable
for various reasons including the likely lack of relevant data. As a result,
the Trust may be subject to certain tax penalties and may incur additional
expenses. Moreover, the Schedule K-1 information thereafter distributed to
the Certificate Owners may be incorrect.
Disposition of Certificates
Generally, capital gain or loss will be recognized on a sale or other
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates sold. A
Certificate Owner's tax basis in a Certificate will generally equal its cost
increased by his share of Trust income includible in his income (including
for the taxable year of sale) and decreased by any distributions received
with respect to such Certificate. In addition, both his tax basis in, and the
amount realized on a sale of, a Certificate would include the holder's share
of liabilities of the Trust. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
such Certificate and, upon sale or other disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
On the sale of a Certificate, any gain attributable to the holder's
share of any accrued market discount on the Underlying Securities that has
not otherwise been included in the holder's income would generally be treated
as ordinary income to the holder and would give rise to special tax reporting
requirements. The Trust does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificate.
Allocations Between Transferors and Transferees
In general, the Trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month allocable to a
particular class of Certificates will be apportioned among holders of such
Certificates in proportion to the principal amount of such Certificates owned
by them as of the first business day following the end of such month. As a
result, a holder purchasing Certificates may be allocated tax items (which
will affect its tax liability and tax basis) attributable to periods before
the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If such a convention is not allowed (or only applies to
transfers of less than all of a partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Trustee
is authorized to revise the Trust's method of allocation between transferors
and transferees to conform to a method permitted by future regulations.
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Section 754 Election
In the event that a Certificate Owner sells its Certificates at a profit
(loss), the purchasing Certificate Owner will have a higher (lower) basis in
the Certificates than the selling Certificate Owner had. The tax basis of the
Trust's assets will not be adjusted to reflect that higher (or lower) basis
unless the Trust were to file an election under Section 754 of the Code. In
order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As
a result Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters
The Trustee is required to keep complete and accurate books of the
Trust. Such books will be maintained for financial reporting and tax purposes
on an accrual basis and the fiscal year of the Trust will be the calendar
year. The Trustee will file a partnership information return (Service Form
1065) with the Service for each taxable year of the Trust and will report
each Certificate Owner's allocable share of items of Trust income and expense
to holders and the Service on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties, unless the
holder notifies the Service of all such inconsistencies.
Under Code Section 6031, any person that holds Certificates as a nominee
at any time during a calendar year is required to furnish the Trust with a
statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and taxpayer identification number of
such person, (y) whether such person is not a United States person, a tax-
exempt entity, or a foreign government, an international organization, or any
wholly-owned agency or instrumentality of either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf
of such person throughout the year. In addition, brokers and financial
institutions that hold Certificates through a nominee are required to furnish
directly to the Trust information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust.
The information referred to above for any calendar year must be furnished to
the Trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Trust with the information
described above may be subject to penalties.
The Company, as the tax matters partner, will be responsible for
representing the Certificate Owners in any dispute with the Service. The Code
provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the
appropriate taxing authorities could result in an adjustment of the returns
of the Certificate Owners and, under certain circumstances, a Certificate
Owner may be precluded from separately litigating a proposed adjustment to
the items of the Trust. An adjustment could also result in an audit of a
Certificate Owner's returns and adjustments of items not related to the
income (or loss) of the Trust.
S-33
Tax Consequences to Foreign Certificate Owners
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding
taxes with respect to non-U.S. persons because there is no clear authority
dealing with that issue under facts substantially similar to those described
herein. [Although it is not expected that the Trust would be engaged in a
trade or business in the United States for such purposes, the Trust expects
to withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificate Owners pursuant to Code Section 1446, as if such income were
effectively connected to U.S. trade or business, at a rate of 35% for foreign
holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's nonforeign status, the Trust may rely
on Form W-8, Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.]
[Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the Service and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of
the taxes withheld. A foreign holder generally would be entitled to file with
the Service a claim for refund with respect to taxes withheld by the Trust,
taking the position that no taxes were due because the Trust was not engaged
in a U.S. trade or business. The Trust will cooperate in any such refund
claim if it can do so without incurring any out-of-pocket cost. No assurance
can be given as to whether any such refund claim would be granted.]
[The foregoing summary will be modified, as necessary, to reflect
differences caused by the precise nature of the Deposited Assets relating to
a given Series of Certificates.]
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless,
in general, the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
[CERTAIN STATE TAX CONSEQUENCES
[Describe any applicable state tax consequences that may arise,
including as a result of the specific nature of the Deposited Assets relating
to a given Series of Certificates or the degree of servicing required with
respect to such Deposited Assets.]]
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee
benefit plan (as defined in Section 3(3) of ERISA, (b) a plan described in
Section 4975(e)(i) of the Code or (e) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"Plan"). Moreover, based on the reasoning of the United States Supreme
Court's decision in John Hancock Life Ins. Co. v. Harris Trust and Sav.
Bank, 114 S.Ct. Section 17 (1993), an
S-34
insurance company investing assets in its general account might be treated as
a Plan on the grounds that such investor may be investing assets of an
employee benefit plan subject to ERISA.
In accordance with ERISA's general fiduciary standards, before investing
in a Certificate, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("parties in interest"
within the meaning of ERISA or "disqualified persons" within the meaning of
the Code). Thus, a Plan fiduciary considering an investment in Certificates
should also consider whether such an investment might constitute or give rise
to a prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of
the Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the
trust, might be prohibited transactions under ERISA and the Code. Neither
ERISA nor the Code defines the term "plan assets." Under Section 2510.3-101
of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
prohibited transaction provisions of ERISA and the Code, if the Plan acquires
an "equity interest" in such entity. Thus, if a Plan acquired a Certificate
of a particular class, for certain purposes (including the prohibited
transaction provisions) the Plan would be considered to own its share of the
underlying assets of the Trust unless (1) such Certificate is a
"publicly-offered security" or (2) equity participation in such class by
benefit plan investors is not "significant."
A publicly-offered security is a security that is (1) freely
transferable, (2) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another at the conclusion of
the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act, or (B) sold to
the Plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. The Company does not anticipate that
the Certificates of any class will be considered publicly-offered securities
within the meaning of the Regulation.
Participation by benefit plan investors in any class of Certificates
would not be significant if immediately after the most recent acquisition of
Certificates of such class, whether or not from the Company or an Agent or
Underwriter, less than 25 percent of the value of such class were held by
benefit plan investors, which are defined as Plans and employee benefit plans
not subject to ERISA (for example, governmental plans). There can be no
assurance that less than 25 percent of the value of any given class of
Certificates will be held by benefit plan investors.
If the assets of the Trust were deemed to be plan assets, certain
transactions involving the Trust, including the acquisition of the
Certificates themselves by a Plan, could be prohibited transactions. If, for
example, an obligor with respect to any of the Deposited Assets, or any of
such obligor's affiliates, were a party in interest or disqualified person
with respect to an acquiring Plan, the acquisition of the Certificate could
be construed as a prohibited indirect loan from the Plan to the obligor. Any
such prohibited transaction could be treated as exempt under ERISA and the
Code if the Certificates were acquired pursuant to and in accordance with one
or more "class exemptions" issued by the DOL, such as Prohibited Transaction
Class Exemptions ("PTCE") 84-14 (an exemption for certain transaction
determined by an independent qualified professional asset manager), PTCE
91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an
S-35
exemption for certain transactions involving insurance company pooled
separate accounts) or PTCE 95-60 (an exemption for certain transactions
involving insurance company general accounts).
Certificates will not be sold to any Plan unless such Plan represents
that the acquisition of a Certificate would not be prohibited under ERISA and
the Code because an exemption is applicable to the acquisition and holding of
the Certificates and the activities of the Trust. To the extent an insurance
company invests assets treated as assets of a Plan, it will be required to
make the foregoing representations as a condition to the acquisition of a
Certificate. Alternatively, if the Company is able to confirm the existence
of at least 100 independent purchasers of a class, the foregoing
representation will not be a condition to acquisition of Certificates of such
class.
Any Plan or insurance company investing assets of its general account
proposing to acquire Certificates should consult with its counsel.
S-36
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of [ ], 199[ ] (the "Underwriting Agreement"), the
Company has agreed to sell and [Lehman Brothers Inc. (an affiliate of the
Company)] [each of the Underwriters named below, including Lehman Brothers
Inc. (an affiliate of the Company)] (the "Underwriter[s]")[,] has [severally]
agreed to purchase, the [Certificates] [the principal amount of such class of
Certificates set forth below opposite its name].
Class [ ] Class [ ] Class [ ]
--------- --------- ---------
Lehman Brothers Inc. . . $ $ $
--------- --------- ---------
Total . . . . . . . $ $ $
========= ========= =========
[Lehman Brothers Inc. has] [The several Underwriters have] agreed, subject to
the terms and conditions set forth in the Underwriting Agreement, to purchase
all Certificates offered hereby if any of such Certificates are purchased.
[In the event of default by any Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments of non-
defaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.]
The Company has been advised by the Underwriter[s] that [it][they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter[s] may effect such transactions by selling Certificates
to or through dealers and such dealers may receive compensation in the form
of underwriting discounts, concessions or commissions from the Underwriter[s]
and any purchasers of Certificates for whom they may act as agents. The
Underwriter[s] and any dealers that participate with the Underwriter[s] in
the distribution of Certificates may be deemed to be underwriters, and any
profit on the resale of Certificates by them may be deemed to be underwriting
discounts, or commissions under the Securities Act.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter[s] may be
required to make in respect thereof.
Lehman Brothers Inc. is an affiliate of the Company, and the
participation by Lehman Brothers Inc. in the offering of the Certificates
complies with Schedule E of the By-Laws of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates be rated not lower than [specify ratings applicable to each
class] by [Standard& Poor's Corporation ("Standard & Poor's")][Moody's
Investors Service, Inc. ("Moody's")][Fitch Investors Service, L.P. ("Fitch")]
[and] [Duff & Phelps Credit Rating Company ("Duff & Phelps")](the
"Rating[Agency][Agencies]"). The ratings address the likelihood of the
receipt by Certificateholders of payments required under the Trust Agreement,
and are based primarily on the credit
S-37
quality of the Deposited Assets and any providers of Credit Support, as well
as on the relative priorities of the Certificateholders of each class of the
Certificates with respect to collections and losses with respect to the
Deposited Assets. The rating on the Certificates does not, however,
constitute a statement regarding the occurrence of frequency of redemptions
or prepayments on, or extensions of the maturity of, the Deposited Assets,
the corresponding effect on yield to investors, or whether investors in the
Class [ ] Certificates [specify class with Notional Amount] may fail to
recover fully their initial investment.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each security rating should be evaluated
independently or any other security rating.
The Company has not requested a rating on the Certificates by any rating
agency other than the Rating [Agency] [Agencies]. However, there can be no
assurance as to whether any other rating agency will rate the Certificates,
or, if it does, what rating would be assigned by any such other rating
agency. A rating on the Certificates by another rating agency, if assigned at
all, may be lower than the ratings assigned to the Certificates by the Rating
[Agency] [Agencies].
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company and the Underwriter[s] by [Weil, Gotshal & Manges, New York,
New York].
Subject to Completion Dated November 15, 1995
Prospectus
Trust Certificates
(Issuable in Series)
Lehman ABS Corporation
Depositor
The Trust Certificates (the "Certificates") offered hereby and by
supplements (each a "Prospectus Supplement") to this Prospectus will be
offered from time to time in one or more series (each a "Series") and in one
or more classes within each such Series (each a "Class"), denominated in
dollars or in one or more foreign or composite currencies, including the
European Currency Unit ("ECU"). Certificates of each respective Series and
Class will be offered on terms to be determined at the time of sale as
described in the related Prospectus Supplement accompanying the delivery of
this Prospectus. Certificates may be sold for United States dollars or for
one or more foreign or composite currencies, and the principal of, premium,
if any, and any interest to be distributed in respect of Certificates may be
payable in United States dollars or in one or more foreign or composite
currencies. Each Series and Class of Certificates may be issuable as
individual securities in registered form without coupons ("Registered
Certificates") or in bearer form with or without coupons attached ("Bearer
Certificates") or as one or more global securities in registered or bearer
form (each a "Global Security").
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
together with certain other assets described herein and in the related
Prospectus Supplement (such assets, together with the Underlying Securities,
the "Deposited Assets"), to be deposited in a trust (the "Trust") for the
benefit of holders of Certificates of such Series ("Certificateholders") by
Lehman ABS Corporation (the "Company") pursuant to a Trust Agreement and a
series supplement thereto with respect to any given Series (collectively,
the "Trust Agreement") among the Company, the administrative agent, if any
(the "Administrative Agent") and the trustee (the "Trustee") named in the
related Prospectus Supplement. The Underlying Securities will be purchased
by the Company in the secondary market (either directly or through an
affiliate of the Company), and will not be acquired from the issuer thereof
as part of any distribution by or pursuant to any agreement with such
issuer. The Underlying Securities discussed herein and in the related
Prospectus Supplement represent the obligation of one or more corporations,
banking organizations or insurance companies organized under the laws of the
United States or any State, which are subject to the information
requirements of the Securities Exchange Act of 1934, as amended, and which,
in accordance therewith, file reports and other information with the
Securities Exchange Commission. If so specified in the related Prospectus
Supplement, the Trust for a Series of Certificates may also include, or the
Certificateholders of such Certificates may have the benefit of, any
combination of insurance policies, letter of credit, reserve accounts and
other types of rights or assets designed to support or ensure the servicing
and distribution of amounts due in respect of the Deposited Assets
(collectively, "Credit Support"). See "Description of Certificates" and
"Description of Deposited Assets and Credit Support."
Each Class of Certificates of any Series will represent the right, which may
be senior to those of one or more of the other Classes of such Series, to
receive specified portions of payments of principal, interest and certain
other amounts on the Deposited Assets in the manner described herein and in
the related Prospectus Supplement. A Series may include two or more Classes
differing as to the timing, sequential order or amount of distributions of
principal, interest or premium and one or more Classes within such Series
may be subordinated in certain respects to other Classes of such Series.
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
Except as otherwise provided herein and in the applicable prospectus
supplement, the Company's only obligations with respect to each Series of
Certificates will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets
and certain related documents to the applicable Trustee and, in certain
cases, to provide for the Credit Support, if any. The principal obligations
of an Administrative Agent, if any is named in the applicable Prospectus
Supplement, with respect to a Series of Certificates will be pursuant to its
contractual administrative obligations and, only as and to the extent
provided in the related Prospectus Supplement, its obligation to make
certain cash advances in the event of payment delinquencies on the Deposited
Assets. See "Description of the Certificates--Advances in Respect of
Delinquencies."
The Certificates of each Series will not represent an obligation of or
interest in the Company, any Administrative Agent or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor the Deposited Assets
(unless otherwise specified in such Prospectus Supplement) will be
guaranteed or insured by any governmental agency or instrumentality, or by
the Company, any Administrative Agent or their respective affiliates.
Prospective investors should consider the factors set forth herein under
"Risk Factors," beginning on page 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
---------------
The Certificates may be offered and sold to or through underwriters, through
dealers or agents or directly to purchasers, as more fully described under
"Plan of Distribution" and in the related Prospectus Supplement. This
Prospectus may not be used to consummate sales of Certificates offered
hereby unless accompanied by a Prospectus Supplement.
2
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the following
with respect to such Series: (a) the specific designation and aggregate
principal amount, (b) the currency or currencies in which the principal (the
"Specified Principal Currency"), premium, if any (the "Specified Premium
Currency"), and any interest (the "Specified Interest Currency") are
distributable (the Specified Principal Currency, the Specified Premium
Currency and the Specified Interest Currency being collectively referred to
as the "Specified Currency"), (c) the number of Classes of such Series and,
with respect to each Class of such Series, its designation, aggregate
principal amount or, if applicable, notional amount and authorized
denominations, (d) certain information concerning the type, characteristics
and specifications of the Deposited Assets and any Credit Support for such
Series or Class, (e) the relative rights and priorities of each such Class
(including the method for allocating collections from the Deposited Assets
to the Certificateholders of each Class and the relative ranking of the
claims of the Certificateholders of each Class to such Deposited Assets),
(f) the name of the Trustee and the Administrative Agent, if any, for such
Series, (g) the Pass Through Rate (as defined below) or the terms relating
to the applicable method of calculation thereof, (h) the time and place of
distribution (each such date, a "Distribution Date") of any interest,
premium (if any) and/or principal, (i) the date of issue, (j) the scheduled
final Distribution Date, if applicable, (k) the offering price, (l) any
exchange, whether mandatory or optional, the redemption terms and any other
specific terms of Certificates of each such Series or Class. See
"Description of Certificates--General" for a listing of other items that may
be specified in the applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports and other information
concerning the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at
Seven World Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can be obtained upon written request addressed to the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company does not intend to send any
financial reports to Certificateholders.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the Certificates. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Certificates shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests
for such copies should be directed to the Secretary of Lehman ABS
Corporation, 3 World Financial Center, New York, New York 10285. Telephone
requests for such copies should be directed to the Secretary of Lehman ABS
Corporation at (212) 526-5594.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive Certificates are issued, on each Distribution
Date unaudited reports containing information concerning the related Trust
will be prepared by the related Trustee and sent on behalf of each Trust
only to Cede & Co. ("Cede"), as nominee of DTC and registered holder of the
Certificates. See "Description of Certificates--Global Securities" and
"Description of the Trust Agreement--Reports to Certificateholders;
Notice." Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Company, on
behalf of each Trust, will cause to be filed with the Commission such
periodic reports as are required under the Exchange Act.
4
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Certificate in the Specified
Principal Currency for such Certificate. Currently, there are limited
facilities in the United States for conversion of U.S. dollars into foreign
currencies and vice versa, and banks do not currently offer non-U.S. dollar
checking or savings account facilities in the United States. However, if
requested by a prospective purchaser of a Certificate having a Specified
Principal Currency other than U.S. dollars, Lehman Brothers Inc. (the
"Offering Agent") will arrange for the exchange of U.S. dollars into such
Specified Principal Currency to enable the purchaser to pay for such
Certificate. Such request must be made on or before the fifth Business Day
(as defined below) preceding the date of delivery of such Certificate or by
such later date as is determined by the Offering Agent. Each such exchange
will be made by the Offering Agent on such terms and subject to such
conditions, limitations and charges as the Offering Agent may from time to
time establish in accordance with its regular foreign exchange practice.
All costs of exchange will be borne by the purchaser.
References herein to "U.S. dollars," "U.S.$," USD, "dollar" or "$" are
to the lawful currency of the United States.
RISK FACTORS
Limited Liquidity. There will be no market for any Series (or Class
within such Series) of Certificates prior to the issuance thereof, and
there can be no assurance that a secondary market will develop or, if it
does develop, that it will provide Certificateholders with liquidity of
investment or will continue for the life of such Certificates.
Certain Legal Aspects. The applicable Prospectus Supplement may set
forth certain legal considerations that are applicable to a specific Series
(or Class or Classes within such Series) of Certificates being offered in
connection with that Prospectus Supplement or the assets deposited in or
assigned to the related Trust.
Limited Obligations and Interest. The Certificates will not represent a
recourse obligation of or interest in the Company or any of its affiliates.
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates of each Series will not be insured or guaranteed by any
government agency or instrumentality, the Company, any Person affiliated
with the Company or the Issuer, or any other Person. The obligations, if
any, of the Company with respect to the Certificates of any Series will only
be pursuant to certain limited representations and warranties. The Company
does not have, and is not expected in the future to have, any significant
assets with which to satisfy any claims arising from a breach of any
representation or warranty. If, for example, the Company were required to
repurchase a Underlying Security with respect to which the Company has
breached a representation or warranty, its only sources of funds to make
such repurchase would be from funds obtained from the enforcement of a
corresponding obligation, if any, on the part of the seller of such
Underlying Security to the Company, or from a reserve fund established to
provide
5
funds for such repurchases. The Company has no obligation to establish or
maintain any such reserve fund.
Credit Support; Limited Assets. Although the Trust for any Series (or
Class of such Series) of Certificates may include, or the Certificateholders
of such Certificates may have the benefit of, certain assets which are
designed to support the payment upon, or otherwise ensure the servicing or
distribution with respect to, the Deposited Asset related to such Series or
Class as described in the related Prospectus Supplement, the Certificates do
not represent obligations of the Company, any Administrative Agent or any of
their affiliates and, unless otherwise specified in the applicable
Prospectus Supplement, are not insured or guaranteed by the Company, any
Administrative Agent, any of their affiliates or any other person or entity.
Accordingly, Certificateholders' receipt of distributions in respect of the
Certificates will depend entirely on the performance of and the Trust's
receipt of payments with respect to the Deposited Assets and any Credit
Support identified in the related Prospectus Supplement. See "Description of
Deposited Assets and Credit Support."
Maturity and Redemption Considerations. The timing of distributions of
interest, premium (if any) and principal of any Series (or of any Class
within such Series) of Certificates is affected by a number of factors,
including the performance of the related Deposited Assets, the extent of any
early redemption, repayment or extension of maturity with respect to the
related Underlying Securities (including acceleration resulting from any
default or rescheduling resulting from the bankruptcy or similar proceeding
with respect to a Underlying Securities Issuer) and the manner and priority
in which collections from such Underlying Securities and any other Deposited
Assets are allocated to each Class of such Series. Certain of these factors
may be influenced by a variety of accounting, tax, economic, social and
other factors. The related Prospectus Supplement will discuss any calls,
puts or other redemption options, any extension of maturity provisions and
certain other terms applicable to such Underlying Securities and any other
Deposited Assets. See "Maturity and Yield Considerations."
Tax Considerations. The Federal income tax consequences of the
purchase, ownership and disposition of the Certificates and the tax
treatment of the Trust will depend on the specific terms of the
Certificates, the Trust, any Credit Support and the Deposited Assets. See
the description under "Certain Federal Income Tax Considerations" in the
related Prospectus Supplement.
Ratings of the Certificates. At the time of issue, the Certificates of
any given Series (or each Class of such Series that is offered hereby) will
be rated in one of the investment grade categories recognized by one or
more nationally recognized rating agencies (a "Rating Agency"). Unless
otherwise specified in the applicable Prospectus Supplement, the rating of
any Series or Class of Certificates is based primarily on the related
Deposited Assets and any Credit Support and the relative priorities of the
Certificateholders of such Series or Class to receive collections from, and
to assert claims against, the Trust with respect to such Deposited Assets
and any Credit Support. The rating is not a recommendation to purchase,
hold or sell Certificates, inasmuch as such rating does not comment as to
market price or suitability for a particular investor. There can be no
assurance that the rating will remain for any given period of time that the
rating will not be lowered or
6
withdrawn entirely by the Rating Agency if in its judgment circumstances in
the future so warrant. Any Class or Classes of a given Series of
Certificates may not be offered pursuant to this Prospectus, in which case
such Class or Classes may or may not be rated in an investment grade
category by a Rating Agency.
Global Securities. Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each Series (or, if more than one Class
exists, each Class of such Series) will initially be represented by one or
more Global Securities deposited with, or on behalf of, a Depositary (as
defined below) and will not be issued as individual definitive Certificates
to the purchasers of such Certificates. Consequently, unless and until such
individual definitive Certificates of a particular Series or Class are
issued, such purchasers will not be recognized as Certificateholders under
the Trust Agreement. Hence, until such time, such purchasers will only be
able to exercise the rights of Certificateholders indirectly through the
Depositary and its respective participating organizations and, as a result,
the ability of any such purchaser to pledge that Certificate to persons or
entities that do not participate in the Depositary's system, or to otherwise
act with respect to such Certificate, may be limited. See "Description of
Certificates--Global Securities" and "Limitations on Issuance of Bearer
Certificates" and any further description contained in the related
Prospectus Supplement.
Currency Risks. The Certificates of any given Series (or Class within
such Series) may be demonstrated in a currency other than U.S. dollars to
the extent specified in the applicable Prospectus Supplement. This
Prospectus does not describe all the risks of an investment in such
Certificates, and the Company disclaims any responsibility to advise
prospective purchasers of such risks as they exist from time to time.
Prospective purchasers of such Certificates should consult their own
financial and legal advisors as to the risks entailed by an investment in
such Certificates denominated in a currency other than U.S. dollars. See
"Currency Risks."
Passive Nature of the Trust. The Trustee with respect to any Series of
Certificates will hold the Deposited Assets for the benefit of the
Certificateholders. Each Trust will generally hold the related Deposited
Assets to maturity and not dispose of them, regardless of adverse events,
financial or otherwise, which may affect any Underlying Securities Issuer or
the value of the Deposited Assets. Under certain circumstances the holders
of the Certificates may direct the Trustee to dispose of the Underlying
Securities or take certain other actions in respect of the Deposited Assets.
The Prospectus Supplement for each Series of Certificates will set
forth information regarding additional risk factors, if any, applicable to
such Series (and each Class within such Series).
THE COMPANY
The Company was incorporated in the State of Delaware on January 29,
1988, as an indirect, wholly-owned, limited-purpose subsidiary of Lehman
Brothers Inc. The principal office of
7
the Company is located in 3 World Financial Center, New York, New York
10285. Its telephone number is (212) 526-5594.
The Certificate of Incorporation of the Company provides that the
Company may conduct any lawful activities necessary or incidental to
serving as depositor of one or more trusts that may issue and sell
Certificates. The Certificate of Incorporation of the Company provides that
any securities, except for subordinated securities, issued by the Company
must be rated in one of the four highest categories available by any Rating
Agency rating the Series. Formation of a grantor trust will not relieve the
Company of its obligation to issue only securities, except for subordinated
securities, rated in one of the four highest rating categories. Pursuant to
the terms of the Trust Agreement, the Company may not issue any securities
which would result in the lowering of the then current ratings of the
outstanding Certificates of any Series.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
the net proceeds to be received from the sale of each Series or Class of
Certificates (whether or not offered hereby) will be used by the Company to
purchase the related Deposited Assets and arrange certain Credit Support
including, if specified in the related Prospectus Supplement, making
required deposits into any reserve account or the applicable Certificate
Account (as defined below) for the benefit of the Certificateholders of
such Series or Class. Any remaining net proceeds, if any, will be used by
the Company for general corporate purposes.
FORMATION OF THE TRUST
The Company will assign the Deposited Assets for each Series of
Certificates to the Trustee named in the applicable Prospectus Supplement,
in its capacity as Trustee, for the benefit of the Certificateholders of
such Series. See "Description of the Trust Agreement -- Assignment of
Deposited Assets." The Trustee named in the applicable Prospectus
Supplement will administer the Deposited Assets pursuant to the Trust
Agreement and will receive a fee for such services (the "Trustee's Fee").
Any Administrative Agent named in the applicable Prospectus Supplement will
perform such tasks as are specified therein and in the Trust Agreement and
will receive a fee for such services (the "Administration Fee") as
specified in the Prospectus Supplement. See "Description of the Trust
Agreement--Collection and Other Administrative Procedures" and "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses." The
Trustee or an Administrative Agent, if applicable, will either cause the
assignment of the Deposited Assets to be recorded or will obtain an opinion
of counsel that no recordation is required to obtain a first priority
perfected security interest in such Deposited Assets.
Unless otherwise stated in the Prospectus Supplement, the Company's
assignment of the Deposited Assets to the Trustee will be without recourse.
To the extent provided in the applicable
8
Prospectus Supplement, the obligations of an Administrative Agent so named
therein with respect to the Deposited Assets will consist primarily of its
contractual--administrative obligations, if any, under the Trust Agreement,
its obligation, if any, to make certain cash advances in the event of
delinquencies in payments on or with respect to any Deposited Assets in
amounts described under "Description of the Trust Agreement -- Advances in
Respect of Delinquencies," and its obligations, if any, to purchase
Deposited Assets as to which there has been a breach of certain
representations and warranties or as to which the documentation is
materially defective. The obligations of an Administrative Agent, if any,
named in the applicable Prospectus Supplement to make advances will be
limited to amounts which any such Administrative Agent believes ultimately
would be recoverable under any Credit Support, insurance coverage, the
proceeds of liquidation of the Deposited Assets or from other sources
available for such purposes. See "Description of the Trust Agreement --
Advances in Respect of Delinquencies."
Unless otherwise provided in the related Prospectus Supplement, each
Trust will consist of (i) such Deposited Assets, or interests therein,
exclusive of any interest in such assets (the "Retained Interest") retained
by the Company or any previous owner thereof, as from time to time are
specified in the Trust Agreement; (ii) such assets as from time to time are
identified as deposited in the related Certificate Account; (iii) property,
if any, acquired on behalf of Certificateholders by foreclosure or
repossession and any revenues received thereon; (iv) those elements of
Credit Support, if any, provided with respect to any Class within such
Series that are specified as being part of the related Trust in the
applicable Prospectus Supplement, as described therein and under
"Description of Deposited Assets and Credit Support -- Credit Support"; (v)
the rights of the Company under the agreement or agreements entered into by
the Trustee on behalf of the Certificateholders which constitute, or
pursuant to which the Trustee has acquired, such Deposited Assets; and (vi)
the rights of the Trustee in any cash advances, reserve fund or surety bond,
if any, as described under "Description of the Trust Agreement -- Advances
in Respect of Delinquencies"
In addition, to the extent provided in the applicable Prospectus
Supplement, the Company will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related
Underlying Securities and the terms, if any, upon which such Underlying
Securities may be subject to early redemption (either by the applicable
obligor or pursuant to a third-party call option), repayment (at the option
of the holders thereof) or extension of maturity. The provisions of the
Underlying Securities with respect to the foregoing will, unless otherwise
specified in the applicable Prospectus Supplement, affect the weighted
average life of the related Series of Certificates.
9
The effective yield to holders of the Certificates of any Series (and
Class within such Series) may be affected by certain aspects of the
Deposited Assets or any Credit Support or the manner and priorities of
allocations of collections with respect to such Deposited Assets between
the Classes of a given Series. With respect to any Series of Certificates
the Underlying Securities of which consist of one or more redeemable
securities, extendable securities or securities subject to a third-party
call option, the yield to maturity of such Series (or Class within such
Series) may be affected by any optional or mandatory redemption or
repayment or extension of the related Underlying Securities prior to the
stated maturity thereof. A variety of tax, accounting, economic, and other
factors will influence whether a corporate issuer exercises any right of
redemption in respect of its securities. All else remaining equal, if
prevailing interest rates fall significantly below the interest rates on
the related Underlying Securities, the likelihood of redemption would be
expected to increase. There can be no certainty as to whether any
Underlying Security redeemable at the option of the Underlying Security
Issuer will be repaid prior to its stated maturity.
Unless otherwise specified in the related Prospectus Supplement, each
of the Underlying Securities will be subject to acceleration upon the
occurrence of certain Underlying Security Events of Default (as defined
below). The maturity and yield on the Certificates will be affected by any
early repayment of the Underlying Securities as a result of the acceleration
of the Outstanding Debt Securities by the holders thereof. See "Description
of the Deposited Assets -- Underlying Securities Indenture." If a Underlying
Securities Issuer becomes subject to a bankruptcy proceeding, the timing and
amount of payments with respect to both interest and principal may be
materially and adversely affected. A variety of factors influence the
performance of private debt issuers and correspondingly may affect a
Underlying Securities Issuer's ability to satisfy its obligations under the
Underlying Securities, including the company's operating and financial
condition, leverage, and social, geographic, legal and economic factors.
The extent to which the yield to maturity of such Certificates may
vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to the rate and timing of payments on the
Deposited Assets.
The yield to maturity of any Series (or Class) of Certificates will
also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that
the Pass-Through Rate for such Series (or Class) is based on variable or
adjustable interest rates. With respect to any Series of Certificates
representing an interest in a pool of corporate debt securities,
disproportionate principal payments (whether resulting from differences in
amortization schedules, payments due on scheduled maturity or upon early
redemption) on the related Underlying Securities having interest rates
higher or lower than the then applicable Pass-Through Rates applicable to
such Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of Certificates will set
forth additional information regarding yield and maturity considerations
applicable to such Series (and each Class within such Series) and the
related Deposited Assets, including the applicable Underlying Securities.
10
DESCRIPTION OF CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Certificates will be issued pursuant to a Trust Agreement and a
separate series supplement thereto among the Company, the Administrative
Agent, if any, and the Trustee named in the related Prospectus Supplement, a
form of which Trust Agreement is attached as an exhibit to the Registration
Statement. The provisions of the Trust Agreement (as so supplemented) may
vary depending upon the nature of the Certificates to be issued thereunder
and the nature of the Deposited Assets, Credit Support and related Trust.
The following summaries describe certain provisions of the Trust Agreement
which may be applicable to each Series of Certificates. The applicable
Prospectus Supplement for a Series of Certificates will describe any
provision of the Trust Agreement that materially differs from the
description thereof contained in this Prospectus. The following summaries do
not purport to be complete and are subject to the detailed provisions of the
form of Trust Agreement to which reference is hereby made for a full
description of such provisions, including the definition of certain terms
used, and for other information regarding the Certificates. Article and
section references in parentheses below are to articles and sections in the
Trust Agreement. Wherever particular sections or defined terms of the Trust
Agreement are referred to, such sections or defined terms are incorporated
herein by reference as part of the statement made, and the statement is
qualified in its entirety by such reference. As used herein with respect to
any Series, the term "Certificate" refers to all the Certificates of that
Series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires.
A copy of the applicable series supplement to the Trust Agreement
relating to each Series of Certificates issued from time to time will be
filed by the Company as an exhibit to a Current Report on Form 8K to be
filed with the Commission following the issuance of such Series.
General
There is no limit on the amount of Certificates that may be issued
under the Trust Agreement, and the Trust Agreement will provide that
Certificates of the applicable Series may be issued in multiple Classes
(Section 5.01). The Series (or Classes within such Series) of Certificates
to be issued under the Trust Agreement will represent the entire beneficial
ownership interest in the Trust for such Series created pursuant to the
Trust Agreement and each such Class will be allocated certain relative
priorities to receive specified collections from, and a certain percentage
ownership interest of the assets deposited in, such Trust, all as
identified and described in the applicable Prospectus Supplement. See
"Description of Deposited Assets and Credit Support -- Collections."
Reference is made to the related Prospectus Supplement for a
description of the following terms of the Series (and if applicable,
Classes within such Series) of Certificates in respect of which this
Prospectus and such Prospectus Supplement are being delivered: (i) the
title of such Certificates; (ii) the Series of such Certificates and, if
applicable, the number and designation of Classes of such Series; (iii)
certain information concerning the type, characteristics and specifications
11
of the Deposited Assets being deposited into the related Trust by the
Company (and, with respect to any Underlying Security which at the time of
such deposit represents a significant portion of all such Deposited Assets
and any related Credit Support, certain information concerning the terms of
each such Underlying Security, the identity of the issuer thereof and where
publicly available information regarding such issuer may be obtained); (iv)
the limit, if any, upon the aggregate principal amount or notional amount,
as applicable, of each Class thereof; (v) the dates on which or periods
during which such Series or Classes within such Series may be issued (each,
an "Original Issue Date"), the offering price thereof and the applicable
Distribution Dates on which the principal, if any, of (and premium, if any,
on) such Series or Classes within such Series will be distributable; (vi) if
applicable, the relative rights and priorities of each such Class (including
the method for allocating collections from and defaults or losses on the
Deposited Assets to the Certificateholders of each such Class); (vii)
whether the Certificates of such Series or each Class within such Series are
Fixed Rate Certificates or Floating Rate Certificates (each as defined
below) and the applicable interest rate (the "Pass-Through Rate"), or the
terms relating to the particular method of calculation thereof applicable to
such Series or each Class within such Series, if variable (a "Variable
Pass-Through Rate"); the date or dates from which such interest will accrue;
the applicable Distribution Dates on which interest, principal and premium,
in each case as applicable, on such Series or Class will be distributable
and the related Record Dates, if any; (viii) the option, if any, of any
Certificateholder of such Series or Class to withdraw a portion of the
assets of the Trust in exchange for surrendering such Certificateholder's
Certificate or of the Company or Administrative Agent, if any, or another
third party to purchase or repurchase any Deposited Assets (in each case to
the extent not inconsistent with the Company's continued satisfaction of the
applicable requirements for exemption under Rule 3a-7 under the Investment
Company Act of 1940 and all applicable rules, regulations and
interpretations thereunder) and the periods within which or the dates on
which, and the terms and conditions upon which any such option may be
exercised, in whole or in part; (ix) the rating of each Series or each Class
within such Series offered hereby (provided, however, that one or more
Classes within such Series not offered hereunder may be unrated or may be
rated below investment grade); (x) if other than denominations of $1,000 and
any integral multiple thereof, the denominations in which such Series or
Class within such Series will be issuable; (xi) whether the Certificates of
any Class within a given Series are to be entitled to (1) principal
distributions, with disproportionate, nominal or no interest distributions,
or (2) interest distributions, with disproportionate, nominal or no
principal distributions ("Strip Certificates"), and the applicable terms
thereof; (xii) whether the Certificates of such Series or of any Class
within such Series are to be issued as Registered Certificates or Bearer
Certificates or both and, if Bearer Certificates are to be issued, whether
coupons ("Coupons") will be attached thereto; whether Bearer Certificates of
such Series or Class may be exchanged for Registered Certificates of such
Series or Class and the circumstances under which and the place or places at
which any such exchanges, if permitted, may be made; (xiii) whether the
Certificates of such Series or of any Class within such series are to be
issued in the form of one or more Global Securities and, if so, the identity
of the Depositary (as defined below), if other than The Depository Trust
Company, for such Global Security or Securities; (xiv) if a temporary
Certificate is to be issued with respect to such Series or any Class within
such Series, whether any interest thereon distributable on a Distribution
Date prior to the issuance of a definitive Certificate of such Series or
Class will be credited to the account of the Persons entitled thereto on
such Distribution Date; (xv) if a temporary Global Security is to be issued
12
with respect to such Series or Class, the terms upon which beneficial
interests in such temporary Global Security may be exchanged in whole or in
part for beneficial interests in a definitive Global Security or for
individual Definitive Certificates (as defined below) of such Series or
Class and the terms upon which beneficial interests in a definitive Global
Security, if any, may be exchanged for individual Definitive Certificates of
such Series or Class; (xvi) if other than U.S. dollars, the Specified
Currency applicable to the Certificates of such Series or Class for purposes
of denominations and distributions on such Series or each Class within such
Series and the circumstances and conditions, if any, when such Specified
Currency may be changed, at the election of the Company or a
Certificateholder, and the currency or currencies in which any principal of
or any premium or any interest on such Series or Class are to be distributed
pursuant to such election; (xvii) any additional Administrative Agent
Termination Events (as defined below), if applicable, provided for with
respect to such Class; (xviii) all applicable Required Percentages and
Voting Rights (each as defined below) relating to the manner and percentage
of votes of Certificateholders of such Series and each Class within such
Series required with respect to certain actions by the Company or the
applicable Administrative Agent, if any, or Trustee under the Trust
Agreement or with respect to the applicable Trust; and (xix) any other terms
of such Series or Class within such Series of Certificates not inconsistent
with the provisions of the Trust Agreement relating to such Series.
Unless otherwise indicated in the applicable Prospectus Supplement,
Certificates of each Series (including any Class of Certificates not
offered hereby) will be issued only as Registered Certificates in
denominations of $1,000 and any integral multiple thereof and will be
payable only in U.S. dollars (Section 5.01). The authorized denominations
of Registered Certificates of a given Series or Class within such Series
having a Specified Currency other than U.S. dollars will be set forth in
the applicable Prospectus Supplement.
The United States Federal income tax consequences and ERISA
consequences relating to any Series or any Class within such Series of
Certificates will be described in the applicable Prospectus Supplement. In
addition, any special considerations, the specific terms and other
information with respect to the issuance of any Series or Class within such
Series of Bearer Certificates or Certificates on which the principal of and
any premium and interest are distributable in a Specified Currency other
than U.S. dollars will be described in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the U.S.
dollar equivalent of the public offering price or purchase price of a
Certificate having a Specified Principal Currency other than U.S. dollars
will be determined on the basis of the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York (the "Market Exchange Rate") for such
Specified Principal Currency on the applicable issue date. As specified in
the applicable Prospectus Supplement, such determination will be made by the
Company, the Trustee, the Administrative Agent, if any, or an agent thereof
as exchange rate agent for each Series of Certificates (the "Exchange Rate
Agent").
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Certificates may be transferred or exchanged for like
Certificates of the same Series and Class at the corporate trust office or
agency of the applicable Trustee in the City and State of New York, subject
13
to the limitations provided in the Trust Agreement, without the payment of
any service charge, other than any tax or governmental charge payable in
connection therewith (Section 5.04). Bearer Certificates will be
transferable by delivery. Provisions with respect to the exchange of Bearer
Certificates will be described in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
Registered Certificates may not be exchanged for Bearer Certificates. The
Company may at any time purchase Certificates at any price in the open
market or otherwise. Certificates so purchased by the Company may, at the
discretion of the Company, be held or resold or surrendered to the Trustee
for cancellation of such Certificates.
Distributions
Distributions allocable to principal, premium (if any) and interest on
the Certificates of each Series (and Class within such Series) will be made
in the Specified Currency for such Certificates by or on behalf of the
Trustee on each Distribution Date as specified in the related Prospectus
Supplement and the amount of each distribution will be determined as of the
close of business on the date specified in the related Prospectus
Supplement (the "Determination Date"). If the Specified Currency for a
given Series or Class within such Series is other than U.S. dollars, the
Administrative Agent, if any, or otherwise the Trustee will (unless
otherwise specified in the applicable Prospectus Supplement) arrange to
convert all payments in respect of each Certificate of such Series or Class
to U.S. dollars in the manner described in the following paragraph. The
Certificateholder of a Registered Certificate of a given Series or Class
within such Series denominated in a Specified Currency other than U.S.
dollars may (if the applicable Prospectus Supplement and such Certificate
so indicate) elect to receive all distributions in respect of such
Certificate in the Specified Currency by delivery of a written notice to
the Trustee and Administrative Agent, if any, for such Series not later
than fifteen calendar days prior to the applicable Distribution Date,
except under the circumstances described under "Currency Risks -- Payment
Currency" below. Such election will remain in effect until revoked by
written notice to such Trustee and Administrative Agent, if any, received
by each of them not later than fifteen calendar days prior to the
applicable Distribution Date.
Unless otherwise specified in the applicable Prospectus Supplement, in
the case of a Registered Certificate of a given Series or Class within such
Series having a Specified Currency other than U.S. dollars, the amount of
any U.S dollar distribution in respect of such Registered Certificate will
be determined by the Exchange Rate Agent based on the highest firm bid
quotation expressed in U.S. dollars received by the Exchange Rate Agent at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Distribution Date (or, if no such rate is quoted
on such date, the last date on which such rate was quoted), from three (or,
if three are not available, then two) recognized foreign exchange dealers
in The City of New York (one of which may be the Offering Agent and another
of which may be the Exchange Rate Agent) selected by the Exchange Rate
Agent, for the purchase by the quoting dealer, for settlement on such
Distribution Date, of the aggregate amount payable in such Specified
Currency on such payment date in respect of all Registered Certificates.
All currency exchange costs will be borne by the Certificateholders of such
Registered Certificates by deductions from such distributions. If no such
bid quotations are available,
14
such distributions will be made in such Specified Currency, unless such
Specified Currency is unavailable due to the imposition of exchange controls
or to other circumstances beyond the Company's control, in which case such
distributions will be made as described under "Currency Risks -- Payment
Currency" below. The applicable Prospectus Supplement will specify such
information with respect to Bearer Certificates.
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect
to Certificates will be made (in the case of Registered Certificates) at
the corporate trust office or agency of the Trustee specified in the
applicable Prospectus Supplement in The City of New York or (in the case of
Bearer Certificates) at the principal London office of the applicable
Trustee; provided, however, that any such amounts distributable on the
final Distribution Date of a Certificate will be distributed only upon
surrender of such Certificate at the applicable location set forth above
(Sections 4.01 and 9.01). Except as otherwise provided in the applicable
Prospectus Supplement, no distribution on a Bearer Certificate will be made
by mail to an address in the United States or by wire transfer to an
account maintained by the Certificateholder thereof in the United States.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Certificates in U.S. dollars will be made,
except as provided below, by check mailed to the Registered
Certificateholders of such Certificates (which, in the case of Global
Securities, will be a nominee of the Depositary); provided, however, that,
in the case of a Series or Class of Registered Certificates issued between a
Record Date (as defined below) and the related Distribution Dates, interest
for the period beginning on the issue date for such Series or Class and
ending on the last day of the interest accrual period ending immediately
prior to or coincident with such Distribution Date will, unless otherwise
specified in the applicable Prospectus Supplement, be distributed on the
next succeeding Distribution Date to the Registered Certificateholders of
the Registered Certificates of such Series or Class on the related Record
Date. A Certificateholder of $10,000,000 (or the equivalent thereof in a
Specified Principal Currency other than U.S. dollars) or more in aggregate
principal amount of Registered Certificates of a given Series shall be
entitled to receive such U.S. dollar distributions by wire transfer of
immediately available funds, but only if appropriate wire transfer
instructions have been received in writing by the Trustee for such Series
not later than fifteen calendar days prior to the applicable Distribution
Date. Simultaneously with the election by any Certificateholder to receive
payments in a Specified Currency other than U.S. dollars (as provided
above), such Certificateholder shall provide appropriate wire transfer
instructions to the Trustee for such Series, and all such payments will be
made by wire transfer of immediately available funds to an account
maintained by the payee with a bank located outside the United States.
Except as otherwise specified in the applicable Prospectus Supplement,
"Business Day" with respect to any Certificate means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in (a) The City of
New York or (b) if the Specified Currency for such Certificate is other
than U.S. dollars, the financial center of the country issuing such
Specified Currency (which, in the case of ECU, shall be Brussels, Belgium)
and (ii) if the Pass-Through Rate for such Certificate is based on LIBOR, a
15
London Banking Day. "London Banking Day" with respect to any Certificate
means any day on which dealings in deposits in the Specified Currency of
such Certificate are transacted in the London interbank market. The Record
Date with respect to any Distribution Date for a Series or Class of
Registered Certificates shall be specified as such in the applicable
Prospectus Supplement.
Interest on the Certificates
General. Each Class of Certificates (other than certain Classes of
Strip Certificates) of a given Series may have a different Pass-Through
Rate, which may be a fixed or variable Pass-Through Rate, as described
below. In the case of Strip Certificates with no or, in certain cases, a
nominal Certificate Principal Balance, such distributions of interest will
be in an amount (as to any Distribution Date, "Stripped Interest") described
in the related Prospectus Supplement. For purposes hereof, "Notional Amount"
means the notional principal amount specified in the applicable Prospectus
Supplement on which interest on Strip Certificates with no or, in certain
cases, a nominal Certificate Principal Balance will be made on each
Distribution Date. Reference to the Notional Amount of a Class of Strip
Certificates herein or in a Prospectus Supplement does not indicate that
such Certificates represent the right to receive any distribution in respect
of principal in such amount, but rather the term "Notional Amount" is used
solely as a basis for calculating the amount of required distributions and
determining certain relative voting rights, all as specified in the related
Prospectus Supplement.
Fixed Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a fixed Pass-
Through Rate ("Fixed Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date, or from the last date to which
interest has been paid, at the fixed Pass-Through Rate stated on the face
thereof and in the applicable Prospectus Supplement until the principal
amount thereof is distributed or made available for repayment (or in the
case of Fixed Rate Certificates with no or a nominal principal amount,
until the Notional Amount thereof is reduced to zero), except that, if so
specified in the applicable Prospectus Supplement, the Pass-Through Rate
for such Series or any such Class or Classes may be subject to adjustment
from time to time in response to designated changes in the rating assigned
to such Certificates by one or more rating agencies, in accordance with a
schedule or otherwise, all as described in such Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement,
interest on each Series or Class of Fixed Rate Certificates will be
distributable in arrears on each Distribution Date specified in such
Prospectus Supplement. Each such distribution of interest shall include
interest accrued through the day specified in the applicable Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, interest on Fixed Rate Certificates will be computed on the
basis of a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a variable
Pass-Through Rate ("Floating Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date to the first Interest Reset Date
(as defined below) for such
16
Series or Class at the Initial Pass-Through Rate set forth on the face
thereof and in the applicable Prospectus Supplement. Thereafter, the
Pass-Through Rate on such Series or Class for each Interest Reset Period (as
defined below) will be determined by reference to an interest rate basis
(the "Base Rate"), plus or minus the Spread, if any, or multiplied by the
Spread Multiplier, if any. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to
such Series or Class, and the "Spread Multiplier" is the percentage that may
be specified in the applicable Prospectus Supplement as being applicable to
such Series or Class, except that if so specified in the applicable
Prospectus Supplement, the Spread or Spread Multiplier on such Series or any
such Class or Classes of Floating Rate Certificates may be subject to
adjustment from time to time in response to designated changes in the rating
assigned to such Certificates by one or more rating agencies, in accordance
with a schedule or otherwise, all as described in such Prospectus
Supplement. The applicable Prospectus Supplement, unless otherwise specified
therein, will designate one of the following Base Rates as applicable to a
Floating Rate Certificate: (i) LIBOR (a "LIBOR Certificate"), (ii) the
Commercial Paper Rate (a "Commercial Paper Rate Certificate"), (iii) the
Treasury Rate (a "Treasury Rate Certificate"), (iv) the Federal Funds Rate
(a "Federal Funds Rate Certificate"), (v) the CD Rate (a "CD Rate
Certificate") or (vi) such other Base Rate (which may be based on, among
other things, one or more market indices or the interest and/or other
payments (whether scheduled or otherwise) paid, accrued or available with
respect to a designated asset, pool of assets or type of asset) as is set
forth in such Prospectus Supplement and in such Certificate. The "Index
Maturity" for any Series or Class of Floating Rate Certificates is the
period of maturity of the instrument or obligation from which the Base Rate
is calculated. "H.15(519)" means the publication entitled "Statistical
Release H.15(519), Selected Interest Rates," or any successor publications,
published by the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 p.m. Quotations for U.S. Government Securities" published by
the Federal Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest
may accrue during any interest accrual period specified in the applicable
Prospectus Supplement ("Maximum Pass-Through Rate") and (ii) a minimum
limitation, or floor, on the rate at which interest may accrue during any
such interest accrual period ("Minimum Pass-Through Rate"). In addition to
any Maximum Pass-Through Rate that may be applicable to any Series or Class
of Floating Rate Certificates, the Pass-Through Rate applicable to any
Series or Class of Floating Rate Certificates will in no event be higher
than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application. The Floating Rate
Certificates will be governed by the law of the State of New York and,
under such law as of the date of this Prospectus, the maximum rate of
interest, with certain exceptions, is 25% per annum on a simple interest
basis.
17
The Company will appoint, and enter into agreements with, agents (each
a "Calculation Agent") to calculate Pass-Through Rates on each Series or
Class of Floating Rate Certificates. The applicable Prospectus Supplement
will set forth the identity of the Calculation Agent for each Series or
Class of Floating Rate Certificates. All determinations of interest by the
Calculation Agent shall, in the absence of manifest error, be conclusive
for all purposes and binding on the holders of Floating Rate Certificates
of a given Series or Class.
The Pass-Through Rate on each Class of Floating Rate Certificates will
be reset daily, weekly, monthly, quarterly, semiannually or annually (such
period being the "Interest Reset Period" for such Class, and the first day
of each Interest Reset Period being an "Interest Reset Date"), as specified
in the applicable Prospectus Supplement. Interest Reset Dates with respect
to each Series, and any Class within such Series of Floating Rate
Certificates, will be specified in the applicable Prospectus Supplement;
provided, however, that unless otherwise specified in such Prospectus
Supplement, the Pass-Through Rate in effect for the ten days immediately
prior to the Scheduled Final Distribution Date will be that in effect on the
tenth day preceding such Scheduled Final Distribution Date. If an Interest
Reset Date for any Class of Floating Rate Certificates would otherwise be a
day that is not a Business Day, such Interest Reset Date will occur on a
prior or succeeding Business Day, specified in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Certificates shall be the
accrued interest from and including the Original Issue Date of such Series
or Class or the last Interest Reset Date to which interest has accrued and
been distributed, as the case may be, to but excluding the immediately
following Distribution Date.
With respect to a Floating Rate Certificate, accrued interest shall be
calculated by multiplying the Certificate Principal Balance of such
Certificate (or, in the case of a Strip Certificate with no or a nominal
Certificate Principal Balance, the Notional Amount specified in the
applicable Prospectus Supplement) by an accrued interest factor. Such
accrued interest factor will be computed by adding the interest factors
calculated for each day in the period for which accrued interest is being
calculated. Unless otherwise specified in the applicable Prospectus
Supplement, the interest factor (expressed as a decimal calculated to seven
decimal places without rounding) for each such day is computed by dividing
the Pass-Through Rate in effect on such day by 360, in the case of LIBOR
Certificates, Commercial Paper Rate Certificates, Federal Funds Rate
Certificates and CD Rate Certificates or by the actual number of days in
the year, in the case of Treasury Rate Certificates. For purposes of making
the foregoing calculation, the variable Pass-Through Rate in effect on any
Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement,
all percentages resulting from any calculation of the Pass-Through Rate on
a Floating Rate Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
18
Interest on any Series (or Class within such Series) of Floating Rate
Certificates will be distributable on the Distribution Dates and for the
interest accrual periods as and to the extent set forth in the applicable
Prospectus Supplement.
Upon the request of the holder of any Floating Rate Certificate of a
given Series or Class, the Calculation Agent for such Series or Class will
provide the Pass-Through Rate then in effect and, if determined, the Pass-
Through Rate that will become effective on the next Interest Reset Date
with respect to such Floating Rate Certificate.
(1) CD Rate Certificates. Each CD Rate Certificate will bear interest
for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any,
specified in such Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "CD Rate" for each Interest Reset Period shall be the rate as of the
second Business Day prior to the Interest Reset Date for such Interest
Reset Period (a "CD Rate Determination Date") for negotiable certificates
of deposit having the Index Maturity designated in the applicable
Prospectus Supplement as published in H.15(519) under the heading "CDs
(Secondary Market)." In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such CD Rate Determination Date, then the "CD Rate" for such
Interest Reset Period will be the rate on such CD Rate Determination Date
for negotiable certificates of deposit of the Index Maturity designated in
the applicable Prospectus Supplement as published in Composite Quotations
under the heading "Certificates of Deposit." If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "CD Rate" for such Interest
Reset Period will be calculated by the Calculation Agent for such CD Rate
Certificate and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination
Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Certificate for negotiable certificates of deposit
of major United States money center banks of the highest credit standing
(in the market for negotiable certificates of deposit) with a remaining
maturity closest to the Index Maturity designated in the related Prospectus
Supplement in a denomination of $5,000,000; provided, however, that if the
dealers selected as aforesaid by such Calculation Agent are not quoting
offered rates as mentioned in this sentence, the "CD Rate" for such
Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Pass-Through Rate).
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD
Rate Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (b) the second Business Day preceding the date
any distribution of interest is required to be made following the
applicable Interest Reset Date.
19
(2) Commercial Paper Rate Certificates. Each Commercial Paper Rate
Certificate will bear interest for each Interest Reset Period at the
Pass-Through Rate calculated with reference to the Commercial Paper Rate
and the Spread or Spread Multiplier, if any, specified in such Certificate
and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate
Certificate as of the second Business Day prior to the Interest Reset Date
for such Interest Reset Period (a "Commercial Paper Rate Determination
Date") and shall be the Money Market Yield (as defined below) on such
Commercial Paper Rate Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
"Commercial Paper." In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate
for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published
in either H.15(519) or Composite Quotations, then the "Commercial Paper
Rate" for such Interest Reset Period shall be the Money Market Yield of the
arithmetic mean of the offered rates, as of 11:00 a.m., New York time, on
such Commercial Paper Rate Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent
for such Commercial Paper Rate Certificate for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are
rated "AA" or the equivalent by a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting offered rates as mentioned in this
sentence, the "Commercial Paper Rate" for such Interest Reset Period will
be the same as the Commercial Paper Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate).
"Money Market Yield" shall be a yield calculated in accordance with
the following formula:
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M" refers
to the actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar
day after such Commercial Paper Rate Determination Date or, if such day is
not a Business Day, the next succeeding Business Day or (b)
20
the second Business Day preceding the date any distribution of interest is
required to be made following the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate
Certificate will bear interest for each Interest Reset Period at the Pass-
Through Rate calculated with reference to the Federal Funds Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospect Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective
rate on the Interest Reset Date for such Interest Reset Period (a "Federal
Funds Rate Determination Date") for Federal Funds as published in H.15(519)
under the heading "Federal Funds (Effective)." In the event that such rate
is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period shall be the
rate on such Federal Funds Rate Determination Date as published in
Composite Quotation under the heading "Federal Funds/Effective Rate." If by
3:00 p.m., New York City time, on such Calculation Date such rate is not
yet published in either H.15(519) or Composite Quotations, then the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on
such Federal Funds Rate Determination Date made publicly available by the
Federal Reserve Bank of New York which is equivalent to the rate which
appears in H.15(519) under the heading "Federal Funds (Effective)";
provided, however, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York City time, on such
Calculation Date, the "Federal Funds Rate" for such Interest Reset Period
will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Pass-Through Rate). Unless otherwise specified in the
applicable Prospectus Supplement, in the case of a Federal Funds Rate
Certificate that resets daily, the Pass-Through Rate on such Certificate
for the period from and including a Monday to but excluding the succeeding
Monday will be reset by the Calculation Agent for such Certificate on such
second Monday (or, if not a Business Day, on the next succeeding Business
Day) to a rate equal to the average of the Federal Funds Rate in effect
with respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding Business Day.
(4) LIBOR Certificates. Each LIBOR Certificate will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any, specified in
such Certificate and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rate for U.S. dollar
deposits, unless otherwise specified in the applicable Prospectus
Supplement, "LIBOR" for each Interest Reset Period will be determined by
the Calculation Agent for any LIBOR Certificate as follows:
21
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Certificate will determine the
arithmetic mean of the offered rates for deposits in U.S. dollars for
the period of the Index Maturity specified in the applicable Prospectus
Supplement, commencing on such Interest Reset Date, which appear on the
Reuters Screen LIBO Page at approximately 11:00 a.m., London time, on
such LIBOR Determination Date. "Reuters Screen LIBO Page" means the
display designated as page "LIBOR" on the Reuters Monitor Money Rates
Service (or such other page may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks). If at least two such offered rates appear on the Reuters Screen
LIBO Page, "LIBOR" for such Interest Reset Period will be the arithmetic
mean of such offered rates as determined by the Calculation Agent for
such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Certificate will request the principal London offices of each
of four major banks in the London interbank market selected by such
Calculation Agent to provide such Calculation Agent with its offered
quotations for deposits in U.S. dollars for the period of the specified
Index Maturity, commencing on such Interest Reset Date, to prime banks
in the London interbank market at approximately 11:00 a.m., London time,
on such LIBOR Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that is representative of a single
transaction in such market at such time. If at least two such quotations
are provided, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of such quotations. If fewer than two such quotations
are provided, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of rates quoted by three major banks in The City of New
York selected by the Calculation Agent for such LIBOR Certificate at
approximately 11:00 a.m., New York City time, on such LIBOR
Determination Date for loans in U.S. dollars to leading European banks,
for the period of the specified Index Maturity, commencing on such
Interest Reset Date, and in a principal amount equal to an amount of not
less than $1,000,000 that is representative of a single transaction in
such market at such time; provided, however, that if fewer than three
banks selected as aforesaid by such Calculation Agent are quoting rates
as mentioned in this sentence, "LIBOR" for such Interest Reset Period
will be the same as LIBOR for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the Initial
Pass-Through Rate).
If LIBOR with respect to any LIBOR Certificate is indexed to the
offered rates for deposits in a currency other than U.S. dollars, the
applicable Prospectus Supplement will set forth the method for determining
such rate.
(5) Treasury Rate Certificates. Each Treasury Rate Certificate will
bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in such Certificate and in the applicable
Prospectus Supplement.
22
Unless otherwise specified in the applicable Prospectus Supplement,
the "Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under
the heading "U.S. Government Certificate-Treasury bills auction average
(investment)" or, in the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Treasury Rate Determination Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) on such Treasury Rate
Determination Date as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury
bills having the specified Index Maturity are not published or reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date,
or if no such auction is held on such Treasury Rate Determination Date,
then the "Treasury Rate" for such Interest Reset Period shall be calculated
by the Calculation Agent for such Treasury Rate Certificate and shall be a
yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of
three leading primary United States government securities dealers selected
by such Calculation Agent for the issue of Treasury bills with a remaining
maturity closest to the specified Index Maturity; provided, however, that
if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate"
for such Interest Reset Period will be the same as the Treasury Rate for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Pass-Through Rate.)
The "Treasury Rate Determination Date" for such Interest Reset Period
will be the day of the week in which the Interest Reset Date for such
Interest Reset Period falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be held
on the preceding Friday. If, as the result of a legal holiday, an auction is
so held on the preceding Friday, such Friday will be the Treasury Rate
Determination Date pertaining to the Interest Reset Period commencing in the
next succeeding week. Unless otherwise specified in the applicable
Prospectus Supplement, if an auction date shall fall on any day that would
otherwise be an Interest Reset Date for a Treasury Rate Certificate, then
such Interest Reset Date shall instead be the Business Day immediately
following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a Business Day,
the next succeeding Business Day or (b) the second Business Day preceding
the date any distribution of interest is required to be made following the
applicable Interest Reset Date.
23
Principal of the Certificates
Unless the related Prospectus Supplement provides otherwise, each
Certificate (other than certain Classes of Strip Certificates) will have a
"Certificate Principal Balance" which, at any time, will equal the maximum
amount that the holder thereof will be entitled to receive in respect of
principal out of the future cash flow on the Deposited Assets and other
assets included in the related Trust. Unless otherwise specified in the
related Prospectus Supplement, distributions generally will be applied to
undistributed accrued interest on, then to principal of, and then to
premium (if any) on, each such Certificate of the Class or Classes entitled
thereto (in the manner and priority specified in such Prospectus
Supplement) until the aggregate Certificate Principal Balance of such Class
or Classes has been reduced to zero. The outstanding Certificate Principal
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon, and, if applicable pursuant to the terms of the related
Series, by the amount of any net losses realized on any Deposited Asset
("Realized Losses") allocated thereto. Unless the related Prospectus
Supplement provides otherwise, the initial aggregate Certificate Principal
Balance of all Classes of Certificates of a Series will equal the
outstanding aggregate principal balance of the related Deposited Assets as
of the applicable Cut-off Date. The initial aggregate Certificate Principal
Balance of a Series and each Class thereof will be specified in the related
Prospectus Supplement. Distributions of principal of any Class of
Certificates will be made on a pro rata basis among all the Certificates of
such Class. Strip Certificates with no Certificate Principal Balance will
not receive distributions of principal.
Foreign Currency Certificates
If the specified currency of any Certificate is not U.S. dollars (a
"Foreign Currency Certificate"), certain provisions with respect thereto
will be set forth in the related Prospectus Supplement which will specify
the denominations, the currency or currencies in which the principal and
interest with respect to such Certificate are to be paid and any other
terms and conditions relating to the non-U.S. dollar denominations or
otherwise applicable to the Certificates.
Indexed Certificates
From time to time, the Issuer may offer a Series of Certificates
("Indexed Certificates"), the principal amount payable at the stated
maturity date of which (the "Indexed Principal Amount") and/or interest with
respect to which is determined by reference to (i) the rate of exchange
between the specified currency for such Certificate and the other currency
or composite currency (the "Indexed Currency") specified therein; (ii) the
difference in the price of a specified commodity (the "Indexed Commodity")
on specified dates; (iii) the difference in the level of a specified stock
index (the "Stock Index"), which may be based on U.S. or foreign stocks, on
specified dates; or (iv) such other objective price or economic measure as
are described in the related Prospectus Supplement. The manner of
determining the Indexed Principal Amount of an Indexed Certificate, and
historical and other information concerning the Indexed Currency, Indexed
Commodity, Stock Index or other price or economic measure used in such
determination, will be set
24
forth in the related Prospectus Supplement, together with any information
concerning tax consequences to the Holders of such Indexed Certificates.
Except as otherwise specified in the related Prospectus Supplement,
interest on an Indexed Certificate will be payable based on the amount
designated in the related Prospectus Supplement as the "Face Amount" of
such Indexed Certificate. The related Prospectus Supplement will describe
whether the principal amount of the related Indexed Certificate that would
be payable upon redemption or repayment prior to the stated maturity date
will be the Face Amount of such Indexed Certificate, the Indexed Principal
Amount of such Indexed Certificate at the time of redemption or repayment,
or another amount described in such Prospectus Supplement.
Dual Currency Certificates
Certificates may be issued as dual currency certificates ("Dual
Currency Certificates"), in which case payments of principal and/or
interest in respect of Dual Currency Certificates will be made in such
currencies, and rates of exchange will be calculated upon such bases, as
indicated in the Certificates and described in the related Prospectus
Supplement. Other material terms and conditions relating to Dual Currency
Certificates will be set forth in the Certificates and the related
Prospectus Supplement.
Optional Exchange
If a holder may exchange Certificates of any given Series for a pro
rata portion of the Deposited Assets, the applicable Prospectus Supplement
will designate such Series as an "Exchangeable Series." The terms upon
which a holder may exchange Certificates of any Exchangeable Series for a
pro rata portion of the Deposited Assets of the related Trust will be
specified in the related Prospectus Supplement; provided that any right of
exchange shall be exercisable only to the extent that such exchange would
not be inconsistent with the Company's and such Trust's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7
under the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder. Such terms may relate to, but
are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for
exchange;
(c) a requirement that the Certificate Principal Balance or
Notional Amount, as applicable, of each Certificate tendered for
exchange be an integral multiple of an amount specified in the
Prospectus Supplement;
25
(d) specified dates during which a holder may effect such an
exchange (each, an "Optional Exchange Date");
(e) limitation on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-Underlying
Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in
order for a Certificate of a given Exchangeable Series (or Class within
such Exchangeable Series) to be exchanged by the applicable
Certificateholder, the trustee for such Certificate must receive, at least
30 (or such shorter period acceptable to the Trustee) but not more than 45
days prior to an Optional Exchange Date (i) such Certificate with the form
entitled "Option to Elect Exchange" on the reverse thereof duly completed,
or (ii) in the case of Registered Certificates, a telegram, telex,
facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc., the
Depositary (in accordance with its normal procedures) or a commercial bank
or trust company in the United States setting forth the name of the holder
of such Registered Certificate, the Certificate Principal Balance or
Notional Amount of such Registered Certificate to be exchanged, the
certificate number or a description of the tenor and terms of such
Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to
be exchanged with the form entitled "Option to Elect Exchange" on the
reverse of the Registered Certificate duly completed will be received by
such Trustee not later than five Business Days after the date of such
telegram, telex, facsimile transmission or letter. If the procedure
described in clause (ii) of the preceding sentence is followed, then such
Registered Certificate and form duly completed must be received by such
Trustee by such fifth Business Day. Any tender of a Certificate by the
holder for exchange shall be irrevocable. The exchange option may be
exercised by the holder of a Certificate for less than the entire
Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized
denomination and all other exchange requirements set forth in the related
Prospectus Supplement are satisfied. Upon such partial exchange, such
Certificate shall be cancelled and a new Certificate or Certificates for
the remaining Certificate Principal Balance thereof shall be
issued (which, in the case of any Registered Certificate, shall be in
the name of the holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement,
because initially and until Definitive Certificates are issued each
Certificate will be represented by a Global Security, the Depositary's
nominee will be the Certificateholder of such Certificate and therefore
will be the only entity that can exercise a right of exchange. In order to
ensure that the Depositary's nominee will timely exercise a right of
exchange with respect to a particular Certificate, the beneficial owner of
such Certificate must instruct the broker or other direct or indirect
participant through which it
26
holds an interest in such Certificate to notify the Depositary of its desire
to exercise a right of exchange. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other direct or indirect
participant through which it holds an interest in a Certificate in order to
ascertain the cut-off time by which such an instruction must be given in
order for timely notice to be delivered to the Depositary.
Unless otherwise provided in the applicable Prospectus Supplement,
upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related Deposited Assets, as described in
such Prospectus Supplement, the applicable Certificateholder will be
entitled to receive a distribution of a pro rata share of the Deposited
Assets related to the Exchangeable Series (and Class within such
Exchangeable Series) of the Certificate being exchanged, in the manner and
to the extent described to such Prospectus Supplement. Alternatively, to
the extent so specified in the applicable Prospectus Supplement, the
applicable Certificateholder, upon satisfaction of such conditions, may
direct the related Trustee to sell, on behalf of such Certificateholder,
such pro rata share of the Deposited Assets, in which event the
Certificateholder shall be entitled to receive the net proceeds of such
sale, less any costs and expenses incurred by such Trustee in facilitating
such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
27
Global Securities
Unless otherwise specified in the applicable Prospectus Supplement,
all Certificates of a given Series (or, if more than one Class exists, any
given Class within that Series) will, upon issuance, be represented by one
or more Global Securities that will be deposited with, or on behalf of, The
Depository Trust Company, New York (for Registered Certificates denominated
and payable in U.S. dollars), or such other depositary identified in the
related Prospectus Supplement (the "Depositary"), and registered in the
name of a nominee of the Depositary. Global Securities may be issued in
either registered or bearer form and in either temporary or definitive
form. See "Limitations on Issuance of Bearer Certificates" for provisions
applicable to Certificates issued in bearer form. Unless and until it is
exchanged in whole or in part for the individual Certificates represented
thereby (each a "Definitive Certificate"), a Global Security may not be
transferred except as a whole by the Depositary for such Global Security to
a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor (Sections 5.02 and 5.04).
The Depository Trust Company has advised the Company as follows: The
Depository Trust Company is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary Trust Company
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among the institutions
that have accounts with such Depositary ("participants") in such securities
through electronic book-entry changes in accounts of the participants,
thereby eliminating the need for physical movement of securities
certificates. Such Depositary's participants include securities brokers and
dealers (including the Offering Agent), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own such Depositary. Access to such Depositary's
book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The
Depository Trust Company has confirmed to the Company that it intends to
follow such procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Certificates represented
by such Global Security to the accounts of its participants. The accounts to
be accredited shall be designated by the underwriters of such Certificates,
or, if such Certificates are offered and sold directly through one or more
agents, by the Company or such agent or agents. Ownership of beneficial
interests in a Global Security will be limited to participants or Persons
that may hold beneficial interests through participants. Ownership of
beneficial interests in a Global Security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
Depositary for such Global Security or by participants or Persons that hold
through participants. The laws of some states require that certain
purchasers of securities take
28
physical delivery of such securities. Such limits and such laws may limit
the market for beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is
the owner of such Global Security, such Depositary or such nominee, as the
case may be, will be considered the sole Certificateholder of the
individual Certificates represented by such Global Security for all
purposes under the Trust Agreement governing such Certificates. Except as
set forth below, owners of beneficial interests in a Global Security will
not be entitled to have any of the individual Certificates represented by
such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of any such Certificates and will not
be considered the Certificateholder thereof under the Trust Agreement
governing such Certificates. Because the Depositary can only act on behalf
of its participants, the ability of a holder of any Certificate to pledge
that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate,
may be limited due to the lack of a physical certificate for such
Certificate.
Subject to the restrictions discussed under "Limitations on Issuance
of Bearer Certificates" below, distributions of principal of (and premium,
if any) and any interest on individual Certificates represented by a Global
Security will be made to the Depositary or its nominee, as the case may be,
as the Certificateholder of such Global Security. None of the Company, the
Administrative Agent, if any, the Trustee for such Certificates, any Paying
Agent or the Certificate Registrar for such Certificates will have
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in such Global Security or
for maintaining, supervising or reviewing any records relating to such
beneficial interests.
The Company expects that the Depositary for Certificates of a given
Class and Series, upon receipt of any distribution of principal, premium or
interest in respect of a definitive Global Security representing any of such
Certificates, will credit immediately participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records of such
Depositary. The Company also expects that payments by participants to owners
of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments of principal, premium
or interest in respect thereof will be subject to the restrictions discussed
below under "Limitations on Issuance of Bearer Certificates" below.
If the Depositary for Certificates of a given Class of any Series is
at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within ninety days, the Company
will issue individual Definitive Certificates in exchange for the Global
Security or Securities representing such Certificates. In addition, the
Company may at any time and in its sole discretion determine not to have
any Certificates of a given Class represented by one or more Global
Securities and, in such event, will issue Definitive Certificates of such
Class
29
in exchange for the Global Security or Securities representing such
Certificates. Further, if the Company so specifies with respect to the
Certificates of a given Class, an owner of a beneficial interest in a
Global Security representing Certificates of such Class may, on terms
acceptable to the Company and the Depositary for such Global Security,
receive individual Definitive Certificates in exchange for such beneficial
interest. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery of individual
Definitive Certificates of the Class represented by such Global Security
equal in principal amount to such beneficial interest and to have such
Definitive Certificates registered in its name (if the Certificates of such
Class are issuable as Registered Certificates). Individual Definitive
Certificates of such Class so issued will be issued (a) as Registered
Certificates in denominations, unless otherwise specified by the Company,
of $1,000 and integral multiples thereof if the Certificates of such Class
are issuable as Registered Certificates, (b) as Bearer Certificates in the
denomination or denominations specified by the Company if the Certificates
of such Class are issuable as Bearer Certificates or (c) as either
Registered or Bearer Certificates, if the Certificates of such Class are
issuable in either form (Section 5.03). See, however, "Limitations on
Issuance of Bearer Certificates" below for a description of certain
restrictions on the issuance of individual Bearer Certificates in exchange
for beneficial interests in a Global Security.
The applicable Prospectus Supplement will set forth any specific terms
of the depositary arrangement with respect to any Class or Series of
Certificates being offered thereby to the extent not set forth or different
from the description set forth above.
30
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
General
Each Certificate of each Series (or if more than one Class exists,
each Class (whether or not each such Class is offered hereby) within such
Series) will represent an ownership interest specified for such Series (or
Class) of Certificates in a designated, publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
purchased by the Company (or an affiliate thereof) in the secondary market
and assigned to a Trust as described in the applicable Prospectus
Supplement. The Underlying Securities will represent direct obligations of
one or more corporations, banking organizations or insurance companies
organized under the laws of the United States or any state, which are
subject to the informational requirements of the Exchange Act and which, in
accordance therewith, file reports and other information with the
Commission (with respect to each Underlying Security, a "Underlying
Securities Issuer").
This Prospectus relates only to the Certificates offered hereby and
does not relate to the Underlying Securities. The following description of
the Underlying Securities is intended only to summarize certain
characteristics of the Underlying Securities the Company is permitted to
deposit in a Trust and does not purport to be a complete description of any
Underlying Security Prospectus and Underlying Security Indenture (as
defined below).
Underlying Securities Indenture
General. Unless otherwise specified in the related Prospectus
Supplement each Underlying Security will have been issued pursuant to an
agreement (each, a "Underlying Securities Indenture") between the
Underlying Securities Issuer and a trustee (the "Underlying Securities
Trustee"). Unless otherwise specified, the Underlying Securities Indenture
and the Underlying Securities Trustee will be qualified under the Trust
Indenture Act of 1939 (the "Trust Indenture Act") and the Underlying
Securities Indenture will contain certain provisions required by the Trust
Indenture Act.
Certain Covenants. Indentures generally contain covenants intended to
protect security holders against the occurrence or effects of certain
specified events, including restrictions limiting the issuer's, and in some
cases any subsidiary's, ability to: (i) consolidate, merge, or transfer or
lease assets; (ii) incur or suffer to exist any lien, charge, or encumbrance
upon any of its property or assets, or to incur, assume, guarantee or suffer
to exist any indebtedness for borrowed money if the payment of such
indebtedness is secured by the grant of such a lien; (iii) declare or pay
any cash dividends, or make any distributions on or in respect of, or
purchase, redeem, exchange or otherwise acquire or retire for value any
capital stock or subordinated indebtedness of the issuer or its
subsidiaries, if any. An indenture may also contain financial covenants
which, among other things, require the maintenance of certain financial
ratios or the creation or maintenance of reserves. Subject to certain
exceptions, indentures typically may be amended or supplemented and past
defaults may be
31
waived with the consent of the indenture trustee, the consent of the holders
of not less than a specified percentage of the outstanding securities, or
both.
The Underlying Securities Indenture related to one or more Underlying
Securities included in a Trust may include some, all or none of the
foregoing provisions or variations thereof or additional covenants not
discussed herein. To the extent that the Underlying Securities are
investment grade debt they are unlikely to contain significant restrictive
covenants although certain non-investment grade debt may not be subject to
restrictive covenants either. There can be no assurance that any such
provision will protect the Trust as a holder of the Underlying Securities
against losses. The Prospectus Supplement used to offer any Series of
Certificates will describe material covenants in relation to any
Concentrated Underlying Security and, as applicable, will describe material
covenants which are common to any pool of Underlying Securities.
Events of Default. Indentures generally provide that any one of a
number of specified events will constitute an event of default with respect
to the securities issued thereunder. Such events of default typically
include the following or variations thereof: (i) failure by the issuer to
pay an installment of interest or principal on the securities at the time
required (subject to any specified grace period) or to redeem any of the
securities when required (subject to any specified grace period); (ii)
failure by the issuer to observe or perform any covenant, agreement or
condition contained in the securities or the indenture which failure is
materially adverse to security holders and continues for a specified period
after notice thereof is given to the issuer by the indenture trustee or the
holders of not less than a specified percentage of the outstanding
securities; (iii) failure by the issuer to make any required payment of
principal (and premium, if any) or interest with respect to certain of the
other outstanding debt obligations of the issuer or the acceleration by or
on behalf of the holders thereof of such securities; and (iv) certain
events of insolvency or bankruptcy with respect to the Underlying
Securities Issuer.
Remedies. Indentures generally provide that upon the occurrence of an
event of default, the indenture trustee may, and upon the written request of
the holders of not less than a specified percentage of the outstanding
securities must, take such action as it may deem appropriate to protect and
enforce the rights of the security holders. Certain indentures provide that
the indenture trustee or a specified percentage of the holders of the
outstanding securities have the right to declare all or a portion of the
principal and accrued interest on the outstanding securities immediately due
and payable upon the occurrence of certain events of default, subject to the
issuer's right to cure, if applicable. Generally, an indenture will contain
a provision entitling the trustee thereunder to be indemnified by the
security holders prior to proceeding to exercise any right or power under
such indenture with respect to such securities at the request of such
security holders. An indenture is also likely to limit a security holder's
right to institute certain actions or proceedings to pursue any remedy under
the indenture unless certain conditions are satisfied, including consent of
the indenture trustee, that the proceeding be brought for the ratable
benefit of all holders of the security, and/or the indenture trustee, after
being requested to institute a proceeding by the owners of at least a
specified minimum percentage of the securities, shall have refused or
neglected to comply with such request within a reasonable time.
32
Each Underlying Securities Indenture may include some, all or none of
the foregoing provisions or variations thereof or additional events of
default not discussed herein. The Prospectus Supplement with respect to any
Series of Certificates will describe the events of default under the
Underlying Securities Indenture with respect to any Concentrated Underlying
Security ("Underlying Security Events of Default") and applicable remedies
with respect thereto. With respect to any Trust comprised of a pool of
securities, the applicable Prospectus Supplement will describe certain
common Underlying Security Events of Default with respect to such pool.
There can be no assurance that any such provision will protect the Trust,
as a holder of the Underlying Securities, against losses. If a Underlying
Security Event of Default occurs and the Trustee as a holder of the
Underlying Securities is entitled to vote or take such other action to
declare the principal amount of a Underlying Security and any accrued and
unpaid interest thereon to be due and payable, the Certificateholders'
objectives may differ from those of holders of other securities of the same
series and class as any Underlying Security ("Outstanding Debt Securities")
in determining whether to declare the acceleration of the Underlying
Securities.
Subordination. As set forth in the applicable Prospectus Supplement,
certain of the Underlying Securities with respect to any Trust may be either
senior ("Senior Underlying Securities") or subordinated ("Subordinated
Underlying Securities") in right to payment to other existing or future
indebtedness of the Underlying Securities Issuer. With respect to
Subordinated Underlying Securities, to the extent of the subordination
provisions of such securities, and after the occurrence of certain events,
security holders and direct creditors whose claims are senior to
Subordinated Underlying Securities, if any, may be entitled to receive
payment of the full amount due thereon before the holders of any
subordinated debt securities are entitled to receive payment on account of
the principal (and premium, if any) or any interest on such securities.
Consequently, the Trust as a holder of subordinated debt may suffer a
greater loss than if it held unsubordinated debt of the Underlying
Securities Issuer. There can be no assurance, however, that in the event of
a bankruptcy or similar proceeding the Trust as a holder of Senior
Underlying Securities would receive all payments in respect of such
securities even if holders of subordinated securities receive amounts in
respect of such securities. Reference is made to the Prospectus Supplement
used to offer any Series of Certificates for a description of any
subordination provisions with respect to any Concentrated Underlying
Securities and the percentage of Senior Underlying Securities and
Subordinated Underlying Securities, if any, in a Trust comprised of a pool
of securities.
Secured Obligations. Certain of the Underlying Securities with respect
to any Trust may represent secured obligations of the Underlying Securities
Issuer ("Secured Underlying Securities"). Generally, unless an event of
default shall have occurred, or with respect to certain collateral or as
otherwise set forth in the indenture pursuant to which such securities were
offered and sold, an issuer of secured obligations generally has the right
to remain in possession and retain exclusive control of the collateral
securing a security and to collect, invest and dispose of any income
related to the collateral. The indenture pursuant to which any secured
indebtedness is issued may also contain certain provisions for release,
substitution or disposition of collateral under certain circumstances with
or without the consent of the indenture trustee or upon the direction of
not less than a specified percentage of the security holders. The indenture
pursuant to which any secured
33
indebtedness is issued will also provide for the disposition of the
collateral upon the occurrence of certain events of default with respect
thereto. In the event of a default in respect of any secured obligation,
security holders may experience a delay in payments on account of principal
(and premium, if any) or any interest on such securities pending the sale of
any collateral and prior to or during such period the related collateral may
decline in value. If proceeds of the sale of collateral following an
indenture event of default are insufficient to repay all amounts due in
respect of any secured obligations, the holders of such securities (to the
extent not repaid from the proceeds of the sale of the collateral) would
have only an unsecured claim ranking pari passu with the claims of all other
general unsecured creditors.
The Underlying Securities Indenture with respect to any Secured
Underlying Security may include, some, all or none of the foregoing
provisions or variations thereof. The Prospectus Supplement used to offer
any Series of Certificates which includes Concentrated Underlying
Securities which are Secured Underlying Securities, will describe the
security provisions of such Underlying Securities and the related
collateral. With respect to any Trust comprised of a pool of securities, a
substantial portion of which are Secured Underlying Securities, the
applicable Prospectus Supplement will disclose certain general information
with respect to such security provisions and the collateral.
Principal Economic Terms of Underlying Securities
Reference is made to the applicable Prospectus Supplement with respect
to each Series of Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and
series of such Underlying Securities, the aggregate principal amount,
denomination and form thereof; (ii) whether such securities are senior or
subordinated to any other obligations of the Underlying Securities Issuer;
(iii) whether any of the obligations are secured or unsecured and the nature
of any collateral; (iv) the limit, if any, upon the aggregate principal
amount of such debt securities; (v) the dates on which, or the range of
dates within which, the principal of (and premium, if any, on) such debt
securities will be payable; (vi) the rate or rates or the method of
determination thereof, at which such Underlying Securities will bear
interest, if any ("Underlying Securities Rate"); the date or dates from
which such interest will accrue ("Underlying Securities Interest Accrual
Periods"); and the dates on which such interest will be payable ("Underlying
Securities Payment Dates"); (vii) the obligation, if any, of the Underlying
Securities Issuer to redeem the Outstanding Debt Securities pursuant to any
sinking fund or analogous provisions, or at the option of a holder thereof,
and the periods within which or the dates on which, the prices at which and
the terms and conditions upon which such debt securities may be redeemed or
repurchased, in whole or in part, pursuant to such obligation; (viii) the
periods within which or the dates on which, the prices at which and the
terms and conditions upon which such debt securities may be redeemed, if
any, in whole or in part, at the option of the Underlying Securities Issuer;
(ix) whether the Underlying Securities were issued at a price lower than the
principal amount thereof; (x) if other than United States dollars, the
foreign or composite currency in which such debt securities are denominated,
or in which payment of the principal of (and premium, if any) or any
interest on such Underlying Securities will be made (the "Underlying
Securities Currency"), and the circumstances, if any, when such currency of
payment may be changed; (xi) material events of default or restrictive
covenants
34
provided for with respect to such Underlying Securities; (xii) the rating
thereof, if any, and (xiii) any other material terms of such Underlying
Securities.
With respect to a Trust comprised of a pool of Underlying Securities,
the related Prospectus Supplement will describe the composition of the
Underlying Securities pool as of the Cut-off Date, certain material events
of default or restrictive covenants common to the Underlying Securities,
and, on an aggregate, percentage or weighted average basis, as applicable,
the characteristics of the pool with respect to the terms set forth in
(ii), (iii), (v), (vi), (vii), (viii) and (ix) of the preceding paragraph
and any other material terms regarding such pool of securities.
In addition to the foregoing, with respect to each Concentrated
Underlying Security the applicable Prospectus Supplement will disclose the
identity of the applicable obligor and the Underlying Securities Trustee,
and will describe the existence and type of certain information that is made
publicly available by each obligor regarding such Underlying Security or
Underlying Securities and will disclose where and how prospective purchasers
of the Certificates may obtain such publicly available information with
respect to each such obligor. Such publicly available information will
typically consist of the quarterly and annual reports filed under the
Exchange Act by such issuer with, and which are available from, the
Commission.
If an issuer of Concentrated Underlying Securities ceases to file
periodic reports under the Exchange Act, the Company, on behalf of the
Trust, will continue to be subject to the reporting requirements of the
Exchange Act but certain information with respect to such issuer may be
unavailable.
Other Deposited Assets
In addition to the Underlying Securities, the Company may also deposit
into a given Trust, or the Trustee on behalf of the Certificateholders of a
Trust may enter into an agreement constituting or providing for the
purchase of, to the extent described in the related Prospectus Supplement,
certain assets related or incidental to one or more of such Underlying
Securities or to some other asset deposited in the Trust, including hedging
contracts and other similar arrangements (such as puts, calls, interest
rate swaps, currency swaps, floors, caps and collars, cash and assets
ancillary or incidental to the foregoing or to the Underlying Securities
(including assets obtained through foreclosure or in settlement of claims
with respect thereto) and direct obligations of the United States (all such
assets for any given Series, together with the related Underlying
Securities, the "Deposited Assets"). The applicable Prospectus Supplement
will, to the extent appropriate, contain analogous disclosure with respect
to the foregoing assets as referred to above with respect to the Underlying
Securities.
Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Certificates and the related Trust
will not constitute Deposited Assets for any other Series of Certificates
and the related Trust and the Certificates of each Class of a given Series
possess an equal and ratable undivided ownership interest in such Deposited
Assets. The applicable
35
Prospectus Supplement may, however, specify that certain assets constituting
a part of the Deposited Assets relating to any given Series may be
beneficially owned solely by or deposited solely for the benefit of one
Class or a group of Classes within such Series. In such event, the other
Classes of such Series will not possess any beneficial ownership interest in
those specified assets constituting a part of the Deposited Assets.
Credit Support
As specified in the applicable Prospectus Supplement for a given Series
of Certificates, the Trust for any Series of Certificates may include, or
the Certificateholders of such Series (or any Class or group of Classes
within such Series) may have the benefit of, Credit Support for any Class or
group of Classes within such Series. Such Credit Support may be provided by
any combination of the following means described below or any other means
described in the applicable Prospectus Supplement. The applicable Prospectus
Supplement will set forth whether the Trust for any Class or group of
Classes of Certificate contains, or the Certificateholders of such
Certificates have the benefit of, Credit Support and, if so, the amount,
type and other relevant terms of each element of Credit Support with respect
to any such Class or Classes and certain information with respect to the
obligors of each such element, including financial information with respect
to any such obligor providing Credit Support for 20% or more of the
aggregate principal amount of such Class or Classes.
Subordination. As discussed below under "--Collections," the rights of
the Certificateholders of any given Class within a Series of Certificates
to receive collections from the Trust for such Series and any Credit
Support obtained for the benefit of the Certificateholders of such Series
(or Classes within such Series) may be subordinated to the rights of the
Certificateholders of one or more other Classes of such Series to the
extent described in the related Prospectus Supplement. Such subordination
accordingly provides some additional credit support to those
Certificateholders of those other Classes. For example, if losses are
realized during a given period on the Deposited Assets relating to a Series
of Certificates such that the collections received thereon are insufficient
to make all distributions on the Certificates of such Series, those
realized losses would be allocated to the Certificateholders of any Class
of any such Series that is subordinated to another Class, to the extent and
in the manner provided in the related Prospectus Supplement. In addition,
if so provided in the applicable Prospectus Supplement, certain amounts
otherwise payable to Certificateholders of any Class that is subordinated
to another Class may be required to be deposited into a reserve account.
Amounts held in any reserve account may be applied as described below under
"-Reserve Accounts" and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit
Support for any Series or Class of Certificates may include, in addition to
the subordination of certain Classes of such Series and the establishment
of a reserve account, any of the other forms of Credit Support described
below. Any such other forms of Credit Support that are solely for the
benefit of a given Class will be limited to the extent necessary to make
required distributions to the Certificateholders of such Class or as
otherwise specified in the related Prospectus Supplement. In addition, if
so provided in the applicable
36
Prospectus Supplement, the obligor of any other forms of Credit Support may
be reimbursed for amounts paid pursuant to such Credit Support out of
amounts otherwise payable to one or more of the Classes of the Certificates
of such Series.
Letter of Credit; Surety Bond. The Certificateholders of any Series (or
Class or group of Classes of Certificates within such Series) may, if
specified in the applicable Prospectus Supplement, have the benefit of a
letter or letters of credit (a "Letter of Credit") issued by a bank (a
"Letter of Credit Bank") or a surety bond or bonds (a "Surety Bond") issued
by a surety company (a "Surety"). In either case, the Trustee or such other
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to cause the Letter of Credit or the Surety Bond, as the
case may be, to be obtained, to be kept in full force and effect (unless
coverage thereunder has been exhausted through payment of claims) and to pay
timely the fees or premiums therefor unless, as described in the related
Prospectus Supplement, the payment of such fees or premiums is otherwise
provided for. The Trustee or such other person specified in the applicable
Prospectus Supplement will make or cause to be made draws under the Letter
of Credit or the Surety Bond, as the case may be, under the circumstances
and to cover the amounts specified in the applicable Prospectus Supplement.
Any amounts otherwise available under the Letter of Credit or the Surety
Bond will be reduced to the extent of any prior unreimbursed draws
thereunder. The applicable Prospectus Supplement will provide the manner,
priority and source of funds by which any such draws are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in
the event that the Letter of Credit Bank or the Surety, as applicable,
ceases to satisfy any credit rating or other applicable requirements
specified in the related Prospectus Supplement, the Trustee or such other
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to obtain or cause to be obtained a substitute Letter of
Credit or Surety Bond, as applicable, or other form of credit enhancement
providing similar protection, that meets such requirements and provides the
same coverage to the extent available for the same cost. There can be no
assurance that any Letter of Credit Bank or any Surety, as applicable, will
continue to satisfy such requirements or that any such substitute Letter of
Credit, Surety Bond or similar credit enhancement will be available
providing equivalent coverage for the same cost. To the extent not so
available, the credit support otherwise provided by the Letter of Credit or
the Surety Bond (or similar credit enhancement) may be reduced to the level
otherwise available for the same cost as the original Letter of Credit or
Surety Bond.
Reserve Accounts. If so provided in the related Prospectus Supplement,
the Trustee or such other person specified in the Prospectus Supplement
will deposit or cause to be deposited into an account maintained with an
eligible institution (which may be the Trustee) (a "Reserve Account") any
combination of cash or permitted investments in specified amounts, which
will be applied and maintained in the manner and under the conditions
specified in such Prospectus Supplement. In the alternative or in addition
to such deposit, a Reserve Account may be funded through application of a
portion of collections received on the Deposited Assets for a given Series
of Certificates, in the manner and priority specified in the applicable
Prospectus Supplement. Amounts may be distributed to Certificateholders of
such Class or group of Classes within such Series, or may be used for other
37
purposes, in the manner and to the extent provided in the related
Prospectus Supplement. Amounts deposited in any Reserve Account will be
invested in certain permitted investments by, or at the direction of, the
Trustee, the Company or such other person named in the related Prospectus
Supplement.
Collections
The Trust Agreement will establish procedures by which the Trustee or
such other person specified in the Prospectus Supplement is obligated, for
the benefit of the Certificateholders of each Series of Certificates, to
administer the related Deposited Assets, including making collections of
all payments made thereon, depositing from time to time prior to any
applicable Distribution Date such collections into a segregated account
maintained or controlled by the applicable Trustee for the benefit of such
Series (each a "Certificate Account"). An Administrative Agent, if any is
appointed pursuant to the applicable Prospectus Statement, will direct the
Trustee, and otherwise the Trustee will make all determinations, as to the
appropriate application of such collections and other amounts available for
distribution to the payment of any administrative or collection expenses
(such as the administrative fee) and certain Credit Support-related ongoing
fees (such as insurance premiums, letter of credit fees or any required
account deposits) and to the payment of amounts then due and owing on the
Certificates of such Series (and Classes within such Series), all in the
manner and priorities described in the related Prospectus Supplement. The
applicable Prospectus Supplement will specify the collection periods, if
applicable, and Distribution Dates for a given Series of Certificates and
the particular requirements relating to the segregation and investment of
collections received on the Deposited Assets during a given collection
period or on or by certain specified dates. There can be no assurance that
amounts received from the Deposited Assets and any Credit Support obtained
for the benefit of Certificateholders for a particular Series or Class of
Certificates over a specified period will be sufficient, after payment of
all prior expenses and fees for such period, to pay amounts then due and
owing to holders of such Certificates. The applicable Prospectus Supplement
will also set forth the manner and priority by which any Realized Loss will
be allocated among the Classes of any Series of Certificates, if
applicable.
The relative priorities of distributions with respect to collections
from the assets of the Trust assigned to Classes of a given Series of
Certificates may permanently or temporarily change over time upon the
occurrence of certain circumstances specified in the applicable Prospectus
Supplement. Moreover, the applicable Prospectus Supplement may specify that
the relative distribution priority assigned to each Class of a given Series
for purposes of payments of certain amounts, such as principal, may be
different from the relative distribution priority assigned to each such
Class for payments of other amounts, such as interest or premium.
38
DESCRIPTION OF THE TRUST AGREEMENT
General
The following summary of certain provisions of the Trust Agreement and
the Certificates do not purport to be complete and such summary is
qualified in its entirety by reference to the detailed provisions of the
form of Trust Agreement filed as an exhibit to the Registration Statement.
Article and section references in parentheses below are to articles and
sections in the Trust Agreement. Wherever particular sections or defined
terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made,
and the statement is qualified in its entirety by such reference.
Assignment of Deposited Assets
At the time of issuance of any Series of Certificates, the Company
will cause the Underlying Securities to be included in the related Trust,
and any other Deposited Asset specified in the Prospectus Supplement, to be
assigned to the related Trustee, together with all principal, premium (if
any) and interest received by or on behalf of the Company on or with
respect to such Deposited Assets after the cut-off date specified in the
Prospectus Supplement (the "Cut-off Date"), other than principal, premium
(if any) and interest due on or before the Cut-off Date and other than any
Retained Interest (Section 2.01). The Trustee will, concurrently with such
assignment, deliver the Certificates to the Company in exchange for certain
assets to be deposited in the Trust (Section 2.06). Each Deposited Asset
will be identified in a schedule appearing as an exhibit to the Trust
Agreement. Such schedule will include certain statistical information with
respect to each Underlying Security and each other Deposited Asset as of
the Cut-off Date, and in the event any Underlying Security represents ten
percent or more of the total Underlying Securities with respect to any
Series of Certificates, such schedule will include, to the extent
applicable, information regarding the payment terms thereof, the Retained
Interest, if any, with respect thereto, the maturity or terms thereof, the
rating, if any, thereof and certain other information with respect thereto.
In addition, the Company will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) all documents necessary to transfer ownership of
such Deposited Asset to the Trustee. The Trustee (or such custodian) will
review such documents upon receipt thereof or within such period as is
permitted in the Prospectus Supplement, and the Trustee (or such custodian)
will hold such documents in trust for the benefit of the Certificateholders
(Sections 2.01 and 2.02).
With respect to certain types of Deposited Assets specified in the
applicable Prospectus Supplement if and to the extent provided therein, if
any such document is found to be missing or defective in any material
respect, the Trustee (or such custodian) shall immediately notify the
Administrative Agent, if any, and the Company, and the Administrative
Agent, if any, and otherwise the Trustee shall immediately notify the
relevant person who sold the applicable Deposited Asset to the Company (a
"Deposited Asset Provider"). If and to the extent specified in the
applicable
39
Prospectus Supplement, if the Deposited Asset Provider cannot cure such
omission or defect within 60 days after receipt of such notice, the
Deposited Asset Provider will be obligated, within 90 days off receipt of
such notice, to repurchase the related Deposited Asset from the Trustee at
the Purchase Price (as defined below) or provide a substitute for such
Deposited Asset. There can be no assurance that a Deposited Asset Provider
will fulfill this repurchase or substitution obligation. Although the
Administrative Agent, if any, or otherwise the Trustee is obligated to use
its best efforts to enforce such obligation, neither such Administrative
Agent nor the Company will be obligated to repurchase or substitute for such
Deposited Asset if the Deposited Asset Provider defaults on its obligation.
Unless otherwise specified in the related Prospectus Supplement, when
applicable, this repurchase or substitution obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for omission of,
or a material defect in, or failure to provide, a constituent document
(Section 2.03).
Each of the Company and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Trust
Agreement. Upon a breach of any such representation of the Company or any
such Administrative Agent, as the case may be, which materially and
adversely affects the interests of the Certificateholders, the Company or
any such Administrative Agent, respectively, will be obligated to cure the
breach in all material respects (Section 2.05).
Collection and Other Administrative Procedures
General. With respect to any Series of Certificates the Trustee or
such other person specified in the Prospectus Supplement directly or
through sub-administrative agents, will make reasonable efforts to collect
all scheduled payments under the Deposited Assets and will follow or cause
to be followed such collection procedures, if any, as it would follow with
respect to comparable financial assets that it held for its own account,
provided that such procedures are consistent with the Trust Agreement and
any related instrument governing any Credit Support (collectively, the
"Credit Support Instruments") and provided that, except as otherwise
expressly set forth in the applicable Prospectus Supplement, it shall not
be required to expend or risk its own funds or otherwise incur personal
financial liability.
Sub-Administration. Any Trustee or Administrative Agent may delegate
its obligations in respect of the Deposited Assets to third parties they
deem qualified to perform such obligations (each, a "Sub-Administrative
Agent"), but the Trustee or Administrative Agent will remain obligated with
respect to such obligations under the Trust Agreement. Each Sub-
Administrative Agent will be required to perform the customary functions of
an administrator of comparable financial assets, including, if applicable,
collecting payments from obligors and remitting such collections to the
Trustee; maintaining accounting records relating to the Deposited Assets,
attempting to cure defaults and delinquencies; and enforcing any other
remedies with respect thereto all as and to the extent provided in the
applicable Sub-Administration Agreement (as defined below).
The agreement between any Administrative Agent or Trustee and a
Sub-Administrative Agent (a "Sub-Administration Agreement") will be
consistent with the terms of the
40
Trust Agreement and such assignment to the Sub-Administrator by itself will
not result in a withdrawal or downgrading of the rating of any Class of
Certificates issued pursuant to the Trust Agreement. With respect to any
Sub-Administrative Agreement between an Administrative Agent and a
Sub-Administrative Agent, although each such Sub-Administration Agreement
will be a contract solely between such Administrative Agent and the
Sub-Administrative Agent, the Trust Agreement pursuant to which a Series of
Certificates is issued will provide that, if for any reason such
Administrative Agent for such Series of Certificates is no longer acting in
such capacity, the Trustee or any successor Administrative Agent must
recognize the Sub-Administrative Agent's rights and obligations under such
Sub-Administration Agreement.
The Administrative Agent or Trustee, as applicable, will be solely
liable for all fees owed by it to any Sub-Administrative Agent,
irrespective of whether the compensation of the Administrative Agent or
Trustee, as applicable, pursuant to the Trust Agreement with respect to the
particular Series of Certificates is sufficient to pay such fees. However,
a Sub-Administrative Agent may be entitled to a Retained Interest in
certain Deposited Assets to the extent provided in the related Prospectus
Supplement. Each Sub-Administrative Agent will be reimbursed by the
Administrative Agent, if any, or otherwise the Trustee for certain
expenditures which it makes, generally to the same extent the
Administrative Agent or Trustee, as applicable, would be reimbursed under
the terms of the Trust Agreement relating to such Series. See "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses."
The Administrative Agent or Trustee, as applicable, may require any
Sub-Administrative Agent to agree to indemnify the Administrative Agent or
Trustee, as applicable, for any liability or obligation sustained by the
Administrative Agent or Trustee, as applicable, in connection with any act
or failure to act by the Sub-Administrative Agent.
Realization upon Defaulted Deposited Assets. Unless otherwise
specified in the applicable Prospectus Supplement, as administrator with
respect to the Deposited Assets, the Trustee, on behalf of the
Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support
Instrument, and will take such reasonable steps as are necessary to receive
payment or to permit recovery thereunder with respect to defaulted
Deposited Assets. As set forth above, all collections by or on behalf of
the Trustee or Administrative Agent under any Credit Support Instrument are
to be deposited in the Certificate Account for the related Trust, subject
to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee will be obligated to follow or
cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Deposited Asset
(Section 3.12), provided that, except as otherwise expressly provided in
the applicable Prospectus Supplement, it shall not be required to expend or
risk its own funds or otherwise incur personal financial liability. If the
proceeds of any liquidation of the defaulted Deposited Asset are less than
the sum of (i) the outstanding principal balance of the defaulted Deposited
Asset, (ii) interest accrued thereon at the
41
applicable interest rate and (iii) the aggregate amount of expenses incurred
by the Administrative Agent and the Trustee, as applicable, in connection
with such proceedings to the extent reimbursable from the assets of the
Trust under the Trust Agreement, the Trust will realize a loss in the amount
of such difference. Only if and to the extent provided in the applicable
Prospectus Supplement, the Administrative Agent or Trustee, as so provided,
will be entitled to withdraw or cause to be withdrawn from the related
Certificate Account out of the net proceeds recovered on any defaulted
Deposited Asset, prior to the distribution of such proceeds to
Certificateholders, amounts representing its normal administrative
compensation on the Deposited Asset, unreimbursed administrative expenses
incurred with respect to the Deposited Asset and any unreimbursed advances
of delinquent payments made with respect to the Deposited Asset (Section
3.12).
Retained Interest; Administrative Agent Compensation and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Deposited Assets, and, if
so, the owner thereof. If so provided, the Retained Interest will be
established on an asset-by-asset basis and will be specified in an exhibit
to the applicable series supplement to the Trust Agreement. A Retained
Interest in a Deposited Asset represents a specified interest therein.
Payments in respect of the Retained Interest will be deducted from payments
on the Deposited Assets as received and, in general, will not be deposited
in the applicable Certificate Account or become a part of the related Trust.
Unless otherwise provided in the applicable Prospectus Supplement, any
partial recovery of interest on a Deposited Asset, after deduction of all
applicable administration fees, will be allocated between the Retained
Interest (if any) and interest distributions to Certificateholders on a pari
passu basis.
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of
Certificates.
If and to the extent specified in the applicable Prospectus
Supplement, in addition to amounts payable to any Sub-Administrative Agent,
the Administrative Agent, if any; and otherwise the Trustee will pay from
its compensation certain expenses incurred in connection with its
administration of the Deposited Assets, including, without limitation,
payment of the fees and disbursements of the Trustee, if applicable, and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement (Section 3.14).
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable Prospectus Supplement,
the Administrative Agent, if any, specified therein will have no obligation
to make any advances with respect to collections on the Deposited Assets or
in favor of the Certificateholders of the related Series of Certificates.
However, to the extent provided in the applicable Prospectus Supplement,
any such Administrative Agent will advance on or before each Distribution
Date its own funds or funds
42
held in the Certificate Account for such Series that are not part of the
funds available for distribution for such Distribution Date, in an amount
equal to the aggregate of payments of principal, premium (if any) and
interest (net of related administration fees and any Retained Interest) with
respect to the Deposited Assets that were due during the related Collection
Period and were delinquent on the related Determination Date, subject to (i)
any such Administrative Agent's good faith determination that such advances
will be reimbursable from Related Proceeds (as defined below) and (ii) such
other conditions as may be specified in the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled interest,
premium (if any) and principal payments to holders of the Class or Classes
of Certificates entitled thereto, rather than to guarantee or insure against
losses. Unless otherwise provided in the related Prospectus Supplement,
advances of an Administrative Agent's funds, if any, will be reimbursable
only out of related recoveries on the Deposited Assets (and amounts received
under any form of Credit Support) for such Series with respect to which such
advances were made (as to any Deposited Assets, "Related Proceeds");
provided, however, that any such advance will be reimbursable from any
amounts in the Certificate Accounts for such Series to the extent that such
Administrative Agent shall determine, in its sole judgment, that such
advance (a "Nonrecoverable Advance") is not ultimately recoverable from
Related Proceeds. If advances have been made by such Administrative Agent
from excess funds in the Certificate Account for any Series, such
Administrative Agent will replace such funds in such Certificate Account on
any future Distribution Date to the extent that funds in such Certificate
Account on such Distribution Date are less than payments required to be made
to Certificateholders on such date (Section 4.03). If so specified in the
related Prospectus Supplement, the obligations, if any, of an Administrative
Agent to make advances may be secured by a cash advance reserve fund or a
surety bond. If applicable, information regarding the characteristics of,
and the identity of any obligor on, any such surety bond, will be set forth
in the related Prospectus Supplement.
Certain Matters Regarding the Administrative Agent and the Company
An Administrative Agent, if any, for each Series of Certificates under
the Trust Agreement will be named in the related Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the
Trustee, the Company, as affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business
relationships with the Trustee, the Company, their affiliates or the
Deposited Asset Provider.
The Trust Agreement will provide that an Administrative Agent may
resign from its obligations and duties under the Trust Agreement with
respect to any Series of Certificates only if such resignation, and the
appointment of a successor, will not result in a withdrawal or downgrading
of the rating of any Class of Certificates of such Series or upon a
determination that its duties under the Trust Agreement with respect to
such Series are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor has
assumed the Administrative Agent's obligations and duties under the Trust
Agreement with respect to such Series (Section 6.04).
43
The Trust Agreement will further provide that neither such an
Administrative Agent, the Company nor any director, officer, employee, or
agent or the Administrative Agent or the Company will incur any liability to
the related Trust or Certificateholders for any action taken, or for
refraining from taking any action, in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the
Administrative Agent, the company nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. The Trust Agreement will further provide that, unless otherwise
provided in the applicable series supplement thereto, such an Administrative
Agent, the Company and any director, officer, employee or agent of the
Administrative Agent or the Company will be entitled to indemnification by
the related Trust and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Trust
Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Agreement will
provide that neither such an Administrative Agent nor the Company will be
under any obligation to appear in, prosecute or defend any legal action
which is not incidental to their respective responsibilities under the Trust
Agreement or which in its opinion may involve it in any expense or
liability. Each of such Administrative Agent or the Company may, however, in
its discretion undertake any such action which it may deem necessary or
desirable with respect to the Trust Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder
(Section 6.03). The applicable Prospectus Supplement will describe how such
legal expenses and costs of such action and any liability resulting
therefrom will be allocated.
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to
which an Administrative Agent is a part, or any person succeeding to the
business of an Administrative Agent, will be the successor of the
Administrative Agent under the Trust Agreement with respect to the
Certificates of any given Series (Section 6.02).
Administrative Agent Termination Events;
Rights Upon Administrative Agent Termination Event
Unless otherwise provided in the related Prospectus Supplement,
"Administrative Agent Termination Events" under the Trust Agreement with
respect to any given Series of Certificates will consists of the following:
(i) any failure by an Administrative Agent to remit to the Trustee any
funds in respect of collections on the Deposited Assets and Credit Support,
if any, as required under the Trust Agreement, that continues unremedied
for five days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Company, or to the
Administrative Agent, the Company and the Trustee by the holders of such
Certificates evidencing not less than 25% of the Voting Rights (as defined
below); (ii) any failure by an Administrative Agent duly to observe or
perform in any material respect any of its other covenants or obligations
under the Trust Agreement with respect to such Series which continues
unremedied for thirty days after the giving of
44
written notice of such failure to the Administrative Agent by the Trustee or
the Company, or to the Administrative Agent, the Company and the Trustee by
the holders of such Certificates evidencing not less than 25% of the Voting
Rights; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain
actions by or on behalf of an Administrative Agent indicating its insolvency
or inability to pay its obligations (Section 7.01). Any additional
Administrative Agent Termination Events with respect to any given Series of
Certificates will be set forth in the applicable Prospectus Supplement. In
addition, the applicable Prospectus Supplement and the related series
supplement to the Trust Agreement will specify as to each matter requiring
the vote of holders of Certificates of a Class or group of Classes within a
given Series, the circumstances and manner in which the Required Percentage
(as defined below) applicable to each such matter is calculated. "Required
Percentage" means with respect to any matter requiring a vote of holders of
Certificates of a given Series, the specified percentage (computed on the
basis of outstanding Certificate Principal Balance or Notional Amount, as
applicable) of Certificates of a designated Class or group of Classes within
such Series (either voting as separate classes or as a single class)
applicable to such matter, all as specified in the applicable Prospectus
Supplement and the related series supplement to the Trust Agreement. "Voting
Rights" evidenced by any Certificate will be the portion of the voting
rights of all the Certificates in the related Series allocated in the manner
described in the related Prospectus Supplement (Article I).
Unless otherwise specified in the applicable Prospectus Supplement, so
long as an Administrative Agent Termination Event under the Trust Agreement
with respect to a given Series of Certificates remains unremedied, the
Company or the Trustee may, and at the direction of holders of such
Certificates evidencing not less than the "Required Percentage--
Administrative Agent Termination" of the Voting Rights, the Trustee will,
terminate all rights and obligations of such Administrative Agent under the
Trust Agreement relating to the applicable Trust and in and to the related
Deposited Assets (other than any Retained Interest of such Administrative
Agent), whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of such Administrative Agent under the Trust
Agreement with respect to such Series (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding
delinquent Deposited Assets, then the Trustee will not be so obligated) and
will be entitled to similar compensation arrangements. In the event that
the Trustee is unwilling or unable to act, it may or, at the written
request of the holders of such Certificates evidencing not less than the
"Required Percentage--Administrative Agent Termination" of the Voting
Rights, it will appoint, or petition a court of competent jurisdiction for
the appointment of, an administration agent acceptable to the Rating Agency
with a net worth at the time of such appointment of at least $15,000,000 to
act as successor to such Administrative Agent under the Trust Agreement
with respect to such Series. Pending such appointment, the Trustee is
obligated to act in such capacity (except that if the Trustee is prohibited
by law from obligating itself to make advances regarding delinquent
Deposited Assets, then the Trustee will not be so obligated). The Trustee
and any such successor may agree upon the compensation be paid to such
successor, which in no event may be greater than the compensation payable
to such Administrative Agent under the Trust Agreement with respect to such
Series (Sections 7.01 and 7.02).
45
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less than the "Required Percentage--Remedies"
of the Voting Rights have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity, and the Trustee for fifteen
days has neglected or refused to institute any such proceeding (Section
10.03). The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by the Trust Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request,
order or direction of any of the holders of Certificates covered by the
Trust Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby (Section 8.02).
Modification and Waiver
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement for each Series of Trust Certificates may be amended by the
Company and the Trustee with respect to such Series, without notice to or
consent of the Certificateholders, for certain purposes including (i) to
cure any ambiguity, (ii) to correct or supplement any provision therein
which may be inconsistent with any other provision therein or in the
Prospectus Supplement, (iii) to add or supplement any Credit Support for the
benefit of any Certificateholders (provided that if any such addition
affects any series or class of Certificateholders differently than any other
series or class of Certificateholders, then such addition will not, as
evidenced by an opinion of counsel, have a material adverse effect on the
interests of any affected series or class of Certificateholders), (iv) to
add to the covenants, restrictions or obligations of the Company, the
Administrative Agent, if any, or the Trustee for the benefit of the
Certificateholders, (v) to add, change or eliminate any other provisions
with respect to matters or questions arising under such Trust Agreement so
long as (x) any such addition, change or elimination will not, as evidenced
by an opinion of counsel, affect the tax status of the Trust or result in a
sale or exchange of any Certificate for tax purposes and (y) the Trustee has
received written confirmation from each Rating Agency rating such
Certificates that such amendment will not cause such Rating Agency to reduce
or withdraw the then current rating thereof, or (vi) to comply with any
requirements imposed by the Code. Without limiting the generality of the
foregoing, unless otherwise specified in the applicable Prospectus
Supplement, the Trust Agreement may also be modified or amended from time to
time by the Company, and the Trustee, with the consent of the holders of
Certificates evidencing not less than the "Required Percentage--Amendment"
of the Voting Rights of those Certificates that are materially adversely
affected by such modification or amendment for the purpose of adding any
provision to or changing in any manner or eliminating any provision of the
Trust Agreement or of modifying in any manner the rights of such
Certificateholders; provided, however, that in the event such modification
or amendment would materially adversely affect the rating of any Series or
Class by each Rating Agency, the "Required Percentage--Amendment" specified
in the related series supplement to the Trust Agreement shall include an
additional specified percentage of the Certificates of such Series or Class.
46
Except as otherwise set forth in the applicable Prospectus Supplement,
no such modification or amendment may, however, (i) reduce in any manner
the amount of or alter the timing of, distributions or payments which are
required to be made on any Certificate without the consent of the holder of
such Certificate or (ii) reduce the aforesaid Required Percentage of Voting
Rights required for the consent to any such amendment without the consent
of the holders of all Certificates covered by the Trust Agreement then
outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Certificates evidencing not less than the "Required
Percentage--Waiver" of the Voting Rights of a given Series may, on behalf
of all Certificateholders of that Series, (i) waive, insofar as that Series
is concerned, compliance by the Company, the Trustee or the Administrative
Agent, if any, with certain restrictive provisions, if any, of the Trust
Agreement before the time for such compliance and (ii) waive any past
default under the Trust Agreement with respect to Certificates of that
Series, except a default in the failure to distribute amounts received as
principal of (and premium, if any) or any interest on any such Certificate
and except a default in respect of a covenant or provision the modification
or amendment of which would require the consent of the holder of each
outstanding Certificate affected thereby (Section 7.04).
Reports to Certificateholders; Notices
Reports to Certificateholders. Unless otherwise provided in the
applicable Prospectus Supplement, with each distribution to
Certificateholders of any Class of Certificates of a given Series, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such
Certificateholder, to the Company and to such other parties as may be
specified in the Trust Agreement, a statement setting forth:
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest
as of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, as
calculated in accordance with the method specified herein and in the
related Prospectus Supplement;
(iii) the amount of compensation received by the Administrative
Agent, if any, and the Trustee for the period relating to such
Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary
or desirable to enable Certificateholders to prepare their tax returns;
(iv) if the Prospectus Supplement provides for advances, the
aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
47
(v) the aggregate stated principal amount or, if applicable,
notional principal amount of the Deposited Assets and the current
interest rate thereon at the close of business on such Distribution
Date;
(vi) the aggregate Certificate Principal Balance or aggregate
Notional Amount, if applicable, of each Class of Certificates (including
any Class of Certificates not offered hereby) at the close of business
on such Distribution Date, separately identifying any reduction in such
aggregate Certificate Principal Balance or aggregate Notional Amount due
to the allocation of any Realized Losses or otherwise; and
(vii) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount of coverage of each element
of Credit Support included therein as of the close of business on such
Distribution Date.
In the case of information furnished pursuant to subclauses (i) and
(iii) above, the amounts shall be expressed as a U.S. dollar amount (or
equivalent thereof in any other Specified Currency) per minimum
denomination of Certificates or for such other specified portion thereof.
Within a reasonable period of time after the end of each calendar year, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the
calendar year was a Certificateholder a statement containing the
information set forth in subclauses (i) and (iii) above, aggregated for
such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation of the Administrative Agent
or the Trustee, as applicable, shall be deemed to have been satisfied to
the extent that substantially comparable information shall be provided by
the Administrative Agent or the Trustee, as applicable, pursuant to any
requirements of the Code as are from time to time in effect (Section 4.02).
Notices. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Certificate will be mailed to the last address of such holder set forth in
the applicable Certificate Register. Any notice required to be given to a
holder of a Bearer Certificate will be published in a daily morning
newspaper of general circulation in the city or cities specified in the
Prospectus Supplement relating to such Bearer Certificate.
Evidence as to Compliance
Unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement will provide that commencing on a certain date and on
or before a specified date in each year thereafter, a firm of independent
public accountants will furnish a statement to the Trustee to the effect
that such firm has examined certain documents and records relating to the
administration of the Deposited Assets during the related 12-month period
(or, in the case of the first such report, the period ending on or before
the date specified in the Prospectus Supplement, which date shall not be
more than one year after the related Original Issue Date) and that, on the
basis of certain agreed upon procedures considered appropriate under the
circumstances, such firm is of the opinion that such
48
administration was conducted in compliance with the terms of the Trust
Agreement, except for such exceptions as such firm shall believe to be
immaterial and such other exceptions and qualifications as shall be set
forth in such report (Section 3.16).
The Trust Agreement will also provide for delivery to the Company, the
Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an
annual statement signed by two officers of the Trustee to the effect that
the Trustee has fulfilled its obligations under the Trust Agreement
throughout the preceding year with respect to any Series of Certificates
(Section 3.15).
Copies of the annual accountants' statement, if any, and the statement
of officers of the Trustee may be obtained by Certificateholders without
charge upon written request to either the Administrative Agent or the
Trustee, as applicable, at the address set forth in the related Prospectus
Supplement.
Replacement Certificates
Unless otherwise provided in the applicable Prospectus Supplement, if a
Certificate is mutilated, destroyed, lost or stolen, it may be replaced at
the corporate trust office or agency of the applicable Trustee in the City
and State of New York (in the case of Registered Certificates) or at the
principal London office of the applicable Trustee (in the case of Bearer
Certificates), or such other location as may be specified in the applicable
Prospectus Supplement, upon payment by the holder of such expenses as may be
incurred by the applicable Trustee in connection therewith and the
furnishing of such evidence and indemnity as such Trustee may require.
Mutilated Certificates must be surrendered before new Certificates will be
issued (Section 5.05).
Termination
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related Certificate Account or by an
Administrative Agent, if any, and required to be paid to them pursuant to
the Trust Agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition
of all property acquired upon foreclosure or liquidation of any such
Deposited Asset and (ii) the purchase of all the assets of the Trust by the
party entitled to effect such termination, under the circumstances and in
the manner set forth in the related Prospectus Supplement. In no event,
however, will any trust created by the Trust Agreement continue beyond the
respective date specified in the related Prospectus Supplement. Written
notice of termination of the obligations with respect to the related Series
of Certificates under the Trust Agreement will be provided as set forth
above under "--Reports to Certificateholders; Notices--Notices," and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination (Section 9.01).
49
Any such purchase of Deposited Assets and property acquired in respect
of Deposited Assets evidenced by a Series of Certificates shall be made at
a price approximately equal to the aggregate fair market value of all the
assets in the Trust (as determined by the Trustee, the Administrative
Agent, if any, and, if different than both such persons, the person
entitled to effect such termination), in each case taking into account
accrued interest at the applicable interest rate to the first day of the
month following such purchase or, to the extent specified in the applicable
Prospectus Supplement, a specified price as determined therein (such price,
a "Purchase Price"). The exercise of such right will effect early
retirement of the Certificates of that Series, but the right of the person
entitled to effect such termination is subject to the aggregate principal
balance of the outstanding Deposited Assets for such Series at the time of
purchase being less than the percentage of the aggregate principal balance
of the Deposited Assets at the Cut-off Date for that Series specified in
the related Prospectus Supplement (Section 9.01).
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the Certificates of any Series or any Deposited
Asset or related document and is not accountable for the use or application
by or on behalf of any Administrative Agent of any funds paid to such
Administrative Agent or its designee in respect of such Certificates or the
Deposited Assets, or deposited into or withdrawn from the related
Certificate Account or any other account by or on behalf of such
Administrative Agent (Section 8.03). If no Administrative Agent Termination
Event has occurred and is continuing with respect to any given Series, the
Trustee is required to perform only those duties specifically required under
the Trust Agreement with respect to such Series. However, upon receipt of
the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the applicable requirements of the Trust
Agreement (Section 8.01).
The Trustee
The Trustee for any given Series of Certificates under the Trust
Agreement will be named in the related Prospectus Supplement. The
commercial bank, national banking association or trust company serving as
Trustee will be unaffiliated with, but may have normal banking
relationships with, the Company, any Administrative Agent and their
respective affiliates.
50
LIMITATIONS ON ISSUANCE OF BEARER CERTIFICATES
In compliance with United States Federal income tax laws and
regulations, the Company and any underwriter, agent or dealer participating
in the offering of any Bearer Certificate will agree that, in connection
with the original issuance of such Bearer Certificate and during the period
ending 40 days after the issue of such Bearer Certificate, they will not
offer, sell or deliver such Bearer Certificate, directly or indirectly, to
a U.S. Person or to any person within the United States; except to the
extent permitted under U.S. Treasury regulations.
Bearer Certificates will bear a legend to the following effect: "Any
United States Person who holds this obligation will be subject to
limitations under the United States income tax laws, including the
limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue
Code." The sections referred to in the legend provide that, with certain
exceptions, a United States taxpayer who holds Bearer Certificates will not
be allowed to deduct any loss with respect to, and will not be eligible for
capital gain treatment with respect to any gain realized on a sale,
exchange, redemption or other disposition of, such Bearer Certificates.
As used herein, "United States" means the United States of America and
its possessions, and "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States, or an estate or trust
the income of which is subject to United States Federal income taxation
regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Certificates, as the case may be, Certificates that are issuable as
Bearer Certificates may initially be represented by a single temporary
Global Security, without interest coupons, to be deposited with a common
depositary in London for Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System ("Euroclear"), and
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") for credit to
the accounts designated by or on behalf of the purchasers thereof.
Following the availability of a definitive Global Security in bearer form,
without coupons attached, or individual Bearer Certificates and subject to
any further limitations described in the applicable Prospectus Supplement,
the temporary Global Security will be exchangeable for interests in such
definitive Global Security or for such individual Bearer Certificates,
respectively, only upon receipt of a "Certificate of Non-U.S. Beneficial
Ownership." A "Certificate of Non-U.S. Beneficial Ownership" is a
certificate to the effect that a beneficial interest in a temporary Global
Security is owned by a person that is not a U.S. Person or is owned by or
through a financial institution in compliance with applicable U.S. Treasury
regulations. No Bearer Certificate will be delivered in or to the United
States. If so specified in the applicable Prospectus Supplement, interest
on a temporary Global Security will be distributed to each of Euroclear and
CEDEL with respect to that portion of such temporary Global Security held
for its account, but only upon receipt as of the relevant Distribution Date
of a Certificate of Non-U.S. Beneficial Ownership.
51
CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in a Certificate having a Specified Currency other than
U.S. dollars entails significant risks that are not associated with a
similar investment in a security denominated in U.S. dollars. Such risks
include, without limitation, the possibility of significant changes in
rates of exchange between the U.S. dollar and such Specified Currency and
the possibility of the imposition or modification of foreign exchange
controls with respect to such Specified Currency. Such risks generally
depend on factors over which the Company has no control, such as economic
and political events and the supply of and demand for the relevant
currencies. In recent years, rates of exchange between the U.S. dollar and
certain currencies have been highly volatile, and such volatility may be
expected in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Certificate.
Depreciation of the Specified Currency for a Certificate against the U.S.
dollar would result in a decrease in the effective yield of such
Certificate below its Pass-Through Rate and, in certain circumstances,
could result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a Specified Currency for making distributions in respect of
Certificates denominated in such currency. At present, the Company has
identified the following currencies in which distributions of principal,
premium and interest on Certificates may be made: Australian dollars,
Canadian dollars, Danish kroner, Italian lire, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, Certificates distributable with
Specified Currencies other than those listed may be issued at any time.
There can be no assurance that exchange controls will not restrict or
prohibit distributions of principal, premium or interest in any Specified
Currency. Even if there are no actual exchange controls, it is possible
that, on a Distribution Date with respect to any particular Certificate,
the currency in which amounts then due to be distributed in respect of such
Certificate are distributable would not be available. In that event, such
payments will be made in the manner set forth above under "Description of
Certificates--General" or as otherwise specified in the applicable
Prospectus Supplement.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus is directed to
prospective purchasers of Certificates who are United States residents. The
applicable Prospectus Supplement for certain issuances of Certificates may
set forth certain information applicable to prospective purchasers who are
residents of countries other than the United States with respect to matters
that may affect the
52
purchase or holding of, or receipt of distributions of principal, premium or
interest in respect of, such Certificates.
Any Prospectus Supplement relating to Certificates having a Specified
Currency other than U.S. dollars will contain information concerning
historical exchange rates for such currency against the U.S. dollar, a
description of such currency, any exchange controls affecting such currency
and any other required information concerning such currency.
Payment Currency
Except as set forth below or unless otherwise provided in the
applicable Prospectus Supplement, if distributions in respect of a
Certificate are required to be made in a Specified Currency other than U.S.
dollars and such currency is unavailable due to the imposition of exchange
controls or other circumstances beyond the Company's control or is no longer
used by the government of the country issuing such currency or for the
settlement of transactions by public institutions of or within the
international banking community, then all distributions in respect of such
Certificate shall be made in U.S. dollars until such currency is again
available or so used. The amounts so payable on any date in such currency
shall be converted into U.S. dollars on the basis of the most recently
available Market Exchange Rate for such currency or as otherwise indicated
in the applicable Prospectus Supplement.
If distribution in respect of a Certificate is required to be made in
ECU and ECU is no longer used in the European Monetary System, then all
distributions in respect of such Certificate shall be made in U.S. dollars
until ECU is again so used. The amount of each distribution in U.S. dollars
shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior
to the date on which such distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined for the Certificates of any Series and
Class by the applicable Trustee on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the
currency amounts that were components of the ECU as of the last date on
which the ECU was used in the European Monetary System. The equivalent of
the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar
equivalents of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by such Trustee on the basis of the most
recently available Market Exchange Rates for such Components or as
otherwise indicated in the applicable Prospectus Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a
Component shall be divided or multiplied in the same proportion. If two or
more component currencies are consolidated into a single currency, the
amounts of those currencies as Components shall be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
component currencies expressed in such single
53
currency. If any component currency is divided into two or more currencies,
the amount of that currency as a Component shall be replaced by amounts of
such two or more currencies, each of which shall be equal to the amount of
the former component currency divided by the number of currencies into which
that currency was divided.
All determinations referred to above made by the applicable Trustee
shall be at its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and binding on the related
Certificateholders of such Series.
Foreign Currency Judgments
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates will be governed by and construed in accordance with the law of
the State of New York. Courts in the United States customarily have not
rendered judgments for money damages denominated in any currency other than
the U.S. dollar. A 1987 amendment to the Judiciary Law of the State of New
York provides, however, that an action based upon an obligation denominated
in a currency other than U.S. dollars will be rendered in the foreign
currency of the underlying obligation and converted into U.S. dollars at the
rate of exchange prevailing on the date of the entry of the judgment or
decree.
PLAN OF DISTRIBUTION
Certificates may be offered in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the
terms of the offering of any Series of Certificates, which may include the
names of any underwriters, or initial purchasers, the purchase price of
such Certificates and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers, any securities
exchanges on which such Certificates may be listed, any restrictions on the
sale and delivery of Certificates in bearer form and the place and time of
delivery of the Certificates to be offered thereby.
If underwriters are used in the sale, Certificates will be acquired by
the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Such Certificates may be offered to the public either through underwriting
syndicates represented by managing underwriters or by underwriters without
a syndicate. Such managing underwriters or underwriters in the United
States will include Lehman Brothers Inc., an affiliate of the Company.
Unless otherwise set forth in the applicable Prospectus Supplement, the
obligations of the underwriters to purchase such Certificates will be
subject to certain conditions precedent, and the underwriters will be
obligated to purchase all such Certificates if any of such Certificates are
purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from
time to time.
54
Certificates may also be sold through agents designated by the Company
from time to time. Any agent involved in the offer or sale of Certificates
will be named, and any commissions payable by the Company to such agent
will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent
will act on a best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Certificates at the public offering price
described in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in
such Prospectus Supplement. Such contracts will be subject only to those
conditions set forth in the applicable Prospectus Supplement and such
Prospectus Supplement will set forth the commissions payable for
solicitation of such contracts.
Any underwriters, dealers or agents participating in the distribution
of Certificates may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of Certificates may be
deemed to be underwriting discounts and commissions under the Securities
Act. Agents and underwriters may be entitled under agreements entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or underwriters may
be required to make in respect thereof. Agents and underwriters may be
customers of, engage in transactions with, or perform services for, the
Company or its affiliates in the ordinary course of business.
Lehman Brothers Inc. is an affiliate of the Company. Lehman Brothers
Inc.'s participation in the offer and sale of Certificates complies with
the requirements of Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. regarding underwriting securities of an
affiliate.
As to each Series of Certificates, only those Classes rated in one of
the investment grade rating categories by a Rating Agency will be offered
hereby. Any unrated Classes or Classes rated below investment grade may be
retained by the Company or sold at any time to one or more purchasers.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the
Underwriters so acting will be named, and its affiliation with the
Underwriters described, in the related Prospectus Supplement. Also,
affiliates of the Underwriters may act as principals or agents in
connection with market-making transactions relating to the Certificates. A
Prospectus Supplement will be prepared with respect to the Certificates for
use by such affiliates in connection with offers and sales related to
market-making transactions in the Certificates.
55
LEGAL OPINIONS
Certain legal matters with respect to the Certificates will be passed
upon for the Company and the underwriters by Weil, Gotshal & Manges, New
York, New York or other counsel identified in the applicable Prospectus
Supplement.
56
Subject to Completion Dated November 15, 1995
Prospectus Supplement
(To Prospectus Dated November 15, 1995)
Trust Certificates, Series 1995 - [ ]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable Pass Through Rate]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable Pass Through Rate]
Lehman ABS Corporation
Depositor
Each Trust Certificates Series 1995--[ ] offered hereby will consist of
classes of Certificates, designated as Class Certificates[,] [and] Class
Certificates [and list others], [all] of which [only the Class
Certificates[,] [and] Class Certificates [and list others]] (collectively,
the "Certificates") and will represent a fractional undivided beneficial
interest in the Series 1995--[ ] Trust (the "Trust") to be formed pursuant to
the Trust Agreement dated as of [ ], between Lehman ABS Corporation (the
"Company") and [ ], as trustee (the "Trustee"), as supplemented by the Series
1995--[ ] Supplement dated as of [ ] (collectively, the "Trust Agreement").
The property of the Trust will consist in part of [$][ ] aggregate principal
amount of [a [ %] [floating rate] [specify publicly issued debt security] due
of [specify issuer]] [a pool of [ %] [floating rate] publicly issued debt
securities having a term of [not less than years and not more than years]
issued by [the United States of America] [U.S. Government sponsored entity
issuers] [Government Trust Certificates ("GTCs") [provided that such GTCs,
together with any AID-Guaranteed Underlying Securities (as defined below),
shall not account for 20% or more of the aggregate cash flows on the
Underlying Securities securing any Series of Certificates]] [obligations
guaranteed by the United States Agency for International Development ("AID-
Guaranteed Underlying Securities") [provided that such AID-Guaranteed
Underlying Securities, together with any GTCs, shall not account for 20% or
more of the aggregate cash flows on the Underlying Securities securing any
Series of Certificates]] [(other than the Retained Interest referred to
herein)] (collectively, the "Underlying Securities"), and having the
characteristics described herein under "Description of the Deposited Assets."
Terms used but not otherwise defined herein are defined in the Prospectus
attached hereto (the "Prospectus").
The Underlying Securities will be acquired by the Company and, pursuant to
the Trust Agreement, deposited into the Trust for the benefit of
Certificateholders. [The Underlying Securities were issued and sold as part
of an underwritten public offering in [ ].] The Underlying Securities are
obligations of the Underlying Securities Issuer and [explain whether senior
or subordinate, whether secured or unsecured and whether subject to any
redemption or put rights]. [Describe any required principal payments of
Underlying Securities.]
Distributions on the Certificates will be made [monthly] [quarterly]
[semi-annually] on [[ ] of each year] [to be conformed to interest payment dates
for Underlying Securities], or, if any such date is not a business day, then on
the immediately following business day (each, a "Distribution Date") commencing
[ ]. The last day on which distributions are scheduled to be made on the
Certificates is [ ] (the "Final Distribution Date"), by which date the holders
of the Certificates will receive a distribution of all amounts allocable to
principal on such Certificates or, to the extent specified herein, a pro rata
share of any remaining Underlying Securities.
See "Risk Factors" herein on pages [__] to [__] and in the Prospectus on
pages 5 to 7.
(cover continued on next page)
-------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
AN OBLIGATION OF OR INTEREST IN THE COMPANY OR ANY OF ITS RESPECTIVE
AFFILIATES. THE CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE
UNDERLYING SECURITIES ISSUER OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The Underwriter has agreed to purchase the Certificates from the Company at [
]% of the Certificate Principal Balance thereof ($[ ] aggregate proceeds to
the Company, before deducting expenses estimated at $[ ]) plus accrued
interest, if any, at the Pass-Through Rate calculated from [ ], 1995 (the
"Expected Settlement Date"), subject to the terms and conditions set forth in
the Underwriting Agreement referred to herein under "Underwriting."
The Underwriter proposes to offer the Certificates from time to time for sale
in negotiated transactions or otherwise, at prices determined at the time of
sale. For further information with respect to the plan of distribution and
any discounts, commissions or profits that may be deemed underwriting
discounts or commissions, see "Underwriting."
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the [specify applicable classes]
Certificates will be made in book-entry form through the facilities of The
Depository Trust Company on or about the Expected Settlement Date.
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
(cover page continued)
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to
Certificateholders [of each class] in the manner and priority described
herein. [The rights of the holders of the Class Certificates [and specify
other classes] to receive distributions of such collections are subordinated
to the rights of the holders of the Class Certificates [and specify other
classes].] As and to the extent described herein, losses realized on the
Deposited Assets will be borne by the holders of the Class Certificates [and
specify other classes] before such losses will be borne by the holders of the
other classes of Offered Certificates [and the Class Certificates [and
specify other classes]]. To the extent described herein, the relative
priorities of each class of Certificates with respect to collections from and
losses on the Deposited Assets may each change over time, either permanently
or temporarily, upon the occurrence of certain circumstances specified
herein. See "Description of the Certificates--Subordination."
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, this offering.
There is currently no secondary market for the Certificates, and there can be
no assurance that a secondary market for the Certificates will develop or, if
it does develop, that it will continue. See "Risk Factors" in the Prospectus.
The [specify applicable classes] Certificates initially will be represented
by certificates registered in the name of CEDE & Co., as nominee of The
Depository Trust Company ("DTC"). The interests of beneficial owners of such
Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for
such Certificates only under the limited circumstances described herein. See
"Description of the Certificates--Definitive Certificates."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED NOVEMBER 15, 1995, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS
CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED
HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN
THIS PROSPECTUS SUPPLEMENT.
UNTIL , 1995, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
SUMMARY OF PRINCIPAL ECONOMIC TERMS
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including under
the headings "Description of the Certificates", "Description of the
Underlying Securities" and "Description of Credit Support." Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent
not defined herein, have the meanings assigned to such terms in the
Prospectus.
The Certificates
The Trust . . . . . . . . . . Series 1995-[ ] Trust. The Trust will be
formed pursuant to the Trust Agreement
dated as of [ ] (the "Base Trust
Agreement"), between the Company and the
Trustee, as supplemented by the Series
1995-[ ] Supplement dated as of the
Expected Settlement Date (the "Series
Supplement" and, together with the Base
Trust Agreement, the "Trust Agreement").
Securities Offered . . . . . Trust Certificates, Series 1995-[ ],
consisting of Class [ ] Certificates[,]
[and] Class [ ] Certificates [and specify
others] (collectively, the
"Certificates").
[Initial Certificate
Principal Balance]
[Notional Amount] . . . . . . Class [ ]: [$][ ]. Class [ ]: [$][ ].
Final Distribution Date . . . Class [ ]. Class [ ].
Pass-Through Rates. . . . . . [The Variable Pass-Through Rates
applicable to the calculation of the
interest distributable on any
Distribution Date on the Certificates
[(other than the Class [ ] Certificates)]
are equal to [describe method for
determining variable rates]. The initial
Variable Pass-Through Rates for the
Class [ ] Certificates[,] [and] the Class
[ ] Certificates [and specify others] are
approximately ___%[,] [and] ___% [and
___%] per annum, respectively.] [The
Pass-Through Rate applicable to the
calculation of the interest distributable
on any Distribution Date on the [specify
classes] Certificates is fixed at ___%
[and ___%, respectively,] per annum.]
S-3
Deposited Assets . . . . . . The Deposited Assets shall consist of the
Underlying Securities [and describe any
assets which are ancillary or incidental
to the Underlying Securities]. See "--The
Underlying Securities" [, "--Other
Deposited Assets"] and "Description of
the Deposited Assets" below.
Original Issue Date. . . . . [ ].
Cut-off Date . . . . . . . . [ ].
Distribution Date. . . . . . [ ], commencing [ ].
Record Date. . . . . . . . . The [ ] day immediately preceding each
Distribution Date.
Denominations;
Specified Currency . . . . . The Class [ ] Certificates[,] [and] Class
[ ] Certificates [and specify others]
will be denominated and payable in [U.S.
dollars] [ ] (the "Specified Currency")
and will be available for purchase in
minimum denominations of [$][ ] and
[integral multiples thereof] [multiples
of [$][ ] in excess thereof].
Interest Accrual
Periods . . . . . . . . . . . [Monthly] [Quarterly] [Semi-annually]
(or, in the case of the first Interest
Accrual Period, from and including the
Original Issue Date to but excluding the
first Distribution Date).
Form of Security. . . . . . . Book-entry Certificates with The
Depository Trust Company ("DTC"), except
in certain limited circumstances. See
"Description of the
Certificates--Definitive Certificates."
Distributions thereon will be settled in
[immediately available (same-day)]
[clearinghouse (next-day)] funds.
Trustee . . . . . . . . . . . [ ], as trustee.
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]]. [Specify
specific ratings requirements for
particular classes, including the extent
to which the issuance of the Certificates
of a given class is conditioned upon
satisfaction of the ratings of
each other class of Certificates.]
See "Ratings."
S-4
The Underlying Securities
Underlying Securities . . . . [A [ ]% [floating rate] [publicly issued
[treasury] [debt] security due [ ] [A
pool of publicly issued [treasury
securities] [debt securities of various
United States government sponsored
entities] [Government Trust Certificates
("GTCs") [provided that such GTCs,
together with any AID-Guaranteed
Underlying Securities (as defined below),
shall not account for 20% or more of the
aggregate cash flows on the Underlying
Securities securing any Series of
Certificates]] [obligations guaranteed by
the United States Agency for
International Development
("AID-Guaranteed Underlying Securities")
[provided that such AID-Guaranteed
Underlying Securities, together with any
GTCs, shall not account for 20% or more
of the aggregate cash flows on the
Underlying Securities securing any Series
of Certificates]], exclusive of the
Retained Interest] [in/having] an
aggregate principal amount of [$][ ].
[GSE Issuer]. . . . . . . . . [Specify issuer] [Pool of various U.S.
government sponsored entity issuers].
Underlying Security
Original Issue Date . . . . . [ ].
Underlying Securities
Final Payment Date. . . . . . [ ].
Amortization. . . . . . . . . [Describe amortization schedule, if any].
Denominations; Underlying
Securities Currency . . . . . The Underlying Securities are denominated
and payable in [U.S. dollars] [ ] (the
"Underlying Securities Currency") and are
available in minimum denominations of
[$][ ] and [integral multiples thereof]
[multiples of [$][ ] in excess thereof].
Underlying Securities
Payment Dates . . . . . . . . [ ], commencing [ ].
Underlying Securities Rate. . [ % per annum.] [A [Weighted Average]
rate per annum equal to [specify interest
rate formula for debt security].]
Underlying Securities
Interest Accrual
Periods . . . . . . . . . . . [Monthly] [Quarterly] [Semi-annually].
S-5
Priority. . . . . . . . . . . [Describe senior or subordinated status
of Underlying Securities].
Security. . . . . . . . . . . [Describe existence of any security for
obligations or state that Underlying
Securities are unsecured].
Redemption/Put/
Other Features. . . . . . . . [Describe existence of any redemption,
put or other material features applicable
to the Underlying Securities].
Form of Security. . . . . . . Book-entry debt securities with [DTC]
[Federal Reserve Bank] [listed on the
[New York] [American] Stock Exchange
[specify other listing]].
[Fiscal Agent]. . . . . . . . [ ]. [The Underlying Securities have not
been issued pursuant to [an indenture and
no trustee is provided for.] [ ] acts as
fiscal agent for the Outstanding Debt
Securities pursuant to an agreement dated
as of [ ], 19[ ] (the "Fiscal Agency
Agreement"), between the Fiscal Agent and
the GSE Issuer.
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]]. See
"Description of the Underlying
Securities--Ratings of Underlying
Securities."
Other Deposited Assets
[Provide similar tabular summary description of the principal economic
terms of any credit support or other ancillary or incidental asset]
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary does not purport to be complete and is qualified
in its entirety by reference to the detailed information appearing
elsewhere herein and in the Prospectus.
Depositor . . . . . . . . . . Lehman ABS Corporation, an indirect
wholly-owned subsidiary of Lehman
Brothers Inc (the "Company"). See
"The Company" in the Prospectus.
Certificates. . . . . . . . . The Certificates, each of which
represents a fractional undivided
beneficial interest in the Trust,
will be issued pursuant to the Trust
Agreement. The Certificates will
consist of [ ] classes, designated
as Class [ ] Certificates [and] [,]
Class [ ] Certificates [and [specify
other classes]], [all] of which [all
but the Class [ ] Certificates] are
being offered hereby (collectively,
the "Certificates").
The Certificate Principal Balance of
a Certificate outstanding at any
time represents the maximum amount
that the holder thereof is entitled
to receive as distributions
allocable to principal. The
Certificate Principal Balance of a
Certificate will decline to the
extent distributions allocable to
principal are made to such holder.
[The Notional Amount of the Class [
] Certificates as of any date of
determination is equal to [specify].
Reference to the Notional Amount of
the Class [ ] Certificates is solely
for convenience in determining the
basis on which distributions on the
Class [ ] Certificates are
calculated [and determining the
relative voting rights of
Certificateholders of Class [ ]
Certificates for purposes of voting
on a class-by-class basis or
otherwise]. The Notional Amount does
not represent the right to receive
any distributions allocable to
principal.]
[The Class [ ] Certificates, which
are not being offered hereby, have
in the aggregate an initial
Certificate Principal Balance of
[$]_____ (approximate) and a
[Variable] Pass-Through Rate [of
___%]. The Class [ ] Certificates
represent the right to receive
distributions in respect of their
Certificate Principal Balance and
interest thereon at their applicable
Pass-Through Rate.] Shortfalls in
collections with respect to the
Deposited Assets will be allocated
solely to the Class [ ] Certificates
to the extent provided herein and,
thereafter, will be allocated among
the Certificates and the Class [ ]
Certificates, as provided herein.
[The Class [ ] Certificates
S-7
will be transferred by the Company
to an affiliate on or about , 1995
(the "Closing Date"), and may be
sold at any time in accordance with
any restrictions in the Trust
Agreement.]
The Underlying
Securities. . . . . . . . . . Interest on the Underlying
Securities accrues at the Underlying
Securities Rate for each Underlying
Securities Accrual Period and is
payable on each Underlying
Securities Payment Date. The entire
principal amount of the Underlying
Securities will be payable on the
Underlying Securities Final Payment
Date. [The Underlying Securities
have a remaining term to maturity of
approximately years.] [As of the
Cut-off Date, the pool of Underlying
Securities has a weighted average
interest rate of % and a weighted
average remaining term to maturity
of approximately years.
Approximately % [specify if greater
than 10%] of such Underlying
Securities consist of debt
securities of [specify U.S.
government sponsored entity or
agency].
[Name such obligor] is a [U.S.
government-sponsored entity]
[specify other] whose principal
executive offices are located at
[specify address]. The obligor
[makes available to the public upon
request certain annual financial and
other information]. See "Description
of the Deposited Assets."
[Other Deposited
Assets and Credit Support . . The Deposited Assets will also
include [describe any assets which
are ancillary or incidental to the
Underlying Securities, including
hedging contracts such as puts,
calls, interest rate swaps, currency
swaps, floors, caps and collars]
(such assets, together with the
Underlying Securities, the
"Deposited Assets"). See
"Description of the Deposited
Assets."
The Certificateholders of the
[specify particular classes]
Certificates will have the benefit
of [describe credit support] to
support or ensure the [servicing
and] [timely] [ultimate]
distribution of amounts due with
respect to the Deposited Assets,
including providing certain coverage
with respect to losses thereon.]
Distributions . . . . . . . . Holders of the Certificates will be
entitled to receive on each
Distribution Date, to the extent of
available funds on such Distribution
Date, after payment of the expenses
of the Trustee and its respective
agents up to the Allowable Expense
Amount, (i) [in the case of each
class of Certificates other than
S-8
the Class [ ] Certificates,]
distributions allocable to interest
at the applicable Pass-Through Rate
on applicable Certificate Principal
Balance, (ii) [in the case of each
class of Certificates other than the
Class [ ] Certificates,]
distributions allocable to principal
and (iii) [in the case of each class
of Certificates other than the Class
[ ] Certificates,] distributions
allocable to premium (if any) in an
amount equal to all payments of
premium (if any) received on the
Underlying Securities for the
applicable Collection Period.
Distributions will be made to
Certificateholders only if, and to
the extent that, payments are made
with respect to the Deposited Assets
or are otherwise covered by any
Credit Support. [The holders of the
Class [ ] Certificates will be
entitled to receive on each
Distribution Date distributions
allocable to interest in an amount
equal to [describe Stripped
Interest].] [The holders of the
Class [ ] Certificates will not be
entitled to receive any
distributions allocable to principal
or premium (if any).] See
"Description of the
Certificates--Distributions."
Special Distribution
Dates . . . . . . . . . . . . If a payment with respect to the
Underlying Securities is made to the
Trustee after the Underlying
Securities Payment Date on which
such payment was due, then the
Trustee shall distribute any such
amount received on the next
occurring Business Day (a "Special
Distribution Date") as if such funds
had constituted Available Funds on
the Distribution Date immediately
preceding such Special Distribution
Date; provided, however, that the
Record Date for such Special
Distribution Date shall be [five
Business Days (as such term is
defined in the Prospectus, "Business
Day") prior to the day on] which the
related payment was received from
the Underlying Securities Trustee.
[Subordination. . . . . . . . As and to the extent described
herein, the rights of the holders of
the Class [ ] Certificates [and
specify other classes] to receive
distributions of principal, premium
(if any), and interest with respect
to the Deposited Assets will be
subordinated to the rights of the
holders of the other classes of
Certificates with respect to losses
attributable to principal, premium
(if any) and interest realized on a
Deposited Asset (such losses,
"Realized Losses"). See "Description
of the Certificates--Allocation of
Losses; Subordination."]
Optional Termination. . . . . At its option, the [Company] may
purchase all the Deposited Assets in
the Trust, and thereby cause the
termination of the Trust and early
retirement of the Certificates, on
any
S-9
Distribution Date on which the
aggregate principal amount of the
Deposited Assets remaining in Trust
is less than [10%] of the aggregate
principal amount of the Deposited
Assets as of the Cut-off Date.
[Specify any other purchase or
repurchase option of the Company.]
See "Description of the Trust
Agreement--Termination" herein and
"Description of
Certificates--Termination" in the
Prospectus.
Certain Federal
Income Tax Consequences . . . In the opinion of tax counsel to the
Trust, the Trust will be classified
for Federal income tax purposes [as
a grantor trust] [as a partnership]
and not as an association taxable as
a corporation. See "Certain Federal
Income Tax Consequences."
Ratings . . . . . . . . . . . It is a condition to the issuance of
the Certificates that the
Certificates have the ratings
specified above under "Summary of
Principal Economic Terms--The
Certificates--Ratings." A security
rating is not a recommendation to
buy, sell or hold securities and may
be subject to revision or withdrawal
at any time by the assigning rating
agency. A security rating does not
address the occurrence or frequency
of redemptions or prepayments on, or
extensions of the maturity of, the
Deposited Assets, the corresponding
effect on yield to investors [or
whether investors in the Class [ ]
Certificates may fail to recover
fully their initial investment]. See
"Ratings."
ERISA Considerations. . . . . An employee benefit plan subject to
the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), and an individual
retirement account (each, a "Plan")
may purchase Certificates of any
class if either (i) the Company is
able to confirm the existence of at
least 100 independent purchasers of
such class or (ii) the Plan can
represent that its purchase of the
Certificates would not be prohibited
under ERISA or the Code. See "ERISA
Considerations."
S-10
FORMATION OF THE TRUST
The Trust will be formed pursuant to the Trust Agreement (including the
Series [ ] Supplement) between the Company and the Trustee. Concurrently with
the execution and delivery of the Series [ ] Supplement, the Company will
deposit the Underlying Securities in the Trust. The Trustee, on behalf of the
Trust, will accept such Underlying Securities and will deliver the
Certificates to or upon the order of the Company.
The Underlying Securities will be purchased by the Company in the
secondary market (either directly or through an affiliate of the Company).
The Underlying Securities will not be acquired from any GSE Issuer as part of
any distribution by or pursuant to any agreement with such issuer. [No][The]
GSE Issuer is [not] participating in this offering and [none] will [not]
receive any of the proceeds of the sale of the Underlying Securities to the
Company or the issuance of the Certificates. [Neither the Company nor any of
its affiliates participated in the initial public offering of the Underlying
Securities] [Lehman Brothers Inc., an affiliate of the Company, participated
in the initial public offering of the Underlying Securities as a
[co-underwriter] [underwriter]].
RISK FACTORS
[Describe risk factors applicable to the specific Underlying Securities,
other Deposited Assets and the particular structure of the Certificates being
offered, including factors relating to the yield on the Certificates and
risks associated with the Deposited Assets (including any material risks as a
result of the inclusion in the Deposited Assets of GTCs or AID-Guaranteed
Underlying Securities) and the terms thereof, as described elsewhere herein.]
See "Risk Factors" and "Maturity and Yield Considerations" in the Prospectus.
[The Underlying Securities are not guaranteed by the federal government
or any agency or instrumentally thereof, other than the Underlying Securities
Issuer.]
DESCRIPTION OF THE DEPOSITED ASSETS
General
[This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed
information with respect to the Underlying Securities. This Prospectus
Supplement relates only to the Certificates offered hereby and does not
relate to the Deposited Assets. All disclosure contained herein with
respect to the Underlying Securities is derived from publicly available
documents. [Identify publicly available documents]. Although the Company
has no reason to believe the information concerning the Underlying Securities,
or any GSE Issuer in the Underlying Securities Prospectus[es] [and other
publicly available information] is not reliable, neither the Company nor
any of the Underwriters has participated in the preparation of such
documents, or made any due diligence inquiry with respect to the
information provided therein. There can be no assurance that events
affecting the Underlying Securities or a GSE
S-11
Issuer have not occurred, which have not yet been publicly disclosed, which
would affect the accuracy or completeness of the publicly available
documents described above.
[Use the following where the Underlying Securities consist of a pool
of obligations of multiple obligors]
[The Deposited Assets will consist primarily of the Underlying
Securities, which are a pool of [treasury securities] [and] [publicly
issued debt securities of U.S. government-sponsored entities] [Government
Trust Certificates ("GTCs") [provided that such GTCs, together with any
AID-Guaranteed Underlying Securities (as defined below), shall not account
for 20% or more of the aggregate cash flows on the Underlying Securities
securing any Series of Certificates]] [obligations guaranteed by the United
States Agency for International Development ("AID-Guaranteed Underlying
Securities") [provided that such AID-Guaranteed Underlying Securities,
together with any GTCs, shall not account for 20% or more of the aggregate
cash flows on the Underlying Securities securing any Series of
Certificates]]. The Underlying Securities will be purchased by the Company
in the secondary market (either directly or through an affiliate of the
Company) and will be deposited in to the Trust. The Underlying Securities
will not be acquired either from the respective obligors on the Underlying
Securities or pursuant to any distribution by or agreement with such
obligors.
The composition of the Underlying Securities pool and the distribution
by ratings, remaining term to maturity and interest rate of the Underlying
Securities as of the Cut-off Date are as set forth below:
Composition of the Underlying Securities Pool
as of the Cut-off Date
Number of Underlying Securities:
Aggregate Principal Balance: [$]
Average Principal Balance: [$]
Largest Balance: [$]
Weighted Average Interest Rate: %
Weighted Average Original Term
to Maturity: years
Weighted Average Remaining Term
to Maturity: years
Longest Remaining Term
to Maturity: years
S-12
Distribution by Ratings of the
Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Rating Number Balance Balance
------ ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
Distribution by Remaining Term to Maturity
of the Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Remaining Term Principal Principal
to Maturity Number Balance Balance
- -------------- ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
Distribution by Interest Rate of the
Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Interest Rate Range Number Balance Balance
------------------- ------ --------- ----------
% to % [$] %
Greater than %
------ --------- ----------
Total [$] 100%
====== ========= ==========
The Underlying Securities consist of [treasury securities] [debt
securities of U.S. government-sponsored entities] [GTCs [provided that such
GTCs, together with any AID-Guaranteed Underlying Securities, shall not
account for 20% or more of the aggregate cash flows on the
S-13
Underlying Securities securing any Series of Certificates]] [AID-Guaranteed
Underlying Securities [provided that such AID-Guaranteed Underlying
Securities, together with any GTCs, shall not account for 20% or more of
the aggregate cash flows on the Underlying Securities securing any Series
of Certificates]]. As of the Cut-off Date, [all of] [approximately % of]
such Underlying Securities were rated [investment grade] [specify
particular rating] by at least one nationally recognized rating agency,
and, based on publicly available information, no obligor or any Underlying
Security was in default in the payment of any installments of principal,
interest or premium (if any) with respect thereto. Any such rating of any
of the Underlying Securities is not a recommendation to purchase, hold or
sell such Underlying Security or the Certificates, and there can be no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a rating agency if in
its judgment circumstances in the future so warrant. See "Ratings" herein
and "Risk Factors -- Ratings of the Certificates" in the accompanying
Prospectus regarding certain considerations applicable to the ratings of
the Certificates.
[The following is a summary of the typical Underlying Security Events
of Default for each series of Outstanding Debt Securities. Any additional
Underlying Security Events of Default unique to a Concentrated Underlying
Security have been described following the summary:
(a) failure to make payments of principal (and premium, if any) and
interest to holders of the Outstanding Debt Securities when the same
shall be due;
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in any material respect any
covenant or agreement continuing for a specified period of time after
notice thereof is given to the GSE Issuer by the holders of not less than
a specified percentage of the Outstanding Debt Securities;
(c) certain events of bankruptcy or insolvency relating to the GSE
Issuer[; and
(d) describe any additional common events of default with respect to
the pool of Underlying Securities].]
As of the Cut-off Date, [all of] [approximately __% of] the Underlying
Securities were [subject to [describe any put, call or other conversion or
redemption options applicable to the Underlying Securities]] [and [all of]
[approximately % of] the Underlying Securities were [describe the nature of
the obligation represented by such Underlying Securities (i.e., senior,
subordinate, secured) and describe commonalities with respect to any
subordination or security provisions or collateral.]]
The pool of Underlying Securities, together with any other assets
described below and any Credit Support described under "Description of Credit
Support", represent the sole assets of the Trust that are available to make
distributions in respect of the Certificates.]
[Use the following with respect to each obligor the Underlying Securities of
which represent more than 10% of the total Underlying Securities available to
make distributions in respect of
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the Certificates -- only a single obligor is referred to for purposes of this
section of the form of Prospectus Supplement]
[A significant portion of] [Virtually all of] [All of] the Deposited
Assets of the Trust will consist of the [___%] [floating rate] [specify
publicly issued debt security] due of [specify issuer][, exclusive of the
interest therein retained by [the Company] as described below (the "Retained
Interest")], having an aggregate principal amount outstanding as of the
Cut-off Date of approximately [$] [specify currency] (the "Underlying
Securities"). The Underlying Securities (other than Underlying Securities
which are issued by the United States of America) will be purchased by the
Company in the secondary market (either directly or through an affiliate of
the Company) and will be deposited into the Trust. The Underlying Securities
will not be acquired either from [name such obligor] or pursuant to any
distribution by or agreement with [name such obligor]. [Describe any put,
call or other conversion or redemption options applicable to the Underlying
Securities, s well as the nature of the obligation represented by such
Underlying Securities (i.e., senior, subordinate, secured)]. As of the
Cut-off Date, the foregoing debt security comprising [ %] of the Underlying
Securities was rated [specify investment grade rating] [investment grade] by
[specify nationally recognized rating agency or agencies], and, based on
publicly available information, the obligor thereon was not in default in the
payment of any installments of principal, interest or premium (if any) with
respect thereto. Any such rating of such Underlying Securities is not a
recommendation to purchase, hold or sell such Underlying Securities or the
Certificates, and there can be no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if in its judgment circumstances in the future so
warrant. See "Ratings" herein and "Risk Factors -- Ratings of the
Certificates" in the accompanying Prospectus regarding certain considerations
applicable to the ratings of the Certificates.
[The Federal National Mortgage Association
The Federal National Mortgage Association ("Fannie Mae") is a federally
chartered and stockholder-owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, 12 U.S.C. 1716 et seq.
It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938, as a United States government
agency to provide supplemental liquidity to the mortgage market and was
transformed into a stockholder-owned and privately managed corporation by
legislation enacted in 1968. Fannie Mae provides funds to the mortgage market
by purchasing mortgage loans from lenders, thereby replenishing their funds
for additional lending. Fannie Mae acquires funds to purchase loans from many
capital market investors that ordinarily may not invest in mortgage loans,
thereby expanding the total amount of funds available for housing. Operating
nationwide, Fannie Mae helps to redistribute mortgage funds from
capital-surplus to capital-short areas. Fannie Mae also issues
mortgaged-backed securities ("MBS"). Fannie Mae receives guaranty fees for
its guaranty of timely payment of principal of and interest on MBS. Fannie
Mae issues MBS primarily in exchange for pools of mortgage loans from
lenders. The issuance of MBS enables Fannie Mae to further its statutory
purpose of increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to
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time Fannie Mae prepares supplements to its Information Statement which
include certain unaudited financial data and other information concerning the
business and operations of Fannie Mae. These documents can be obtained
without charge from Paul Paquin, Senior Vice President -- Investor Relations,
Fannie Mae, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (telephone:
(202) 752-7115). Fannie Mae is not subject to the periodic reporting
requirements of the Securities Exchange Act of 1934.]
[The Federal Home Loan Mortgage Corporation
The Federal Home Loan Mortgage Corporation ("Freddie Mac") is a publicly
held government-sponsored enterprise created on July 24, 1970 pursuant to the
Federal Home Loan Mortgage Corporation Act, Title III of the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac's statutory
mission is to provide stability in the secondary market for home mortgages,
to respond appropriately to the private capital market and to provide ongoing
assistance to the secondary market for home mortgages (including mortgages
secured by housing for low-and moderate-income families involving a
reasonable economic return to Freddie Mac) by increasing the liquidity of
mortgage investments and improving the distribution of investment capital
available for home mortgage financing. The principal activity of Freddie Mac
consists of the purchase of first lien, conventional, residential mortgages
and participation interests in such mortgages from mortgage lending
institutions and the resale of the mortgages so purchased in the form of
guaranteed mortgage securities. Freddie Mac generally matches and finances
its purchases or mortgages with sales of guaranteed securities. Mortgages
retained by Freddie Mac are financed with short-and long-term debt, cash
temporarily held pending disbursement to security holders, and equity
capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to
its Information Statement which include certain unaudited financial data and
other information concerning the business and operations of Freddie Mac.
These documents can be obtained from Freddie Mac by writing or calling
Freddie Mac's Investor Inquiry Department at 8200 Jones Branch Drive, McLean,
Virginia 22102 (outside Washington, D.C. metropolitan area, telephone (800)
336-3672; within Washington, D.C. metropolitan area, telephone (703)
759-8160). Freddie Mac is not subject to the periodic reporting requirements
of the Securities Exchange Act of 1934.]
[The Student Loan Marketing Association
The Student Loan Marketing Association ("Sallie Mae") is a
stockholder-owned corporation established by the 1972 amendments to the
Higher Education Act of 1965, as amended, to provide liquidity, primarily
through secondary market and warehousing activities, for lenders
participating in the Federal Family Education Loan ("FFEL") program and the
Health Education Assistance Loan Program. Under the Higher Education Act,
Sallie Mae is authorized to purchase, warehouse, sell and offer
participations or pooled interests in, or otherwise deal in, student loans,
including, but not limited to, loans insured under the FFEL program, and to
make commitments for any of the foregoing. Sallie Mae is also authorized to
buy, sell, hold, underwrite and otherwise deal
S-16
in obligations of eligibe lenders, if such obligations are issued by such
eligible lender for the purpose of making or purchasing federally guaranteed
student loans under the Higher Education Act. As a federally chartered
corporation, Sallie Mae's structure and operational authorities are subject
to revision by amendments to the Higher Education Act of other federal
enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to
its Information Statement which include certain unaudited financial data and
other information concerning the business and operations of Sallie Mae. These
documents can be obtained without charge upon written request to the
Corporate and Investor Relations Division of Sallie Mae at 1050 Thomas
Jefferson Street, N.W., Washington, D.C. 20007, telephone (202) 298-3010.
Sallie Mae is not subject to the periodic reporting requirements of the
Securities Exchange Act of 1934.]
[The Resolution Funding Corporation
The Resolution Funding Corporation ("REFCORP") is a mixed-ownership
government corporation established by Title V of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (the "FIRRE Act"). The sole
purpose of the REFCORP is to provide financing for the Resolution Trust
Corporation (the "RTC"). REFCORP is to be dissolved, as soon as practicable,
after the maturity and full payment of all obligations issued by it. REFCORP
is subject to the general oversight and direction of the Oversight Board,
which is comprised of the Secretary of the Treasury, the Chairman of the
Federal Reserve Board of Governors, the Secretary of Housing and Urban
Development and two independent members from different political parties to
be appointed by the President with the advice and consent of the Senate. The
day-to-day operations of REFRCORP are under the management of a three-member
Directorate comprised of the Director of the Office of Finance of the FHLBs
and two members selected by the Oversight Board from among the presidents of
twelve FHLBs.
The RTC was established by the FIRRE Act to manage and resolve cases
involving failed savings and loan institutions pursuant to policies
established by the Oversight Board. The RTC is to manage and resolve cases
for which a receiver or conservator was appointed between January 1, 1989
through August 9, 1992. The RTC is authorized to issue nonvoting capital
certificates to REFCORP in exchange for the funds transferred from REFCORP to
the RTC. The RTC will terminate on or before December 31, 1996. The FIRRE Act
limits the aggregate principal amount of interest bearing obligations which
may be issued by REFCORP to $30 billion, which amount of obligations was
issued in 1989. Pursuant to the FIRRE Act, the net proceeds of these
obligations are used to purchase nonvoting capital certificates issued by the
RTC or to retire previously issued REFCORP obligations.
Information concerning REFCORP may be obtained from the Resolution
Funding Corporation, Suite 850, 655 Fifteenth Street, N.W., Washington, D.C.
20005. REFCORP is not subject to the periodic reporting requirements of the
Securities Exchange Act of 1934.]
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[The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the FHLBs). The mission of each FHLB is
to enhance the availability of residential mortgage credit by providing a
readily available, low-cost source of funds to its member institutions. A
primary source of funds for the FHLBs is the proceeds from the sale to the
public of debt instruments issued by the Federal Housing Finance Board, which
are the joint and several obligations of all of the FHLBs. The FHLBs are
supervised and regulated by the Federal Housing Finance Board, which is an
independent federal agency in the executive branch of the United States
government, but obligations of the FHLBs are not obligations of the United
States government.
The Federal Home Loan Bank System produces annual and quarterly
financial reports in connection with the original offering and issuance by
the Federal Housing Finance Board of consolidated bonds and consolidated
notes of the FHLBs. Questions regarding the Federal Home Loan Banks Combined
Financial Statement should be directed to the Deputy Director, Financial
Reporting and Operations Divisions, Federal Housing Finance Board, 1777 F
Street, N.W., Washington, D.C. 20006, (202) 406-2901. Copies of the Financial
Reports will be furnished upon request to the Capital Markets Divisions,
Office of Finance.]
[Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act
of 1933, as amended (the "TVA Act"). TVA's objective is to develop the
resources of the Tennessee Valley region in order to strengthen the regional
and national economy and the national defense. The programs of TVA consist of
power and nonpower programs. For the fiscal year ending September 30, 1994,
TVA received $140 million in congressional appropriations from the federal
government for the nonpower programs. The power program is required to be
self-supporting from revenues it produces. The TVA Act authorizes TVA to
issue evidences of indebtedness that may only be used to finance its power
program.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which
include certain unaudited financial data and other information concerning the
business and operations of TVA. These documents can be obtained upon written
request directed to Tennessee Valley Authority, 400 West Summit Hill Drive,
Knoxville, Tennessee 37902, Attention: Vice President and Treasurer, or by
calling (615) 632-3366.]
[Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending institutions
and affiliated service and other entities (the "System"). Through its Banks
("FCBs") and related associations, the System provides credit and related
services to farmers, ranchers, producers and harvesters of aquatic products,
rural homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as
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amended (the "Farm Credit Act"), and are subject to regulation by a Federal
agency, the Farm Credit Administration (the "FCA"). The FBCs and associations
are not commonly owned or controlled. They are cooperatively owned, directly
or indirectly, by their respective borrowers. Unlike commercial banks and
other financial institutions that lead to the agricultural sector in addition
to other sectors of the economy, under the Farm Credit Act the System
institutions are restricted solely to making loans to qualified borrowers in
the agricultural sector and to certain related businesses. Moreover, the
System is required to make credit and other services available in all areas
of the nation. In order to fulfill its broad statutory mandate, the System
maintains lending units in all 50 states and the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the
sale of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on
all Systemwide Debt Securities. Systemwide Debt Securities are issued by the
FCBs through the Federal Farm Credit Banks Funding Corporation, as agent for
the FCBs (the "Funding Corporation"). Each FCB determines its participation
in each issue of Systemwide Debt Securities based on its funding and
operating requirements, subject to the availability of eligible collateral,
to determinations by the Funding Corporation as to conditions of
participation and terms of each issuance, and to FCA approval.
Important information regarding the FCBs and the Farm Credit System,
including combined financial information, is contained in disclosure
information made available by the Funding Corporation. This information
consists of the most recent Farm Credit System Annual Information Statement
and any Quarterly Information Statements issued subsequent thereto
(collectively, "Information Statements") and certain press releases issued
from time to time by the Funding Corporation. Such information and the Farm
Credit System Annual Report to Investors for the current and two preceding
fiscal years are available for inspection at the Federal Farm Credit Banks
Funding Corporation, Investment Banking Services Department, 10 Exchange
Place, Suite 1401, Jersey City, New Jersey 07302; Telephone: (201) 200-8000.
Upon request, the Funding Corporation will furnish, without charge, copies of
the above information.]
[Government Trust Certificates
Government Trust Certificates ("GTCs") consist of certificates
evidencing undivided fractional interests in a trust, the assets of which
consist of promissory notes (the "Notes"), payable in U.S. Dollars, of a
certain foreign government, backed by a full faith and credit guaranty issued
by the United States of America, acting through the Defense Security
Assistance Agency of the Department of Defense (the "DSAA"), of the due and
punctual payment of 90% of all payments of principal and interest due on the
Notes and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government or agencies
thereof, sufficient to pay the remaining 10% of all payments of principal and
interest due on the Notes.
Many issuances of GTCs were undertaken pursuant to Title III of the
Foreign Operations, Export Financing and Related Programs Appropriations
Acts (the "Appropriations Acts"), which permit borrowers to prepay certain
eligible high-interest loans made by the Federal Financing Bank (the "FFB")
under the Foreign Military Sales ("FMS") Credit Program. The Appropriations
Acts
S-19
permit prepayment of the FMS loans with the proceeds of new loans and
authorize the issuance of a United States government guaranty covering no
more and no less than ninety percent (90%) of the payments due on each such
new loan, in accordance with the requirements of the Arms Export Control Act,
as amended (the "AECA"). It is a condition to the issuance of Certificates
under such program that the DSAA approve the refinancing of any such FMS
loan.
Although 90% of all payments of principal and interest on the Notes are
guaranteed by the United States government or agencies thereof, and 10% of
such payments are secured by securities of the United States government or
agencies thereof, the GTCs themselves are not so guaranteed. In the event of
a default on the Notes, the trustee of the Trust would be required by the
operative documents to make a claim against the United States government or
an agency thereof or would be required to liquidate the collateral securing
the Notes.
Payments Under the Guaranty. If the borrower under the Notes (the
"Borrower") fails to deposit with the related trustee (the "Trustee") all
amounts due on the Notes on any Note payment date (each, a "Note Payment
Date"), the Trustee will first notify the Borrower and, one business day
thereafter, will send a notice to the Director of the DSAA and to the related
depositary (the "Depositary") setting forth the amounts due on the Notes on
such Note Payment Date and the amounts, if any, received from the Borrower.
On the [11th calendar day] following the Note Payment Date, if any amounts
due on a Note remain unpaid, the Trustee will demand payment from DSAA on the
applicable Guaranty in accordance with its terms. On the day the Trustee
receives such payment, it will instruct the Depositary immediately to deliver
sufficient funds to pay the amounts remaining unpaid on the Note.
On the occurrence of an Event of Default (as defined in the related Loan
Agreement), the Trustee in its discretion may proceed to protect and enforce
the rights of the GTC holders under the Declaration of Trust by a suit,
action or other proceeding. As provided in the Loan Agreement, the Guaranty
and the Depositary Agreement, the Trustee has the legal power to exercise all
the rights, powers and privileges of a holder of the Note.
The Trustee is required to take all necessary action, as permitted by
the Declaration of Trust and applicable law (i) to enforce payments due from
DSAA under the Guaranty and (ii) to take possession of collateral maturing or
paying interest on or prior to the Note payment date on which default
occurred, and to apply such funds in accordance with the Declaration of Trust
for the benefit of holders of GTCs. The Trustee is required to notify the
Borrower upon taking the foregoing actions. Neither the Trust holding a Note
nor DSAA has the right to accelerate payment of the Note, notwithstanding any
failure of the Borrower to make payment on the Note or other Event of Default
with respect to the Note.
[The applicable Prospectus Supplement will specify, to the extent GTCs
are included as Underlying Securities, the waiting period that must elapse
before reimbursement for a default on the Notes, and the delay between
payment on the Notes and payment on the GTCs that is built into the GTCs to
protect against a delay in reimbursement.
S-20
In addition, the related Prospectus Supplement will specify, to the
extent applicable: (i) the aggregate principal amount of such GTCs; (ii) the
coupon, if any, borne by such GTCs; (iii) the stated maturity of each GTC;
(iv) the identity of each underlying obligor; and (v) the conditions under
which, and the terms on which, any underlying obligation may be prepaid or
redeemed prior to the stated maturity of the obligation.]]
[AID-Guaranteed Underlying Securities
General. AID-Guaranteed Underlying Securities consist of notes, bonds,
credit facilities and other debt instruments which are issued or arranged by
intermediary financial institutions ("IFIs") and guaranteed in whole or in
part by AID. Most AID guarantees are established under the auspices of the
Private Sector Investment Program (the "Investment Program"), created in 1983
under Section 108 of the Foreign Assistance Act of 1961 and administered by
AID. The Investment Program seeks to promote sustainable economic development
by strengthening the private sector in developing countries, primarily
through the facilitation of small business financing needs. In 1988 Congress
provided the Investment Program with loan guarantee authority, and guarantees
have become the Investment Program's principal financing instrument. AID
guarantees are backed by the full faith and credit of the United States
government.
AID Housing Guaranty Program. The Housing Guaranty Program (the "Housing
Program") is administered by the AID Office of Housing and Urban Programs.
The Housing Program facilitates collaboration between AID and host-country
housing instituion borrowers in both the public and private sectors. Under
the Housing Program AID participates in the planning, structuring and
execution of a housing or shelter finance program. Through the conclusion of
"implementation Agreements" the Housing Program aids developing countries in
securing favorable terms in U.S. capital markets for a U.S. government-
guaranteed loan.
Payments under the AID Guarantees. Pursuant to the Fiscal Agency
Agreement, if the Borrower does not deposit with the Fiscal Agent thereunder
at or before 12 o'clock noon, New York City time, on any date on which a
payment of principal, interest or maturity amount on the guaranteed AID-
Guaranteed Underlying Securities is due (each, an "AID-Guaranteed Underlying
Security Payment Date"), immediately available funds in an amount sufficient
to pay in full any interest and principal, and any maturity amount, due on
such AID-Guaranteed Underlying Security Payment Date with respect to the
guaranteed AID-Guaranteed Underlying Securities, the Fiscal Agent, acting on
behalf of the holders of the guaranteed AID-Guaranteed Underlying Securities,
is obligated to make a demand upon AID, not later than 2 o'clock p.m., New
York City time, on such AID-Guaranteed Underlying Security Payment Date for
payment pursuant to the Guarantees.
Pursuant to the Guarantees, AID is required, not later than three (3)
Business Days following receipt of such demand, to pay to the demanding AID-
Guaranteed Underlying Securityholders the applicable Guaranteed Amount.
Upon receipt by the Fiscal Agent of payments from AID pursuant to the
Guarantees, the Fiscal Agent will be required, if such payments are
received at or prior to 12 o'clock noon, New York City time, on any
Business Date, to remit such payments to the registered holders of the
guaranteed AID-
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Guaranteed Underlying Securities entitled thereto on such Business Day and,
if such payments are received after such time, to remit such payments to such
registered holders on the next such Business Day.
Each AID-Guaranteed Underlying Securityholder is deemed by the
acceptance of a guaranteed AID-Guaranteed Underlying Security to have
irrevocably appointed the Fiscal Agent as its agent for the purpose of making
a demand for payment upon AID pursuant to the Guarantees and receiving any
payment to an AID-Guaranteed Underlying Securityholder by AID pursuant to the
Guarantees. The Regulations also provide that any AID-Guaranteed Underlying
Securityholder may make demand for payment on AID under a Guarantee on its
own behalf immediately upon the failure of the Borrower to make any payment
when due under such AID-Guaranteed Underlying Securityholder's guaranteed
AID-Guaranteed Underlying Security. All payments made by AID to the Fiscal
Agent pursuant to the Guarantees will be held in trust by the Fiscal Agent
solely for the benefit of the registered holders of the guaranteed
AID-Guaranteed Underlying Securities until remitted to such holders. AID will
be discharged from its obligations to make a payment pursuant to the
Guarantees upon the making of such payment to the Fiscal Agent on behalf of
the AID-Guaranteed Underlying Securityholders, provided that such discharge
will be effective only as to such payment and to the extent of the amount of
such payment.
Events of Default. As provided by the terms of each AID-Guaranteed
Underlying Security, an Event of Default will be deemed to have occurred if
the borrower fails to make any payment on such AID-Guaranteed Underlying
Security on the applicable Payment Date. On the occurrence of an Event of
Default, the trustee of such AID-Guaranteed Underlying Security (the
"Underlying Trustee") or the Trustee may make demand on AID under the
Guarantees. However, none of the Fiscal Agent, the Trustee or AID may
accelerate payment of any AID-Guaranteed Underlying Security, notwithstanding
any failure of the borrower to make payment on the AID-Guaranteed Underlying
Securities.
[The related Prospectus Supplement will specify, to the extent
applicable: (i) the aggregate principal or notional principal amount of such
AID-Guaranteed Underlying Securities; (ii) the coupon, if any, borne by such
AID-Guaranteed Underlying Securities; (iii) the stated maturity of each
underlying obligation; (iv) the identity of each underlying obligor; (v) the
credit characteristics of such obligor; (vi) the rating, if any, assigned to
each such obligor, whether an actual or a shadow rating; (vii) the conditions
under which, and the terms on which, any underlying obligation may be prepaid
or redeemed prior to the stated maturity of the obligation; and (viii) the
identity of the Fiscal Agent.]
The Federal Credit Reform Act of 1990, Pub. Law 101-508 (the "Credit
Reform Act"), provides that payments in respect of loan guarantee commitments
made on or after October 1, 1991, including the guarantee commitments made by
AID under the Guarantees, will be made by the U.S. Treasury from a "financing
account" established under Section 502(7) of the Credit Reform Act. Section
505(c) of the Credit Reform Act authorizes the Secretary of the Treasury to
lend or pay to the financing account such amounts as may be necessary to make
any payments required to discharge loan guarantee obligations and commitments
in the event funds in the financing account are insufficient.]
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The Trust will have no other significant assets [other than any Credit
Support or those assets referred to below] from which to make distributions
of amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates
will depend [almost] entirely on the Trust's receipt of payments on the
foregoing Underlying Securities from [name such obligor]. Prospective
purchasers of the Certificates should consider carefully [name such
obligor]'s financial condition and its ability to make payments in respect of
such Underlying Securities. This Prospectus Supplement relates only to the
Certificates being offered hereby and does not relate to the Underlying
Securities of [name such obligor]. All information contained in this
Prospectus Supplement regarding [name such obligor] is derived from the
publicly available documents described in the preceding paragraph. Neither
the Company nor [any of] the Underwriter[s] has participated in the
preparation of such documents, or takes any responsibility for the accuracy
or completeness of the information provided therein.]
The Deposited Assets will also include [describe any assets which are
ancillary or incidental to the Underlying Securities, including hedging
contracts such as puts, calls, interest rate swaps, currency swaps, floors,
caps and collars, and any cash or other security pledged to support the
Underlying Securities] (such assets, together with the Underlying Securities,
the "Deposited Assets").
[DESCRIPTION OF CREDIT SUPPORT]
For the benefit [solely] of the [Offered] [Class [ ] Certificates [and
the Class [ ] Certificates]], Credit Support will be obtained [and will
constitute part of the Trust to the extent provided below] to support or
ensure the [servicing and] [timely] [ultimate] distribution of amounts due
with respect to the Deposited Assets, in the form and amount described below.
[The Letter of Credit
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Letter of Credit from [ ] (the "Letter
of Credit Bank") in favor of the Trustee on behalf of the Certificateholders.
The Letter of Credit will be irrevocable and will [support the [timely]
[ultimate] remittance of amounts due with respect to the Deposited Assets].
The maximum amount that the Trustee may draw under the Letter of Credit will
initially be equal to . The initial amount of the Letter of Credit will be
[$] . Thereafter, the amount of the Letter of Credit with respect to any
Distribution Date will equal [the lesser of (i) % of the aggregate
Certificate Principal Balance outstanding on the preceding Distribution Date
(after giving effect to any payment of principal made on such preceding
Distribution Date) but in any event not less than [$] , and (ii)] the amount
of the Letter of Credit on preceding Distribution Date, plus [(a)
reimbursement of certain advances under the Letter of Credit and (b)
recoveries on defaulted Deposited Assets] [describe other methods]. The
Letter of Credit expires on , 19 . The Trustee will be obligated, in the
event of a drawing on the Letter of Credit, to pursue appropriate remedies
against the Deposited Assets and other collateral, and any realization
thereon shall be paid to the Letter of Credit Bank to the extent of any
amounts owing, in the manner and priority specified herein.]
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[Add language regarding the Letter of Credit Bank with respect to its
debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Letter of Credit
Bank. In addition, to the extent that the Letter of Credit will cover payment
of 20% or more of the aggregate principal amount of the Certificates covered
thereby, provide information of financial and other matters with respect to
the Letter of Credit Bank.]]
[The Surety Bond
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Surety Bond from [ ] (the "Surety") in
favor of the Trustee on behalf of the Certificateholders. The Surety Bond
will guaranty [timely] [ultimate] distributions of the principal of and
premium (if any) and interest with respect to the [Offered] Class [ ]]
Certificates. The Surety Bond expires on , 19 . The Trustee will be
obligated,in the event of a drawing on the Surety Bond, to pursue appropriate
remedies against the Deposited Assets and other collateral, and any
realization thereon shall be paid to the Surety to the extent of any amounts
owing, in the manner and priority specified herein.
[Add language regarding the issuer of the Surety Bond with respect to
its debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Surety. In
addition, to the extent that the Surety Bond will cover payment of 20% or
more of the aggregate principal amount of the Certificates covered thereby,
provide information of financial and other matters with respect to the issuer
of the Surety Bond.]]
[Reserve Account
The Company will deposit with the Trustee on the Closing Date cash,
letters of credit and short-term investments acceptable to the Rating Agency
initially rating the Certificates in the amount of [$] . [Collections with
respect to the Deposited Assets not distributed with respect to the
Certificates shall be deposited in the Reserve Account.] Amounts so deposited
in such Reserve Account will be used by the Trustee to make payments of
principal of and premium (if any) and interest on the Certificates to the
extent that funds are not otherwise available. Immediately after any
Distribution Date, amounts in the Reserve Account in excess of [indicate
formula] [may be paid to the Company.]
YIELD ON THE CERTIFICATES
[Describe factors relating to the Deposited Assets, the terms thereof
and the manner and priority in which collections thereon are allocated to the
Certificateholders of each class of the Certificates, as described elsewhere
herein.] See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
S-24
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will consist of [ ] classes of Certificates, designated
as Class [ ] [,] [and] Class [ ] [and Class ____] Certificates. The
Certificates will be denominated and distributions with respect thereto will
be payable in the Specified Currency. The Certificates represent in the
aggregate the entire beneficial ownership interest in the related Trust. The
Class [ ] Certificates have in the aggregate an initial [Certificate
Principal Balance] [Notional Amount] of [$]_________ (approximate) and a [ %]
[Variable] Pass-Through Rate. The Class [ ] Certificates have in the
aggregate an initial [Certificate Principal Balance] [Notional Amount] of [$]
_____ (approximate) and a [___%] [Variable] Pass-Through Rate. [The Class [ ]
Certificates have in the aggregate an initial [Certificate Principal Balance]
[Notional Amount] of [$] _________ (approximate) and a [ %] [Variable]
Pass-Through Rate. [The Class [ ] Certificates, which are not being offered
hereby, will be transferred by the Company to an affiliate on the Closing
Date, and may be sold at any time by the Company in accordance with the terms
of the Trust Agreement.]
The Certificates [(other than the Class [ ] Certificates [and specify
others] (the "Definitive Classes"))] will be issued, maintained and
transferred on the book-entry records of DTC and its Participants in minimum
denominations of [$ ] and [integral multiples thereof] [multiples of [$ ] in
excess thereof]. [The Class [ ] Certificates [and specify any others] will be
offered in registered, certificated form, in minimum percentage interests
corresponding to the initial Notional Amounts or Certificate Principal
Balances, as applicable, of [$ ] and integral multiples thereof, except that
one Certificate of each such class may be issued with an initial Notional
Amount or Certificate Principal Balance, as applicable, equal to an integral
multiple of [$ ] plus the excess of the initial aggregate Notional Amount or
Certificate Principal Balance, as applicable, of such class over the greatest
integral multiple of [$ ] that is not more than such initial aggregate
Notional Amount or Certificate Principal Balance, as applicable.]
The Certificates [(other than the Definitive Classes of Certificates)]
will each initially be represented by one or more global certificates
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Company, the "Clearing Agency"), except as
provided below. The Company has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No holder of any such Certificate will be entitled to
receive a certificate representing such person's interest, except as set
forth below under "-- Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See "-- Definitive Certificates" below and "Description of
Certificates -- Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and effecting DTC
and its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or
more Participants to whose DTC account such Certificates are credited.
Additionally, DTC will take such actions with respect to specified Voting
Rights only at the direction and on behalf of Participants whose holdings of
such Certificates evidence such specified
S-25
Voting Rights. DTC may take conflicting actions with respect to Voting
Rights, to the extent that Participants whose holdings of Certificates
evidence such Voting Rights, authorize divergent action.
Definitive Certificates
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Company advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
each class of Certificates [(other than the Definitive Classes)] and the
Company is unable to locate a qualified successor or (ii) the Company, at its
option, elects to terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates [(other than the
Definitive Classes of Certificates)] and receipt of instructions for re-
registration, the Trustee will reissue such Certificates as Definitive
Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
Distributions
Collections on the Deposited Assets that are received by the Trustee for
a given Collection Period pursuant to the collection procedures described
herein and in the Prospectus and deposited from time to time into the
Certificate Account will be applied by the Trustee on each applicable
Distribution Date to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(i) to the Trustee, all unpaid fees and expenses of the Trustee and
its respective agents, up to the Allowable Expense Amount (as defined
below) for the related Collection Period;
(ii) [to the providers of Credit Support ("Credit Support
Providers"), any amounts required to be paid or reimbursed to, or
deposited with, any such person (collectively, "Credit Support
Payments");
(iii)] to the Certificateholders of each Class of such Series,
first, to the payment of Required Interest [and on a pro rata basis to
the Credit Support Providers for the payment of any Credit Support
Payments], second, to the payment of Required Principal and third, to the
payment of Required Premium, in each case applicable to such Class,
commencing with the most highly ranked Class and, to the extent Available
Funds remain available, to each other Class in accordance with the
ranking specified herein under "-- Allocation of Losses; Subordination";
[(iii) to the Credit Support Providers, any Credit Support
Payments;]
S-26
[(iv)] to the Trustee, all its remaining unpaid fees and expenses
and those of its respective agents not otherwise paid pursuant to clause
(i) above;
[(v)] all remaining amounts, if any, to the Company].
There can be no assurance that collections received from the Deposited
Assets and any applicable Credit Support relating to the Certificates over a
specified period will be sufficient, after payment of all Allowed Expense
Amounts [and payment of all amounts required to be paid to the Credit Support
Providers] for such period, to make all required distributions to the
Certificateholders of the Certificates. To the extent Available Funds are
insufficient to make any such distributions due to any such Series or Class,
any shortfall will be carried over and will be distributable on the next
Distribution Date on which sufficient funds exist to pay such shortfalls.
For purposes hereof, the following terms have the following meanings:
"Allowable Expense Amount" means, for any given Collection Period, the
sum of (x) [$]__________ and (y) amounts in respect of the Allowable Expense
Amount from the preceding Collection Period that have not been applied on the
Distribution Date for such preceding Collection Period.
"Available Funds" for any Distribution Date means the sum of (a) all
amounts received on or with respect to the Deposited Assets (including
investment income on Eligible Investments) received during the preceding
Collection Period[,] [and] (b) amounts available as of such Distribution Date
pursuant to the Credit Support described herein [and (c) any additional
amount that the [Company] may remit to the Trustee from time to time
according to the terms of the Trust Agreement for application as Available
Funds].
"Call Premium Percentage" for any given Distribution Date means [a fixed
percentage] [a percentage that varies depending on [describe basis for
variable formula, such as the applicable date or other factors or indices]].
"Eligible Investments" means, with respect to the Certificates, those
investments acceptable to the Rating Agency as being consistent with the
rating of such Certificates, as specified in the Trust Agreement. Generally,
Eligible Investments must be limited to obligations or securities that mature
not later than the business day prior to the next succeeding Distribution
Date.
"Required Interest" for the Certificates or any Class thereof on any
given Distribution Date means the accrued and unpaid interest on the
outstanding Certificate Principal Balance [or Notional Amount] of such
Certificates, computed at the applicable Pass-Through Rate.
"Required Premium" for the Certificates or any Class thereof for any
Distribution Date means an amount equal to the product of (a) the Required
Principal for such Certificates on such Distribution Date and (b) the Call
Premium Percentage for such Distribution Date.
S-27
"Required Principal" for the Certificates or any Class thereof for any
Distribution Date means the amount received on the Deposited Assets
attributable to principal payments thereon during the related Collection
Period, to the extent allocable to such Certificates. The Certificate
Principal Balance of a Certificate outstanding at any time represents the
maximum amount that the holder thereof is entitled to receive as
distributions allocable to principal from the cash flow on the Underlying
Securities, the other assets in the Trust and any Credit Support obtained for
the benefit of such holder. The Certificate Principal Balance of any class of
Certificates [(other than Class [ ] Certificates)] as of any date of
determination is equal to the initial Certificate Principal Balance thereof,
reduced by the aggregate of (a) all amounts allocable to principal previously
distributed with respect to such Certificate and (b) any reductions in the
Certificate Principal Balance deemed to have occurred in connection with
allocations of (i) Realized Losses allocable to principal on the Deposited
Assets and (ii) Extraordinary Trust Expenses, as described herein. [The
Notional Amount of the Class [ ] Certificates as of any date of determination
is equal to [specify amount].] [Holders of the Class [ ] Certificates are not
entitled to receive any distributions allocable to principal.]
[Notwithstanding the priorities described above, holders of the Class
[ ] Certificates and the Class [ ] Certificates will be entitled to receive on
any Distribution Date 100% of all principal collections received in the
related Collection Period with respect to the Deposited Assets, to be
distributed [on a pro rata basis] in reduction of the Certificate Principal
Balance of the Class [ ] Certificates and the Class [ ] Certificates, if any
of the following conditions shall be satisfied: [describe conditions, if any,
by which a certain class is given 100% of the principal cash flow other than
pursuant to subordination that is in effect from the Closing Date].]
[Advances
Subject to the following limitations, the Trustee will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the
aggregate of payments of principal, premium (if any) and interest, net of
that portion of the Administrative Fee (as defined herein) attributable to
fees and expenses of the Trustee, that were due during the related Collection
Period and that were delinquent on the related Determination Date (any such
advance, an "Advance").
Advances are required to be made only to the extent they are deemed by
the Trustee to be recoverable from related late collections, insurance
proceeds, if any, or Liquidation Proceeds. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Trustee will not be required
to make any Advances with respect to reductions in the amount of the payments
on the Deposited Assets due to bankruptcy proceedings with respect to the
Deposited Assets.
All Advances will be reimbursable to the Trustee from late
collections, insurance proceeds, if any, and any proceeds from the
liquidation of the Deposited Asset ("Liquidation Proceeds") as to which
such unreimbursed Advance was made. In addition, any Advances previously
made in respect of any Deposited Asset that are deemed by the Trustee to be
nonrecoverable from related late collections, insurance proceeds, if any,
or Liquidation Proceeds may be reimbursed to the
S-28
Trustee out of any funds in the Certificate Account allocable to any of the
Deposited Assets prior to the distributions on the Certificates. In the event
that the Trustee fails in its obligation to make any such Advance, the
Trustee may be obligated to make any such Advance, to the extent provided in
the Trust Agreement.]
[Restrictions on Transfer of the Class [ ] Certificates
Because the Class [ ] Certificates are subordinate to the Class [ ]
Certificates and the Class [ ] Certificates to the extent set forth herein,
the Class [ ] Certificates may not be purchased by or transferred to a Plan
except upon the delivery of an opinion of counsel as described herein. See
"ERISA Considerations."]
S-29
DESCRIPTION OF THE TRUST AGREEMENT
General
The Certificates will be issued pursuant to the Trust Agreement, a form
of which is filed as an exhibit to the Registration Statement. A Current
Report on Form 8-K relating to the Certificates containing a copy of the
Trust Agreement as executed will be filed by the Company with the Commission
following the issuance and sale of the Certificates. The Trust created under
the Trust Agreement (including the Series 1995-[ ] Supplement) will consist
of (i) the Deposited Assets (exclusive of any Retained Interest, which is not
part of the Trust), (ii) all payments on or collection in respect of the
Deposited Assets due after the Cut-off Date, together with any proceeds
thereof[,] [and] [(iii) any Credit Support in respect of any class or classes
of Certificates] [and (iv) the rights of the Company under the Purchase
Agreement between the Company and the Seller]. [In addition, the
Certificateholders of the Certificates may also have the benefit of certain
Credit Support discussed above. See "Description of Credit Support."]
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the
Trust Agreement and the Certificates. The following summaries of certain
provisions of the Trust Agreement do not purport to be complete and are
subject to the detailed provisions contained in the form of Trust Agreement,
to which reference is hereby made for a full description of such provisions,
including the definition of certain terms used herein.
The Trustee
[ ], a [ ] corporation, will act as trustee for the Certificates and
the Trust pursuant to the Trust Agreement. The Trustee's offices are located
at [ ] and its telephone number is [ ].
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Trust
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred
by reason of willful misfeasance, bad faith or negligence in the performance
of the Trustee's duties under the Trust Agreement or as a result of a breach,
or by reason of reckless disregard, of the Trustee's obligations and duties
under the Trust Agreement.
Events of Default
An event of default with respect to any class of Certificates under the
Trust Agreement (an "Event of Default") will consist of [(i) a default in the
payment of any interest on any Underlying Security after the same becomes due
and payable (subject to any applicable grace period); (ii) a default in the
payment of the principal of or any installment of principal of any Underlying
Security when the same becomes due and payable; and (iii) the occurrence and
continuance of such other events specified in the applicable series
supplement.] [Describe remedies available to Certificateholders upon the
occurrence and continuance of an Event of Default, including, as
S-30
applicable, directing the Trustee to vote the Underlying Securities in favor
of declaring the principal balance of and any accrued interest on the
Outstanding Debt Securities to be immediately due and payable].
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Certificates of any
class, the Trustee will give to the holders of such Certificates notice,
transmitted by mail, of all such uncured or unwaived Events of Default known
to it. However, except in the case of an Event of Default relating to the
payment of principal of or premium, if any, or interest on any of the
Underlying Securities, the Trustee will be protected in withholding such
notice if in good faith it determines that the withholding of such notice is
in the interest of the Certificates of such class.
No holder of any Certificate will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such holder
previously has given to the Trustee written notice of a continuing breach,
(ii) the holders of certificates of such Series evidencing not less than the
"Required Percentage--Remedies" specified in the applicable series supplement
of the aggregate Voting Rights of such Series have requested in writing that
the Trustee institute such proceeding in its own name as Trustee, (iii) such
holder or holders have offered the Trustee reasonable indemnity, (iv) the
Trustee has for 15 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the
Trustee during such 15-day period by the holders of Certificates of such
Series evidencing not less than the Required Percentage--Remedies of the
aggregate Voting Rights of such Series.
Voting Rights
[At all times,] [Subject to the succeeding paragraph,] [ ]% of all
Voting Rights will be allocated among all holders of the Class [ ]
Certificates[,] [and] the Class [ ] Certificates [and specify other classes]
in proportion to the then outstanding Certificate Principal Balances [or
Notional Amounts] of their respective Certificates and [ ]% of all Voting
Rights will be allocated among all holders of the Class [ ] Certificates in
proportion to the then outstanding [Certificate Principal Balances] [Notional
Amounts] of their respective Certificates. [Specify whether and under what
circumstances voting will be class-by-class].
[Specify conditions, if any, under which allocation of Voting Rights
might change from the foregoing percentages].
Voting of Underlying Securities, Modification of Indenture
The Trustee, as holder of the Underlying Securities, has the right to
vote and give consents and waivers in respect of such Underlying Securities
as permitted by [DTC] [Federal Reserve Bank] and except as otherwise limited
by the Trust Agreement. In the event that the Trustee receives a request from
[DTC] [Federal Reserve Bank], the [Fiscal Agent] or the GSE Issuer for its
consent to any amendment, modification or waiver of the Underlying Securities
or any other document thereunder or relating thereto, or receives any other
solicitation for any action with respect to the Underlying Securities, the
Trustee shall mail a notice of such proposed amendment,
S-31
modification, waiver or solicitation to each Certificateholder of record as
of such date. The Trustee shall request instructions from the
Certificateholders as to whether or not to consent to or vote to accept such
amendment, modification, waiver or solicitation. The Trustee shall consent or
vote, or refrain from consenting or voting, in the same proportion (based on
the relative Certificate Principal Balances and Notional Amounts of the
Certificates, as applicable) as the Certificates of the Trust were actually
voted or not voted by the Certificateholders thereof as of a date determined
by the Trustee prior to the date on which such consent or vote is required;
provided, however, that, notwithstanding anything to the contrary, the
Trustee shall at no time vote or consent to any matter (i) unless such vote
or consent would not (based on an opinion of counsel) alter the status of the
Trust as a grantor trust for Federal income tax purposes, (ii) which would
alter the timing or amount of any payment on the Underlying Securities,
including, without limitation, any demand to accelerate the Underlying
Securities, except in the event of an event of default with respect to the
Underlying Securities or an event which with the passage of time would become
an event of default and with the unanimous consent of all Outstanding
Certificates or (iii) which would result in the exchange or substitution of
any of the outstanding Underlying Securities pursuant to a plan for the
refunding or refinancing of such Underlying Securities except in the event of
a default under the Underlying Securities and only with the consent of
Certificateholders representing 100% of the aggregate voting rights of each
outstanding Class of the Certificates. The Trustee shall have no liability
for any failure to act resulting from Certificateholders' late return of, or
failure to return, directions requested by the Trustee from the
Certificateholders.
In the event that an offer is made by the GSE Issuer to issue new
obligations in exchange and substitution for any of the Underlying
Securities, pursuant to a plan for the refunding or refinancing of the
Outstanding Debt Securities or any other offer is made for the Underlying
Securities, the Trustee shall notify the Certificateholders of such offer as
promptly as practicable. The Trustee must reject any such offer unless an
event of default under the Underlying Securities has occurred, the Trustee is
directed by the affirmative vote of all of the Certificateholders to accept
such offer and the Trustee has received the tax opinion described above.
[Accordingly, a Certificateholder generally would be required to effect a
withdrawal of Requested Underlying Securities from the Trust in order to
accept such offer. See "--Optional Exchange of Certificates."]
If an event of default under the Underlying Securities occurs and is
continuing and if directed by all the holders of outstanding Class [ ]
Certificates [and, Class [ ] Certificates,] the Trustee shall vote the
Underlying Securities in favor of directing, or take such other action as may
be appropriate to declare the unpaid principal amount of the Underlying
Securities and any accrued and unpaid interest thereon to be due and payable.
In connection with a vote concerning whether to declare the acceleration of
the Underlying Securities, the Certificateholders' interests of each Class
may differ and the interests of either Class may differ from holders of other
Outstanding Debt Securities.
S-32
Termination
[The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the Prospectus.] [Describe
additional termination provisions.] The Company will have the right to
purchase all remaining Deposited Assets in the Trust and thereby effect early
retirement of the Certificates on any Distribution Date, [(a)] once the
aggregate principal amount of the Deposited Assets at the time of any such
purchase is less than [10%] of the aggregate principal amount of the
Deposited Assets as of the Cut-off Date [and (b) at the option of the Company
at [specify when and on what terms any such option may be exercised];
provided, however, that the right to exercise any such option is contingent
on such exercise being consistent with the Company's continued satisfaction
of the applicable requirements for exemption under Rule 3a-7 under the
Investment Company Act of 1940 and all applicable rules, regulations and
interpretations thereunder. In the event the Company exercises any such
option, the portion of the purchase price allocable to the Certificates of
each class will be, to the extent of available funds, [100% of their then
aggregate outstanding Certificate Principal Balance or Notional Amount, as
applicable, plus with respect to the Certificates [one month's] [three
month's] [specify other period] interest thereon at the Fixed Pass-Through
Rate or the then applicable Variable Pass-Through Rate, as the case may be,
plus, with respect to each class of Certificates, any previously accrued but
unpaid interest thereon.] [Specify alternative allocation method if different
from above.] In no event will the Trust created by the Trust Agreement for
the Certificates continue beyond the expiration of 21 years from the death of
the survivor of the person or persons named in the Trust Agreement. See
"Description of Certificates--Termination" in the Prospectus.
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS
[Describe any applicable legal aspects of the Deposited Assets or
relating to the enforceability by the Certificateholders of the security
interest, if any, securing such Deposited Assets.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of all material Federal income tax
consequences of the purchase, ownership and disposition of the Certificates
by an initial holder of Certificates. Such consequences will depend on the
terms of the Certificate, whether the Trust is treated as a grantor trust or
as a partnership for Federal income tax purposes, and the assets
collateralizing or otherwise supporting such Certificate. The consequences of
owning Certificates which are deemed for Federal income tax purposes to be
interests in a grantor trust or in a partnership are discussed separately
below under the captions "Grantor Trust Certificates" and "Partnership
Certificates", respectively. The applicable Trust Agreement would include
provisions approriate to the particulars of the transaction and to the
relevant Federal income tax status of the Trust and related Certificates.
S-33
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), and who do not hold
their Certificates as part of a "straddle," a "hedge" or a "conversion
transaction." Investors should consult their own tax advisors to determine
the Federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Certificates. [The Prospectus Supplement for
each series of Certificates will describe additional consequences that relate
to the specific Certificates issued pursuant thereto.]
The Trust will be provided with an opinion of Weil, Gotshal & Manges (a
partnership including professional corporations), special Federal tax counsel
to the Company ("Federal Tax Counsel") regarding certain Federal income tax
matters discussed below. An opinion of Federal Tax Counsel, however, is not
binding on the Internal Revenue Service (the "Service") or the courts.
Prospective investors should note that no rulings have been or will be sought
from the Service with respect to any of the Federal income tax consequences
discussed below, and no assurance can be given that the Service will not take
contrary positions.
[Tax Status of Trust
In the opinion of Federal Tax Counsel, the Trust will be classified as a
grantor trust and not as an association (or publicly traded partnership)
taxable as a corporation for Federal income tax purposes. Accordingly, each
owner of a Certificate (a "Certificate Owner") will be subject to Federal
income taxation as if it owned directly the portion of the Deposited Assets
allocable to such Certificates, and as if it paid directly its share of
reasonable expenses paid by the Trust. The following discussion assumes that
the Underlying Securities were not issued with original issue discount
("OID") and, accordingly, the Certificate owners will not realize OID except
with respect to a "stripped interest" (as defined below).
Income of Certificate Owners
In General. A Certificate Owner will allocate the amount it pays for its
Certificate among the Underlying Securities and the Deposited Assets in the
Trust other than the Underlying Securities (the "other Deposited Assets")
allocable to such Certificate, in proportion to their relative fair market
values on the date of purchase of the Certificate. A Certificate owner would
calculate separately its income, gain, loss or deduction realized with
respect to each such asset.
The Federal income tax treatment of a holder of a particular class of
Certificates will depend upon whether the interest in the Underlying
Securities represented by such class will be considered, in whole or in part,
to be a "stripped bond" or "stripped coupon" (together a "stripped interest")
within the meaning of Section 1286 of the Code. A class of Certificates will
not be considered to represent a stripped interest in the underlying
Underlying Securities to the extent the Certificate is entitled to receive a
proportionate amount of all principal and interest on the Underlying
S-34
Securities. A class of Certificates will be considered in its entirety to
represent a stripped interest in the underlying Underlying Securities if it
is entitled to receive interest on the Underlying Securities which is
disproportionately less than the principal which it is entitled to receive on
the Underlying Securities, or if it is entitled to receive all or part of the
interest on the Underlying Securities but no principal on the Underlying
Securities. In addition, if a class of Certificates is entitled to receive
interest and principal on the Underlying Securities, but the interest it is
entitled to receive on the Underlying Securities is disproportionately more
than the principal it is entitled to receive on the Underlying Securities, it
could be argued that the Certificates represents (a) an interest in the
Underlying Securities that is not a stripped interest to the extent it
represents a proportional amount of all the principal and interest on the
Underlying Securities and (b) a stripped interest in the Underlying
Securities to the extent of any additional interest to which it is entitled
on the Underlying Securities. If a Certificate represents in part a stripped
interest and in part not a stripped interest, such interests will be treated
as two separate items for tax purposes and a purchaser of Certificates will
be required to allocate its purchase price among the two items (as well as
any other Deposited Assets) in proportion to their relative fair market
values on the date of purchase.
Tax Treatment of Certificates to the Extent They Are Not Stripped
Interests. To the extent a class of Certificates does not represent a
stripped interest in the underlying Underlying Securities, each Certificate
Owner will be required to report on its Federal income tax return, in a
manner consistent with its method of accounting, its share of the gross
income of the Trust, including interest and discount earned on the Underlying
Securities, income derived from the other Deposited Assets held by the Trust,
and any gain or loss upon collection or disposition of the Underlying
Securities or other Deposited Assets. The portion of each monthly payment to
a Certificate Owner that is allocable to principal on the Underlying
Securities (other than amounts representing discount, as described below)
will represent a recovery of capital, which will reduce the tax basis of such
Certificate Owner's undivided interest in the Underlying Securities.
To the extent that the portion of the purchase price of a Certificate
allocated to a Certificate Owner's undivided interest in a Underlying
Security is greater than or less than the portion of the principal balance of
the Underlying Security allocable to the Certificate, such interest in the
Underlying Security will have been acquired at a premium or discount, as the
case may be. In determining whether a Certificate Owner has purchased its
interest in the Underlying Securities at a premium or discount, a portion of
the purchase price for a Certificate will be allocated to (i) the other
Deposited Assets (including any accrued interest thereon) held by the Trust
and (ii) the accrued interest on the Underlying Securities at the time of
purchase as though such accrued interest were a separate asset, thus, in each
case, reducing the portion of the purchase price allocable to the Certificate
Owner's undivided interest in the Underlying Securities (the "allocated
Purchase Price"). To the extent that the allocated Purchase Price is less
than the principal balance of an Underlying Security, the Certificate Owner's
interest in such Underlying Security will be treated as purchased at a
"market discount." The market discount on a Underlying Security will,
however, be considered to be zero if it is less than a statutorily defined de
minimis amount. Conversely, to the extent that the allocated Purchase Price
exceeds the principal balance of an Underlying Security, the Certificate
Owner's interest therein will be treated as purchased with "bond premium."
See discussion the below under "Bond Premium."
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For example, if the allocated Purchase Price paid by a Certificate Owner
who purchases a Certificate in the initial public offering were equal or
almost equal to the portion of the principal balance of the Underlying
Security that is allocable to the Certificate, there would be no significant
amount of discount or premium with respect to its interest in such Underlying
Security. Moreover, if the total purchase price of a Certificate is equal to
the principal amount of the Underlying Securities allocable to the
Certificate, because a portion of such purchase price will be allocated to
the other Deposited Assets of the Trust, in the aggregate a Certificate
Owner's interest in the Underlying Securities will have been purchased at a
discount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized
upon a sale or other disposition of a Underlying Security or upon the sale or
other disposition of a Certificate Owner, will be taxable as ordinary income
to the extent of accrued market discount, and a portion of the interest
deduction attributable to any indebtedness treated as incurred or continued
to purchase or carry a Underlying Security (or a Certificate) must be
deferred. The ordinary income treatment on dispositions and deferral of
interest deductions described in the preceding sentence will not apply if a
Certificate Owner elects to include market discount in income currently as it
accrues for each taxable year during which it holds the Certificate. Any such
election will also apply to all debt instruments held by the Certificate
Owner during the year in which the election is made and all debt instruments
acquired thereafter. Market discount will accrue in the manner to be provided
in Treasury regulations, but the Conference Report accompanying the Tax
Reform Act of 1986 states that, until such regulations are issued, taxpayers
may elect to accrue market discount either (i) under a constant yield
(economic accrual) method or (ii) in the proportion that the stated interest
paid on the obligation for the current period bears to total remaining
interest on the obligation.
Tax Treatment of Certificates to the Extent They Are Stripped Interests.
To the extent a class of Certificates represents a stripped interest in the
underlying Underlying Securities, each such Certificate will be subject to
the OID rules. The amount of OID on a stripped interest is equal to the
excess of all amounts payable on the stripped interest (other than qualified
stated interest) over the portion of the purchase price for the Certificate
allocable to the stripped interest.
Under the Treasury regulations issued under Section 1286 of the Code
(the "Regulations"), the interest payable with respect to the stripped
interest will be treated as "qualified stated interest" if it represents a
fixed periodic payment on principal on the Underlying Securities to which the
stripped interest (i.e., the Certificate Owner) is also entitled. If none of
the amounts payable to a Certificate Owner with respect to a stripped
interest constitute qualified stated interest, then the stripped interest
will have OID in an amount equal to all payments to be received on the
stripped interest over the purchase price for the Certificate allocable to
the stripped interest. Moreover, in determining the amount paid for the
stripped interest, a portion of the purchase price for a Certificate must be
allocated to the Certificate Owner's share of other Deposited Assets and to
accrued interest.
The tax treatment of a Certificate Owner will depend upon whether the
amount of OID on the stripped interest represented by the Certificate is less
than a statutorily defined de minimis amount. In general, under the
Regulations, the amount of OID with respect to the stripped interest
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will be de minimis if it is less than 1/4 of one percent multiplied by the
product of the "stated redemption price at maturity" and the number of full
years remaining after the purchase date until the maturity of such stripped
interest. However, if the stripped interest provides for amortization of
principal, the amount of OID will be de minimis if it is less than 1/4 of one
percent multiplied by the product of the stated redemption price at maturity
and the weighted average maturity (i.e., the sum of the amounts obtained by
multiplying the amount of each payment under the stripped interest (other
than a payment of qualified stated interest) by a fraction, the numerator of
which is the number of complete years from the purchase date until the
payment is made and the denominator of which is the stated redemption price
at maturity) of the stripped interest. In general, "stated redemption price
at maturity" means the sum of all amounts payable on the stripped interest
other than qualified stated interest.
If the amount of OID on the stripped interest represented by the
Certificate is de minimis under the rules discussed above, the stripped
interest would not be treated as having OID. Each Certificate Owner would be
required to report on its Federal income tax return its share of the gross
income of the Trust, including interest on the Underlying Securities and any
gain upon sale or disposition by the Trust of the Underlying Securities. Such
gross income would exceed the Pass Through Rate on the Certificate by an
amount equal to the Certificate Owner's share of the expenses of the Trust
for the period during which it owns a Certificate. Each Certificate Owner
would be required to include the de minimis OID in income as each principal
payment on the stripped interest is received, in proportion to the amount
that each principal payment bears to the stated principal amount of the
stripped interest; such income would be capital gain, short-term or long-term
depending upon the Certificate Owner's holding period in the Certificate. The
Certificate Owner would be entitled to deduct its share of expenses of the
Trust to the extent described below. Any amounts received by a Certificate
Owner from any Credit Support or any subordination feature will be treated
for Federal income tax purposes as having the same characteristics as the
payments they replace.
A Certificate Owner would report its share of the income of the Trust
under its usual method of accounting. Accordingly, interest on an underlying
Underlying Security would be includible in a Certificate Owner's gross income
when it accrues on the Underlying Securities, or, in the case of Certificate
Owners who are cash basis taxpayers, when received by the Administrative
Agent, if any, or otherwise the Trustee on behalf of Certificate Owners.
Because the interest collected on the Underlying Securities generally is paid
to Certificate Owners in the following month, the amount of interest
includible in a Certificate Owner's gross income during any calendar month
will not equal the interest distributed in that month.
If the OID with respect to the stripped interest in the Underlying
Securities represented by a Certificate is not treated as being de minimis, a
Certificate Owner will be required to include in income, in addition to any
qualified stated interest on the stripped interest as described above, any
OID on the stripped interest. OID must be included in income as it accrues on
a daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield as described below. Such treatment could result
in the accrual of income by such Certificate Owner prior to the receipt of
cash by such Certificate Owner. Under the rules described below, the amounts
includible in income by a Certificate Owner on a stripped interest that has
OID are lesser in the early years and greater in the later years than the
amounts that would be includible on a straight-line basis.
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In general, if a stripped interest has OID the Certificate Owner will be
required, whether such Certificate Owner uses the cash or the accrual method
of tax accounting, to include in ordinary gross income the sum of the "daily
portions" of OID on the stripped interest for all days during the taxable
year that the Certificate Owner owns the Certificate. The daily portions of
OID on a stripped interest are determined by allocating to each day in any
"accrual period" a ratable portion of the OID allocable to that accrual
period. The amount of OID on a stripped interest allocable to each accrual
period is determined by (i) multiplying the "adjusted issue price" (as
defined below) of the stripped interest by a fraction, the numerator of which
is the annual yield to maturity of the stripped interest and the denominator
of which is the number of accrual periods in a year and (ii) subtracting from
that product the amount of qualified stated interest (if any) payable on the
stripped interest during (or allocable to) such accrual period.
An "accrual period" would generally be each period ending on an interest
payment date on the Underlying Securities, although Treasury regulations
allow a Certificate Owner to elect other accrual periods of no more than a
year in length, as long as each scheduled payment on the Underlying
Securities occurs at the end of an accrual period.
The "adjusted issue price" of a stripped interest at the beginning of
any accrual period is the purchase price for a Certificate allocable to the
stripped interest (including accrued interest, if any) (i) increased by the
amount of OID allocable to all prior accrual periods and (ii) reduced by the
amount of all payments other than qualified stated interest payments (if any)
in all prior accrual periods. In addition, if an interval between payments of
qualified stated interest contains more than one accrual period, the adjusted
issue price at the beginning of each accrual period in the interval is
increased by the amount of qualified stated interest that has accrued prior
to the first day of the accrual period but that is not payable until the end
of the interval.
The Trustee intends to account for OID, if any, reportable by
Certificate Owners by reference to the price paid for a Certificate by an
initial purchaser, although the amount of OID will differ for subsequent
purchasers. Such subsequent purchasers should consult their tax advisors
regarding the proper calculation of OID.
Bond Premium. In the event that a Certificate represents either an
unstripped interest in an underlying Underlying Security, or a stripped
interest which includes qualified stated interest, and the stripped or
unstripped interest is treated as purchased at a premium (i.e., the purchase
price of a Certificate allocable to the interest exceeds the total amount
payable on the Underlying Security to the Certificateholder other than
qualified stated interest), such premium will be amortizable by the
Certificate Owner as an offset to interest income (with a corresponding
reduction in the Certificate Owner's basis) under a constant yield method
over the term of the underlying Underlying Security if an election under
Section 171 of the Code is made or was previously in effect. Any such
elections will also apply to all debt instruments held by the Certificate
Owner during the year in which the election is made and all debt instruments
acquired thereafter.
Election to Treat All Interest as Original Issue Discount. Any
Certificate Owner may elect to include in gross income all interest
(including stated interest, OID, de minimis OID, market discount and de
minimis market discount, as adjusted by any bond premium or acquisition
premium)
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that accrues on an unstripped or stripped interest using the constant yield
method described above, treating the instrument as having been issued on the
Certificate Owner's acquisition date at an issue price equal to such owner's
adjusted basis with no interest payments being qualified stated interest.
Such an election with respect to a unstripped or stripped interest having
amortizable bond premium or market discount would constitute, respectively,
an election to apply the market discount rules or bond premium rules with
respect to all other debt instruments with market discount or amortizable
bond premium, as the case may be, of such Certificate Owner.
Modification or Exchange of Underlying Securities. Depending upon the
circumstances, it is possible that a modification of the terms of the
Underlying Securities, or a substitution of other assets for the Underlying
Securities following a default on the Underlying Securities, would be a
taxable event to Certificate Owners on which they would recognize gain or
loss.
Other Deposited Assets of the Trust
[Describe tax consequences of the other Deposited Assets.]
Deductibility of Trust's Fees and Expenses
In computing its Federal income tax liability, a Certificate Owner will
be entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees paid or incurred
by the Trust as provided in Section 162 or 212 of the Code and any allowable
amortization deductions with respect to certain other assets of the Trust. If
a Certificate Owner is an individual, estate or trust, the deduction for his
share of fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
Purchase and Sale of a Certificate
A Certificate Owner's tax basis in a Certificate generally will equal
the cost of such Certificate increased by any amounts of undistributed
taxable income (e.g., OID or market discount) and reduced by any amortized
premium (each as described above) and any payments other than payments of
qualified stated interest on an underlying Underlying Security made on such
Certificate.
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the proceeds of sale allocable to each of the assets of
the Trust and the Certificate Owner's adjusted basis in each of the
foregoing. Any gain or loss will be a capital gain or loss if the Certificate
was held as a capital asset, except that gain will be treated in whole or in
part as ordinary interest income to the extent of the Certificate Owner's
interest in accrued market discount not previously taken into income on
Underlying Securities.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless,
in general, the Certificate Owner fails to
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comply with certain reporting procedures and is not an exempt recipient under
applicable provisions of the Code.
Foreign Certificate Owners
To the extent that amounts paid to Certificate Owners that are not
United States persons ("Foreign Certificate Owners") are treated as interest
with respect to Underlying Securities originated after July 18, 1984, such
amounts generally will not be subject to the annual 30% withholding tax,
provided that such Foreign Certificate Owner fulfills certain certification
requirements. Under such requirements, the holder must certify, under
penalties of perjury, that it is not a "United States person" and provide its
name and address.
[Describe the Federal income tax consequences to Foreign Certificate
Owners of an interest in any other Deposited assets of the Trust.]
A "United States person" means a citizen or resident of the U.S., a
corporation, partnership or other entity created or organized in or under the
laws of the U.S. or any political subdivision thereof, or an estate or trust
the income of which is includible in gross income for U.S. Federal income tax
purposes, regardless of its source.]
[Tax Characterization of the Trust
The Company and the Administrative Agent, if any, have agreed, and the
Certificate Owners will agree by their purchase of Certificates, to treat the
Trust as a partnership for purposes of Federal, state and local income,
franchise and any other tax measured in whole or in part by income. However,
the proper characterization of the arrangement involving the Trust, the
Certificate Owners, the Company and the Administrative Agent, if any, is not
entirely clear because there is no directly comparable authority.
Were the Trust not to be deemed a partnership for Federal income tax
purposes, but instead an association taxable as a corporation, the Trust
would be subject to corporate income tax. Any such corporate income tax could
materially reduce or eliminate cash that would otherwise be distributable
with respect to the Certificates (and Certificate Owners could be liable for
any such tax that is unpaid by the Trust). However, in the opinion of Federal
Tax Counsel, the Trust should not be classified as an association taxable as
a corporation because it will lack certain characteristics necessary for a
business trust to be an association taxable as a corporation.
Even were the Trust not an association taxable as a corporation, it
would be subject to corporate income tax if it were deemed a "publicly traded
partnership." A publicly traded partnership is taxed in the same manner as a
corporation unless at least 90% of its gross income consists of specified
types of "qualifying income." Such qualifying income includes, among other
things, interest income not derived in the conduct of a financial or
insurance business, dividend income, and gain from the disposition of assets
producing such income. In the opinion of Federal Tax Counsel, because of the
nature of the income of the Trust, the Trust will not be a publicly traded
partnership taxable as a corporation.
S-40
Partnership Taxation
As a partnership, the Trust will not be subject to Federal income tax,
but each Certificate Owner will be required to separately take into account
such holder's allocable share of income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of [ ] and
any gain upon collection or disposition [ ]. The Trust's deductions will
consist primarily of [ ].
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide that each class of Certificate Owners will be allocated taxable
income of the Trust for each monthly period equal to the sum of (i) the
amount payable (or accruing) at the Pass Through Rate on such class of
Certificates for such month (to the extent such amount would not economically
represent a return of capital); (ii) an amount equivalent to interest that
accrues during such month on amounts previously due on such class of
Certificates but not yet distributed; (iii) any Trust income for such month
attributable to discount on the Underlying Securities that corresponds to any
excess of the principal amount of such class of Certificates over their
initial issue price; and (iv) [any other income economically accruing for
such class of Certificates during such month. [All remaining taxable income
of the Trust will be allocated to the [ ]]. It is believed that this
allocation will be valid under applicable Treasury regulations, although no
assurance can be given that the Service would not require a greater amount of
income to be allocated to Certificate Owners. Moreover, even under the
foregoing method of allocation, holders may be allocated income equal to the
entire Pass Through Rate plus the other items described above even though the
Trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders in effect could be required to report
income from the Certificates on the accrual basis. In addition, tax
allocations and tax reporting will be done on a uniform basis for all
Certificate Owners, even though their Certificates may have been purchased at
different times and at different prices.
An individual taxpayer's miscellaneous itemized deductions (which do not
include interest expenses) are subject to limitations and as a result may be
disallowed in whole or in part. Those limitations, which also apply to
estates and trusts, would apply to a Certificate Owner's share of expenses of
the Trust (including fees to the Administrative Agent, if any) and might
result in such holder being taxed on an amount of income that exceeds the
amount of cash actually distributed to such holder over the life of the
Trust.
If the Trust holds a large number of underlying Underlying Securities,
it intends to make all tax calculations relating to income and allocations to
Certificate Owners on an aggregate basis. Were the Service to require that
such calculations be made separately for each Underlying Security, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificate Owners.
A Certificate Owner would increase or decrease its tax basis in its
Certificate for its allocable share of the Trust's income or loss,
respectively. Any cash distributions by the Trust to a Certificate Owner will
constitute (i) first, a return of capital to the extent of such Certificate
Owner's tax basis in the Certificate (with a corresponding dollar-for-dollar
reduction in such tax basis), and (ii)
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thereafter, to the extent in excess thereof, gain on the sale or exchange of
such Certificate Owner's Certificate. See "Disposition of Certificates"
below.
Discount and Premium
It is believed that the Underlying Securities were not issued with
original issue discount ("OID") and, therefore, the Trust should not have OID
income. However, the purchase price paid by the Trust for the Underlying
Securities may be greater or less than the remaining principal balance of the
Underlying Securities at the time of purchase. If so, the Underlying
Securities will have been acquired at a premium or discount, as the case may
be. (As indicated above, if the Trust acquires a large number of Underlying
Securities it will make this calculation on an aggregate basis, but might be
required to recompute it on an instrument-by-instrument basis.)
The Trust will make an election that will result in any market discount
on the Underlying Securities being included in income currently as such
discount accrues over the life of the Underlying Securities. As indicated
above in the discussion of "Partnership Taxation," a portion of such market
discount income may be allocated to Certificate Owners.
Modification or Exchange of Underlying Securities
Depending upon the circumstances, it is possible that a modification of
the terms of the Underlying Securities, or a substitution of other assets for
the Underlying Securities following a default on the Underlying Securities,
would be a taxable event to Certificate Owners on which they would recognize
gain or loss.
Tax Consequences of Other Assets Held by Trust
The manner in which income with respect to the other assets of the Trust
should be accrued will depend on the nature of those assets.
[Discuss specific tax consequences of other assets.]
Section 708 Termination
Under Section 708 of the Code, the Trust will be deemed to terminate for
Federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Were
such a termination to occur, the Trust would be considered to have
distributed its assets to the partners, the Certificate Owners, who would
then be treated as having recontributed those assets to the Trust, as a new
partnership. If any such constructive termination occurs, the Trust does not
intend to comply with certain technical requirements that might be applicable
for various reasons including the likely lack of relevant data. As a result,
the Trust may be subject to certain tax penalties and may incur additional
expenses. Moreover, the Schedule K-1 information thereafter distributed to
the Certificate Owners may be incorrect.
S-42
Disposition of Certificates
Generally, capital gain or loss will be recognized on a sale or other
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates sold. A
Certificate Owner's tax basis in a Certificate will generally equal its cost
increased by his share of Trust income includible in his income (including
for the taxable year of sale) and decreased by any distributions received
with respect to such Certificate. In addition, both his tax basis in, and the
amount realized on a sale of, a Certificate would include the holder's share
of liabilities of the Trust. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
such Certificate and, upon sale or other disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
On the sale of a Certificate, any gain attributable to the holder's
share of any accrued market discount on the Underlying Securities that has
not otherwise been included in the holder's income would generally be treated
as ordinary income to the holder and would give rise to special tax reporting
requirements. The Trust does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificate.
Allocations Between Transferors and Transferees
In general, the Trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month allocable to a
particular class of Certificates will be apportioned among holders of such
Certificates in proportion to the principal amount of such Certificates owned
by them as of the first business day following the end of such month. As a
result, a holder purchasing Certificates may be allocated tax items (which
will affect its tax liability and tax basis) attributable to periods before
the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If such a convention is not allowed (or only applies to
transfers of less than all of a partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Trustee
is authorized to revise the Trust's method of allocation between transferors
and transferees to conform to a method permitted by future regulations.
Section 754 Election
In the event that a Certificate Owner sells its Certificates at a profit
(loss), the purchasing Certificate Owner will have a higher (lower) basis in
the Certificates than the selling
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Certificate Owner had. The tax basis of the Trust's assets will not be
adjusted to reflect that higher (or lower) basis unless the Trust were to
file an election under Section 754 of the Code. In order to avoid the
administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Trust will not make such election. As a result Certificate
Owners might be allocated a greater or lesser amount of Trust income than
would be appropriate based on their own purchase price for Certificates.
Administrative Matters
The Trustee is required to keep complete and accurate books of the
Trust. Such books will be maintained for financial reporting and tax purposes
on an accrual basis and the fiscal year of the Trust will be the calendar
year. The Trustee will file a partnership information return (Service Form
1065) with the Service for each taxable year of the Trust and will report
each Certificate Owner's allocable share of items of Trust income and expense
to holders and the Service on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties, unless the
holder notifies the Service of all such inconsistencies.
Under Code Section 6031, any person that holds Certificates as a nominee
at any time during a calendar year is required to furnish the Trust with a
statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and taxpayer identification number of
such person, (y) whether such person is not a United States person, a tax-
exempt entity, or a foreign government, an international organization, or any
wholly-owned agency or instrumentality of either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf
of such person throughout the year. In addition, brokers and financial
institutions that hold Certificates through a nominee are required to furnish
directly to the Trust information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust.
The information referred to above for any calendar year must be furnished to
the Trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Trust with the information
described above may be subject to penalties.
The Company, as the tax matters partner, will be responsible for
representing the Certificate Owners in any dispute with the Service. The Code
provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the
appropriate taxing authorities could result in an adjustment of the returns
of the Certificate Owners and, under certain circumstances, a Certificate
Owner may be precluded from separately litigating a proposed adjustment to
the items of the Trust. An adjustment
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could also result in an audit of a Certificate Owner's returns and
adjustments of items not related to the income (or loss) of the Trust.
Tax Consequences to Foreign Certificate Owners
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding
taxes with respect to non-U.S. persons because there is no clear authority
dealing with that issue under facts substantially similar to those described
herein. [Although it is not expected that the Trust would be engaged in a
trade or business in the United States for such purposes, the Trust expects
to withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificate Owners pursuant to Code Section 1446, as if such income were
effectively connected to U.S. trade or business, at a rate of 35% for foreign
holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's nonforeign status, the Trust may rely
on Form W-8, Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.]
[Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the Service and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of
the taxes withheld. A foreign holder generally would be entitled to file with
the Service a claim for refund with respect to taxes withheld by the Trust,
taking the position that no taxes were due because the Trust was not engaged
in a U.S. trade or business. The Trust will cooperate in any such refund
claim if it can do so without incurring any out-of-pocket cost. No assurance
can be given as to whether any such refund claim would be granted.]
[The foregoing summary will be modified, as necessary, to reflect
differences caused by the precise nature of the Deposited Assets relating to
a given Series of Certificates.]
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless,
in general, the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
[CERTAIN STATE TAX CONSEQUENCES
[Describe any applicable state tax consequences that may arise,
including as a result of the specific nature of the Deposited Assets relating
to a given Series of Certificates or the degree of servicing required with
respect to such Deposited Assets.]]
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee
benefit plan (as defined in Section 3(3) of ERISA), (b) a plan described in
Section 4975(e)(I) of the Code or (c) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"Plan"). Moreover, based on the reasoning of the United States Supreme
Court's decision in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank,
114 S.Ct. 517 (1993), an insurance company investing assets in its general
account might be treated as a Plan on the grounds that such an investor may
be investing assets of an employee benefit plan subject to ERISA.
In accordance with ERISA's general fiduciary standards, before investing
in a Certificate, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA
and the Code prohibit certain transactions involving the assets of a Plan and
persons who have certain specified relationships to the Plan ("parties in
interest" within the meaning of ERISA of "disqualified persons" within the
meaning of the Code). Thus, a Plan fiduciary considering an investment in
Certificates should also consider whether such an investment might constitute
or give rise to a prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of
the Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the
Trust, might be prohibited transactions under ERISA and the Code. Neither
ERISA nor the Code defines the term "plan assets." Under Section 2510.3-101
of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
prohibited transaction provisions of ERISA and the Code, if the Plan acquires
an "equity interest" in such entity. Thus, if a Plan acquired a Certificate
of a particular class, for certain purposes (including the prohibited
transaction provisions) the Plan would be considered to own its share of the
underlying assets of the Trust unless (1) such Certificate is a
"publicly-offered security" or (2) equity participation in such class by
benefit plan investors is not "significant."
A publicly-offered security is a security that is (1) freely
transferable, (2) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another at the conclusion of
the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act, or (B) sold to
the Plan as a part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. The Company does not anticipate that
the Certificates of any class will be considered publicly-offered securities
within the meaning of the Regulation.
S-46
Participation by benefit plan investors in any class of Certificates
would not be significant if immediately after the most recent acquisition of
Certificates of such class, whether or not from the Company or an Agent or
Underwriter, less than 25 percent of the value of such class were held by
benefit plan investors, which are defined as Plans and employee benefit plans
not subject to ERISA (for example, governmental plans). There can be no
assurance that less than 25 percent of the value of any given class of
Certificates will be held by benefit plan investors.
If assets of the Trust were deemed to be Plan assets, certain
transactions involving the Trust, including the acquisition of the
Certificates themselves by a Plan, could be prohibited transactions. If, for
example, an obligor with respect to any of the Deposited Assets, or any of
such obligor's affiliates, were a party in interest or disqualified person
with respect to an acquiring Plan, the acquisition of the Certificate could
be construed as a prohibited indirect loan from the Plan to the obligor. Any
such prohibited transaction could be treated as exempt under ERISA and the
Code if the Certificates were acquired pursuant to and in accordance with one
or more "class exemptions" issued by the DOL, such as Prohibited Transaction
Class Exemption ("PTCE") 84-14 (an exemption for certain transactions
determined by an independent qualified professional asset manager), PTCE
91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts) or PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts).
Certificates will not be sold to any Plan unless such Plan represents
that the acquisition of a Certificate would not be prohibited under ERISA and
the Code because an exemption is applicable to the acquisition and holding of
the Certificates and the activities of the Trust. To the extent an insurance
company invests assets treated as assets of a Plan, it will be required to
make the foregoing representation as a condition to the acquisition of a
Certificate. Alternatively, if the Company is able to confirm the existence
of at least 100 independent purchasers of a class, the foregoing
representation will not be a condition to acquisition of Certificates of such
class.
Any Plan or insurance company investing assets of its general account
proposing to acquire Certificates should consult with its counsel.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of [ ]. 199[ ] (the "Underwriting Agreement"), the
Company as agreed to sell and [Lehman Brothers Inc. (an affiliate of the
Company)] [each of the Underwriters named below, including Lehman Brothers
Inc. (an affiliate of the Company)] (the "Underwriter[s]")[,] has [severally]
agreed to purchase, the [Certificates] [the principal amount of each class of
Certificates set forth below opposite its name].
S-47
Class [ ] Class [ ] Class [ ]
--------- --------- ---------
Lehman Brothers Inc. . . . . $ $ $
--------- --------- ---------
Total . . . . . . . . . . $ $ $
========= ========= =========
[Lehman Brothers Inc. has] [The Several Underwriters have] agreed, subject to
the terms and conditions set forth in the Underwriting Agreement, to purchase
all Certificates offered hereby if any of such Certificates are purchased.
[In the event of default by any Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments of non-
defaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.]
The Company has been advised by the Underwriter[s] that [it] [they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter[s] may effect such transactions by selling Certificates
to or through dealers and such dealers may receive compensation in the form
of underwriting discounts, concessions or commissions from the Underwriter[s]
and any purchasers of Certificates for whom they may act as agents. The
Underwriter[s] and any dealers that participate with the Underwriter[s] in
the distribution of Certificates may be deemed to be underwriters, and any
profit on the resale of Certificates by them may be deemed to be underwriting
discounts or commissions under the Securities Act.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter[s] may be
required to make in respect thereof.
Lehman Brothers Inc. is an affiliate of the Company, and the
participation by Lehman Brothers Inc. in the offering of the Certificates
complies with Schedule E of the By-Laws of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates be rated not lower than [specify ratings applicable to each
class] by [Standard & Poor's Corporation ("Standard & Poor's)] [Moody's
Investors Service, Inc. ("Moody's)] [Fitch Investors Service, L.P. ("Fitch")]
[and] [Duff & Phelps Credit Rating Company ("Duff & Phelps")] (the Rating
[Agency] [Agencies]"). The ratings address the likelihood of the receipt by
the Certificateholders of payments required under the Trust Agreement, and
are based primarily on the credit quality of the Deposited Assets and any
provides of Credit Support, as well as on the relative priorities of the
Certificateholders of each class of the Certificates with respect to
collections and losses with respect to the Deposited Assets. The rating on
the Certificates does not, however, constitute a statement regarding the
occurrence or frequency of redemptions or prepayments on, or extensions of
the maturity of, the Deposited Assets,
S-48
the corresponding effect on yield to investors, or whether investors in the
Class [ ] Certificates [specify class with Notional Amount] may fail to
recover fully their initial investment.
A security rating is not a recommendation to buy sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. Each security rating should be evaluated independently of any
other security rating.
The Company has not requested a rating on the Certificates by any rating
agency other than the Rating [Agency] [Agencies]. However, there can be no
assurance as to whether any other rating agency will rate the Certificates,
or, if it does, what rating would be assigned by an such other rating agency.
A rating on the Certificates by another rating agency, if assigned at all,
may be lower than the ratings assigned to the Certificates by the Rating
[Agency] [Agencies].
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company and the Underwriter[s] by [Weil, Gotshal & Manges, New York,
New York].
S-49
Subject to Completion Dated November 15, 1995
Prospectus
Trust Certificates
(Issuable in Series)
Lehman ABS Corporation
Depositor
The Trust Certificates (the "Certificates") offered hereby and by
supplements (each a "Prospectus Supplement") to this Prospectus will be
offered from time to time in one or more series (each a "Series") and in
one or more classes within each such Series (each a "Class"), denominated
in dollars or in one or more foreign or composite currencies, including the
European Currency Unit ("ECU"). Certificates of each respective Series and
Class will be offered on terms to be determined at the time of sale as
described in the related Prospectus Supplement accompanying the delivery of
this Prospectus. Certificates may be sold for United States dollars or for
one or more foreign or composite currencies, and the principal of, premium
on, if any, and any interest to be distributed in respect of Certificates
may be payable in United States dollars or in one or more foreign or
composite currencies. Each Series and Class of Certificates may be issuable
as individual securities in registered form without coupons ("Registered
Certificates") or in bearer form with or without coupons attached ("Bearer
Certificates") or as one or more global securities in registered or bearer
form (each a "Global Security").
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
together with certain other assets described herein and in the related
Prospectus Supplement (such assets, together with the Underlying
Securities, the "Deposited Assets"), to be deposited in a trust (the
"Trust") for the benefit of holders of Certificates of such Series
("Certificateholders") by Lehman ABS Corporation (the "Company") pursuant
to a Trust Agreement and a series supplement thereto with respect to any
given Series (collectively, the "Trust Agreement") among the Company, the
administrative agent, if any (the "Administrative Agent") and the trustee
(the "Trustee") named in the related Prospectus Supplement. The Underlying
Securities will be purchased by the Company in the secondary market (either
directly or through an affiliate of the Company), and will not be acquired
from the obligor with respect thereto or pursuant to any distribution by or
agreement with any such obligor. The Underlying Securities discussed herein
and in the related Prospectus Supplement represent (i) an obligation issued
or guaranteed by the United States of America or any agency thereof for the
payment of which the full faith and credit of the United States of America
is pledged, (ii) an obligation of one or more U.S. government sponsored
entities, (iii) Government Trust Certificates ("GTCs") (provided that such
GTCs, together with any AID-Guaranteed Underlying Securities (as defined
below), shall not account for 20% or more of the aggregate cash flows on
the Underlying Securities securing any Series of Certificates), or (iv)
obligations guaranteed by the United States Agency for International
Development pursuant to the AID Housing Guaranty Program ("AID-Guaranteed
Underlying Securities") (provided that such AID-Guaranteed Underlying
Securities, together with any GTCs, shall not account for 20% or more of
the aggregate cash flows on the Underlying Securities securing any Series
of Certificates). If so specified in the related Prospectus Supplement, the
Trust for a Series of Certificates may also include, or the
Certificateholders of such Certificates may have the benefit of, any
combination of insurance policies, letter of credit, reserve accounts
and other types of rights or assets designed to support or ensure the
servicing and distribution of amounts due in respect of the Deposited
Assets (collectively, "Credit Support"). See "Description of Certificates"
and "Description of Deposited Assets and Credit Support."
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
Each Class of Certificates of any Series will represent the right, which
may be senior to those of one or more of the other Classes of such Series,
to receive specified portions of payments of principal, interest and
certain other amounts on the Deposited Assets in the manner described
herein and in the related Prospectus Supplement. A Series may include two
or more Classes differing as to the timing, sequential order or amount of
distributions of principal, interest or premium and one or more Classes
within such Series may be subordinated in certain respects to other Classes
of such Series.
Except as otherwise provided herein and in the applicable prospectus
supplement, the Company's only obligations with respect to each Series of
Certificates will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets
and certain related documents to the applicable Trustee and, in certain
cases, to provide for the Credit Support, if any. The principal obligations
of an Administrative Agent, if any is named in the applicable Prospectus
Supplement, with respect to a Series of Certificates will be pursuant to
its contractual administrative obligations and, only as and to the extent
provided in the related Prospectus Supplement, its obligation to make
certain cash advances in the event of payment delinquencies on the
Deposited Assets. See "Description of the Certificates--Advances in Respect
of Delinquencies."
The Certificates of each Series will not represent an obligation of or
interest in the Company, any Administrative Agent or any of their
respective affiliates, except to the limited extent described herein and in
the related Prospectus Supplement. Neither the Certificates nor the
Deposited Assets (unless, and only as and to the extent otherwise specified
in such Prospectus Supplement) will be guaranteed or insured by any
governmental agency or instrumentality, or by the Company, any
Administrative Agent or their respective affiliates.
Prospective investors should consider the factors set forth herein under
"Risk Factors," beginning on page 5.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
The Certificates may be offered and sold to or through underwriters,
through dealers or agents or directly to purchasers, as more fully
described under "Plan of Distribution" and in the related Prospectus
Supplement. This Prospectus may not be used to consummate sales of
Certificates offered hereby unless accompanied by a Prospectus Supplement.
2
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the
following with respect to such Series: (a) the specific designation and
aggregate principal amount, (b) the currency or currencies in which the
principal (the "Specified Principal Currency"), premium, if any (the
"Specified Premium Currency"), and any interest (the "Specified Interest
Currency") are distributable (the Specified Principal Currency, the
Specified Premium Currency and the Specified Interest Currency being
collectively referred to as the "Specified Currency"), (c) the number of
Classes of such Series and, with respect to each Class of such Series, its
designation, aggregate principal amount or, if applicable, notional amount
and authorized denominations, (d) certain information concerning the type,
characteristics and specifications of the Deposited Assets and any Credit
Support for such Series or Class, (e) the relative rights and priorities of
each such Class (including the method for allocating collections from the
Deposited Assets to the Certificateholders of each Class and the relative
ranking of the claims of the Certificateholders of each Class to such
Deposited Assets), (f) the name of the Trustee and the Administrative
Agent, if any, for such Series, (g) the Pass Through Rate (as defined
below) or the terms relating to the applicable method of calculation
thereof, (h) the time and place of distribution (each such date, a
"Distribution Date") of any interest, premium (if any) and/or principal,
(i) the date of issue, (j) the scheduled final Distribution Date, if
applicable, (k) the offering price, (l) any exchange, whether mandatory or
optional, the redemption terms and any other specific terms of Certificates
of each such Series or Class. See "Description of Certificates--General"
for a listing of other items that may be specified in the applicable
Prospectus Supplement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company does
not intend to send any financial reports to Certificateholders.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the Certificates. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Certificates shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests
for such copies should be directed to the Secretary of Lehman ABS
Corporation, 3 World Financial Center, New York, New York 10285. Telephone
requests for such copies should be directed to the Secretary of Lehman ABS
Corporation at (212) 526-5594.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive Certificates are issued, on each Distribution
Date unaudited reports containing information concerning the related Trust
will be prepared by the related Trustee and sent on behalf of each Trust
only to Cede & Co. ("Cede"), as nominee of DTC and registered holder of the
Certificates. See "Description of Certificates--Global Securities" and
"Description of the Trust Agreement--Reports to Certificateholders;
Notice." Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Company, on
behalf of each Trust, will cause to be filed with the Commission such
periodic reports as are required under the Exchange Act.
4
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Certificate in the Specified
Principal Currency for such Certificate. Currently, there are limited
facilities in the United States for conversion of U.S. dollars into foreign
currencies and vice versa, and banks do not currently offer non-U.S. dollar
checking or savings account facilities in the United States. However, if
requested by a prospective purchaser of a Certificate having a Specified
Principal Currency other than U.S. dollars, Lehman Brothers Inc. (the
"Offering Agent") will arrange for the exchange of U.S. dollars into such
Specified Principal Currency to enable the purchaser to pay for such
Certificate. Such request must be made on or before the fifth Business Day
(as defined below) preceding the date of delivery of such Certificate or by
such later date as is determined by the Offering Agent. Each such exchange
will be made by the Offering Agent on such terms and subject to such
conditions, limitations and charges as the Offering Agent may from time to
time establish in accordance with its regular foreign exchange practice.
All costs of exchange will be borne by the purchaser.
References herein to "U.S. dollars," "U.S.$," USD, "dollar" or "$" are
to the lawful currency of the United States.
RISK FACTORS
Limited Liquidity. There will be no market for any Series (or Class
within such Series) of Certificates prior to the issuance thereof, and
there can be no assurance that a secondary market will develop or, if it
does develop, that it will provide Certificateholders with liquidity of
investment or will continue for the life of such Certificates.
Certain Legal Aspects. The applicable Prospectus Supplement may set
forth certain legal considerations that are applicable to a specific Series
(or Class or Classes within such Series) of Certificates being offered in
connection with that Prospectus Supplement or the assets deposited in or
assigned to the related Trust.
Limited Obligations and Interests. The Certificates will not represent
a recourse obligation of or interest in the Company or any of its
affiliates. Unless otherwise specified in the applicable Prospectus
Supplement, the Certificates of each Series will not be insured or
guaranteed by any government agency or instrumentality, the Company, any
Person affiliated with the Company or the Issuer, or any other Person. The
obligations, if any, of the Company with respect to the Certificates of any
Series will only be pursuant to certain limited representations and
warranties. The Company does not have, and is not expected in the future to
have, any significant assets with which to satisfy any claims arising from
a breach of any representation or warranty. If, for example, the Company
were required to repurchase an Underlying Security with respect to which
the Company has breached a representation or warranty, its only sources of
funds to make such repurchase would be from funds obtained from the
enforcement of a corresponding obligation, if any, on the part of the
seller of such Underlying Security to the Company, or from a reserve fund
established to provide
5
funds for such repurchases. The Company has no obligation to establish or
maintain any such reserve fund.
Credit Support; Limited Assets. Although the Trust for any Series (or
Class of such Series) of Certificates may include, or the
Certificateholders of such Certificates may have the benefit of, certain
assets which are designed to support the payment upon, or otherwise ensure
the servicing or distribution with respect to, the Deposited Assets related
to such Series or Class as described in the related Prospectus Supplement,
the Certificates do not represent obligations of the Company, any
Administrative Agent or any of their affiliates and, unless otherwise
specified in the applicable Prospectus Supplement, are not insured or
guaranteed by the Company, any Administrative Agent, any of their
affiliates or any other person or entity. Accordingly, Certificateholders'
receipt of distributions in respect of the Certificates will depend
entirely on the performance of and the Trust's receipt of payments with
respect to the Deposited Assets and any Credit Support identified in the
related Prospectus Supplement. See "Description of Deposited Assets and
Credit Support."
Maturity and Redemption Considerations. The timing of distributions of
interest, premium (if any) and principal of any Series (or of any Class
within such Series) of Certificates is affected by a number of factors,
including the performance of the related Deposited Assets, the extent of
any early redemption, repayment or extension of maturity with respect to
the related Underlying Securities and the manner and priority in which
collections from such Underlying Securities and any other Deposited Assets
are allocated to each Class of such Series. Certain of these factors may be
influenced by a variety of accounting, tax, economic, social and other
factors. The related Prospectus Supplement will discuss any calls, puts or
other redemption options, any extension of maturity provisions and certain
other terms applicable to such Underlying Securities and any other
Deposited Assets. See "Maturity and Yield Considerations."
Tax Considerations. The Federal income tax consequences of the
purchase, ownership and disposition of the Certificates and the tax
treatment of the Trust will depend on the specific terms of the
Certificates, the Trust, any Credit Support and the Deposited Assets. See
the description under "Certain Federal Income Tax Considerations" in the
related Prospectus Supplement.
Ratings of the Certificates. At the time of issue, the Certificates of
any given Series (or each Class of such Series that is offered hereby) will
be rated in one of the investment grade categories recognized by one or
more nationally recognized rating agencies (a "Rating Agency"). Unless
otherwise specified in the applicable Prospectus Supplement, the rating of
any Series or Class of Certificates is based primarily on the related
Deposited Assets and any Credit Support and the relative priorities of the
Certificateholders of such Series or Class to receive collections from, and
to assert claims against, the Trust with respect to such Deposited Assets
and any Credit Support. The rating is not a recommendation to purchase,
hold or sell Certificates, inasmuch as such rating does not comment as to
market price or suitability for a particular investor. There can be no
assurance that the rating will remain for any given period of time or that
the rating will not be lowered or withdrawn entirely by the Rating Agency
if in its judgment circumstances in the future so warrant. Any Class or
Classes of a given Series of Certificates may not be offered pursuant to
this Prospectus,
6
in which case such Class or Classes may or may not be rated in an
investment grade category by a Rating Agency.
Global Securities. Unless otherwise specified in the related
Prospectus Supplement, the Certificates of each Series (or, if more than
one Class exists, each Class of such Series) will initially be represented
by one or more Global Securities deposited with, or on behalf of, a
Depositary (as defined below) and will not be issued as individual
definitive Certificates to the purchasers of such Certificates.
Consequently, unless and until such individual definitive Certificates of a
particular Series or Class are issued, such purchasers will not be
recognized as Certificateholders under the Trust Agreement. Hence, until
such time, such purchasers will only be able to exercise the rights of
Certificateholders indirectly through the Depositary and its respective
participating organizations and, as a result, the ability of any such
purchaser to pledge that Certificate to persons or entities that do not
participate in the Depositary's system, or to otherwise act with respect to
such Certificate, may be limited. See "Description of Certificates--Global
Securities" and any further description contained in the related Prospectus
Supplement.
Currency Risks. The Certificates of any given Series (or Class within
such Series) may be demonstrated in a currency other than U.S. dollars to
the extent specified in the applicable Prospectus Supplement. This
Prospectus does not describe all the risks of an investment in such
Certificates, and the Company disclaims any responsibility to advise
prospective purchasers of such risks as they exist from time to time.
Prospective purchasers of such Certificates should consult their own
financial and legal advisors as to the risks entailed by an investment in
such Certificates denominated in a currency other than U.S. dollars. See
"Currency Risks."
Passive Nature of the Trust. The Trustee with respect to any Series of
Certificates will hold the Deposited Assets for the benefit of the
Certificateholders. Each Trust will generally hold the related Deposited
Assets to maturity and not dispose of them, regardless of adverse events,
financial or otherwise, which may affect any GSE Issuer or the value
of the Deposited Assets. Under certain circumstances the holders of the
Certificates may direct the Trustee to dispose of the Underlying Securities
or take certain other actions in respect of the Deposited Assets.
In addition, the Prospectus Supplement for each Series of Certificates
will set forth information regarding additional risk factors, if any,
applicable to such Series (and each Class within such Series).
THE COMPANY
The Company was incorporated in the State of Delaware on January 29,
1988, as an indirect, wholly-owned, limited-purpose subsidiary of Lehman
Brothers Inc. The principal office of the Company is located in 3 World
Financial Center, New York, New York 10285. Its telephone number is (212)
526-5594.
7
The Certificate of Incorporation of the Company provides that the
Company may conduct any lawful activities necessary or incidental to
serving as depositor of one or more trusts that may issue and sell
Certificates. The Certificate of Incorporation of the Company provides that
any securities, except for subordinated securities, issued by the Company
must be rated in one of the four highest categories available by any Rating
Agency rating the Series. Formation of a grantor trust will not relieve the
Company of its obligation to issue only securities, except for subordinated
securities, rated in one of the four highest rating categories. Pursuant to
the terms of the Trust Agreement, the Company may not issue any securities
which would result in the lowering of the then current ratings of the
outstanding Certificates of any Series.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
the net proceeds to be received from the sale of each Series or Class of
Certificates (whether or not offered hereby) will be used by the Company to
purchase the related Deposited Assets and arrange certain Credit Support
including, if specified in the related Prospectus Supplement, making
required deposits into any reserve account or the applicable Certificate
Account (as defined below) for the benefit of the Certificateholders of
such Series or Class. Any remaining net proceeds, if any, will be used by
the Company for general corporate purposes.
FORMATION OF THE TRUST
The Company will assign the Deposited Assets for each Series of
Certificates to the Trustee named in the applicable Prospectus Supplement,
in its capacity as Trustee, for the benefit of the Certificateholders of
such Series. See "Description of the Trust Agreement -- Assignment of
Deposited Assets." The Trustee named in the applicable Prospectus
Supplement will administer the Deposited Assets pursuant to the Trust
Agreement and will receive a fee for such services (the "Trustee's Fee").
Any Administrative Agent named in the applicable Prospectus Supplement will
perform such tasks as are specified therein and in the Trust Agreement and
will receive a fee for such services (the "Administration Fee") as
specified in the Prospectus Supplement. See "Description of the Trust
Agreement--Collection and Other Administrative Procedures" and "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses." The
Trustee or an Administrative Agent, if applicable, will either cause the
assignment of the Deposited Assets to be recorded or will obtain an opinion
of counsel that no recordation is required to obtain a first priority
perfected security interest in such Deposited Assets.
Unless otherwise stated in the Prospectus Supplement, the Company's
assignment of the Deposited Assets to the Trustee will be without recourse.
To the extent provided in the applicable Prospectus Supplement, the
obligations of an Administrative Agent so named therein with respect to the
Deposited Assets will consist primarily of its contractual administrative
obligations, if any, under the Trust Agreement, its obligation, if any, to
make certain cash advances in the event of
8
delinquencies in payments on or with respect to any Deposited Assets in
amounts described under "Description of the Trust Agreement -- Advances in
Respect of Delinquencies," and its obligations, if any, to purchase
Deposited Assets as to which there has been a breach of certain
representations and warranties or as to which the documentation is
materially defective. The obligations of an Administrative Agent, if any,
named in the applicable Prospectus Supplement to make advances will be
limited to amounts which any such Administrative Agent believes ultimately
would be recoverable under any Credit Support, insurance coverage, the
proceeds of liquidation of the Deposited Assets or from other sources
available for such purposes. See "Description of the Trust Agreement --
Advances in Respect of Delinquencies."
Unless otherwise provided in the related Prospectus Supplement, each
Trust will consist of (i) such Deposited Assets, or interests therein,
exclusive of any interest in such assets (the "Retained Interest") retained
by the Company or any previous owner thereof, as from time to time are
specified in the Trust Agreement; (ii) such assets as from time to time are
identified as deposited in the related Certificate Account; (iii) property,
if any, acquired on behalf of Certificateholders by foreclosure or
repossession and any revenues received thereon; (iv) those elements of
Credit Support, if any, provided with respect to any Class within such
Series that are specified as being part of the related Trust in the
applicable Prospectus Supplement, as described therein and under
"Description of Deposited Assets and Credit Support -- Credit Support"; (v)
the rights of the Company under the agreement or agreements entered into by
the Trustee on behalf of the Certificateholders which constitute, or
pursuant to which the Trustee has acquired, such Deposited Assets; and (vi)
the rights of the Trustee in any cash advances, reserve fund or surety
bond, if any, as described under "Description of the Trust Agreement --
Advances in Respect of Delinquencies."
In addition, to the extent provided in the applicable Prospectus
Supplement, the Company will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related
Underlying Securities and the terms, if any, upon which such Underlying
Securities may be subject to early redemption (either by the applicable
obligor or pursuant to a third-party call option), repayment (at the option
of the holders thereof) or extension of maturity. The provisions of the
Underlying Securities with respect to the foregoing will, unless otherwise
specified in the applicable Prospectus Supplement, affect the weighted
average life of the related Series of Certificates.
The effective yield to holders of the Certificates of any Series (and
Class within such Series) may be affected by certain aspects of the
Deposited Assets or any Credit Support or the manner and priorities of
allocations of collections with respect to such Deposited Assets between
the Classes of a given Series. With respect to any Series of Certificates
the Underlying Securities of
9
which consist of one or more redeemable securities, extendable securities
or securities subject to a third-party call option, the yield to maturity
of such Series (or Class within such Series) may be affected by any
optional or mandatory redemption or repayment or extension of the related
Underlying Securities prior to the stated maturity thereof. A variety of
tax, accounting, economic, and other factors will influence whether an
issuer exercises any right of redemption in respect of its securities. The
rate of redemption may also be influenced by prepayments on the obligations
a GSE Issuer holds for its own account. All else remaining equal, if
prevailing interest rates fall significantly below the interest rates on
the related Underlying Securities, the likelihood of redemption would be
expected to increase. There can be no certainty as to whether any
Underlying Security redeemable at the option of a GSE Issuer will be repaid
prior to its stated maturity.
Unless otherwise specified in the related Prospectus Supplement, each
of the Underlying Securities will be subject to acceleration upon the
occurrence of certain Underlying Security Events of Default (as defined
below). The maturity and yield on the Certificates will be affected by any
early repayment of the Underlying Securities as a result of the
acceleration of the Outstanding Debt Securities by the holders thereof. See
"Description of the Deposited Assets -- Underlying Securities Indenture."
The extent to which the yield to maturity of such Certificates may
vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to the rate and timing of payments on the
Deposited Assets.
The yield to maturity of any Series (or Class) of Certificates will
also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that
the Pass-Through Rate for such Series (or Class) is based on variable or
adjustable interest rates. With respect to any Series of Certificates
representing an interest in a pool of corporate debt securities,
disproportionate principal payments (whether resulting from differences in
amortization schedules, payments due on scheduled maturity or upon early
redemption) on the related Underlying Securities having interest rates
higher or lower than the then applicable Pass-Through Rates applicable to
such Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of Certificates will set
forth additional information regarding yield and maturity considerations
applicable to such Series (and each Class within such Series) and the
related Deposited Assets, including the applicable Underlying Securities.
DESCRIPTION OF CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within
such Series) of Certificates will be issued pursuant to a Trust Agreement
and a separate series supplement thereto among the Company, the
Administrative Agent, if any, and the Trustee named in the related
Prospectus Supplement, a form of which Trust Agreement is attached as an
exhibit to the Registration
10
Statement. The provisions of the Trust Agreement (as so supplemented) may
vary depending upon the nature of the Certificates to be issued thereunder
and the nature of the Deposited Assets, Credit Support and related Trust.
The following summaries describe certain provisions of the Trust Agreement
which may be applicable to each Series of Certificates. The applicable
Prospectus Supplement for a Series of Certificates will describe any
provision of the Trust Agreement that materially differs from the
description thereof contained in this Prospectus. The following summaries
do not purport to be complete and are subject to the detailed provisions of
the form of Trust Agreement to which reference is hereby made for a full
description of such provisions, including the definition of certain terms
used, and for other information regarding the Certificates. Article and
section references in parentheses below are to articles and sections in the
Trust Agreement. Wherever particular sections or defined terms of the Trust
Agreement are referred to, such sections or defined terms are incorporated
herein by reference as part of the statement made, and the statement is
qualified in its entirety by such reference. As used herein with respect to
any Series, the term "Certificate" refers to all the Certificates of that
Series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires.
A copy of the applicable series supplement to the Trust Agreement
relating to each Series of Certificates issued from time to time will be
filed by the Company as an exhibit to a Current Report on Form 8-K to be
filed with the Commission following the issuance of such Series.
General
There is no limit on the amount of Certificates that may be issued
under the Trust Agreement, and the Trust Agreement will provide that
Certificates of the applicable Series may be issued in multiple Classes
(Section 5.01). The Series (or Classes within such Series) of Certificates
to be issued under the Trust Agreement will represent the entire beneficial
ownership interest in the Trust for such Series created pursuant to the
Trust Agreement and each such Class will be allocated certain relative
priorities to receive specified collections from, and a certain percentage
ownership interest of the assets deposited in, such Trust, all as
identified and described in the applicable Prospectus Supplement. See
"Description of Deposited Assets and Credit Support -- Collections."
Reference is made to the related Prospectus Supplement for a
description of the following terms of the Series (and, if applicable,
Classes within such Series) of Certificates in respect of which this
Prospectus and such Prospectus Supplement are being delivered: (i) the
title of such Certificates; (ii) the Series of such Certificates and, if
applicable, the number and designation of Classes of such Series; (iii)
certain information concerning the type, characteristics and specifications
of the Deposited Assets being deposited into the related Trust by the
Company (and, with respect to any Underlying Security which at the time of
such deposit represents a significant portion of all such Deposited Assets
and any related Credit Support, certain information concerning the terms of
each such Underlying Security, the identity of the issuer thereof and where
publicly available information regarding such issuer may be obtained); (iv)
the limit, if any, upon the aggregate principal amount or notional amount,
as applicable, of each Class thereof; (v) the dates on which or periods
during which such Series or Classes within such Series may be issued (each,
an "Original Issue Date"), the offering
11
price thereof and the applicable Distribution Dates on which the principal,
if any, of (and premium, if any, on) such Series or Classes within such
Series will be distributable; (vi) if applicable, the relative rights and
priorities of each such Class (including the method for allocating
collections from and defaults or losses on the Deposited Assets to the
Certificateholders of each such Class); (vii) whether the Certificates of
such Series or each Class within such Series are Fixed Rate Certificates or
Floating Rate Certificates (each as defined below) and the applicable
interest rate (the "Pass-Through Rate") for each such Class including the
applicable rate, if fixed (a "Fixed Pass-Through Rate"), or the terms
relating to the particular method of calculation thereof applicable to such
Series or each Class within such Series, if variable (a "Variable
Pass-Through Rate"); the date or dates from which such interest will
accrue; the applicable Distribution Dates on which interest, principal and
premium, in each case as applicable, on such Series or Class will be
distributable and the related Record Dates, if any; (viii) the option, if
any, of any Certificateholder of such Series or Class to withdraw a portion
of the assets of the Trust in exchange for surrendering such
Certificateholder's Certificate or of the Company or Administrative Agent,
if any, or another third party to purchase or repurchase any Deposited
Assets (in each case to the extent not inconsistent with the Company's
continued satisfaction of the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act of 1940 and all applicable
rules, regulations and interpretations thereunder) and the periods within
which or the dates on which, and the terms and conditions upon which any
such option may be exercised, in whole or in part; (ix) the rating of each
Series or each Class within such Series offered hereby (provided, however,
that one or more Classes within such Series not offered hereunder may be
unrated or may be rated below investment grade); (x) if other than
denominations of $1,000 and any integral multiple thereof, the
denominations in which such Series or Class within such Series will be
issuable; (xi) whether the Certificates of any Class within a given Series
are to be entitled to (1) principal distributions, with disproportionate,
nominal or no interest distributions, or (2) interest distributions, with
disproportionate, nominal or no principal distributions ("Strip
Certificates"), and the applicable terms thereof; (xii) whether the
Certificates of such Series or of any Class within such Series are to be
issued in the form of one or more Global Securities and, if so, the
identity of the Depositary (as defined below), if other than The Depository
Trust Company, for such Global Security or Securities; (xiii) if a
temporary Certificate is to be issued with respect to such Series or any
Class within such Series, whether any interest thereon distributable on a
Distribution Date prior to the issuance of a definitive Certificate of such
Series or Class will be credited to the account of the Persons entitled
thereto on such Distribution Date; (xiv) if a temporary Global Security is
to be issued with respect to such Series or Class, the terms upon which
beneficial interests in such temporary Global Security may be exchanged in
whole or in part for beneficial interests in a definitive Global Security
or for individual Definitive Certificates (as defined below) of such Series
or Class and the terms upon which beneficial interests in a definitive
Global Security, if any, may be exchanged for individual Definitive
Certificates of such Series or Class; (xv) if other than U.S. dollars, the
Specified Currency applicable to the Certificates of such Series or Class
for purposes of denominations and distributions on such Series or each
Class within such Series and the circumstances and conditions, if any, when
such Specified Currency may be changed, at the election of the Company or a
Certificateholder, and the currency or currencies in which any principal of
or any premium or any interest on such Series or Class are to be
distributed pursuant to such election; (xvi) any additional Administrative
Agent Termination Events (as defined below), if applicable, provided for
with respect to such Class; (xvii)
12
all applicable Required Percentages and Voting Rights (each as defined
below) relating to the manner and percentage of votes of Certificateholders
of such Series and each Class within such Series required with respect to
certain actions by the Company or the applicable Administrative Agent, if
any, or Trustee under the Trust Agreement or with respect to the applicable
Trust; and (xviii) any other terms of such Series or Class within such
Series of Certificates not inconsistent with the provisions of the Trust
Agreement relating to such Series.
Unless otherwise indicated in the applicable Prospectus Supplement,
Certificates of each Series (including any Class of Certificates not
offered hereby) will be issued only as Registered Certificates in
denominations of $1,000 and any integral multiple thereof and will be
payable only in U.S. dollars (Section 5.01). The authorized denominations
of Registered Certificates of a given Series or Class within such Series
having a Specified Currency other than U.S. dollars will be set forth in
the applicable Prospectus Supplement.
The United States Federal income tax consequences and ERISA
consequences relating to any Series or any Class within such Series of
Certificates will be described in the applicable Prospectus Supplement. In
addition, any risk factors, the specific terms and other information with
respect to the issuance of any Series or Class within such Series of
Certificates on which the principal of and any premium and interest are
distributable in a Specified Currency other than U.S. dollars will be
described in the applicable Prospectus Supplement relating to such Series
or Class. Unless otherwise specified in the applicable Prospectus
Supplement, the U.S. dollar equivalent of the public offering price or
purchase price of a Certificate having a Specified Principal Currency other
than U.S. dollars will be determined on the basis of the noon buying rate
in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the "Market
Exchange Rate") for such Specified Principal Currency on the applicable
issue date. As specified in the applicable Prospectus Supplement, such
determination will be made by the Company, the Trustee, the Administrative
Agent, if any, or an agent thereof as exchange rate agent for each Series
of Certificates (the "Exchange Rate Agent").
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Certificates may be transferred or exchanged for like
Certificates of the same Series and Class at the corporate trust office or
agency of the applicable Trustee in the City and State of New York, subject
to the limitations provided in the Trust Agreement, without the payment of
any service charge, other than any tax or governmental charge payable in
connection therewith (Section 5.04). The Company may at any time purchase
Certificates at any price in the open market or otherwise. Certificates so
purchased by the Company may, at the discretion of the Company, be held or
resold or surrendered to the Trustee for cancellation of such Certificates.
Distributions
Distributions allocable to principal, premium (if any) and interest on
the Certificates of each Series (and Class within such Series) will be made
in the Specified Currency for such Certificates by or on behalf of the
Trustee on each Distribution Date as specified in the related
13
Prospectus Supplement and the amount of each distribution will be
determined as of the close of business on the date specified in the related
Prospectus Supplement (the "Determination Date"). If the Specified Currency
for a given Series or Class within such Series is other than U.S. dollars,
the Administrative Agent, if any, or otherwise the Trustee will (unless
otherwise specified in the applicable Prospectus Supplement) arrange to
convert all payments in respect of each Certificate of such Series or Class
to U.S. dollars in the manner described in the following paragraph. The
Certificateholder of a Registered Certificate of a given Series or Class
within such Series denominated in a Specified Currency other than U.S.
dollars may (if the applicable Prospectus Supplement and such Certificate
so indicate) elect to receive all distributions in respect of such
Certificate in the Specified Currency by delivery of a written notice to
the Trustee and Administrative Agent, if any, for such Series not later
than fifteen calendar days prior to the applicable Distribution Date,
except under the circumstances described under "Currency Risks -- Payment
Currency" below. Such election will remain in effect until revoked by
written notice to such Trustee and Administrative Agent, if any, received
by each of them not later than fifteen calendar days prior to the
applicable Distribution Date.
Unless otherwise specified in the applicable Prospectus Supplement, in
the case of a Registered Certificate of a given Series or Class within such
Series having a Specified Currency other than U.S. dollars, the amount of
any U.S dollar distribution in respect of such Registered Certificate will
be determined by the Exchange Rate Agent based on the highest firm bid
quotation expressed in U.S. dollars received by the Exchange Rate Agent at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Distribution Date (or, if no such rate is quoted
on such date, the last date on which such rate was quoted), from three (or,
if three are not available, then two) recognized foreign exchange dealers
in The City of New York (one of which may be the Offering Agent and another
of which may be the Exchange Rate Agent) selected by the Exchange Rate
Agent, for the purchase by the quoting dealer, for settlement on such
Distribution Date, of the aggregate amount payable in such Specified
Currency on such payment date in respect of all Registered Certificates.
All currency exchange costs will be borne by the Certificateholders of such
Registered Certificates by deductions from such distributions. If no such
bid quotations are available, such distributions will be made in such
Specified Currency, unless such Specified Currency is unavailable due to
the imposition of exchange controls or to other circumstances beyond the
Company's control, in which case such distributions will be made as
described under "Currency Risks -- Payment Currency" below. The applicable
Prospectus Supplement will specify such information with respect to Bearer
Certificates.
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect
to Certificates will be made (in the case of Registered Certificates) at
the corporate trust office or agency of the Trustee specified in the
applicable Prospectus Supplement in The City of New York; provided,
however, that any such amounts distributable on the final Distribution Date
of a Certificate will be distributed only upon surrender of such
Certificate at the applicable location set forth above (Sections 4.01 and
9.01).
14
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Certificates in U.S. dollars will be made,
except as provided below, by check mailed to the Registered
Certificateholders of such Certificates (which, in the case of Global
Securities, will be a nominee of the Depositary); provided, however, that,
in the case of a Series or Class of Registered Certificates issued between
a Record Date (as defined below) and the related Distribution Dates,
interest for the period beginning on the issue date for such Series or
Class and ending on the last day of the interest accrual period ending
immediately prior to or coincident with such Distribution Date will, unless
otherwise specified in the applicable Prospectus Supplement, be distributed
on the next succeeding Distribution Date to the Registered
Certificateholders of the Registered Certificates of such Series or Class
on the related Record Date. A Certificateholder of $10,000,000 (or the
equivalent thereof in a Specified Principal Currency other than U.S.
dollars) or more in aggregate principal amount of Registered Certificates
of a given Series shall be entitled to receive such U.S. dollar
distributions by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee for such Series not later than fifteen calendar days prior to the
applicable Distribution Date. Simultaneously with the election by any
Certificateholder to receive payments in a Specified Currency other than
U.S. dollars (as provided above), such Certificateholder shall provide
appropriate wire transfer instructions to the Trustee for such Series, and
all such payments will be made by wire transfer of immediately available
funds to an account maintained by the payee with a bank located outside the
United States.
Except as otherwise specified in the applicable Prospectus Supplement,
"Business Day" with respect to any Certificate means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in (a) The City of
New York or (b) if the Specified Currency for such Certificate is other
than U.S. dollars, the financial center of the country issuing such
Specified Currency (which, in the case of ECU, shall be Brussels, Belgium)
and (ii) if the Pass-Through Rate for such Certificate is based on LIBOR, a
London Banking Day. "London Banking Day" with respect to any Certificate
means any day on which dealings in deposits in the Specified Currency of
such Certificate are transacted in the London interbank market. The Record
Date with respect to any Distribution Date for a Series or Class of
Registered Certificates shall be specified as such in the applicable
Prospectus Supplement.
Interest on the Certificates
General. Each Class of Certificates (other than certain Classes of
Strip Certificates) of a given Series may have a different Pass-Through
Rate, which may be a fixed or variable Pass-Through Rate, as described
below. In the case of Strip Certificates with no or, in certain cases, a
nominal Certificate Principal Balance, such distributions of interest will
be in an amount (as to any Distribution Date, "Stripped Interest")
described in the related Prospectus Supplement. For purposes hereof,
"Notional Amount" means the notional principal amount specified in the
applicable Prospectus Supplement on which interest on Strip Certificates
with no or, in certain cases, a nominal Certificate Principal Balance will
be made on each Distribution Date. Reference to the Notional Amount of a
Class of Strip Certificates herein or in a Prospectus Supplement does not
indicate that such Certificates represent the right to receive any
distribution in respect of principal in such amount, but
15
rather the term "Notional Amount" is used solely as a basis for calculating
the amount of required distributions and determining certain relative
voting rights, all as specified in the related Prospectus Supplement.
Fixed Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a fixed Pass-
Through Rate ("Fixed Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date, or from the last date to which
interest has been paid, at the fixed Pass-Through Rate stated on the face
thereof and in the applicable Prospectus Supplement until the principal
amount thereof is distributed or made available for repayment (or in the
case of Fixed Rate Certificates with no or a nominal principal amount,
until the Notional Amount thereof is reduced to zero), except that, if so
specified in the applicable Prospectus Supplement, the Pass-Through Rate
for such Series or any such Class or Classes may be subject to adjustment
from time to time in response to designated changes in the rating assigned
to such Certificates by one or more rating agencies, in accordance with a
schedule or otherwise, all as described in such Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement,
interest on each Series or Class of Fixed Rate Certificates will be
distributable in arrears on each Distribution Date specified in such
Prospectus Supplement. Each such distribution of interest shall include
interest accrued through the day specified in the applicable Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, interest on Fixed Rate Certificates will be computed on the
basis of a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a variable
Pass-Through Rate ("Floating Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date to the first Interest Reset Date
(as defined below) for such Series or Class at the Initial Pass-Through
Rate set forth on the face thereof and in the applicable Prospectus
Supplement. Thereafter, the Pass-Through Rate on such Series or Class for
each Interest Reset Period (as defined below) will be determined by
reference to an interest rate basis (the "Base Rate"), plus or minus the
Spread, if any, or multiplied by the Spread Multiplier, if any. The
"Spread" is the number of basis points (one basis point equals one
one-hundredth of a percentage point) that may be specified in the
applicable Prospectus Supplement as being applicable to such Series or
Class, and the "Spread Multiplier" is the percentage that may be specified
in the applicable Prospectus Supplement as being applicable to such Series
or Class, except that if so specified in the applicable Prospectus
Supplement, the Spread or Spread Multiplier on such Series or any such
Class or Classes of Floating Rate Certificates may be subject to adjustment
from time to time in response to designated changes in the rating assigned
to such Certificates by one or more rating agencies, in accordance with a
schedule or otherwise, all as described in such Prospectus Supplement. The
applicable Prospectus Supplement, unless otherwise specified therein, will
designate one of the following Base Rates as applicable to a Floating Rate
Certificate: (i) LIBOR (a "LIBOR Certificate"), (ii) the Commercial Paper
Rate (a "Commercial Paper Rate Certificate"), (iii) the Treasury Rate (a
"Treasury Rate Certificate"), (iv) the Federal Funds Rate (a "Federal Funds
Rate Certificate"), (v) the CD Rate (a "CD Rate Certificate") or (vi) such
other Base Rate (which may be based on, among
16
other things, one or more market indices or the interest and/or other
payments (whether scheduled or otherwise) paid, accrued or available with
respect to a designated asset, pool of assets or type of asset) as is set
forth in such Prospectus Supplement and in such Certificate. The "Index
Maturity" for any Series or Class of Floating Rate Certificates is the
period of maturity of the instrument or obligation from which the Base Rate
is calculated. "H.15(519)" means the publication entitled "Statistical
Release H.15(519), Selected Interest Rates," or any successor publication,
published by the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 p.m. Quotations for U.S. Government Securities" published
by the Federal Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest
may accrue during any interest accrual period specified in the applicable
Prospectus Supplement ("Maximum Pass-Through Rate") and (ii) a minimum
limitation, or floor, on the rate at which interest may accrue during any
such interest accrual period ("Minimum Pass-Through Rate"). In addition to
any Maximum Pass-Through Rate that may be applicable to any Series or Class
of Floating Rate Certificates, the Pass-Through Rate applicable to any
Series or Class of Floating Rate Certificates will in no event be higher
than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application. The Floating Rate
Certificates will be governed by the law of the State of New York and,
under such law as of the date of this Prospectus, the maximum rate of
interest, with certain exceptions, is 25% per annum on a simple interest
basis.
The Company will appoint, and enter into agreements with, agents (each
a "Calculation Agent") to calculate Pass-Through Rates on each Series or
Class of Floating Rate Certificates. The applicable Prospectus Supplement
will set forth the identity of the Calculation Agent for each Series or
Class of Floating Rate Certificates. All determinations of interest by the
Calculation Agent shall, in the absence of manifest error, be conclusive
for all purposes and binding on the holders of Floating Rate Certificates
of a given Series or Class.
The Pass-Through Rate on each Class of Floating Rate Certificates will
be reset daily, weekly, monthly, quarterly, semiannually or annually (such
period being the "Interest Reset Period" for such Class, and the first day
of each Interest Reset Period being an "Interest Reset Date"), as specified
in the applicable Prospectus Supplement. Interest Reset Dates with respect
to each Series, and any Class within such Series of Floating Rate
Certificates will be specified in the applicable Prospectus Supplement;
provided, however, that unless otherwise specified in such Prospectus
Supplement, the Pass-Through Rate in effect for the ten days immediately
prior to the Scheduled Final Distribution Date will be that in effect on
the tenth day preceding such Scheduled Final Distribution Date. If an
Interest Reset Date for any Class of Floating Rate Certificates would
otherwise be a day that is not a Business Day, such Interest Reset Date
will occur on a prior or succeeding Business Day, specified in the
applicable Prospectus Supplement.
17
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Certificates shall be the
accrued interest from and including the Original Issue Date of such Series
or Class or the last Interest Reset Date to which interest has accrued and
been distributed, as the case may be, to but excluding the immediately
following Distribution Date.
With respect to a Floating Rate Certificate, accrued interest shall be
calculated by multiplying the Certificate Principal Balance of such
Certificate (or, in the case of a Strip Certificate with no or a nominal
Certificate Principal Balance, the Notional Amount specified in the
applicable Prospectus Supplement) by an accrued interest factor. Such
accrued interest factor will be computed by adding the interest factors
calculated for each day in the period for which accrued interest is being
calculated. Unless otherwise specified in the applicable Prospectus
Supplement, the interest factor (expressed as a decimal calculated to seven
decimal places without rounding) for each such day is computed by dividing
the Pass-Through Rate in effect on such day by 360, in the case of LIBOR
Certificates, Commercial Paper Rate Certificates, Federal Funds Rate
Certificates and CD Rate Certificates or by the actual number of days in
the year, in the case of Treasury Rate Certificates. For purposes of making
the foregoing calculation, the variable Pass-Through Rate in effect on any
Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement,
all percentages resulting from any calculation of the Pass-Through Rate on
a Floating Rate Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series (or Class within such Series) of Floating Rate
Certificates will be distributable on the Distribution Dates and for the
interest accrual periods as and to the extent set forth in the applicable
Prospectus Supplement.
Upon the request of the holder of any Floating Rate Certificate of a
given Series or Class, the Calculation Agent for such Series or Class will
provide the Pass-Through Rate then in effect and, if determined, the Pass-
Through Rate that will become effective on the next Interest Reset Date
with respect to such Floating Rate Certificate.
(1) CD Rate Certificates. Each CD Rate Certificate will bear interest
for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any,
specified in such Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "CD Rate" for each Interest Reset Period shall be the rate as of the
second Business Day prior to the Interest Reset Date for such Interest
Reset Period (a "CD Rate Determination Date") for negotiable certificates
of deposit having the Index Maturity designated in the applicable
Prospectus Supplement as published in H.15(519) under the heading "CDs
(Secondary Market)." In the event that such rate is not
18
published prior to 3:00 p.m., New York City time, on the Calculation Date
(as defined below) pertaining to such CD Rate Determination Date, then the
"CD Rate" for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit." If by
3:00 p.m., New York City time, on such Calculation Date such rate is not
yet published in either H.15(519) or Composite Quotations, then the "CD
Rate" for such Interest Reset Period will be calculated by the Calculation
Agent for such CD Rate Certificate and will be the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New York City time, on
such CD Rate Determination Date, of three leading nonbank dealers in
negotiable U.S. dollar certificates of deposit in The City of New York
selected by the Calculation Agent for such CD Rate Certificate for
negotiable certificates of deposit of major United States money center
banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index
Maturity designated in the related Prospectus Supplement in a denomination
of $5,000,000; provided, however, that if the dealers selected as aforesaid
by such Calculation Agent are not quoting offered rates as mentioned in
this sentence, the "CD Rate" for such Interest Reset Period will be the
same as the CD Rate for the immediately preceding Interest Reset Period
(or, if there was no such Interest Reset Period, the Initial Pass-Through
Rate).
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD
Rate Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (b) the second Business Day preceding the date
any distribution of interest is required to be made following the
applicable Interest Reset Date.
(2) Commercial Paper Rate Certificates. Each Commercial Paper Rate
Certificate will bear interest for each Interest Reset Period at the
Pass-Through Rate calculated with reference to the Commercial Paper Rate
and the Spread or Spread Multiplier, if any, specified in such Certificate
and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate
Certificate as of the second Business Day prior to the Interest Reset Date
for such Interest Reset Period (a "Commercial Paper Rate Determination
Date") and shall be the Money Market Yield (as defined below) on such
Commercial Paper Rate Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
"Commercial Paper." In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate
for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published
in either H.15(519) or Composite Quotations, then the "Commercial Paper
Rate" for such Interest Reset Period shall be the
19
Money Market Yield of the arithmetic mean of the offered rates, as of 11:00
a.m., New York City time, on such Commercial Paper Rate Determination Date
of three leading dealers of commercial paper in The City of New York
selected by the Calculation Agent for such Commercial Paper Rate
Certificate for commercial paper of the specified Index Maturity placed for
an industrial issuer whose bonds are rated "AA" or the equivalent by a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting offered
rates as mentioned in this sentence, the "Commercial Paper Rate" for such
Interest Reset Period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Pass-Through Rate).
"Money Market Yield" shall be a yield calculated in accordance with
the following formula:
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M" refers
to the actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar
day after such Commercial Paper Rate Determination Date or, if such day is
not a Business Day, the next succeeding Business Day or (b) the second
Business Day preceding the date any distribution of interest is required to
be made following the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate
Certificate will bear interest for each Interest Reset Period at the Pass-
Through Rate calculated with reference to the Federal Funds Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Federal Funds Rate
Determination Date, the "Federal Funds Rate" for such Interest Reset Period
shall be the rate on such Federal Funds Rate Determination Date as
published in Composite Quotations under the heading "Federal
Funds/Effective Rate." If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Federal Funds Rate" for such Interest Reset
Period shall be the rate on such Federal Funds Rate Determination Date made
publicly available by the Federal Reserve Bank of New York which is
equivalent to the rate which appears in H.15(519) under the heading
"Federal
20
Funds (Effective)"; provided, however, that if such rate is not
made publicly available by the Federal Reserve Bank of New York by 3:00
p.m., New York City time, on such Calculation Date, the "Federal Funds
Rate" for such Interest Reset Period will be the same as the Federal Funds
Rate in effect for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the Initial Pass-Through Rate).
Unless otherwise specified in the applicable Prospectus Supplement, in the
case of a Federal Funds Rate Certificate that resets daily, the
Pass-Through Rate on such Certificate for the period from and including a
Monday to but excluding the succeeding Monday will be reset by the
Calculation Agent for such Certificate on such second Monday (or, if not a
Business Day, on the next succeeding Business Day) to a rate equal to the
average of the Federal Funds Rates in effect with respect to each such day
in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding Business Day.
(4) LIBOR Certificates. Each LIBOR Certificate will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any, specified
in such Certificate and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, unless otherwise specified in the applicable Prospectus
Supplement, "LIBOR" for each Interest Reset Period will be determined by
the Calculation Agent for any LIBOR Certificate as follows:
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Certificate will determine the
arithmetic mean of the offered rates for deposits in U.S. dollars for
the period of the Index Maturity specified in the applicable Prospectus
Supplement, commencing on such Interest Reset Date, which appear on the
Reuters Screen LIBO Page at approximately 11:00 a.m., London time, on
such LIBOR Determination Date. "Reuters Screen LIBO Page" means the
display designated as page "LIBOR" on the Reuters Monitor Money Rates
Service (or such other page may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks). If at least two such offered rates appear on the Reuters Screen
LIBO Page, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of such offered rates as determined by the Calculation
Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Certificate will request the principal London offices of
each of four major banks in the London interbank market selected by
such Calculation Agent to provide such Calculation Agent with its
offered quotations for deposits in U.S. dollars for the period of the
specified Index Maturity, commencing on such Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date and in a principal amount
equal to an amount of not less than $1,000,000 that is representative
of a
21
single transaction in such market at such time. If at least two such
quotations are provided, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such quotations. If fewer than two such
quotations are provided, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Certificate
at approximately 11:00 a.m., New York City time, on such LIBOR
Determination Date for loans in U.S. dollars to leading European banks,
for the period of the specified Index Maturity, commencing on such
Interest Reset Date, and in a principal amount equal to an amount of
not less than $1,000,000 that is representative of a single transaction
in such market at such time; provided, however, that if fewer than
three banks selected as aforesaid by such Calculation Agent are quoting
rates as mentioned in this sentence, "LIBOR" for such Interest Reset
Period will be the same as LIBOR for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate).
If LIBOR with respect to any LIBOR Certificate is indexed to the
offered rates for deposits in a currency other than U.S. dollars, the
applicable Prospectus Supplement will set forth the method for determining
such rate.
(5) Treasury Rate Certificates. Each Treasury Rate Certificate will
bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in such Certificate and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under
the heading "U.S. Government Certificates-Treasury bills-auction average
(investment)" or, in the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Treasury Rate Determination Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) on such Treasury Rate
Determination Date as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury
bills having the specified Index Maturity are not published or reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date,
or if no such auction is held on such Treasury Rate Determination Date,
then the "Treasury Rate" for such Interest Reset Period shall be calculated
by the Calculation Agent for such Treasury Rate Certificate and shall be a
yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of
three leading primary United States government securities dealers selected
by such Calculation Agent for the issue of Treasury bills with a remaining
maturity closest to the specified Index Maturity; provided, however, that
if the dealers selected as aforesaid by
22
such Calculation Agent are not quoting bid rates as mentioned in this
sentence, then the "Treasury Rate" for such Interest Reset Period will be
the same as the Treasury Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the Initial
Pass-Through Rate.)
The "Treasury Rate Determination Date" for such Interest Reset Period
will be the day of the week in which the Interest Reset Date for such
Interest Reset Period falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be
held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the
Treasury Rate Determination Date pertaining to the Interest Reset Period
commencing in the next succeeding week. Unless otherwise specified in the
applicable Prospectus Supplement, if an auction date shall fall on any day
that would otherwise be an Interest Reset Date for a Treasury Rate
Certificate, then such Interest Reset Date shall instead be the Business
Day immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a Business Day,
the next succeeding Business Day or (b) the second Business Day preceding
the date any distribution of interest is required to be made following the
applicable Interest Reset Date.
Principal of the Certificates
Unless the related Prospectus Supplement provides otherwise, each
Certificate (other than certain Classes of Strip Certificates) will have a
"Certificate Principal Balance" which, at any time, will equal the maximum
amount that the holder thereof will be entitled to receive in respect of
principal out of the future cash flow on the Deposited Assets and other
assets included in the related Trust. Unless otherwise specified in the
related Prospectus Supplement, distributions generally will be applied to
undistributed accrued interest on, then to principal of, and then to
premium (if any) on, each such Certificate of the Class or Classes entitled
thereto (in the manner and priority specified in such Prospectus
Supplement) until the aggregate Certificate Principal Balance of such Class
or Classes has been reduced to zero. The outstanding Certificate Principal
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon, and, if applicable pursuant to the terms of the related
Series, by the amount of any net losses realized on any Deposited Asset
("Realized Losses") allocated thereto. Unless the related Prospectus
Supplement provides otherwise, the initial aggregate Certificate Principal
Balance of all Classes of Certificates of a Series will equal the
outstanding aggregate principal balance of the related Deposited Assets as
of the applicable Cut-off Date. The initial aggregate Certificate Principal
Balance of a Series and each Class thereof will be specified in the related
Prospectus Supplement. Distributions of principal of any Class of
Certificates will be made on a pro rata basis among all the Certificates of
such Class. Strip Certificates with no Certificate Principal Balance will
not receive distributions of principal.
23
Foreign Currency Certificates
If the specified currency of any Certificate is not U.S. dollars (a
"Foreign Currency Certificate"), certain provisions with respect thereto
will be set forth in the related Prospectus Supplement which will specify
the denominations, the currency or currencies in which the principal and
interest with respect to such Certificate are to be paid and any other
terms and conditions relating to the non-U.S. dollar denominations or
otherwise applicable to the Certificates.
Indexed Certificates
From time to time, the Issuer may offer a Series of Certificates
("Indexed Certificates"), the principal amount payable at the stated
maturity date of which (the "Indexed Principal Amount") and/or interest
with respect to which is determined by reference to (i) the rate of
exchange between the specified currency for such Certificate and the other
currency or composite currency (the "Indexed Currency") specified therein;
(ii) the difference in the price of a specified commodity (the "Indexed
Commodity") on specified dates; (iii) the difference in the level of a
specified stock index (the "Stock Index"), which may be based on U.S. or
foreign stocks, on specified dates; or (iv) such other objective price or
economic measure as are described in the related Prospectus Supplement. The
manner of determining the Indexed Principal Amount of an Indexed
Certificate, and historical and other information concerning the Indexed
Currency, Indexed Commodity, Stock Index or other price or economic measure
used in such determination, will be set forth in the related Prospectus
Supplement, together with any information concerning tax consequences to
the Holders of such Indexed Certificates.
Except as otherwise specified in the related Prospectus Supplement,
interest on an Indexed Certificate will be payable based on the amount
designated in the related Prospectus Supplement as the "Face Amount" of
such Indexed Certificate. The related Prospectus Supplement will describe
whether the principal amount of the related Indexed Certificate that would
be payable upon redemption or repayment prior to the stated maturity date
will be the Face Amount of such Indexed Certificate, the Indexed Principal
Amount of such Indexed Certificate at the time of redemption or repayment,
or another amount described in such Prospectus Supplement.
Dual Currency Certificates
Certificates may be issued as dual currency certificates ("Dual
Currency Certificates"), in which case payments of principal and/or
interest in respect of Dual Currency Certificates will be made in such
currencies, and rates of exchange will be calculated upon such bases, as
indicated in the Certificates and described in the related Prospectus
Supplement. Other material terms and conditions relating to Dual Currency
Certificates will be set forth in the Certificates and the related
Prospectus Supplement.
24
Optional Exchange
If a holder may exchange Certificates of any given Series for a pro
rata portion of the Deposited Assets, the applicable Prospectus Supplement
will designate such Series as an "Exchangeable Series." The terms upon
which a holder may exchange Certificates of any Exchangeable Series for a
pro rata portion of the Deposited Assets of the related Trust will be
specified in the related Prospectus Supplement; provided that any right of
exchange shall be exercisable only to the extent that such exchange would
not be inconsistent with the Company's and such Trust's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7
under the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder. Such terms may relate to, but
are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for
exchange;
(c) a requirement that the Certificate Principal Balance or
Notional Amount, as applicable, of each Certificate tendered for
exchange be an integral multiple of an amount specified in the
Prospectus Supplement;
(d) specified dates during which a holder may effect such an
exchange (each, an "Optional Exchange Date");
(e) limitations on the right of an exchanging holder to receive
any benefit upon exchange from any Credit Support or other non-
Underlying Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in
order for a Certificate of a given Exchangeable Series (or Class within
such Exchangeable Series) to be exchanged by the applicable
Certificateholder, the Trustee for such Certificate must receive, at least
30 (or such shorter period acceptable to the Trustee) but not more than 45
days prior to an Optional Exchange Date (i) such Certificate with the form
entitled "Option to Elect Exchange" on the reverse thereof duly completed,
or (ii) in the case of Registered Certificates, a telegram, telex,
facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc., the
Depositary (in accordance with its normal procedures) or a commercial bank
or trust company in the United States setting forth the name of the holder
of such Registered Certificate, the Certificate Principal Balance or
Notional Amount of such Registered Certificate to be exchanged,
25
the certificate number or a description of the tenor and terms of such
Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to
be exchanged with the form entitled "Option to Elect Exchange" on the
reverse of the Registered Certificate duly completed will be received by
such Trustee not later than five Business Days after the date of such
telegram, telex, facsimile transmission or letter. If the procedure
described in clause (ii) of the preceding sentence is followed, then such
Registered Certificate and form duly completed must be received by such
Trustee by such fifth Business Day. Any tender of a Certificate by the
holder for exchange shall be irrevocable. The exchange option may be
exercised by the holder of a Certificate for less than the entire
Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized
denomination and all other exchange requirements set forth in the related
Prospectus Supplement are satisfied. Upon such partial exchange, such
Certificate shall be cancelled and a new Certificate or Certificates for
the remaining Certificate Principal Balance thereof shall be issued (which,
in the case of any Registered Certificate, shall be in the name of the
holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement,
because initially and until Definitive Certificates are issued each
Certificate will be represented by a Global Security, the Depositary's
nominee will be the Certificateholder of such Certificate and therefore
will be the only entity that can exercise a right of exchange. In order to
ensure that the Depositary's nominee will timely exercise a right of
exchange with respect to a particular Certificate, the beneficial owner of
such Certificate must instruct the broker or other direct or indirect
participant through which it holds an interest in such Certificate to
notify the Depositary of its desire to exercise a right of exchange.
Different firms have different cut-off times for accepting instructions
from their customers and, accordingly, each beneficial owner should consult
the broker or other direct or indirect participant through which it holds
an interest in a Certificate in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the Depositary.
Unless otherwise provided in the applicable Prospectus Supplement,
upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related Deposited Assets, as described in
such Prospectus Supplement, the applicable Certificateholder will be
entitled to receive a distribution of a pro rata share of the Deposited
Assets related to the Exchangeable Series (and Class within such
Exchangeable Series) of the Certificate being exchanged, in the manner and
to the extent described in such Prospectus Supplement. Alternatively, to
the extent so specified in the applicable Prospectus Supplement, the
applicable Certificateholder, upon satisfaction of such conditions, may
direct the related Trustee to sell, on behalf of such Certificateholder,
such pro rata share of the Deposited Assets, in which event the
Certificateholder shall be entitled to receive the net proceeds of such
sale, less any costs and expenses incurred by such Trustee in facilitating
such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
26
Global Securities
Unless otherwise specified in the applicable Prospectus Supplement,
all Certificates of a given Series (or, if more than one Class exists, any
given Class within that Series) will, upon issuance, be represented by one
or more Global Securities that will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (for Registered Certificates
denominated and payable in U.S. dollars), or such other depositary
identified in the related Prospectus Supplement (the "Depositary"), and
registered in the name of a nominee of the Depositary. Global Securities
may be issued in either temporary or definitive form. Unless and until it
is exchanged in whole or in part for the individual Certificates
represented thereby (each a "Definitive Certificate"), a Global Security
may not be transferred except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary
to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor (Sections 5.02 and 5.04).
The Depository Trust Company has advised the Company as follows: The
Depositary Trust Company is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depository Trust Company
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among the institutions
that have accounts with such Depositary ("participants") in such securities
through electronic book-entry changes in accounts of the participants,
thereby eliminating the need for physical movement of securities
certificates. Such Depositary's participants include securities brokers and
dealers (including the Offering Agent), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own such Depositary. Access to such Depositary's
book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The
Depository Trust Company has confirmed to the Company that it intends to
follow such procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Certificates represented
by such Global Security to the accounts of its participants. The accounts
to be accredited shall be designated by the underwriters of such
Certificates, or, if such Certificates are offered and sold directly
through one or more agents, by the Company or such agent or agents.
Ownership of beneficial interests in a Global Security will be limited to
participants or Persons that may hold beneficial interests through
participants. Ownership of beneficial interests in a Global Security will
be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary for such Global Security or
by participants or Persons that hold through participants. The laws of some
states require that certain purchasers of securities take physical delivery
of such securities. Such limits and such laws may limit the market for
beneficial interests in a Global Security.
27
So long as the Depositary for a Global Security, or its nominee, is
the owner of such Global Security, such Depositary or such nominee, as the
case may be, will be considered the sole Certificateholder of the
individual Certificates represented by such Global Security for all
purposes under the Trust Agreement governing such Certificates. Except as
set forth below, owners of beneficial interests in a Global Security will
not be entitled to have any of the individual Certificates represented by
such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of any such Certificates and will not
be considered the Certificateholder thereof under the Trust Agreement
governing such Certificates. Because the Depositary can only act on behalf
of its participants, the ability of a holder of any Certificate to pledge
that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate,
may be limited due to the lack of a physical certificate for such
Certificate.
Distributions of principal of (and premium, if any) and any interest
on individual Certificates represented by a Global Security will be made to
the Depositary or its nominee, as the case may be, as the Certificateholder
of such Global Security. None of the Company, the Administrative Agent,
if any, the Trustee for such Certificates, any Paying Agent or the
Certificate Registrar for such Certificates will have responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial interests in such Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
The Company expects that the Depositary for Certificates of a given
Class and Series, upon receipt of any distribution of principal, premium or
interest in respect of a definitive Global Security representing any of
such Certificates, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of
such Depositary. The Company also expects that payments by participants to
owners of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
If the Depositary for Certificates of a given Class of any Series is
at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within ninety days, the Company
will issue individual Definitive Certificates in exchange for the Global
Security or Securities representing such Certificates. In addition, the
Company may at any time and in its sole discretion determine not to have
any Certificates of a given Class represented by one or more Global
Securities and, in such event, will issue individual Definitive
Certificates of such Class in exchange for the Global Security or
Securities representing such Certificates. Further, if the Company so
specifies with respect to the Certificates of a given Class, an owner of a
beneficial interest in a Global Security representing Certificates of such
Class may, on terms acceptable to the Company and the Depositary of such
Global Security, receive individual Definitive Certificates in exchange for
such beneficial interest. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery of
individual Definitive Certificates of the Class represented by such Global
Security equal in principal amount to such beneficial interest and to have
28
such Definitive Certificates registered in its name (if the Certificates of
such Class are issuable as Registered Certificates). Individual Definitive
Certificates of such Class so issued will be issued as Registered
Certificates in denominations, unless otherwise specified by the Company,
of $1,000 and integral multiples thereof (Section 5.03).
The applicable Prospectus Supplement will set forth any specific terms
of the depositary arrangement with respect to any Class or Series of
Certificates being offered thereby to the extent not set forth or different
from the description set forth above.
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
General
Each Certificate of each Series (or if more than one Class exists,
each Class (whether or not each such Class is offered hereby) within such
Series) will represent an ownership interest specified for such Series (or
Class) of Certificates in a designated, publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
purchased by the Company (or an affiliate thereof) in the secondary market
and assigned to a Trust as described in the applicable Prospectus
Supplement. Each Underlying Security will represent (i) an obligation
issued or guaranteed by the United States of America or any agency thereof
for the payment of which the full faith and credit of the United States of
America is pledged ("Treasury Securities"), (ii) an obligation of one or
more U.S. government sponsored entities created pursuant to federal statute
(a "GSE"), (iii) Government Trust Certificates ("GTCs") (provided that such
GTCs, together with any AID-Guaranteed Underlying Securities (as defined
below), shall not account for 20% or more of the aggregate cash flows on
the Underlying Securities securing any Series of Certificates), or (iv)
obligations guaranteed by the United States Agency for International
Development pursuant to the AID Housing Guaranty Program ("AID-Guaranteed
Underlying Securities") (provided that such AID-Guaranteed Underlying
Securities, together with any GTCs, shall not account for 20% or more of
the aggregate cash flows on the Underlying Securities securing any Series
of Certificates). As specified in the applicable Prospectus Supplement, the
obligations of one or more of the following GSEs may be included in a
Trust: Federal National Mortgage Association ("Fannie Mae"), Federal Home
Loan Mortgage Association ("Freddie Mac"), Student Loan Marketing
Association ("Sallie Mae"), Resolution Funding Corporation ("REFCORP"),
Federal Home Loan Banks ("FHLB") (to the extent such obligations represent
the joint and several obligations of the twelve Federal Home Loan Banks),
Tennessee Valley Authority ("TVA") and Federal Farm Credit Banks ("FFCB").
GSE debt securities are exempt from registration under the Securities Act
pursuant to Section 3(a)(2) of the Securities Act (or are deemed by statute
to be so exempt) and are not required to be registered under the Exchange
Act. The securities of any GSE will be included in a Trust only to the
extent (A) its obligations are supported by the full faith and credit of
the U.S. government or (B) such organization makes publicly available its
annual report, which shall include financial statements or similar
financial information with respect to such organization (a "GSE Issuer").
GTCs and AID-Guaranteed Obligations will have
29
been registered under the Securities Act of 1933 (or will qualify for an
exemption from registration) and will have been acquired by the Company in
purely secondary market transactions. Based on information contained in the
prospectus pursuant to which any GSE Issuer's securities were originally
offered (an "Underlying Security Prospectus"), the applicable Prospectus
Supplement will set forth certain information with respect to the public
availability of information with respect to any GSE Issuer the debt
securities of which constitute more than ten percent of the Underlying
Securities for any Series of Certificates as of the date of such Prospectus
Supplement. The specific terms and conditions of the Underlying Securities
will be set forth in the related Prospectus Supplement.
This Prospectus relates only to the Certificates offered hereby and
does not relate to the Underlying Securities. The following description of
the Underlying Securities is intended only to summarize certain
characteristics of the Underlying Securities the Company is permitted to
deposit in a Trust and does not purport to be a complete description of any
Underlying Security and is qualified in its entirety by reference to the
applicable Prospectus Supplement, Underlying Security Prospectus, if any,
and, to the extent applicable, the statement of terms or similar document
with respect to any Underlying Security.
Underlying Securities
General. Unless otherwise specified in the related Prospectus
Supplement, none of the Underlying Securities will have been issued
pursuant to an indenture, and no trustee is provided for with respect to
any Underlying Security. There will generally be a fiscal agent ("Fiscal
Agent") for a GSE Issuer with respect to any related Underlying Security
whose actions will be governed by a fiscal agency agreement. A Fiscal Agent
is not a trustee for the holders of the Underlying Securities and does not
have the same responsibilities or duties to act for the holders of a GSE's
securities as would a trustee. Unless otherwise specified in the related
Prospectus Supplement, the Underlying Securities with respect to any GSE
Issuer will not be guaranteed by the United States and do not constitute a
debt or obligation of the United States or of any agency or instrumentality
thereof other than the related GSE.
Contractual and Statutory Restrictions. A GSE Issuer and the related
Underlying Securities may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against
the occurrence or effects of certain specified events. Unless otherwise
specified in the related Prospectus Supplement, each GSE is limited to such
activities as will promote its statutory purposes as set forth in the
publicly available information with respect to such issuer. See
"Description of the Deposited Assets--Publicly Available Information" in
the related Prospectus Supplement. A GSE's promotion of its statutory
purposes, as well as its statutory, structural and regulatory relationships
with the federal government may cause or require such GSE to conduct its
business in a manner that differs from that an enterprise which is not a
GSE might employ.
Neither the United States nor any agency thereof is obligated to
finance any GSE Issuer's operations or to assist a GSE Issuer in any
manner. Prospective purchasers should consult
30
the publicly available information with respect to each GSE Issuer for a
more detailed description of the regulatory and statutory restrictions on
the related GSE's activities.
Events of Default. Underlying Securities issued by a GSE Issuer may
provide that any one of a number of specified events will constitute an
event of default with respect thereto. Such events of default typically
include the following or variations thereof: (i) failure by the issuer to
pay an installment of interest or principal on the securities at the time
required (subject to any specified grace period) or to redeem any of the
securities when required (subject to any specified grace period); (ii)
failure by the issuer to observe or perform any covenant, agreement or
condition contained in the securities or authorizing legislation or
regulation, as the case may be, which failure is materially adverse to
securityholders and continues for a specified period after notice thereof;
and (iii) certain events of insolvency or bankruptcy with respect to the
GSE Issuer. The Underlying Securities will generally provide that, upon the
occurrence of an event of default, the holders of not less than a specified
percentage of the outstanding securities may declare all or a portion of
the principal and accrued interest on the outstanding securities
immediately due and payable, subject to the issuer's right to cure, if
applicable.
Each Underlying Security may include some, all or none of the
foregoing provisions or variations thereof or additional events of default
not discussed herein. The Prospectus Supplement with respect to any Series
of Certificates will describe the events of default under the Underlying
Securities with respect to any Concentrated Underlying Security
("Underlying Security Events of Default") and applicable remedies with
respect thereto. With respect to any Trust comprised of a pool of
securities, the applicable Prospectus Supplement will describe certain
common Underlying Security Events of Default with respect to such pool.
There can be no assurance that any such provision will protect the Trust,
as a holder of the Underlying Securities, against losses. If an Underlying
Security Event of Default occurs and the Trustee as a holder of the
Underlying Securities is entitled to vote or take such other action to
declare the principal amount of an Underlying Security and any accrued and
unpaid interest thereon to be due and payable, the Certificateholders'
objectives may differ from those of holders of other securities of the same
series and class as any Underlying Security ("Outstanding Debt Securities")
in determining whether to declare the acceleration of the Underlying
Securities.
Principal Economic Terms of Underlying Securities
Reference is made to the applicable Prospectus Supplement with respect
to each Series of Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and
series of such Underlying Securities, the aggregate principal amount,
denomination and form thereof; (ii) whether such securities are senior or
subordinated to any other obligations of the Underlying Securities Issuer;
(iii) whether any of the obligations are secured or unsecured and the
nature of any collateral; (iv) the limit, if any, upon the aggregate
principal amount of such debt securities; (v) the dates on which, or the
range of dates within which, the principal of (and premium, if any, on)
such debt securities will be payable; (vi) the rate or rates or the method
of determination thereof, at which such Underlying Securities will bear
interest, if any ("Underlying
31
Securities Rate"); the date or dates from which such interest will accrue
("Underlying Securities Interest Accrual Periods"); and the dates on which
such interest will be payable ("Underlying Securities Payment Dates");
(vii) the obligation, if any, of the Underlying Securities Issuer to redeem
the securities pursuant to any sinking fund or analogous provisions, or at
the option of a holder thereof, and the periods within which or the dates
on which, the prices at which and the terms and conditions upon which such
debt securities may be redeemed or repurchased, in whole or in part,
pursuant to such obligation; (viii) the periods within which or the dates
on which, the prices at which and the terms and conditions upon which such
debt securities may be redeemed, if any, in whole or in part, at the option
of the Underlying Securities Issuer; (ix) whether the Underlying Securities
were issued at a price lower than the principal amount thereof; (x) if
other than United States dollars, the foreign or composite currency in
which such debt securities are denominated, or in which payment of the
principal of (and premium, if any) or any interest on such Underlying
Securities will be made (the "Underlying Securities Currency"), and the
circumstances, if any, when such currency of payment may be changed; (xi)
material events of default or restrictive covenants provided for with
respect to such Underlying Securities; (xii) the rating thereof, if any;
and (xiii) any other material terms of such Underlying Securities.
With respect to a Trust comprised of a pool of Underlying Securities,
the related Prospectus Supplement will describe the composition of the
Underlying Securities pool as of the Cut-off Date, certain material events
of default or restrictive covenants common to the Underlying Securities,
and, on an aggregate, percentage or weighted average basis, as applicable,
the characteristics of the pool with respect to the terms set forth in
(ii), (iii), (v), (vi), (vii), (viii) and (ix) of the preceding paragraph
and any other material terms regarding such pool of securities.
Publicly Available Information
In addition to the foregoing, with respect to each Concentrated
Underlying Security issued by a GSE Issuer the applicable Prospectus
Supplement will disclose the identity of the applicable obligor, and will
describe the existence and type of certain information that is made
publicly available by each obligor regarding such Underlying Security or
Underlying Securities and will disclose where and how prospective
purchasers of the Certificates may obtain such publicly available
information with respect to each such obligor. Such information will
typically consist of such obligor's annual report, which contains financial
statements or similar financial information, and can be obtained from the
Commission, if so specified in the applicable Prospectus Supplement, or
from the office of such obligor identified in the related Prospectus
Supplement. However, the precise nature of such publicly available
information and where and how it may be obtained with respect to any given
GSE Issuer will vary, and, as described above, will be set forth in the
applicable Prospectus Supplement with respect to any such obligor.
Other Deposited Assets
In addition to the Underlying Securities, the Company may also deposit
into a given Trust, or the Trustee on behalf of the Certificateholders of a
Trust may enter into an agreement
32
constituting or providing for the purchase of, to the extent described in
the related Prospectus Supplement, certain assets related or incidental to
one or more of such Underlying Securities or to some other asset deposited
in the Trust, including hedging contracts and other similar arrangements
(such as puts, calls, interest rate swaps, currency swaps, floors, caps and
collars, cash and assets ancillary or incidental to the foregoing or to the
Underlying Securities (including assets obtained through foreclosure or in
settlement of claims with respect thereto) (all such assets for any given
Series, together with the related Underlying Securities, the "Deposited
Assets"). The applicable Prospectus Supplement will, to the extent
appropriate, contain analogous disclosure with respect to the foregoing
assets as referred to above with respect to the Underlying Securities.
Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Certificates and the related Trust
will not constitute Deposited Assets for any other Series of Certificates
and the related Trust and the Certificates of each Class of a given Series
possess an equal and ratable undivided ownership interest in such Deposited
Assets. The applicable Prospectus Supplement may, however, specify that
certain assets constituting a part of the Deposited Assets relating to any
given Series may be beneficially owned solely by or deposited solely for
the benefit of one Class or a group of Classes within such Series. In such
event, the other Classes of such Series will not possess any beneficial
ownership interest in those specified assets constituting a part of the
Deposited Assets.
Credit Support
As specified in the applicable Prospectus Supplement for a given
Series of Certificates, the Trust for any Series of Certificates may
include, or the Certificateholders of such Series (or any Class or group of
Classes within such Series) may have the benefit of, Credit Support for any
Class or group of Classes within such Series. Such Credit Support may be
provided by any combination of the following means described below or any
other means described in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will set forth whether the Trust for any
Class or group of Classes of Certificates contains, or the
Certificateholders of such Certificates have the benefit of, Credit Support
and, if so, the amount, type and other relevant terms of each element of
Credit Support with respect to any such Class or Classes and certain
information with respect to the obligors of each such element, including
financial information with respect to any such obligor providing Credit
Support for 20% or more of the aggregate principal amount of such Class or
Classes.
Subordination. As discussed below under "--Collections," the rights
of the Certificateholders of any given Class within a Series of
Certificates to receive collections from the Trust for such Series and any
Credit Support obtained for the benefit of the Certificateholders of such
Series (or Classes within such Series) may be subordinated to the rights of
the Certificateholders of one or more other Classes of such Series to the
extent described in the related Prospectus Supplement. Such subordination
accordingly provides some additional credit support to those
Certificateholders of those other Classes. For example, if losses are
realized during a given period on the Deposited Assets relating to a Series
of Certificates such that the collections received thereon are insufficient
to
33
make all distributions on the Certificates of such Series, those realized
losses would be allocated to the Certificateholders of any Class of such
Series that is subordinated to another Class, to the extent and in the
manner provided in the related Prospectus Supplement. In addition, if so
provided in the applicable Prospectus Supplement, certain amounts otherwise
payable to Certificateholders of any Class that is subordinated to another
Class may be required to be deposited into a reserve account. Amounts held
in any reserve account may be applied as described below under "--Reserve
Accounts" and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit
Support for any Series or Class of Certificates may include, in addition to
the subordination of certain Classes of such Series and the establishment
of a reserve account, any of the other forms of Credit Support described
below. Any such other forms of Credit Support that are solely for the
benefit of a given Class will be limited to the extent necessary to make
required distributions to the Certificateholders of such Class or as
otherwise specified in the related Prospectus Supplement. In addition, if
so provided in the applicable Prospectus Supplement, the obligor of any
other forms of Credit Support may be reimbursed for amounts paid pursuant
to such Credit Support out of amounts otherwise payable to one or more of
the Classes of the Certificates of such Series.
Letter of Credit; Surety Bond. The Certificateholders of any Series
(or Class or group of Classes of Certificates within such Series) may, if
specified in the applicable Prospectus Supplement, have the benefit of a
letter or letters of credit (a "Letter of Credit") issued by a bank (a
"Letter of Credit Bank") or a surety bond or bonds (a "Surety Bond") issued
by a surety company (a "Surety"). In either case, the Trustee or such other
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to cause the Letter of Credit or the Surety Bond, as the
case may be, to be obtained, to be kept in full force and effect (unless
coverage thereunder has been exhausted through payment of claims) and to
pay timely the fees or premiums therefor unless, as described in the
related Prospectus Supplement, the payment of such fees or premiums is
otherwise provided for. The Trustee or such other person specified in the
applicable Prospectus Supplement will make or cause to be made draws under
the Letter of Credit or the Surety Bond, as the case may be, under the
circumstances and to cover the amounts specified in the applicable
Prospectus Supplement. Any amounts otherwise available under the Letter of
Credit or the Surety Bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable Prospectus Supplement will
provide the manner, priority and source of funds by which any such draws
are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in
the event that the Letter of Credit Bank or the Surety, as applicable,
ceases to satisfy any credit rating or other applicable requirements
specified in the related Prospectus Supplement, the Trustee or such other
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to obtain or cause to be obtained a substitute Letter of
Credit or Surety Bond, as applicable, or other form of credit enhancement
providing similar protection, that meets such requirements and provides the
same coverage to the extent available for the same cost. There can be no
assurance that any Letter of Credit Bank or any Surety, as applicable, will
continue to satisfy such requirements or that any such
34
substitute Letter of Credit, Surety Bond or similar credit enhancement will
be available providing equivalent coverage for the same cost. To the extent
not so available, the credit support otherwise provided by the Letter of
Credit or the Surety Bond (or similar credit enhancement) may be reduced to
the level otherwise available for the same cost as the original Letter of
Credit or Surety Bond.
Reserve Accounts. If so provided in the related Prospectus Supplement,
the Trustee or such other person specified in the Prospectus Supplement
will deposit or cause to be deposited into an account maintained with an
eligible institution (which may be the Trustee) (a "Reserve Account") any
combination of cash or permitted investments in specified amounts, which
will be applied and maintained in the manner and under the conditions
specified in such Prospectus Supplement. In the alternative or in addition
to such deposit, a Reserve Account may be funded through application of a
portion of collections received on the Deposited Assets for a given Series
of Certificates, in the manner and priority specified in the applicable
Prospectus Supplement. Amounts may be distributed to Certificateholders of
such Class or group of Classes within such Series, or may be used for other
purposes, in the manner and to the extent provided in the related
Prospectus Supplement. Amounts deposited in any Reserve Account will be
invested in certain permitted investments by, or at the direction of, the
Trustee, the Company or such other person named in the related Prospectus
Supplement.
Collections
The Trust Agreement will establish procedures by which the Trustee or
such other person specified in the Prospectus Supplement is obligated, for
the benefit of the Certificateholders of each Series of Certificates, to
administer the related Deposited Assets, including making collections of
all payments made thereon, depositing from time to time prior to any
applicable Distribution Date such collections into a segregated account
maintained or controlled by the applicable Trustee for the benefit of such
Series (each a "Certificate Account"). An Administrative Agent, if any is
appointed pursuant to the applicable Prospectus Supplement, will direct the
Trustee, and otherwise the Trustee will make all determinations, as to the
appropriate application of such collections and other amounts available for
distribution to the payment of any administrative or collection expenses
(such as the administrative fee) and certain Credit Support-related ongoing
fees (such as insurance premiums, letter of credit fees or any required
account deposits) and to the payment of amounts then due and owing on the
Certificates of such Series (and Classes within such Series), all in the
manner and priorities described in the related Prospectus Supplement. The
applicable Prospectus Supplement will specify the collection periods, if
applicable, and Distribution Dates for a given Series of Certificates and
the particular requirements relating to the segregation and investment of
collections received on the Deposited Assets during a given collection
period or on or by certain specified dates. There can be no assurance that
amounts received from the Deposited Assets and any Credit Support obtained
for the benefit of Certificateholders for a particular Series or Class of
Certificates over a specified period will be sufficient, after payment of
all prior expenses and fees for such period, to pay amounts then due and
owing to holders of such Certificates. The applicable Prospectus Supplement
will also set forth the manner and priority by which any Realized Loss will
be allocated among the Classes of any Series of Certificates, if
applicable.
35
The relative priorities of distributions with respect to collections
from the assets of the Trust assigned to Classes of a given Series of
Certificates may permanently or temporarily change over time upon the
occurrence of certain circumstances specified in the applicable Prospectus
Supplement. Moreover, the applicable Prospectus Supplement may specify that
the relative distribution priority assigned to each Class of a given Series
for purposes of payments of certain amounts, such as principal, may be
different from the relative distribution priority assigned to each such
Class for payments of other amounts, such as interest or premium.
DESCRIPTION OF THE TRUST AGREEMENT
General
The following summary of certain provisions of the Trust Agreement and
the Certificates do not purport to be complete and such summary is
qualified in its entirety by reference to the detailed provisions of the
form of Trust Agreement filed as an exhibit to the Registration Statement.
Article and section references in parentheses below are to articles and
sections in the Trust Agreement. Wherever particular sections or defined
terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made,
and the statement is qualified in its entirety by such reference.
36
Assignment of Deposited Assets
At the time of issuance of any Series of Certificates, the Company
will cause the Underlying Securities to be included in the related Trust,
and any other Deposited Asset specified in the Prospectus Supplement, to be
assigned to the related Trustee, together with all principal, premium (if
any) and interest received by or on behalf of the Company on or with
respect to such Deposited Assets after the cut-off date specified in the
Prospectus Supplement (the "Cut-off Date"), other than principal, premium
(if any) and interest due on or before the Cut-off Date and other than any
Retained Interest (Section 2.01). The Trustee will, concurrently with such
assignment, deliver the Certificates to the Company in exchange for certain
assets to be deposited in the Trust (Section 2.06). Each Deposited Asset
will be identified in a schedule appearing as an exhibit to the Trust
Agreement. Such schedule will include certain statistical information with
respect to each Underlying Security and each other Deposited Asset as of
the Cut-off Date, and in the event any Underlying Security represents ten
percent or more of the total Underlying Securities with respect to any
Series of Certificates, such schedule will include, to the extent
applicable, information regarding the payment terms thereof, the Retained
Interest, if any, with respect thereto, the maturity or terms thereof, the
rating, if any, thereof and certain other information with respect thereto.
In addition, the Company will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) all documents necessary to transfer ownership of
such Deposited Asset to the Trustee. The Trustee (or such custodian) will
review such documents upon receipt thereof or within such period as is
permitted in the Prospectus Supplement, and the Trustee (or such custodian)
will hold such documents in trust for the benefit of the Certificateholders
(Sections 2.01 and 2.02).
Each of the Company and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Trust
Agreement. Upon a breach of any such representation of the Company or any
such Administrative Agent, as the case may be, which materially and
adversely affects the interests of the Certificateholders, the Company or
any such Administrative Agent, respectively, will be obligated to cure the
breach in all material respects (Section 2.05).
Collection and Other Administrative Procedures
General. With respect to any Series of Certificates the Trustee or
such other person specified in the Prospectus Supplement directly or
through sub-administrative agents, will make reasonable efforts to collect
all scheduled payments under the Deposited Assets and will follow or cause
to be followed such collection procedures, if any, as it would follow with
respect to comparable financial assets that it held for its own account,
provided that such procedures are consistent with the Trust Agreement and
any related instrument governing any Credit Support (collectively, the
"Credit Support Instruments") and provided that, except as otherwise
expressly set forth in the applicable Prospectus Supplement, it shall not
be required to expend or risk its own funds or otherwise incur personal
financial liability.
37
Sub-Administration. Any Trustee or Administrative Agent may delegate
its obligations in respect of the Deposited Assets to third parties they
deem qualified to perform such obligations (each, a "Sub-Administrative
Agent"), but the Trustee or Administrative Agent will remain obligated with
respect to such obligations under the Trust Agreement. Each Sub-
Administrative Agent will be required to perform the customary functions of
an administrator of comparable financial assets, including, if applicable,
collecting payments from obligors and remitting such collections to the
Trustee; maintaining accounting records relating to the Deposited Assets,
attempting to cure defaults and delinquencies; and enforcing any other
remedies with respect thereto all as and to the extent provided in the
applicable Sub-Administration Agreement (as defined below).
The agreement between any Administrative Agent or Trustee and a
Sub-Administrative Agent (a "Sub-Administration Agreement") will be
consistent with the terms of the Trust Agreement and such assignment to the
Sub-Administrator by itself will not result in a withdrawal or downgrading
of the rating of any Class of Certificates issued pursuant to the Trust
Agreement. With respect to any Sub-Administrative Agreement between an
Administrative Agent and a Sub-Administrative Agent, although each such
Sub-Administration Agreement will be a contract solely between such
Administrative Agent and the Sub-Administrative Agent, the Trust Agreement
pursuant to which a Series of Certificates is issued will provide that, if
for any reason such Administrative Agent for such Series of Certificates is
no longer acting in such capacity, the Trustee or any successor
Administrative Agent must recognize the Sub-Administrative Agent's rights
and obligations under such Sub-Administration Agreement.
The Administrative Agent or Trustee, as applicable, will be solely
liable for all fees owed by it to any Sub-Administrative Agent,
irrespective of whether the compensation of the Administrative Agent or
Trustee, as applicable, pursuant to the Trust Agreement with respect to the
particular Series of Certificates is sufficient to pay such fees. However,
a Sub-Administrative Agent may be entitled to a Retained Interest in
certain Deposited Assets to the extent provided in the related Prospectus
Supplement. Each Sub-Administrative Agent will be reimbursed by the
Administrative Agent, if any, or otherwise the Trustee for certain
expenditures which it makes, generally to the same extent the
Administrative Agent or Trustee, as applicable, would be reimbursed under
the terms of the Trust Agreement relating to such Series. See "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses."
The Administrative Agent or Trustee, as applicable, may require any
Sub-Administrative Agent to agree to indemnify the Administrative Agent or
Trustee, as applicable, for any liability or obligation sustained by the
Administrative Agent or Trustee, as applicable, in connection with any act
or failure to act by the Sub-Administrative Agent.
38
Realization upon Defaulted Deposited Assets. Unless otherwise
specified in the applicable Prospectus Supplement, as administrator with
respect to the Deposited Assets, the Trustee, on behalf of the
Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support
Instrument, and will take such reasonable steps as are necessary to receive
payment or to permit recovery thereunder with respect to defaulted
Deposited Assets. As set forth above, all collections by or on behalf of
the Trustee or Administrative Agent under any Credit Support Instrument are
to be deposited in the Certificate Account for the related Trust, subject
to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee will be obligated to follow or
cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Deposited Asset
(Section 3.12), provided that, except as otherwise expressly provided in
the applicable Prospectus Supplement, it shall not be required to expend or
risk its own funds or otherwise incur personal financial liability. If the
proceeds of any liquidation of the defaulted Deposited Asset are less than
the sum of (i) the outstanding principal balance of the defaulted Deposited
Asset, (ii) interest accrued thereon at the applicable interest rate and
(iii) the aggregate amount of expenses incurred by the Administrative Agent
and the Trustee, as applicable, in connection with such proceedings to the
extent reimbursable from the assets of the Trust under the Trust Agreement,
the Trust will realize a loss in the amount of such difference. Only if and
to the extent provided in the applicable Prospectus Supplement, the
Administrative Agent or Trustee, as so provided, will be entitled to
withdraw or cause to be withdrawn from the related Certificate Account out
of the net proceeds recovered on any defaulted Deposited Asset, prior to
the distribution of such proceeds to Certificateholders, amounts
representing its normal administrative compensation on the Deposited Asset,
unreimbursed administrative expenses incurred with respect to the Deposited
Asset and any unreimbursed advances of delinquent payments made with
respect to the Deposited Asset (Section 3.12).
Retained Interest; Administrative Agent Compensation
and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Deposited Assets, and,
if so, the owner thereof. If so provided, the Retained Interest will be
established on an asset-by-asset basis and will be specified in an exhibit
to the applicable series supplement to the Trust Agreement. A Retained
Interest in a Deposited Asset represents a specified interest therein.
Payments in respect of the Retained Interest will be deducted from payments
on the Deposited Assets as received and, in general, will not be deposited
in the applicable Certificate Account or become a part of the related
Trust. Unless otherwise provided in the applicable Prospectus Supplement,
any partial recovery of interest on a Deposited Asset, after deduction of
all applicable administration fees, will be allocated between the Retained
Interest (if any) and interest distributions to Certificateholders on a
pari passu basis.
39
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of
Certificates.
If and to the extent specified in the applicable Prospectus
Supplement, in addition to amounts payable to any Sub-Administrative Agent,
the Administrative Agent, if any, and otherwise the Trustee will pay from
its compensation certain expenses incurred in connection with its
administration of the Deposited Assets, including, without limitation,
payment of the fees and disbursements of the Trustee, if applicable, and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement (Section 3.14).
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable Prospectus Supplement,
the Administrative Agent, if any, specified therein will have no obligation
to make any advances with respect to collections on the Deposited Assets or
in favor of the Certificateholders of the related Series of Certificates.
However, to the extent provided in the applicable Prospectus Supplement,
any such Administrative Agent will advance on or before each Distribution
Date its own funds or funds held in the Certificate Account for such Series
that are not part of the funds available for distribution for such
Distribution Date, in an amount equal to the aggregate of payments of
principal, premium (if any) and interest (net of related administration
fees and any Retained Interest) with respect to the Deposited Assets that
were due during the related Collection Period and were delinquent on the
related Determination Date, subject to (i) any such Administrative Agent's
good faith determination that such advances will be reimbursable from
Related Proceeds (as defined below) and (ii) such other conditions as may
be specified in the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled
interest, premium (if any) and principal payments to holders of the Class
or Classes of Certificates entitled thereto, rather than to guarantee or
insure against losses. Unless otherwise provided in the related Prospectus
Supplement, advances of an Administrative Agent's funds, if any, will be
reimbursable only out of related recoveries on the Deposited Assets (and
amounts received under any form of Credit Support) for such Series with
respect to which such advances were made (as to any Deposited Assets,
"Related Proceeds"); provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account for such Series to
the extent that such Administrative Agent shall determine, in its sole
judgment, that such advance (a "Nonrecoverable Advance") is not ultimately
recoverable from Related Proceeds. If advances have been made by such
Administrative Agent from excess funds in the Certificate Account for any
Series, such Administrative Agent will replace such funds in such
Certificate Account on any future Distribution Date to the extent that
funds in such Certificate Account on such Distribution Date are less than
payments required to be made to Certificateholders on such date (Section
4.03). If so specified in the related Prospectus Supplement, the
obligations, if any, of an Administrative Agent to make advances may be
secured by a cash advance reserve fund or
40
a surety bond. If applicable, information regarding the characteristics of,
and the identity of any obligor on, any such surety bond, will be set forth
in the related Prospectus Supplement.
Certain Matters Regarding the Administrative Agent and the Company
An Administrative Agent, if any, for each Series of Certificates under
the Trust Agreement will be named in the related Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the
Trustee, the Company, an affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business
relationships with the Trustee, the Company, their affiliates or the
Deposited Asset Provider.
The Trust Agreement will provide that an Administrative Agent may
resign from its obligations and duties under the Trust Agreement with
respect to any Series of Certificates only if such resignation, and the
appointment of a successor, will not result in a withdrawal or downgrading
of the rating of any Class of Certificates of such Series or upon a
determination that its duties under the Trust Agreement with respect to
such Series are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor has
assumed the Administrative Agent's obligations and duties under the Trust
Agreement with respect to such Series (Section 6.04).
The Trust Agreement will further provide that neither such an
Administrative Agent, the Company nor any director, officer, employee, or
agent or the Administrative Agent or the Company will incur any liability
to the related Trust or Certificateholders for any action taken, or for
refraining from taking any action, in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the
Administrative Agent, the Company nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. The Trust Agreement will further provide that, unless otherwise
provided in the applicable series supplement thereto, such an
Administrative Agent, the Company and any director, officer, employee or
agent of the Administrative Agent or the Company will be entitled to
indemnification by the related Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Trust Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Trust Agreement will provide that neither such an Administrative Agent nor
the Company will be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to their respective
responsibilities under the Trust Agreement or which in its opinion may
involve it in any expense or liability. Each of such Administrative Agent
or the Company may, however, in its discretion undertake any such action
which it may deem necessary or desirable with respect to the Trust
Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder (Section 6.03). The
applicable Prospectus Supplement will describe how such legal expenses and
costs of such action and any liability resulting therefrom will be
allocated.
41
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to
which an Administrative Agent is a part, or any person succeeding to the
business of an Administrative Agent, will be the successor of the
Administrative Agent under the Trust Agreement with respect to the
Certificates of any given Series (Section 6.02).
Administrative Agent Termination Events;
Rights Upon Administrative Agent Termination Event
Unless otherwise provided in the related Prospectus Supplement,
"Administrative Agent Termination Events" under the Trust Agreement with
respect to any given Series of Certificates will consist of the following:
(i) any failure by an Administrative Agent to remit to the Trustee any
funds in respect of collections on the Deposited Assets and Credit Support,
if any, as required under the Trust Agreement, that continues unremedied
for five days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Company, or to the
Administrative Agent, the Company and the Trustee by the holders of such
Certificates evidencing not less than 25% of the Voting Rights (as defined
below); (ii) any failure by an Administrative Agent duly to observe or
perform in any material respect any of its other covenants or obligations
under the Trust Agreement with respect to such Series which continues
unremedied for thirty days after the giving of written notice of such
failure to the Administrative Agent by the Trustee or the Company, or to
the Administrative Agent, the Company and the Trustee by the holders of
such Certificates evidencing not less than 25% of the Voting Rights; and
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by or on
behalf of an Administrative Agent indicating its insolvency or inability to
pay its obligations (Section 7.01). Any additional Administrative Agent
Termination Events with respect to any given Series of Certificates will be
set forth in the applicable Prospectus Supplement. In addition, the
applicable Prospectus Supplement and the related series supplement to the
Trust Agreement will specify as to each matter requiring the vote of
holders of Certificates of a Class or group of Classes within a given
Series, the circumstances and manner in which the Required Percentage (as
defined below) applicable to each such matter is calculated. "Required
Percentage" means, with respect to any matter requiring a vote of holders
of Certificates of a given Series, the specified percentage (computed on
the basis of outstanding Certificate Principal Balance or Notional Amount,
as applicable) of Certificates of a designated Class or group of Classes
within such Series (either voting as separate classes or as a single class)
applicable to such matter, all as specified in the applicable Prospectus
Supplement and the related series supplement to the Trust Agreement.
"Voting Rights" evidenced by any Certificate will be the portion of the
voting rights of all the Certificates in the related Series allocated in
the manner described in the related Prospectus Supplement (Article I).
Unless otherwise specified in the applicable Prospectus Supplement, so
long as an Administrative Agent Termination Event under the Trust Agreement
with respect to a given Series of Certificates remains unremedied, the
Company or the Trustee may, and at the direction of holders of such
Certificates evidencing not less than the "Required Percentage--
Administrative Agent Termination" of the Voting Rights, the Trustee will,
terminate all the rights and obligations of such
43
Administrative Agent under the Trust Agreement relating to the applicable
Trust and in and to the related Deposited Assets (other than any Retained
Interest of such Administrative Agent), whereupon the Trustee will succeed
to all the responsibilities, duties and liabilities of such Administrative
Agent under the Trust Agreement with respect to such Series (except that if
the Trustee is prohibited by law from obligating itself to make advances
regarding delinquent Deposited Assets, then the Trustee will not be so
obligated) and will be entitled to similar compensation arrangements. In
the event that the Trustee is unwilling or unable to act, it may or, at the
written request of the holders of such Certificates evidencing not less
than the "Required Percentage--Administrative Agent Termination" of the
Voting Rights, it will appoint, or petition a court of competent
jurisdiction for the appointment of, an administration agent acceptable to
the Rating Agency with a net worth at the time of such appointment of at
least $15,000,000 to act as successor to such Administrative Agent under
the Trust Agreement with respect to such Series. Pending such appointment,
the Trustee is obligated to act in such capacity (except that if the
Trustee is prohibited by law from obligating itself to make advances
regarding delinquent Deposited Assets, then the Trustee will not be so
obligated). The Trustee and any such successor may agree upon the
compensation be paid to such successor, which in no event may be greater
than the compensation payable to such Administrative Agent under the Trust
Agreement with respect to such Series (Sections 7.01 and 7.02).
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less than the "Required Percentage--Remedies"
of the Voting Rights have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity, and the Trustee for fifteen
days has neglected or refused to institute any such proceeding (Section
10.03). The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by the Trust Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request,
order or direction of any of the holders of Certificates covered by the
Trust Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby (Section 8.02).
Modification and Waiver
Unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement for each Series of Certificates may be amended by the
Company and the Trustee with respect to such Series, without notice to or
consent of the Certificateholders, for certain purposes including (i) to
cure any ambiguity, (ii) to correct or supplement any provision therein
which may be inconsistent with any other provision therein or in the
Prospectus Supplement, (iii) to add or supplement any Credit Support for
the benefit of any Certificateholders (provided that if any such addition
affects any series or class of Certificateholders differently than any
other series or class of Certificateholders, then such addition will not,
as evidenced by an opinion of counsel, have a material adverse effect on
the interests of any affected series or class of Certificateholders), (iv)
to add to the covenants, restrictions or obligations of the Company, the
Administrative Agent, if any, or the
43
Trustee for the benefit of the Certificateholders, (v) to add, change or
eliminate any other provisions with respect to matters or questions arising
under such Trust Agreement so long as (x) any such addition, change or
elimination will not, as evidenced by an opinion of counsel, affect the tax
status of the Trust or result in a sale or exchange of any Certificate for
tax purposes and (y) the Trustee has received written confirmation from
each Rating Agency rating such Certificates that such amendment will not
cause such Rating Agency to reduce or withdraw the then current rating
thereof, or (vi) to comply with any requirements imposed by the Code.
Without limiting the generality of the foregoing, unless otherwise
specified in the applicable Prospectus Supplement, the Trust Agreement may
also be modified or amended from time to time by the Company, and the
Trustee, with the consent of the holders of Certificates evidencing not
less than the "Required Percentage--Amendment" of the Voting Rights of
those Certificates that are materially adversely affected by such
modification or amendment for the purpose of adding any provision to or
changing in any manner or eliminating any provision of the Trust Agreement
or of modifying in any manner the rights of such Certificateholders;
provided, however, that in the event such modification or amendment would
materially adversely affect the rating of any Series or Class by each
Rating Agency, the "Required Percentage--Amendment" specified in the
related series supplement to the Trust Agreement shall include an
additional specified percentage of the Certificates of such Series or
Class.
Except as otherwise set forth in the applicable Prospectus Supplement,
no such modification or amendment may, however, (i) reduce in any manner
the amount of or alter the timing of, distributions or payments which are
required to be made on any Certificate without the consent of the holder of
such Certificate or (ii) reduce the aforesaid Required Percentage of Voting
Rights required for the consent to any such amendment without the consent
of the holders of all Certificates covered by the Trust Agreement then
outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Certificates evidencing not less than the "Required
Percentage--Waiver" of the Voting Rights of a given Series may, on behalf
of all Certificateholders of that Series, (i) waive, insofar as that Series
is concerned, compliance by the Company, the Trustee or the Administrative
Agent, if any, with certain restrictive provisions, if any, of the Trust
Agreement before the time for such compliance and (ii) waive any past
default under the Trust Agreement with respect to Certificates of that
Series, except a default in the failure to distribute amounts received as
principal of (and premium, if any) or any interest on any such Certificate
and except a default in respect of a covenant or provision the modification
or amendment of which would require the consent of the holder of each
outstanding Certificate affected thereby (Section 7.04).
Reports to Certificateholders; Notices
Reports to Certificateholders. Unless otherwise provided in the
applicable Prospectus Supplement, with each distribution to
Certificateholders of any Class of Certificates of a given Series, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such
Certificateholder, to the Company and to such other parties as may be
specified in the Trust Agreement, a statement setting forth:
44
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest
as of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through
Rate, the Pass-Through Rate applicable to such Distribution Date, as
calculated in accordance with the method specified herein and in the
related Prospectus Supplement;
(iii) the amount of compensation received by the Administrative
Agent, if any, and the Trustee for the period relating to such
Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary
or desirable to enable Certificateholders to prepare their tax returns;
(iv) if the Prospectus Supplement provides for advances, the
aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(v) the aggregate stated principal amount or, if applicable,
notional principal amount of the Deposited Assets and the current
interest rate thereon at the close of business on such Distribution
Date;
(vi) the aggregate Certificate Principal Balance or aggregate
Notional Amount, if applicable, of each Class of Certificates
(including any Class of Certificates not offered hereby) at the close
of business on such Distribution Date, separately identifying any
reduction in such aggregate Certificate Principal Balance or aggregate
Notional Amount due to the allocation of any Realized Losses or
otherwise; and
(vii) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount of coverage of each
element of Credit Support included therein as of the close of business
on such Distribution Date.
In the case of information furnished pursuant to subclauses (i) and
(iii) above, the amounts shall be expressed as a U.S. dollar amount (or
equivalent thereof in any other Specified Currency) per minimum
denomination of Certificates or for such other specified portion thereof.
Within a reasonable period of time after the end of each calendar year, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the
calendar year was a Certificateholder a statement containing the
information set forth in subclauses (i) and (iii) above, aggregated for
such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation of the Administrative Agent
or the Trustee, as applicable, shall be deemed to have been satisfied to
the extent that substantially comparable information shall be provided by
the Administrative Agent or the Trustee, as applicable, pursuant to any
requirements of the Code as are from time to time in effect (Section 4.02).
45
Notices. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Certificate will be mailed to the last address of such holder set forth in
the applicable Certificate Register.
Evidence as to Compliance
Unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement will provide that commencing on a certain date and on
or before a specified date in each year thereafter, a firm of independent
public accountants will furnish a statement to the Trustee to the effect
that such firm has examined certain documents and records relating to the
administration of the Deposited Assets during the related 12-month period
(or, in the case of the first such report, the period ending on or before
the date specified in the Prospectus Supplement, which date shall not be
more than one year after the related Original Issue Date) and that, on the
basis of certain agreed upon procedures considered appropriate under the
circumstances, such firm is of the opinion that such administration was
conducted in compliance with the terms of the Trust Agreement, except for
such exceptions as such firm shall believe to be immaterial and such other
exceptions and qualifications as shall be set forth in such report (Section
3.16).
The Trust Agreement will also provide for delivery to the Company, the
Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an
annual statement signed by two officers of the Trustee to the effect that
the Trustee has fulfilled its obligations under the Trust Agreement
throughout the preceding year with respect to any Series of Certificates
(Section 3.15).
Copies of the annual accountants' statement, if any, and the statement
of officers of the Trustee may be obtained by Certificateholders without
charge upon written request to either the Administrative Agent or the
Trustee, as applicable, at the address set forth in the related Prospectus
Supplement.
Replacement Certificates
Unless otherwise provided in the applicable Prospectus Supplement, if
a Certificate is mutilated, destroyed, lost or stolen, it may be replaced
at the corporate trust office or agency of the applicable Trustee in the
City and State of New York, or such other location as may be specified in
the applicable Prospectus Supplement, upon payment by the holder of such
expenses as may be incurred by the applicable Trustee in connection
therewith and the furnishing of such evidence and indemnity as such Trustee
may require. Mutilated Certificates must be surrendered before new
Certificates will be issued (Section 5.05).
Termination
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related
46
Certificate Account or by an Administrative Agent, if any, and required to
be paid to them pursuant to the Trust Agreement following the earlier of
(i) the final payment or other liquidation of the last Deposited Asset
subject thereto or the disposition of all property acquired upon
foreclosure or liquidation of any such Deposited Asset and (ii) the
purchase of all the assets of the Trust by the party entitled to effect
such termination, under the circumstances and in the manner set forth in
the related Prospectus Supplement. In no event, however, will any trust
created by the Trust Agreement continue beyond the respective date
specified in the related Prospectus Supplement. Written notice of
termination of the obligations with respect to the related Series of
Certificates under the Trust Agreement will be provided as set forth above
under "--Reports to Certificateholders; Notices--Notices," and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination (Section 9.01).
Any such purchase of Deposited Assets and property acquired in respect
of Deposited Assets evidenced by a Series of Certificates shall be made at
a price approximately equal to the aggregate fair market value of all the
assets in the Trust (as determined by the Trustee, the Administrative
Agent, if any, and, if different than both such persons, the person
entitled to effect such termination), in each case taking into account
accrued interest at the applicable interest rate to the first day of the
month following such purchase or, to the extent specified in the applicable
Prospectus Supplement, a specified price as determined therein (such price,
a "Purchase Price"). The exercise of such right will effect early
retirement of the Certificates of that Series, but the right of the person
entitled to effect such termination is subject to the aggregate principal
balance of the outstanding Deposited Assets for such Series at the time of
purchase being less than the percentage of the aggregate principal balance
of the Deposited Assets at the Cut-off Date for that Series specified in
the related Prospectus Supplement (Section 9.01).
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the Certificates of any Series or any Deposited
Asset or related document and is not accountable for the use or application
by or on behalf of any Administrative Agent of any funds paid to such
Administrative Agent or its designee in respect of such Certificates or the
Deposited Assets, or deposited into or withdrawn from the related
Certificate Account or any other account by or on behalf of such
Administrative Agent (Section 8.03). If no Administrative Agent Termination
Event has occurred and is continuing with respect to any given Series, the
Trustee is required to perform only those duties specifically required
under the Trust Agreement with respect to such Series. However, upon
receipt of the various certificates, reports or other instruments required
to be furnished to it, the Trustee is required to examine such documents
and to determine whether they conform to the applicable requirements of the
Trust Agreement (Section 8.01).
47
The Trustee
The Trustee for any given Series of Certificates under the Trust
Agreement will be named in the related Prospectus Supplement. The
commercial bank, national banking association or trust company serving as
Trustee will be unaffiliated with, but may have normal banking
relationships with, the Company, any Administrative Agent and their
respective affiliates.
CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in a Certificate having a Specified Currency other than
U.S. dollars entails significant risks that are not associated with a
similar investment in a security denominated in U.S. dollars. Such risks
include, without limitation, the possibility of significant changes in
rates of exchange between the U.S. dollar and such Specified Currency and
the possibility of the imposition or modification of foreign exchange
controls with respect to such Specified Currency. Such risks generally
depend on factors over which the Company has no control, such as economic
and political events and the supply of and demand for the relevant
currencies. In recent years, rates of exchange between the U.S. dollar and
certain currencies have been highly volatile, and such volatility may be
expected in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Certificate.
Depreciation of the Specified Currency for a Certificate against the U.S.
dollar would result in a decrease in the effective yield of such
Certificate below its Pass-Through Rate and, in certain circumstances,
could result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a Specified Currency for making distributions in respect of
Certificates denominated in such currency. At present, the Company has
identified the following currencies in which distributions of principal,
premium and interest on Certificates may be made: Australian dollars,
Canadian dollars, Danish kroner, Italian lire, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, Certificates distributable with
Specified Currencies other than those listed may be issued at any time.
There can be no assurance that exchange controls will not restrict or
prohibit distributions of principal, premium or interest in any Specified
Currency. Even if there are no actual exchange controls, it is possible
that, on a Distribution Date with respect to any particular Certificate,
the currency in which amounts then due to be distributed in respect of such
Certificate are distributable would not be available. In that event, such
payments will be made in the manner set forth above under "Description of
Certificates--General" or as otherwise specified in the applicable
Prospectus Supplement.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH
48
CERTIFICATES ARE NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus is directed to
prospective purchasers of Certificates who are United States residents. The
applicable Prospectus Supplement for certain issuances of Certificates may
set forth certain information applicable to prospective purchasers who are
residents of countries other than the United States with respect to matters
that may affect the purchase or holding of, or receipt of distributions of
principal, premium or interest in respect of, such Certificates.
Any Prospectus Supplement relating to Certificates having a Specified
Currency other than U.S. dollars will contain information concerning
historical exchange rates for such currency against the U.S. dollar, a
description of such currency, any exchange controls affecting such currency
and any other required information concerning such currency.
Payment Currency
Except as set forth below or unless otherwise provided in the
applicable Prospectus Supplement, if distributions in respect of a
Certificate are required to be made in a Specified Currency other than U.S.
dollars and such currency is unavailable due to the imposition of exchange
controls or other circumstances beyond the Company's control or is no
longer used by the government of the country issuing such currency or for
the settlement of transactions by public institutions of or within the
international banking community, then all distributions in respect of such
Certificate shall be made in U.S. dollars until such currency is again
available or so used. The amounts so payable on any date in such currency
shall be converted into U.S. dollars on the basis of the most recently
available Market Exchange Rate for such currency or as otherwise indicated
in the applicable Prospectus Supplement.
If distribution in respect of a Certificate is required to be made in
ECU and ECU is no longer used in the European Monetary System, then all
distributions in respect of such Certificate shall be made in U.S. dollars
until ECU is again so used. The amount of each distribution in U.S. dollars
shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior
to the date on which such distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined for the Certificates of any Series and
Class by the applicable Trustee on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the
currency amounts that were components of the ECU as of the last date on
which the ECU was used in the European Monetary System. The equivalent of
the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar
equivalents of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by such Trustee on the basis of the most
recently
49
available Market Exchange Rates for such Components or as otherwise
indicated in the applicable Prospectus Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a
Component shall be divided or multiplied in the same proportion. If two or
more component currencies are consolidated into a single currency, the
amounts of those currencies as Components shall be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
component currencies expressed in such single currency. If any component
currency is divided into two or more currencies, the amount of that
currency as a Component shall be replaced by amounts of such two or more
currencies, each of which shall be equal to the amount of the former
component currency divided by the number of currencies into which that
currency was divided.
All determinations referred to above made by the applicable Trustee
shall be at its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and binding on the related
Certificateholders of such Series.
Foreign Currency Judgments
Unless otherwise specified in the applicable Prospectus Supplement,
the Certificates will be governed by and construed in accordance with the
law of the State of New York. Courts in the United States customarily have
not rendered judgments for money damages denominated in any currency other
than the U.S. dollar. A 1987 amendment to the Judiciary Law of the State of
New York provides, however, that an action based upon an obligation
denominated in a currency other than U.S. dollars will be rendered in the
foreign currency of the underlying obligation and converted into U.S.
dollars at the rate of exchange prevailing on the date of the entry of the
judgment or decree.
PLAN OF DISTRIBUTION
Certificates may be offered in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the
terms of the offering of any Series of Certificates, which may include the
names of any underwriters, or initial purchasers, the purchase price of
such Certificates and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers, any securities
exchanges on which such Certificates may be listed and the place and time
of delivery of the Certificates to be offered thereby.
If underwriters are used in the sale, Certificates will be acquired by
the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Such Certificates may be offered to the public either through underwriting
syndicates
50
represented by managing underwriters or by underwriters without a
syndicate. Such managing underwriters or underwriters in the United States
will include Lehman Brothers Inc., an affiliate of the Company. Unless
otherwise set forth in the applicable Prospectus Supplement, the
obligations of the underwriters to purchase such Certificates will be
subject to certain conditions precedent, and the underwriters will be
obligated to purchase all such Certificates if any of such Certificates are
purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from
time to time.
Certificates may also be sold through agents designated by the Company
from time to time. Any agent involved in the offer or sale of Certificates
will be named, and any commissions payable by the Company to such agent
will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent
will act on a best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Certificates at the public offering
price described in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in
such Prospectus Supplement. Such contracts will be subject only to those
conditions set forth in the applicable Prospectus Supplement and such
Prospectus Supplement will set forth the commissions payable for
solicitation of such contracts.
Any underwriters, dealers or agents participating in the distribution
of Certificates may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of Certificates may be
deemed to be underwriting discounts and commissions under the Securities
Act. Agents and underwriters may be entitled under agreements entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or underwriters may
be required to make in respect thereof. Agents and underwriters may be
customers of, engage in transactions with, or perform services for, the
Company or its affiliates in the ordinary course of business.
Lehman Brothers Inc. is an affiliate of the Company. Lehman Brothers
Inc.'s participation in the offer and sale of Certificates complies with
the requirements of Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. regarding underwriting securities of an
affiliate.
As to each Series of Certificates, only those Classes rated in one of
the investment grade rating categories by a Rating Agency will be offered
hereby. Any unrated Classes or Classes rated below investment grade may be
retained by the Company or sold at any time to one or more purchasers.
51
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the
Underwriters so acting will be named, and its affiliation with the
Underwriters described, in the related Prospectus Supplement. Also,
affiliates of the Underwriters may act as principals or agents in
connection with market-making transactions relating to the Certificates. A
Prospectus Supplement will be prepared with respect to the Certificates for
use by such affiliates in connection with offers and sales related to
market-making transactions in the Certificates.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates will be passed
upon for the Company and the underwriters by Weil, Gotshal & Manges, New
York, New York or other counsel identified in the applicable Prospectus
Supplement.
52
Subject to Completion Dated November 15, 1995
Prospectus Supplement
(To Prospectus Dated November 15, 1995)
Trust Certificates, Series 1995 - [ ]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable Pass Through Rate]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable Pass Through Rate]
Lehman ABS Corporation
Depositor
Each Trust Certificate Series 1995[ ] offered hereby will consist of
classes of Certificates, designated as Class Certificates[,] [and]
Class Certificates [and list others], [all] of which [only the Class
Certificates[,] [and] Class Certificates [and list others]]
(collectively, the "Certificates") and will represent a fractional undivided
beneficial interest in the Series 1995 -- [ ] Trust (the "Trust") to be
formed pursuant to the Trust Agreement dated as of [ ], between Lehman
ABS Corporation (the "Company") and [ ], as trustee (the "Trustee"), as
supplemented by the Series 1995 -- [ ] Supplement dated as of [ ]
(collectively, the "Trust Agreement"). The property of the Trust will consist
in part of [$][ ] aggregate principal amount of [a [ %] [floating rate]
[specify publicly issued debt security] due of [specify issuer]] [a
pool of [ %] [floating rate] publicly issued debt securities having a term of
[not less than years and not more than years] [foreign
governments, foreign political subdivisions or agencies and instrumentalities
thereof] [(other than the Retained Interest referred to herein)]
(collectively, the "Underlying Securities"), and having the characteristics
described herein under "Description of the Deposited Assets." Terms used but
not otherwise defined herein are defined in the Prospectus attached hereto
(the "Prospectus").
The Underlying Securities will be acquired by the Company and, pursuant to
the Trust Agreement, deposited into the Trust for the benefit of
Certificateholders. [The Underlying Securities were issued and sold as part
of an underwritten public offering in [ ].] The Underlying Securities are
obligations of the Underlying Securities Issuer and [explain whether senior
or subordinate, whether secured or unsecured and whether subject to any
redemption or put rights]. [Describe any required principal payments of
Underlying Securities.]
Distributions on the Certificates will be made [monthly] [quarterly] [semi-
annually] on [[ ] of each year] [to be conformed to interest payment
dates for Underlying Securities], or, if any such date is not a business day,
then on the immediately following business day (each, a "Distribution Date")
commencing [ ]. The last day on which distributions are scheduled to be
made on the Certificates is [ ] (the "Final Distribution Date"), by
which date the holders of the Certificates will receive a distribution of all
amounts allocable to principal on such Certificates or, to the extent
specified herein, a pro rata share of any remaining Underlying Securities.
See "Risk Factors" herein on pages [__] to [__] and in the Prospectus on
pages 5 to 8.
(cover continued on next page)
----------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
AN OBLIGATION OF OR INTEREST IN THE COMPANY OR ANY OF ITS RESPECTIVE
AFFILIATES. THE CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE
UNDERLYING SECURITIES ISSUER OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Underwriter has agreed to purchase the Certificates from the Company at
[ ]% of the Certificate Principal Balance thereof ($[ ] aggregate proceeds
to the Company, before deducting expenses estimated at $[ ]) plus accrued
interest, if any, at the Pass-Through Rate calculated from [ ], 1995 (the
"Expected Settlement Date"), subject to the terms and conditions set forth
in the Underwriting Agreement referred to herein under "Underwriting."
The Underwriter proposes to offer the Certificates from time to time for
sale in negotiated transactions or otherwise, at prices determined at the
time of sale. For further information with respect to the plan of
distribution and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting."
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the [specify applicable
classes] Certificates will be made in book-entry form through the facilities
of The Depository Trust Company on or about the Expected Settlement Date.
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
(cover page continued)
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to
Certificateholders [of each class] in the manner and priority described
herein. [The rights of the holders of the Class Certificates [and specify
other classes] to receive distributions of such collections are subordinated
to the rights of the holders of the Class Certificates [and specify other
classes].] As and to the extent described herein, losses realized on the
Deposited Assets will be borne by the holders of the Class Certificates
[and specify other classes] before such losses will be borne by the holders of
the other classes of Offered Certificates [and the Class Certificates [and
specify other classes]]. To the extent described herein, the relative
priorities of each class of Certificates with respect to collections from
and losses on the Deposited Assets may each change over time, either
permanently or temporarily, upon the occurrence of certain circumstances
specified herein. See "Description of the Certificates--Subordination."
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, this offering.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop
or, if it does develop, that it will continue. See "Risk Factors" in the
Prospectus.
The [specify applicable classes] Certificates initially will be represented
by certificates registered in the name of CEDE & Co., as nominee of The
Depository Trust Company ("DTC"). The interests of beneficial owners of such
Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for
such Certificates only under the limited circumstances described herein. See
"Description of the Certificates--Definitive Certificates."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED NOVEMBER 15, 1995, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS
CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS
AND THIS PROSPECTUS SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD
CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" IN THE
PROSPECTUS AND IN THIS PROSPECTUS SUPPLEMENT.
UNTIL , 1995, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
SUMMARY OF PRINCIPAL ECONOMIC TERMS
The following summary of principal economic terms does not purport to
be complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including
under the headings "Description of the Certificates", "Description of the
Underlying Securities" and "Description of Credit Support." Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent
not defined herein, have the meanings assigned to such terms in the
Prospectus.
The Certificates
The Trust . . . . . . . . . . Series 1995-[ ] Trust. The Trust will be
formed pursuant to the Trust Agreement
dated as of [ ] (the "Base Trust
Agreement"), between the Company and the
Trustee, as supplemented by the Series
1995-[ ] Supplement dated as of the
Expected Settlement Date (the "Series
Supplement" and, together with the Base
Trust Agreement, the "Trust Agreement").
Securities Offered. . . . . . Trust Certificates, Series 1995-[ ],
consisting of Class [ ] Certificates[,]
[and] Class [ ] Certificates [and specify
others] (collectively, the
"Certificates").
[Initial Certificate
Principal Balance]
[Notional Amount] . . . . . . Class [ ]: [$][ ].
Class [ ]. [$][ ].
Final Distribution Date . . . Class [ ]. [$][ ].
Class [ ]: [$][ ].
Pass-Through Rates. . . . . . [The Variable Pass-Through Rates
applicable to the calculation of the
interest distributable on any
Distribution Date on the Certificates
[(other than the Class [ ] Certificates)]
are equal to [describe method for
determining variable rates]. The initial
Variable Pass-Through Rates for the
Class [ ] Certificates[,] [and] the Class
[ ] Certificates [and specify others] are
approximately ___%[,] [and] ___% [and
___%] per annum, respectively.] [The
Pass-Through Rate applicable to the
calculation of the interest distributable
on any Distribution Date on the [specify
classes] Certificates is fixed at ___%
[and ___%, respectively,] per annum.]
S-3
Deposited Assets. . . . . . . The Deposited Assets shall consist of
the Underlying Securities [and describe
any assets which are ancillary or
incidental to the Underlying
Securities]. See " -- The Underlying
Securities" [, " -- Other Deposited
Assets"] and "Description of the
Deposited Assets" below.
Original Issue Date . . . . . [ ].
Cut-off Date. . . . . . . . . [ ].
Distribution Date . . . . . . [ ], commencing [ ].
Record Date . . . . . . . . . The [ ] day immediately preceding each
Distribution Date.
Denominations; Specified
Currency. . . . . . . . . . . The Class [ ] Certificates[,] [and]
Class [ ] Certificates [and specify
others] will be denominated and payable
in [U.S. dollars] [ ] (the "Specified
Currency") and will be available for
purchase in minimum denominations of
[$][ ] and [integral multiples
thereof] [multiples of [$][ ] in
excess thereof].
Interest Accrual Periods. . . [Monthly] [Quarterly] [Semi-annually]
(or, in the case of the first Interest
Accrual Period, from and including the
Original Issue Date to but excluding
the first Distribution Date).
Form of Security. . . . . . . Book-entry Certificates with The
Depository Trust Company ("DTC"),
except in certain limited
circumstances. See "Description of the
Certificates -- Definitive Certificates."
Distributions thereon will be settled
in [immediately available (same-day)]
[clearinghouse (next-day)] funds.
Trustee . . . . . . . . . . . [ ], as trustee.
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]].
[Specify specific ratings requirements
for particular classes, including the
extent to which the issuance of the
Certificates of a given class is
conditioned upon satisfaction of the
ratings of each other class of
Certificates.] See "Ratings."
S-4
The Underlying Securities
Underlying Securities . . . . [A [ ]% [floating rate] [publicly
issued debt security due [ ] [A pool of
publicly issued debt securities of
various issuers, exclusive of the
Retained Interest] [in/having] an
aggregate principal amount of [$][ ].
Underlying Securities
Issuer. . . . . . . . . . . . [Specify issuer] [Pool of various
Foreign Government Issuers].
[Foreign Government
Guarantor]. . . . . . . . . . [Specify guarantor, if any.]
Underlying Securities
Original Issue Date . . . . . [ ].
Underlying Securities
Final Payment Date. . . . . . [ ].
Amortization. . . . . . . . . [Describe amortization schedule, if any].
Denominations; Underlying
Securities Currency . . . . . The Underlying Securities are
denominated and payable in [U.S.
dollars] [ ] (the "Underlying
Securities Currency") and are available
in minimum denominations of [$][ ] and
[integral multiples thereof] [multiples
of [$][ ] in excess thereof].
Underlying Securities
Payment Dates . . . . . . . . [ ], commencing [ ].
Underlying Securities Rate. . [ % per annum.] [A [Weighted Average]
rate per annum equal to [specify
interest rate formula for debt
security].]
Underlying Securities
Interest Accrual Periods. . . [Monthly] [Quarterly] [Semi-annually].
Priority. . . . . . . . . . . [Describe senior or subordinated status
of Underlying Securities].
Security. . . . . . . . . . . [Describe existence of any security for
obligations or state that Underlying
Securities are unsecured].
S-5
Redemption/Put/
Other Features. . . . . . . . [Describe existence of any redemption,
put or other material features
applicable to the Underlying
Securities].
Form of Security. . . . . . . Book-entry debt securities with DTC
[listed on the [New York] [American]
Stock Exchange [specify other
listing]].
Underlying Securities
Trustee [Fiscal and
Paying Agent] . . . . . . . . [ ]. [The Underlying Securities have
not been issued pursuant to [an
indenture dated as of [ ], 19[ ] (the
"Indenture"), between the Underlying
Securities Trustee and the Underlying
Securities Issuer] [a fiscal and paying
agency agreement dated as of [ ], 19[ ]
(the "Fiscal and Paying Agency
Agreement"), between the Fiscal and
Paying Agent and the Underlying
Securities Issuer] [specify other
agreement].
Ratings . . . . . . . . . . . [ ] by [ ] [and [ ] by [ ]]. See
"Description of the Underlying
Securities -- Ratings of Underlying
Securities."
Other Deposited Assets
[Provide similar tabular summary description of the principal economic terms
of any credit support or other ancillary or incidental asset]
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary does not purport to be complete and is qualified
in its entirety by reference to the detailed information appearing
elsewhere herein and in the Prospectus.
Depositor . . . . . . . . . . Lehman ABS Corporation (the "Company"),
an indirect wholly-owned subsidiary of
Lehman Brothers Inc. See "The Company"
in the Prospectus.
Certificates. . . . . . . . . The Certificates, each of which
represents a fractional undivided
beneficial interest in the Trust, will
be issued pursuant to the Trust
Agreement. The Certificates will
consist of [ ] classes, designated as
Class [ ] Certificates [and] [,] Class
[ ] Certificates [and [specify other
classes]], [all] of which [all but the
Class [ ] Certificates] are being
offered hereby (collectively, the
"Certificates").
The Certificate Principal Balance of a
Certificate outstanding at any time
represents the maximum amount that the
holder thereof is entitled to receive
as distributions allocable to
principal. The Certificate Principal
Balance of a Certificate will decline
to the extent distributions allocable
to principal are made to such holder.
[The Notional Amount of the Class [ ]
Certificates as of any date of
determination is equal to [specify].
Reference to the Notional Amount of the
Class [ ] Certificates is solely for
convenience in determining the basis on
which distributions on the Class [ ]
Certificates are calculated [and
determining the relative voting rights
of Certificateholders of Class [ ]
Certificates for purposes of voting on
a class-by-class basis or otherwise].
The Notional Amount does not represent
the right to receive any distributions
allocable to principal.]
[The Class [ ] Certificates, which are
not being offered hereby, have in the
aggregate an initial Certificate
Principal Balance of [$]_____
(approximate) and a [Variable]
Pass-Through Rate [of ___%]. The Class
[ ] Certificates represent the right to
receive distributions in respect of
their Certificate Principal Balance and
interest thereon at their applicable
Pass-Through Rate.] Shortfalls in
collections with respect to the
Deposited Assets will be allocated
solely to the Class [ ] Certificates to
the extent provided herein and,
thereafter, will be allocated among the
Certificates and the Class [ ]
S-7
Certificates, as provided herein. [The
Class [ ] Certificates will be
transferred by the Company to an
affiliate on or about , 1995 (the
"Closing Date"), and may be sold at any
time in accordance with any
restrictions in the Trust Agreement.]
The Underlying Securities . . Interest on the Underlying Securities
accrues at the Underlying Securities
Rate for each Underlying Securities
Accrual Period and is payable on each
Underlying Securities Payment Date. The
entire principal amount of the
Underlying Securities will be payable
on the Underlying Securities Final
Payment Date. [The Underlying
Securities have a remaining term to
maturity of approximately years.] [As
of the Cut-off Date, the pool of
Underlying Securities has a weighted
average interest rate of % and a
weighted average remaining term to
maturity of approximately years.
Approximately % [specify if greater
than 10%] of such Underlying Securities
consist of debt securities of [specify
foreign governments or their political
subdivisions or agencies and
instrumentalities.]
[Name such obligor] is a [identify
nature of foreign government] whose
principal executive offices are located
at [specify address]. The obligor [is
subject to the informational
requirements of the Exchange Act and in
accordance therewith files reports and
other information (including financial
information) with the Commission]
[makes available to the public upon
request certain annual financial and
other information]. See "Description of
the Deposited Assets."
[Other Deposited Assets
and Credit Support. . . . . . The Deposited Assets will also include
[direct obligations of the United
States of America] [describe any assets
which are ancillary or incidental to
the Underlying Securities, including
hedging contracts such as puts, calls,
interest rate swaps, currency swaps,
floors, caps and collars] (such assets,
together with the Underlying
Securities, the "Deposited Assets").
See "Description of the Deposited
Assets."
The Certificateholders of the [specify
particular classes] Certificates will
have the benefit of [describe credit
support] to support or ensure the
[servicing and] [timely] [ultimate]
distribution of amounts due with
respect to the Deposited Assets,
including providing certain coverage
with respect to losses thereon.]
S-8
Distributions . . . . . . . . Holders of the Certificates will be
entitled to receive on each
Distribution Date, to the extent of
available funds on such Distribution
Date, after payment of the expenses of
the Trustee and its respective agents
up to the Allowable Expense Amount, (i)
[in the case of each class of
Certificates other than the Class [ ]
Certificates,] distributions allocable
to interest at the applicable
Pass-Through Rate on the applicable
Certificate Principal Balance, (ii) [in
the case of each class of Certificates
other than the Class [ ] Certificates,]
distributions allocable to principal
and (iii) [in the case of each class of
Certificates other than the Class [ ]
Certificates,] distributions allocable
to premium (if any) in an amount equal
to all payments of premium (if any)
received on the Underlying Securities
for the applicable Collection Period.
Distributions will be made to
Certificateholders only if, and to the
extent that, payments are made with
respect to the Deposited Assets or are
otherwise covered by any Credit
Support. [The holders of the Class [ ]
Certificates will be entitled to
receive on each Distribution Date
distributions allocable to interest in
an amount equal to [describe Stripped
Interest].] [The holders of the Class
[ ] Certificates will not be entitled to
receive any distributions allocable to
principal or premium (if any).] See
"Description of the
Certificates--Distributions."
Special Distribution Dates. . If a payment with respect to the
Underlying Securities is made to the
Trustee after the Underlying Securities
Payment Date on which such payment was
due, then the Trustee shall distribute
any such amount received on the next
occurring Business Day (a "Special
Distribution Date") as if such funds
had constituted Available Funds on the
Distribution Date immediately preceding
such Special Distribution Date;
provided, however, that the Record Date
for such Special Distribution Date
shall be [five Business Days (as such
term is defined in the Prospectus,
"Business Day") prior to the day on]
which the related payment was received
from the Underlying Securities Trustee.
[Subordination. . . . . . . . As and to the extent described herein,
the rights of the holders of the Class
[ ] Certificates [and specify other
classes] to receive distributions of
principal, premium (if any), and
interest with respect to the Deposited
Assets will be subordinated to the
rights of the holders of the other
classes of Certificates with respect to
losses attributable to principal,
premium (if any) and interest realized
on a Deposited Asset
S-9
(such losses, "Realized Losses"). See
"Description of the
Certificates--Allocation of Losses;
Subordination."]
Optional Termination. . . . . At its option, the [Company] may
purchase all the Deposited Assets in
the Trust, and thereby cause the
termination of the Trust and early
retirement of the Certificates, on any
Distribution Date on which the
aggregate principal amount of the
Deposited Assets remaining in the Trust
is less than [10%] of the aggregate
principal amount of the Deposited
Assets as of the Cut-off Date. [Specify
any other purchase or repurchase option
of the Company.] See "Description of
the Trust Agreement -- Termination"
herein and "Description of
Certificates--Termination" in the
Prospectus.
Certain Federal Income
Tax Consequences. . . . . . . In the opinion of tax counsel to the
Trust, the Trust will be classified for
Federal income tax purposes [as a
grantor trust] [as a partnership] and
not as an association taxable as a
corporation. See "Certain Federal
Income Tax Consequences."
Ratings . . . . . . . . . . . It is a condition to the issuance of
the Certificates that the Certificates
have the ratings specified above under
"Summary of Principal Economic Terms--
The Certificates--Ratings." A security
rating is not a recommendation to buy,
sell or hold securities and may be
subject to revision or withdrawal at
any time by the assigning rating
agency. A security rating does not
address the occurrence or frequency of
redemptions or prepayments on, or
extensions of the maturity of, the
Deposited Assets, the corresponding
effect on yield to investors [or whether
investors in the Class [ ] Certificates
may fail to recover fully their initial
investment]. See "Ratings."
ERISA Considerations. . . . . An employee benefit plan subject to the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and an
individual retirement account (each, a
"Plan") may purchase Certificates of
any class if either (i) the Company is
able to confirm the existence of at
least 100 independent purchasers of
such class or (ii) the Plan can
represent that its purchase of the
Certificates would not be prohibited
under ERISA or the Code. See "ERISA
Considerations."
S-10
FORMATION OF THE TRUST
The Trust will be formed pursuant to the Trust Agreement (including
the Series [ ] Supplement) between the Company and the Trustee.
Concurrently with the execution and delivery of the Series [ ] Supplement,
the Company will deposit the Underlying Securities in the Trust. The
Trustee, on behalf of the Trust, will accept such Underlying Securities and
will deliver the Certificates to or upon the order of the Company.
The Underlying Securities will be purchased by the Company in the
secondary market (either directly or through an affiliate of the Company).
The Underlying Securities will not be acquired from the Underlying
Securities Issuer as part of any distribution by or pursuant to any
agreement with the Underlying Securities Issuer. The Underlying Securities
Issuer is not participating in this offering and will not receive any of
the proceeds of the sale of the Underlying Securities to the Company or the
issuance of the Certificates. [Neither the Company nor any of its
affiliates participated in the initial public offering of the Underlying
Securities] [Lehman Brothers Inc., an affiliate of the Company,
participated in the initial public offering of the Underlying Securities as
a [co-underwriter] [underwriter]].
RISK FACTORS
[Describe risk factors applicable to the specific Underlying
Securities, other Deposited Assets and the particular structure of the
Certificates being offered, including factors relating to the yield on the
Certificates and risks associated with the Deposited Assets and the terms
thereof, as described elsewhere herein.] See "Risk Factors" and "Maturity
and Yield Considerations" in the Prospectus.
DESCRIPTION OF THE DEPOSITED ASSETS
General
[This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed
information with respect to the Underlying Securities. This Prospectus
Supplement relates only to the Certificates offered hereby and does not
relate to the Deposited Assets. All disclosure contained herein with
respect to the Underlying Securities is derived from publicly available
documents. [Describe publicly available documents and whether the
Underlying Securities Issuer is subject to the informational reporting
requirements of the Exchange Act.] Although the Company has no reason to
believe the information concerning the Underlying Securities or the
Underlying Securities Issuer in the Underlying Securities Prospectus related
to the Underlying Securities is not reliable, neither the Company nor any of
the Underwriters has participated in the preparation of such documents, or
made any due diligence inquiry with respect to the information provided
therein. There can be no assurance that events affecting the Underlying
Securities or the Underlying Securities Issuer have not occurred, which
have not yet been publicly
S-11
disclosed, which would affect the accuracy or completeness of the publicly
available documents described above.
[Use the following where the Underlying Securities consist of a pool
of obligations of multiple obligors]
[The Deposited Assets will consist primarily of the Underlying
Securities, which are a pool of publicly issued debt securities of [foreign
governments, foreign political subdivisions or agencies and
instrumentalities thereof]. The Underlying Securities will be purchased by
the Company in the secondary market (either directly or through an
affiliate of the Company) and will be deposited in to the Trust. The
Underlying Securities will not be acquired either from the respective
obligors on the Underlying Securities or pursuant to any distribution by or
agreement with such obligors.
The composition of the Underlying Securities pool and the distribution
by ratings, remaining term to maturity and interest rate of the Underlying
Securities as of the Cut-off Date are as set forth below:
Composition of the Underlying Securities Pool
as of the Cut-off Date
Number of Underlying Securities:
Aggregate Principal Balance: [$]
Average Principal Balance: [$]
Largest Balance: [$]
Weighted Average Interest Rate: %
Weighted Average Original Term
to Maturity: years
Weighted Average Remaining Term
to Maturity: years
Longest Remaining Term
to Maturity: years
Distribution by Ratings of the
Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Rating Number Balance Balance
------ ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
S-12
Distribution by Remaining Term to Maturity
of the Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Remaining Term Principal Principal
to Maturity Number Balance Balance
-------------- ------ --------- ----------
------ --------- ----------
Total
====== ========= ==========
Distribution by Interest Rate of the
Underlying Securities Pool as of the Cut-off Date
Percent of
Aggregate Aggregate
Principal Principal
Interest Rate Range Number Balance Balance
------------------- ------ --------- ----------
% to % [$] %
Greater than %
------ --------- ----------
Total [$] 100%
====== ========= ==========
The Underlying Securities consist of debt securities [issued or
guaranteed by foreign governments, foreign political subdivisions or
agencies and instrumentalities thereof]. As of the Cut-off Date, [all of]
[approximately % of] such Underlying Securities were rated [investment
grade] [specify particular rating] by at least one nationally recognized
rating agency, and, based on publicly available information, no obligor or
any Underlying Security was in default in the payment of any installments
of principal, interest or premium (if any) with respect thereto. Any such
rating of any of the Underlying Securities is not a recommendation to
purchase, hold or sell such Underlying Security or the Certificates, and there
can be no assurance that a rating will remain for any given period of time or
that a rating will not be lowered or withdrawn entirely by a rating agency if
in its judgment circumstances in the future so warrant. See "Ratings" herein
and "Risk Factors -- Ratings of the Certificates" in the accompanying
Prospectus regarding certain considerations applicable to the ratings of the
Certificates.
S-13
[Underlying Securities Indenture]
[The Underlying Securities have been issued pursuant to agreements
(each an ["Indenture"] ["Fiscal Agency Agreement"] [specify other]) between
the [various] Underlying Securities Issuers and Underlying Securities
Trustees [Agents]. The following summary describes certain general terms of
such Indenture[s], but investors should refer to the Indenture[s] themselves
for all the terms governing the Underlying Securities.]
Each of the Indenture[s] limits the respective Underlying Securities
Issuer's ability to engage in certain activities and transactions and
requires the Underlying Securities Issuer to perform certain obligations
with respect to the Underlying Securities. [Describe common restrictive,
financial and other covenants on the Underlying Securities contained in the
Underlying Securities Indenture[s].]
[The following is a summary of the typical Underlying Security Events
of Default for each series of Outstanding Debt Securities. [Any additional
Underlying Security Events of Default unique to a Concentrated Underlying
Security have been described following the summary]:
(a) failure to make payments of principal (and premium, if any) and
interest to holders of the Outstanding Debt Securities in the time
periods given in the Indenture[s];
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in any material respect any
covenant or agreement under an Indenture continuing for a specified
period of time after notice thereof is given to the Underlying
Securities Issuer by the Underlying Securities Trustee or the holders of
not less than a specified percentage of the Outstanding Debt Securities;
(c) failure by the Underlying Securities Issuer to make any
required payment of principal (and premium, if any) or interest with
respect to certain of the other outstanding debt obligations of the
Underlying Securities Issuer or the acceleration by or on behalf of the
holders thereof of such securities; [and]
(d) certain events of bankruptcy or insolvency relating to the
Underlying Securities Issuer[; and
(e) [describe any additional common events of default with respect
to the pool of Underlying Securities].]
As of the Cut-off Date, [all of] [approximately __% of] the Underlying
Securities were [subject to [describe any put, call or other conversion or
redemption options applicable to the Underlying Securities]] [and [all of]
[approximately % of] the Underlying Securities were [describe the nature of
the obligation represented by such Underlying Securities (i.e., senior,
subordinate, secured) and describe commonalities with respect to any
subordination or security provisions or collateral.]]
S-14
The [pool of] Underlying Securities, together with any other assets
described below and any Credit Support described under "Description of
Credit Support", represent the sole assets of the Trust that are available
to make distributions in respect of the Certificates.]
[Use the following with respect to each obligor the Underlying Securities of
which represent more than 10% of the total Underlying Securities available
to make distributions in respect of the Certificates -- only a single
obligor is referred to for purposes of this section of the form of
Prospectus Supplement]
[A significant portion of] [Virtually all of] [All of] the Deposited
Assets of the Trust will consist of the [___%] [floating rate] [specify
publicly issued debt security] due of [specify issuer][, exclusive of the
interest therein retained by [the Company] as described below (the "Retained
Interest")], having an aggregate principal amount outstanding as of the
Cut-off Date of approximately [$] [specify currency] (the "Underlying
Securities"). The Underlying Securities will be purchased by the Company in
the secondary market (either directly or through an affiliate of the
Company) and will be deposited into the Trust. The Underlying Securities
will not be acquired either from [name such obligor] or pursuant to any
distribution by or agreement with [name such obligor]. [Describe any put,
call or other conversion or redemption options applicable to the Underlying
Securities, as well as the nature of the obligation represented by such
Underlying Securities (i.e., senior, subordinate, secured)]. As of the Cut-
off Date, the foregoing debt security comprising [ %] of the Underlying
Securities was rated [specify investment grade rating] [investment grade] by
[specify nationally recognized rating agency or agencies], and, based on
publicly available information, the obligor thereon was not in default in
the payment of any installments of principal, interest or premium (if any)
with respect thereto. Any such rating of such Underlying Securities is not a
recommendation to purchase, hold or sell such Underlying Securities or the
Certificates, and there can be no assurance that a rating will remain for
any given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if in its judgment circumstances in the future
so warrant. See "Ratings" herein and "Risk Factors -- Ratings of the
Certificates" in the accompanying Prospectus regarding certain
considerations applicable to the ratings of the Certificates.
The Trust will have no other significant assets [other than any Credit
Support or those assets referred to below] from which to make distributions
of amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates
will depend [almost] entirely on the Trust's receipt of payments on the
foregoing Underlying Securities from [name such obligor]. Prospective
purchasers of the Certificates should consider carefully [name such
obligor]'s financial condition and its ability to make payments in respect
of such Underlying Securities. This Prospectus Supplement relates only to
the Certificates being offered hereby and does not relate to the Underlying
Securities of [name such obligor]. All information contained in this
Prospectus Supplement regarding [name such obligor] is derived from the
publicly available documents described in the preceding paragraph. Neither
the Company nor [any of] the Underwriter[s] has participated in the
preparation of such documents, or takes any responsibility for the accuracy
or completeness of the information provided therein.]
S-15
[The Deposited Assets will also include [direct obligations of the
United States of America] [describe any assets which are ancillary or
incidental to the Underlying Securities, including hedging contracts such as
puts, calls, interest rate swaps, currency swaps, floors, caps and collars,
and any cash or other security pledged to support the Underlying Securities]
(such assets, together with the Underlying Securities, the "Deposited
Assets").]
[DESCRIPTION OF CREDIT SUPPORT]
For the benefit [solely] of the [Offered] [Class [ ] Certificates [and
the Class [ ] Certificates]], Credit Support will be obtained [and will
constitute part of the Trust to the extent provided below] to support or
ensure the [servicing and] [timely] [ultimate] distribution of amounts due
with respect to the Deposited Assets, in the form and amount described
below.
[The Letter of Credit
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Letter of Credit from [ ] (the
"Letter of Credit Bank") in favor of the Trustee on behalf of the
Certificateholders. The Letter of Credit will be irrevocable and will
[support the [timely] [ultimate] remittance of amounts due with respect to
the Deposited Assets]. The maximum amount that the Trustee may draw under
the Letter of Credit will initially be equal to . The initial amount of the
Letter of Credit will be [$] . Thereafter, the amount of the Letter of
Credit with respect to any Distribution Date will equal [the lesser of (i) %
of the aggregate Certificate Principal Balance outstanding on the preceding
Distribution Date (after giving effect to any payment of principal made on
such preceding Distribution Date) but in any event not less than [$] , and
(ii)] the amount of the Letter of Credit on preceding Distribution Date,
plus [(a) reimbursement of certain advances under the Letter of Credit and
(b) recoveries on defaulted Deposited Assets] [describe other methods]. The
Letter of Credit expires on , 19 . The Trustee will be obligated, in the
event of a drawing on the Letter of Credit, to pursue appropriate remedies
against the Deposited Assets and other collateral, and any realization
thereon shall be paid to the Letter of Credit Bank to the extent of any
amounts owing, in the manner and priority specified herein.]
[Add language regarding the Letter of Credit Bank with respect to its
debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Letter of Credit
Bank. In addition, to the extent that the Letter of Credit will cover
payment of 20% or more of the aggregate principal amount of the Certificates
covered thereby, provide information of financial and other matters with
respect to the Letter of Credit Bank.]]
S-16
[The Surety Bond
Simultaneously with the Company's assignment of the Deposited Assets to
the Trust, the Company will obtain the Surety Bond from [ ] (the "Surety")
in favor of the Trustee on behalf of the Certificateholders. The Surety Bond
will guaranty [timely] [ultimate] distributions of the principal of and
premium (if any) and interest with respect to the [Offered] Class [ ]]
Certificates. The Surety Bond expires on , 19 . The Trustee will be
obligated,in the event of a drawing on the Surety Bond, to pursue
appropriate remedies against the Deposited Assets and other collateral, and
any realization thereon shall be paid to the Surety to the extent of any
amounts owing, in the manner and priority specified herein.
[Add language regarding the issuer of the Surety Bond with respect to
its debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative
description of its assets, liabilities (including deposits) and equity, and
include an address for further information concerning the Surety. In
addition, to the extent that the Surety Bond will cover payment of 20% or
more of the aggregate principal amount of the Certificates covered thereby,
provide information of financial and other matters with respect to the
issuer of the Surety Bond.]]
[Reserve Account
The Company will deposit with the Trustee on the Closing Date cash,
letters of credit and short-term investments acceptable to the Rating Agency
initially rating the Certificates in the amount of [$] . [Collections with
respect to the Deposited Assets not distributed with respect to the
Certificates shall be deposited in the Reserve Account.] Amounts so
deposited in such Reserve Account will be used by the Trustee to make
payments of principal of and premium (if any) and interest on the
Certificates to the extent that funds are not otherwise available.
Immediately after any Distribution Date, amounts in the Reserve Account in
excess of [indicate formula] [may be paid to the Company.]
YIELD ON THE CERTIFICATES
[Describe factors relating to the Deposited Assets, the terms thereof
and the manner and priority in which collections thereon are allocated to
the Certificateholders of each class of the Certificates, as described
elsewhere herein.] See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
S-17
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will consist of [ ] classes of Certificates,
designated as Class [ ] [,] [and] Class [ ] [and Class ____] Certificates.
The Certificates will be denominated and distributions with respect thereto
will be payable in the Specified Currency. The Certificates represent in the
aggregate the entire beneficial ownership interest in the related Trust. The
Class [ ] Certificates have in the aggregate an initial [Certificate
Principal Balance] [Notional Amount] of [$]_________ (approximate) and a [
%] [Variable] Pass-Through Rate. The Class [ ] Certificates have in the
aggregate an initial [Certificate Principal Balance] [Notional Amount] of
[$] _____ (approximate) and a [___%] [Variable] Pass-Through Rate. [The
Class [ ] Certificates have in the aggregate an initial [Certificate
Principal Balance] [Notional Amount] of [$] _________ (approximate) and a [
%] [Variable] Pass-Through Rate. [The Class [ ] Certificates, which are not
being offered hereby, will be transferred by the Company to an affiliate on
the Closing Date, and may be sold at any time by the Company in accordance
with the terms of the Trust Agreement.]
The Certificates [(other than the Class [ ] Certificates [and specify
others] (the "Definitive Classes"))] will be issued, maintained and
transferred on the book-entry records of DTC and its Participants in minimum
denominations of [$ ] and [integral multiples thereof] [multiples of [$ ] in
excess thereof]. [The Class [ ] Certificates [and specify any others] will
be offered in registered, certificated form, in minimum percentage interests
corresponding to the initial Notional Amounts or Certificate Principal
Balances, as applicable, of [$ ] and integral multiples thereof, except that
one Certificate of each such class may be issued with an initial Notional
Amount or Certificate Principal Balance, as applicable, equal to an integral
multiple of [$ ] plus the excess of the initial aggregate Notional Amount or
Certificate Principal Balance, as applicable, of such class over the
greatest integral multiple of [$ ] that is not more than such initial
aggregate Notional Amount or Certificate Principal Balance, as applicable.]
The Certificates [(other than the Definitive Classes of Certificates)]
will each initially be represented by one or more global certificates
registered in the name of the nominee of DTC (together with any successor
clearing agency selected by the Company, the "Clearing Agency"), except as
provided below. The Company has been informed by DTC that DTC's nominee will
be CEDE & Co. ("CEDE"). No holder of any such Certificate will be entitled
to receive a certificate representing such person's interest, except as set
forth below under "-- Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein,
all references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See "-- Definitive Certificates" below and "Description of
Certificates -- Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or
more Participants to whose DTC account such Certificates are credited.
Additionally, DTC will take such actions with respect to specified Voting
Rights only at
S-18
the direction and on behalf of Participants whose holdings of such
Certificates evidence such specified Voting Rights. DTC may take conflicting
actions with respect to Voting Rights, to the extent that Participants whose
holdings of Certificates evidence such Voting Rights, authorize divergent
action.
Definitive Certificates
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Company advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect
to each class of Certificates [(other than the Definitive Classes)] and the
Company is unable to locate a qualified successor or (ii) the Company, at
its option, elects to terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC
of the definitive certificates representing the Certificates [(other than
the Definitive Classes of Certificates)] and receipt of instructions for re-
registration, the Trustee will reissue such Certificates as Definitive
Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
Distributions
Collections on the Deposited Assets that are received by the Trustee
for a given Collection Period pursuant to the collection procedures
described herein and in the Prospectus and deposited from time to time into
the Certificate Account will be applied by the Trustee on each applicable
Distribution Date to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(i) to the Trustee, all unpaid fees and expenses of the Trustee and
its respective agents, up to the Allowable Expense Amount (as defined
below) for the related Collection Period;
(ii) [to the providers of Credit Support ("Credit Support
Providers"), any amounts required to be paid or reimbursed to, or
deposited with, any such person (collectively, "Credit Support
Payments");
(iii)] to the Certificateholders of each Class of such Series,
first, to the payment of Required Interest [and on a pro rata basis to
the Credit Support Providers for the payment of any Credit Support
Payments], second, to the payment of Required Principal and third, to
the payment of Required Premium, in each case applicable to such Class,
commencing with the most highly ranked Class and, to the extent
Available Funds remain available, to each other Class in accordance with
the ranking specified herein under "-- Allocation of Losses;
Subordination";
S-19
[(iii) to the Credit Support Providers, any Credit Support
Payments;]
[(iv)] to the Trustee, all its remaining unpaid fees and expenses
and those of its respective agents not otherwise paid pursuant to clause
(i) above;
[(v)] all remaining amounts, if any, to the Company].
There can be no assurance that collections received from the Deposited
Assets and any applicable Credit Support relating to the Certificates over a
specified period will be sufficient, after payment of all Allowed Expense
Amounts [and payment of all amounts required to be paid to the Credit
Support Providers] for such period, to make all required distributions to
the Certificateholders of the Certificates. To the extent Available Funds
are insufficient to make any such distributions due to any such Series or
Class, any shortfall will be carried over and will be distributable on the
next Distribution Date on which sufficient funds exist to pay such
shortfalls.
For purposes hereof, the following terms have the following meanings:
"Allowable Expense Amount" means, for any given Collection Period, the
sum of (x) [$]__________ and (y) amounts in respect of the Allowable Expense
Amount from the preceding Collection Period that have not been applied on
the Distribution Date for such preceding Collection Period.
"Available Funds" for any Distribution Date means the sum of (a) all
amounts received on or with respect to the Deposited Assets (including
investment income on Eligible Investments) received during the preceding
Collection Period[,] [and] (b) amounts available as of such Distribution
Date pursuant to the Credit Support described herein [and (c) any additional
amount that the [Company] may remit to the Trustee from time to time
according to the terms of the Trust Agreement for application as Available
Funds].
"Call Premium Percentage" for any given Distribution Date means [a
fixed percentage] [a percentage that varies depending on [describe basis for
variable formula, such as the applicable date or other factors or indices]].
"Eligible Investments" means, with respect to the Certificates, those
investments acceptable to the Rating Agency as being consistent with the
rating of such Certificates, as specified in the Trust Agreement. Generally,
Eligible Investments must be limited to obligations or securities that
mature not later than the business day prior to the next succeeding
Distribution Date.
"Required Interest" for the Certificates or any Class thereof on any
given Distribution Date means the accrued and unpaid interest on the
outstanding Certificate Principal Balance [or Notional Amount] of such
Certificates, computed at the applicable Pass-Through Rate.
S-20
"Required Premium" for the Certificates or any Class thereof for any
Distribution Date means an amount equal to the product of (a) the Required
Principal for such Certificates on such Distribution Date and (b) the Call
Premium Percentage for such Distribution Date.
"Required Principal" for the Certificates or any Class thereof for any
Distribution Date means the amount received on the Deposited Assets
attributable to principal payments thereon during the related Collection
Period, to the extent allocable to such Certificates. The Certificate
Principal Balance of a Certificate outstanding at any time represents the
maximum amount that the holder thereof is entitled to receive as
distributions allocable to principal from the cash flow on the Underlying
Securities, the other assets in the Trust and any Credit Support obtained
for the benefit of such holder. The Certificate Principal Balance of any
class of Certificates [(other than Class [ ] Certificates)] as of any date
of determination is equal to the initial Certificate Principal Balance
thereof, reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any
reductions in the Certificate Principal Balance deemed to have occurred in
connection with allocations of (i) Realized Losses allocable to principal on
the Deposited Assets and (ii) Extraordinary Trust Expenses, as described
herein. [The Notional Amount of the Class [ ] Certificates as of any date of
determination is equal to [specify amount].] [Holders of the Class [ ]
Certificates are not entitled to receive any distributions allocable to
principal.]
[Notwithstanding the priorities described above, holders of the Class
[ ] Certificates and the Class [ ] Certificates will be entitled to receive on
any Distribution Date 100% of all principal collections received in the
related Collection Period with respect to the Deposited Assets, to be
distributed [on a pro rata basis] in reduction of the Certificate Principal
Balance of the Class [ ] Certificates and the Class [ ] Certificates, if any
of the following conditions shall be satisfied: [describe conditions, if
any, by which a certain class is given 100% of the principal cash flow other
than pursuant to subordination that is in effect from the Closing Date].]
[Advances
Subject to the following limitations, the Trustee will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the
aggregate of payments of principal, premium (if any) and interest, net of
that portion of the Administrative Fee (as defined herein) attributable to
fees and expenses of the Trustee, that were due during the related
Collection Period and that were delinquent on the related Determination Date
(any such advance, an "Advance").
Advances are required to be made only to the extent they are deemed by
the Trustee to be recoverable from related late collections, insurance
proceeds, if any, or Liquidation Proceeds. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders,
rather than to guarantee or insure against losses. The Trustee will not be
required to make any Advances with respect to reductions in the amount of
the payments on the Deposited Assets due to bankruptcy proceedings with
respect to the Deposited Assets.
S-21
All Advances will be reimbursable to the Trustee from late collections,
insurance proceeds, if any, and any proceeds from the liquidation of the
Deposited Asset ("Liquidation Proceeds") as to which such unreimbursed
Advance was made. In addition, any Advances previously made in respect of
any Deposited Asset that are deemed by the Trustee to be nonrecoverable from
related late collections, insurance proceeds, if any, or Liquidation
Proceeds may be reimbursed to the Trustee out of any funds in the
Certificate Account allocable to any of the Deposited Assets prior to the
distributions on the Certificates. In the event that the Trustee fails in
its obligation to make any such Advance, the Trustee may be obligated to
make any such Advance, to the extent provided in the Trust Agreement.]
Allocation of Losses; Subordination
The subordination described herein provided by the Class [ ]
Certificates [and the Class [ ] Certificates] is designed to protect holders
of the remaining classes of Certificates from certain losses and other
shortfalls with respect to the Deposited Assets. As a result, losses and
other shortfalls with respect to the Deposited Assets will be borne by the
remaining classes of Certificates, to the extent described below, only if
such losses and other shortfalls are not so covered, or the coverage in
respect thereof has been exhausted.
[Realized Losses and Extraordinary Trust Expenses will be allocated on
any Distribution Date as follows: [describe allocation among the various
classes].]
[An "Extraordinary Trust Expense" is an expense of a given Trust in
excess of the Allowable Expense Amount, including certain reimbursements to
the Company described in the Prospectus under "Description of Certificates
- -- Certain Matters Regarding the Company" and certain reimbursements to the
Trustee described under "Description of the Trust Agreement -- The Trustee"
herein.]
[Restrictions on Transfer of the Class [ ] Certificates
Because the Class [ ] Certificates are subordinate to the Class [ ]
Certificates and the Class [ ] Certificates to the extent set forth herein,
the Class [ ] Certificates may not be purchased by or transferred to a Plan
except upon the delivery of an opinion of counsel as described herein. See
"ERISA Considerations."]
S-22
DESCRIPTION OF THE TRUST AGREEMENT
General
The Certificates will be issued pursuant to the Trust Agreement, a form
of which is filed as an exhibit to the Registration Statement. A Current
Report on Form 8-K relating to the Certificates containing a copy of the
Trust Agreement as executed will be filed by the Company with the Commission
following the issuance and sale of the Certificates. The Trust created under
the Trust Agreement (including the Series 1995-[ ] Supplement) will consist
of (i) the Deposited Assets (exclusive of any Retained Interest, which is
not part of the Trust), (ii) all payments on or collection in respect of the
Deposited Assets due after the Cut-off Date, together with any proceeds
thereof[,] [and] [(iii) any Credit Support in respect of any class or
classes of Certificates] [and (iv) the rights of the Company under the
Purchase Agreement between the Company and the Seller]. [In addition, the
Certificateholders of the Certificates may also have the benefit of certain
Credit Support discussed above. See "Description of Credit Support."]
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the
Trust Agreement and the Certificates. The following summaries of certain
provisions of the Trust Agreement do not purport to be complete and are
subject to the detailed provisions contained in the form of Trust Agreement,
to which reference is hereby made for a full description of such provisions,
including the definition of certain terms used herein.
The Trustee
[ ], a [ ] corporation, will act as trustee for the Certificates and
the Trust pursuant to the Trust Agreement. The Trustee's offices are located
at [ ] and its telephone number is [ ].
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Trust
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred
by reason of willful misfeasance, bad faith or negligence in the performance
of the Trustee's duties under the Trust Agreement or as a result of a
breach, or by reason of reckless disregard, of the Trustee's obligations and
duties under the Trust Agreement.
Events of Default
An event of default with respect to any class of Certificates under the
Trust Agreement (an "Event of Default") will consist of [(i) a default in
the payment of any interest on any Underlying Security after the same
becomes due and payable (subject to any applicable grace period); (ii) a
default in the payment of the principal of or any installment of principal
of any Underlying Security when the same becomes due and payable; and (iii)
the occurrence and continuance of such other events specified in the
applicable series supplement.] [Describe remedies available to
S-23
Certificateholders upon the occurrence and continuance of an Event of
Default, including, as applicable, directing the Trustee to vote the
Underlying Securities in favor of declaring the principal balance of and any
accrued interest on the Outstanding Debt Securities to be immediately due
and payable].
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Certificates of any
class, the Trustee will give to the holders of such Certificates notice,
transmitted by mail, of all such uncured or unwaived Events of Default known
to it. However, except in the case of an Event of Default relating to the
payment of principal of or premium, if any, or interest on any of the
Underlying Securities, the Trustee will be protected in withholding such
notice if in good faith it determines that the withholding of such notice is
in the interest of the holders of the Certificates of such class.
No holder of any Certificate will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such holder
previously has given to the Trustee written notice of a continuing breach,
(ii) the holders of certificates of such Series evidencing not less than the
"Required Percentage--Remedies" specified in the applicable series supplement
of the aggregate Voting Rights of such Series have requested in writing that
the Trustee institute such proceeding in its own name as Trustee, (iii) such
holder or holders have offered the Trustee reasonable indemnity, (iv) the
Trustee has for 15 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the
Trustee during such 15-day period by the holders of Certificates of such
Series evidencing not less than the Required Percentage--Remedies of the
aggregate Voting Rights of such Series.
Voting Rights
[At all times,] [Subject to the succeeding paragraph,] [ ]% of all
Voting Rights will be allocated among all holders of the Class [ ]
Certificates[,] [and] the Class [ ] Certificates [and specify other classes]
in proportion to the then outstanding Certificate Principal Balances [or
Notional Amounts] of their respective Certificates and [ ]% of all Voting
Rights will be allocated among all holders of the Class [ ] Certificates in
proportion to the then outstanding [Certificate Principal Balances]
[Notional Amounts] of their respective Certificates. [Specify whether and
under what circumstances voting will be class-by-class].
[Specify conditions, if any, under which allocation of Voting Rights
might change from the foregoing percentages].
Voting of Underlying Securities, Modification of Indenture
The Trustee, as holder of the Underlying Securities, has the right to
vote and give consents and waivers in respect of such Underlying Securities
as permitted by DTC and except as otherwise limited by the Trust Agreement.
In the event that the Trustee receives a request from DTC, the Underlying
Securities Trustee or the Underlying Securities Issuer for its consent to
any amendment, modification or waiver of the Underlying Securities, [the
Indenture] or any other
S-24
document thereunder or relating thereto, or receives any other solicitation
for any action with respect to the Underlying Securities, the Trustee shall
mail a notice of such proposed amendment, modification, waiver or
solicitation to each Certificateholder of record as of such date. The
Trustee shall request instructions from the Certificateholders as to whether
or not to consent to or vote to accept such amendment, modification, waiver
or solicitation. The Trustee shall consent or vote, or refrain from
consenting or voting, in the same proportion (based on the relative
Certificate Principal Balances and Notional Amounts of the Certificates, as
applicable) as the Certificates of the Trust were actually voted or not
voted by the Certificateholders thereof as of a date determined by the
Trustee prior to the date on which such consent or vote is required;
provided, however, that, notwithstanding anything to the contrary, the
Trustee shall at no time vote or consent to any matter (i) unless such vote
or consent would not (based on an opinion of counsel) alter the status of
the Trust as a grantor trust for Federal income tax purposes, (ii) which
would alter the timing or amount of any payment on the Underlying
Securities, including, without limitation, any demand to accelerate the
Underlying Securities, except in the event of a Underlying Securities Event
of Default or an event which with the passage of time would become a
Underlying Securities Event of Default and with the unanimous consent of
holders of all Outstanding Certificates or (iii) which would result in the
exchange or substitution of any of the outstanding Underlying Securities
pursuant to a plan for the refunding or refinancing of such Underlying
Securities except in the event of a default under the Underlying Securities
and only with the consent of Certificateholders representing 100% of the
aggregate voting rights of each outstanding Class of the Certificates. The
Trustee shall have no liability for any failure to act resulting from
Certificateholders' late return of, or failure to return, directions
requested by the Trustee from the Certificateholders.
In the event that an offer is made by the Underlying Securities Issuer
to issue new obligations in exchange and substitution for any of the
Underlying Securities, pursuant to a plan for the refunding or refinancing
of the Outstanding Debt Securities or any other offer is made for the
Underlying Securities, the Trustee shall notify the Certificateholders of
such offer as promptly as practicable. The Trustee must reject any such
offer unless a Underlying Securities Event of Default under the Indenture
has occurred, the Trustee is directed by the affirmative vote of all of the
Certificateholders to accept such offer and the Trustee has received the tax
opinion described above. [Accordingly, a Certificateholder generally would
be required to effect a withdrawal of Requested Underlying Securities from
the Trust in order to accept such offer. See "--Optional Exchange of
Certificates."]
If an event of default under the [Indenture] [Underlying Securities]
occurs and is continuing and if directed by all the holders of outstanding
Class [ ] Certificates and, unless the Class [ ] Certificates are no longer
outstanding, by the holders of outstanding Class [ ] Certificates,] the
Trustee shall vote the Underlying Securities in favor of directing, or take
such other action as may be appropriate [to direct the Underlying Securities
Trustee] to declare the unpaid principal amount of the Underlying Securities
and any accrued and unpaid interest thereon to be due and payable. In
connection with a vote concerning whether to declare the acceleration of the
Underlying Securities, the Certificateholders' interests of each Class may
differ and the interests of either Class may differ from holders of other
Outstanding Debt Securities.
S-25
Termination
[The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the Prospectus.] [Describe
additional termination provisions.] The Company will have the right to
purchase all remaining Deposited Assets in the Trust and thereby effect
early retirement of the Certificates on any Distribution Date, [(a)] once
the aggregate principal amount of the Deposited Assets at the time of any
such purchase is less than [10%] of the aggregate principal amount of the
Deposited Assets as of the Cut-off Date [and (b) at the option of the
Company at [specify when and on what terms any such option may be
exercised]; provided, however, that the right to exercise any such option is
contingent on such exercise being consistent with the Company's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7
under the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder. In the event the Company
exercises any such option, the portion of the purchase price allocable to
the Certificates of each class will be, to the extent of available funds,
[100% of their then aggregate outstanding Certificate Principal Balance or
Notional Amount, as applicable, plus with respect to the Certificates [one
month's] [three month's] [specify other period] interest thereon at the
Fixed Pass-Through Rate or the then applicable Variable Pass-Through Rate,
as the case may be, plus, with respect to each class of Certificates, any
previously accrued but unpaid interest thereon.] [Specify alternative
allocation method if different from above.] In no event will the Trust
created by the Trust Agreement for the Certificates continue beyond the
expiration of 21 years from the death of the survivor of the person or
persons named in the Trust Agreement. See "Description of
Certificates--Termination" in the Prospectus.
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS
[Describe any applicable legal aspects of the Deposited Assets or
relating to the enforceability by the Certificateholders of the security
interest, if any, securing such Deposited Assets.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of all material Federal income
tax consequences of the purchase, ownership and disposition of the
Certificates by an initial holder of Certificates. Such consequences will
depend on the terms of the Certificate, whether the Trust is treated as a
grantor trust or as a partnership for Federal income tax purposes, and the
assets collateralizing or otherwise supporting such Certificate. The
consequences of owning Certificates which are deemed for Federal income tax
purposes to be interests in a grantor trust or in a partnership are
discussed separately below under the captions "Grantor Trust Certificates"
and "Partnership Certificates", respectively. The applicable Trust Agreement
would include provisions approriate to the particulars of the transaction
and to the relevant Federal income tax status of the Trust and related
Certificates.
S-26
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), and who do not hold
their Certificates as part of a "straddle," a "hedge" or a "conversion
transaction." Investors should consult their own tax advisors to determine
the Federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Certificates. [The Prospectus Supplement
for each series of Certificates will describe additional consequences that
relate to the specific Certificates issued pursuant thereto.]
The Trust will be provided with an opinion of Weil, Gotshal & Manges (a
partnership including professional corporations), special Federal tax
counsel to the Company ("Federal Tax Counsel") regarding certain Federal
income tax matters discussed below. An opinion of Federal Tax Counsel,
however, is not binding on the Internal Revenue Service (the "Service") or
the courts. Prospective investors should note that no rulings have been or
will be sought from the Service with respect to any of the Federal income
tax consequences discussed below, and no assurance can be given that the
Service will not take contrary positions.
Tax Status of Trust
In the opinion of Federal Tax Counsel, the Trust will be classified as
a grantor trust and not as an association (or publicly traded partnership)
taxable as a corporation for Federal income tax purposes. Accordingly, each
owner of a Certificate (a "Certificate Owner") will be subject to Federal
income taxation as if it owned directly the portion of the Deposited Assets
allocable to such Certificates, and as if it paid directly its share of
reasonable expenses paid by the Trust. The following discussion assumes that
the Underlying Securities were not issued with original issue discount
("OID") and, accordingly, the Certificate owners will not realize OID except
with respect to a "stripped interest" (as defined below).
Income of Certificate Owners
In General. A Certificate Owner will allocate the amount it pays for
its Certificate among the Underlying Securities and the Deposited Assets in
the Trust other than the Underlying Securities (the "other Deposited
Assets") allocable to such Certificate, in proportion to their relative fair
market values on the date of purchase of the Certificate. A Certificate
owner would calculate separately its income, gain, loss or deduction
realized with respect to each such asset.
The Federal income tax treatment of a holder of a particular class of
Certificates will depend upon whether the interest in the Underlying
Securities represented by such class will be considered, in whole or in
part, to be a "stripped bond" or "stripped coupon" (together a "stripped
interest") within the meaning of Section 1286 of the Code. A class of
Certificates will not be considered to represent a stripped interest in the
underlying Underlying Securities to the extent the
S-27
Certificate is entitled to receive a proportionate amount of all principal
and interest on the Underlying Securities. A class of Certificates will be
considered in its entirety to represent a stripped interest in the
underlying Underlying Securities if it is entitled to receive interest on
the Underlying Securities which is disproportionately less than the
principal which it is entitled to receive on the Underlying Securities, or
if it is entitled to receive all or part of the interest on the Underlying
Securities but no principal on the Underlying Securities. In addition, if a
class of Certificates is entitled to receive interest and principal on the
Underlying Securities, but the interest it is entitled to receive on the
Underlying Securities is disproportionately more than the principal it is
entitled to receive on the Underlying Securities, it could be argued that
the Certificates represents (a) an interest in the Underlying Securities
that is not a stripped interest to the extent it represents a proportional
amount of all the principal and interest on the Underlying Securities and
(b) a stripped interest in the Underlying Securities to the extent of any
additional interest to which it is entitled on the Underlying Securities. If
a Certificate represents in part a stripped interest and in part not a
stripped interest, such interests will be treated as two separate items for
tax purposes and a purchaser of Certificates will be required to allocate
its purchase price among the two items (as well as any other Deposited
Assets) in proportion to their relative fair market values on the date of
purchase.
Tax Treatment of Certificates to the Extent They Are Not Stripped
Interests. To the extent a class of Certificates does not represent a
stripped interest in the underlying Underlying Securities, each Certificate
Owner will be required to report on its Federal income tax return, in a
manner consistent with its method of accounting, its share of the gross
income of the Trust, including interest and discount earned on the
Underlying Securities, income derived from the other Deposited Assets held
by the Trust, and any gain or loss upon collection or disposition of the
Underlying Securities or other Deposited Assets. The portion of each monthly
payment to a Certificate Owner that is allocable to principal on the
Underlying Securities (other than amounts representing discount, as
described below) will represent a recovery of capital, which will reduce the
tax basis of such Certificate Owner's undivided interest in the Underlying
Securities.
To the extent that the portion of the purchase price of a Certificate
allocated to a Certificate Owner's undivided interest in a Underlying
Security is greater than or less than the portion of the principal balance
of the Underlying Security allocable to the Certificate, such interest in
the Underlying Security will have been acquired at a premium or discount, as
the case may be. In determining whether a Certificate Owner has purchased
its interest in the Underlying Securities at a premium or discount, a
portion of the purchase price for a Certificate will be allocated to (i) the
other Deposited Assets (including any accrued interest thereon) held by the
Trust and (ii) the accrued interest on the Underlying Securities at the time
of purchase as though such accrued interest were a separate asset, thus, in
each case, reducing the portion of the purchase price allocable to the
Certificate Owner's undivided interest in the Underlying Securities (the
"allocated Purchase Price"). To the extent that the allocated Purchase Price
is less than the principal balance of an Underlying Security, the
Certificate Owner's interest in such Underlying Security will be treated as
purchased at a "market discount." The market discount on a Underlying
Security will, however, be considered to be zero if it is less than a
statutorily defined de minimis amount. Conversely, to the extent that the
allocated Purchase Price exceeds the principal balance of an Underlying
Security, the Certificate
S-28
Owner's interest therein will be treated as purchased with "bond premium."
See discussion the below under "Bond Premium."
For example, if the allocated Purchase Price paid by a Certificate
Owner who purchases a Certificate in the initial public offering were equal
or almost equal to the portion of the principal balance of the Underlying
Security that is allocable to the Certificate, there would be no significant
amount of discount or premium with respect to its interest in such
Underlying Security. Moreover, if the total purchase price of a Certificate
is equal to the principal amount of the Underlying Securities allocable to
the Certificate, because a portion of such purchase price will be allocated
to the other Deposited Assets of the Trust, in the aggregate a Certificate
Owner's interest in the Underlying Securities will have been purchased at a
discount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized
upon a sale or other disposition of a Underlying Security or upon the sale
or other disposition of a Certificate Owner, will be taxable as ordinary
income to the extent of accrued market discount, and a portion of the
interest deduction attributable to any indebtedness treated as incurred or
continued to purchase or carry a Underlying Security (or a Certificate) must
be deferred. The ordinary income treatment on dispositions and deferral of
interest deductions described in the preceding sentence will not apply if a
Certificate Owner elects to include market discount in income currently as
it accrues for each taxable year during which it holds the Certificate. Any
such election will also apply to all debt instruments held by the
Certificate Owner during the year in which the election is made and all debt
instruments acquired thereafter. Market discount will accrue in the manner
to be provided in Treasury regulations, but the Conference Report
accompanying the Tax Reform Act of 1986 states that, until such regulations
are issued, taxpayers may elect to accrue market discount either (i) under a
constant yield (economic accrual) method or (ii) in the proportion that the
stated interest paid on the obligation for the current period bears to total
remaining interest on the obligation.
Tax Treatment of Certificates to the Extent They Are Stripped
Interests. To the extent a class of Certificates represents a stripped
interest in the underlying Underlying Securities, each such Certificate will
be subject to the OID rules. The amount of OID on a stripped interest is
equal to the excess of all amounts payable on the stripped interest (other
than qualified stated interest) over the portion of the purchase price for
the Certificate allocable to the stripped interest.
Under the Treasury regulations issued under Section 1286 of the Code
(the "Regulations"), the interest payable with respect to the stripped
interest will be treated as "qualified stated interest" if it represents a
fixed periodic payment on principal on the Underlying Securities to which
the stripped interest (i.e., the Certificate Owner) is also entitled. If
none of the amounts payable to a Certificate Owner with respect to a
stripped interest constitute qualified stated interest, then the stripped
interest will have OID in an amount equal to all payments to be received on
the stripped interest over the purchase price for the Certificate allocable
to the stripped interest. Moreover, in determining the amount paid for the
stripped interest, a portion of the purchase price for a Certificate must be
allocated to the Certificate Owner's share of other Deposited Assets and to
accrued interest.
S-29
The tax treatment of a Certificate Owner will depend upon whether the
amount of OID on the stripped interest represented by the Certificate is
less than a statutorily defined de minimis amount. In general, under the
Regulations, the amount of OID with respect to the stripped interest will be
de minimis if it is less than 1/4 of one percent multiplied by the product
of the "stated redemption price at maturity" and the number of full years
remaining after the purchase date until the maturity of such stripped
interest. However, if the stripped interest provides for amortization of
principal, the amount of OID will be de minimis if it is less than 1/4 of
one percent multiplied by the product of the stated redemption price at
maturity and the weighted average maturity (i.e., the sum of the amounts
obtained by multiplying the amount of each payment under the stripped
interest (other than a payment of qualified stated interest) by a fraction,
the numerator of which is the number of complete years from the purchase
date until the payment is made and the denominator of which is the stated
redemption price at maturity) of the stripped interest. In general, "stated
redemption price at maturity" means the sum of all amounts payable on the
stripped interest other than qualified stated interest.
If the amount of OID on the stripped interest represented by the
Certificate is de minimis under the rules discussed above, the stripped
interest would not be treated as having OID. Each Certificate Owner would be
required to report on its Federal income tax return its share of the gross
income of the Trust, including interest on the Underlying Securities and any
gain upon sale or disposition by the Trust of the Underlying Securities.
Such gross income would exceed the Pass Through Rate on the Certificate by
an amount equal to the Certificate Owner's share of the expenses of the
Trust for the period during which it owns a Certificate. Each Certificate
Owner would be required to include the de minimis OID in income as each
principal payment on the stripped interest is received, in proportion to the
amount that each principal payment bears to the stated principal amount of
the stripped interest; such income would be capital gain, short-term or
long-term depending upon the Certificate Owner's holding period in the
Certificate. The Certificate Owner would be entitled to deduct its share of
expenses of the Trust to the extent described below. Any amounts received by
a Certificate Owner from any Credit Support or any subordination feature
will be treated for Federal income tax purposes as having the same
characteristics as the payments they replace.
A Certificate Owner would report its share of the income of the Trust
under its usual method of accounting. Accordingly, interest on an underlying
Underlying Security would be includible in a Certificate Owner's gross
income when it accrues on the Underlying Securities, or, in the case of
Certificate Owners who are cash basis taxpayers, when received by the
Administrative Agent, if any, or otherwise the Trustee on behalf of
Certificate Owners. Because the interest collected on the Underlying
Securities generally is paid to Certificate Owners in the following month,
the amount of interest includible in a Certificate Owner's gross income
during any calendar month will not equal the interest distributed in that
month.
If the OID with respect to the stripped interest in the Underlying
Securities represented by a Certificate is not treated as being de minimis,
a Certificate Owner will be required to include in income, in addition to
any qualified stated interest on the stripped interest as described above,
any OID on the stripped interest. OID must be included in income as it
accrues on a daily basis, regardless of when cash payments are received,
using a method reflecting a constant yield as
S-30
described below. Such treatment could result in the accrual of income by
such Certificate Owner prior to the receipt of cash by such Certificate
Owner. Under the rules described below, the amounts includible in income by
a Certificate Owner on a stripped interest that has OID are lesser in the
early years and greater in the later years than the amounts that would be
includible on a straight-line basis.
In general, if a stripped interest has OID the Certificate Owner will
be required, whether such Certificate Owner uses the cash or the accrual
method of tax accounting, to include in ordinary gross income the sum of the
"daily portions" of OID on the stripped interest for all days during the
taxable year that the Certificate Owner owns the Certificate. The daily
portions of OID on a stripped interest are determined by allocating to each
day in any "accrual period" a ratable portion of the OID allocable to that
accrual period. The amount of OID on a stripped interest allocable to each
accrual period is determined by (i) multiplying the "adjusted issue price"
(as defined below) of the stripped interest by a fraction, the numerator of
which is the annual yield to maturity of the stripped interest and the
denominator of which is the number of accrual periods in a year and (ii)
subtracting from that product the amount of qualified stated interest (if
any) payable on the stripped interest during (or allocable to) such accrual
period.
An "accrual period" would generally be each period ending on an
interest payment date on the Underlying Securities, although Treasury
regulations allow a Certificate Owner to elect other accrual periods of no
more than a year in length, as long as each scheduled payment on the
Underlying Securities occurs at the end of an accrual period.
The "adjusted issue price" of a stripped interest at the beginning of
any accrual period is the purchase price for a Certificate allocable to the
stripped interest (including accrued interest, if any) (i) increased by the
amount of OID allocable to all prior accrual periods and (ii) reduced by the
amount of all payments other than qualified stated interest payments (if
any) in all prior accrual periods. In addition, if an interval between
payments of qualified stated interest contains more than one accrual period,
the adjusted issue price at the beginning of each accrual period in the
interval is increased by the amount of qualified stated interest that has
accrued prior to the first day of the accrual period but that is not payable
until the end of the interval.
The Trustee intends to account for OID, if any, reportable by
Certificate Owners by reference to the price paid for a Certificate by an
initial purchaser, although the amount of OID will differ for subsequent
purchasers. Such subsequent purchasers should consult their tax advisors
regarding the proper calculation of OID.
Bond Premium. In the event that a Certificate represents either an
unstripped interest in an underlying Underlying Security, or a stripped
interest which includes qualified stated interest, and the stripped or
unstripped interest is treated as purchased at a premium (i.e., the purchase
price of a Certificate allocable to the interest exceeds the total amount
payable on the Underlying Security to the Certificateholder other than
qualified stated interest), such premium will be amortizable by the
Certificate Owner as an offset to interest income (with a corresponding
reduction in the Certificate Owner's basis) under a constant yield method
over the term of the underlying Underlying Security if an election under
Section 171 of the Code is made or was previously in effect. Any such
elections
S-31
will also apply to all debt instruments held by the Certificate Owner during
the year in which the election is made and all debt instruments acquired
thereafter.
Election to Treat All Interest as Original Issue Discount. Any
Certificate Owner may elect to include in gross income all interest
(including stated interest, OID, de minimis OID, market discount and de
minimis market discount, as adjusted by any bond premium or acquisition
premium) that accrues on an unstripped or stripped interest using the
constant yield method described above, treating the instrument as having
been issued on the Certificate Owner's acquisition date at an issue price
equal to such owner's adjusted basis with no interest payments being
qualified stated interest. Such an election with respect to a unstripped or
stripped interest having amortizable bond premium or market discount would
constitute, respectively, an election to apply the market discount rules or
bond premium rules with respect to all other debt instruments with market
discount or amortizable bond premium, as the case may be, of such
Certificate Owner.
Modification or Exchange of Underlying Securities. Depending upon the
circumstances, it is possible that a modification of the terms of the
Underlying Securities, or a substitution of other assets for the Underlying
Securities following a default on the Underlying Securities, would be a
taxable event to Certificate Owners on which they would recognize gain or
loss.
Foreign Tax Credits. Any foreign income taxes withheld from payments to
the Trust will be includible in the income of Certificate Owners and will
likewise be deductible to Certificate Owners, or, alternatively, Certificate
Owners may be eligible for a U.S. foreign tax credit subject to various
limitations.
Other Deposited Assets of the Trust
[Describe tax consequences of the other Deposited Assets.]
Deductibility of Trust's Fees and Expenses
In computing its Federal income tax liability, a Certificate Owner will
be entitled to deduct, consistent with its method of accounting, its share
of reasonable administrative fees, trustee fees and other fees paid or
incurred by the Trust as provided in Section 162 or 212 of the Code and any
allowable amortization deductions with respect to certain other assets of
the Trust. If a Certificate Owner is an individual, estate or trust, the
deduction for his share of fees will be a miscellaneous itemized deduction
that may be disallowed in whole or in part.
Purchase and Sale of a Certificate
A Certificate Owner's tax basis in a Certificate generally will equal
the cost of such Certificate increased by any amounts of undistributed
taxable income (e.g., OID or market discount) and reduced by any amortized
premium (each as described above) and any payments other than payments of
qualified stated interest on an underlying Underlying Security made on such
Certificate.
S-32
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the proceeds of sale allocable to each of the assets of
the Trust and the Certificate Owner's adjusted basis in each of the
foregoing. Any gain or loss will be a capital gain or loss if the
Certificate was held as a capital asset, except that gain will be treated in
whole or in part as ordinary interest income to the extent of the
Certificate Owner's interest in accrued market discount not previously taken
into income on Underlying Securities.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31%
unless, in general, the Certificate Owner fails to comply with certain
reporting procedures and is not an exempt recipient under applicable
provisions of the Code.
Foreign Certificate Owners
To the extent that amounts paid to Certificate Owners that are not
United States persons ("Foreign Certificate Owners") are treated as interest
with respect to Underlying Securities originated after July 18, 1984, such
amounts generally will not be subject to the annual 30% withholding tax,
provided that such Foreign Certificate Owner fulfills certain certification
requirements. Under such requirements, the holder must certify, under
penalties of perjury, that it is not a "United States person" and provide
its name and address.
[Describe the Federal income tax consequences to Foreign Certificate
Owners of an interest in any other Deposited assets of the Trust.]
A "United States person" means a citizen or resident of the U.S., a
corporation, partnership or other entity created or organized in or under
the laws of the U.S. or any political subdivision thereof, or an estate or
trust the income of which is includible in gross income for U.S. Federal
income tax purposes, regardless of its source.]
[Tax Characterization of the Trust
The Company and the Administrative Agent, if any, have agreed, and the
Certificate Owners will agree by their purchase of Certificates, to treat
the Trust as a partnership for purposes of Federal, state and local income,
franchise and any other tax measured in whole or in part by income. However,
the proper characterization of the arrangement involving the Trust, the
Certificate Owners, the Company and the Administrative Agent, if any, is not
entirely clear because there is no directly comparable authority.
Were the Trust not to be deemed a partnership for Federal income tax
purposes, but instead an association taxable as a corporation, the Trust
would be subject to corporate income tax. Any such corporate income tax
could materially reduce or eliminate cash that would otherwise be
distributable with respect to the Certificates (and Certificate Owners could
be liable for any such tax
S-33
that is unpaid by the Trust). However, in the opinion of Federal Tax
Counsel, the Trust should not be classified as an association taxable as a
corporation because it will lack certain characteristics necessary for a
business trust to be an association taxable as a corporation.
Even were the Trust not an association taxable as a corporation, it
would be subject to corporate income tax if it were deemed a "publicly
traded partnership." A publicly traded partnership is taxed in the same
manner as a corporation unless at least 90% of its gross income consists of
specified types of "qualifying income." Such qualifying income includes,
among other things, interest income not derived in the conduct of a
financial or insurance business, dividend income, and gain from the
disposition of assets producing such income. In the opinion of Federal Tax
Counsel, because of the nature of the income of the Trust, the Trust will
not be a publicly traded partnership taxable as a corporation.
Partnership Taxation
As a partnership, the Trust will not be subject to Federal income tax,
but each Certificate Owner will be required to separately take into account
such holder's allocable share of income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of [ ] and
any gain upon collection or disposition [ ]. The Trust's deductions will
consist primarily of [ ].
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide that each class of Certificate Owners will be allocated taxable
income of the Trust for each monthly period equal to the sum of (i) the
amount payable (or accruing) at the Pass Through Rate on such class of
Certificates for such month (to the extent such amount would not
economically represent a return of capital); (ii) an amount equivalent to
interest that accrues during such month on amounts previously due on such
class of Certificates but not yet distributed; (iii) any Trust income for
such month attributable to discount on the Underlying Securities that
corresponds to any excess of the principal amount of such class of
Certificates over their initial issue price; and (iv) [any other income
economically accruing for such class of Certificates during such month. [All
remaining taxable income of the Trust will be allocated to the [ ]]. It is
believed that this allocation will be valid under applicable Treasury
regulations, although no assurance can be given that the Service would not
require a greater amount of income to be allocated to Certificate Owners.
Moreover, even under the foregoing method of allocation, holders may be
allocated income equal to the entire Pass Through Rate plus the other items
described above even though the Trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders in
effect could be required to report income from the Certificates on the
accrual basis. In addition, tax allocations and tax reporting will be done
on a uniform basis for all Certificate Owners, even though their
Certificates may have been purchased at different times and at different
prices.
An individual taxpayer's miscellaneous itemized deductions (which do
not include interest expenses) are subject to limitations and as a result
may be disallowed in whole or in part. Those limitations, which also apply
to estates and trusts, would apply to a Certificate Owner's share
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of expenses of the Trust (including fees to the Administrative Agent, if
any) and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life
of the Trust.
If the Trust holds a large number of underlying Underlying Securities,
it intends to make all tax calculations relating to income and allocations
to Certificate Owners on an aggregate basis. Were the Service to require
that such calculations be made separately for each Underlying Security, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificate Owners.
A Certificate Owner would increase or decrease its tax basis in its
Certificate for its allocable share of the Trust's income or loss,
respectively. Any cash distributions by the Trust to a Certificate Owner
will constitute (i) first, a return of capital to the extent of such
Certificate Owner's tax basis in the Certificate (with a corresponding
dollar-for-dollar reduction in such tax basis), and (ii) thereafter, to the
extent in excess thereof, gain on the sale or exchange of such Certificate
Owner's Certificate. See "Disposition of Certificates" below.
Discount and Premium
It is believed that the Underlying Securities were not issued with
original issue discount ("OID") and, therefore, the Trust should not have
OID income. However, the purchase price paid by the Trust for the Underlying
Securities may be greater or less than the remaining principal balance of
the Underlying Securities at the time of purchase. If so, the Underlying
Securities will have been acquired at a premium or discount, as the case may
be. (As indicated above, if the Trust acquires a large number of Underlying
Securities it will make this calculation on an aggregate basis, but might be
required to recompute it on an instrument-by-instrument basis.)
The Trust will make an election that will result in any market discount
on the Underlying Securities being included in income currently as such
discount accrues over the life of the Underlying Securities. As indicated
above in the discussion of "Partnership Taxation," a portion of such market
discount income may be allocated to Certificate Owners.
Modification or Exchange of Underlying Securities
Depending upon the circumstances, it is possible that a modification of
the terms of the Underlying Securities, or a substitution of other assets
for the Underlying Securities following a default on the Underlying
Securities, would be a taxable event to Certificate Owners on which they
would recognize gain or loss.
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Foreign Tax Credits
Any foreign income taxes withheld from payments to the Trust will be
includible in the income of Certificate Owners and will likewise be
deductible to Certificate Owners, or, alternatively, Certificate Owners may
be eligible for a U.S. foreign tax credit subject to various limitations.
Tax Consequences of Other Assets Held by Trust
The manner in which income with respect to the other assets of the
Trust should be accrued will depend on the nature of those assets.
[Discuss specific tax consequences of other assets.]
Section 708 Termination
Under Section 708 of the Code, the Trust will be deemed to terminate
for Federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Were
such a termination to occur, the Trust would be considered to have
distributed its assets to the partners, the Certificate Owners, who would
then be treated as having recontributed those assets to the Trust, as a new
partnership. If any such constructive termination occurs, the Trust does not
intend to comply with certain technical requirements that might be
applicable for various reasons including the likely lack of relevant data.
As a result, the Trust may be subject to certain tax penalties and may incur
additional expenses. Moreover, the Schedule K-1 information thereafter
distributed to the Certificate Owners may be incorrect.
Disposition of Certificates
Generally, capital gain or loss will be recognized on a sale or other
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates sold. A
Certificate Owner's tax basis in a Certificate will generally equal its cost
increased by his share of Trust income includible in his income (including
for the taxable year of sale) and decreased by any distributions received
with respect to such Certificate. In addition, both his tax basis in, and
the amount realized on a sale of, a Certificate would include the holder's
share of liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificate and, upon sale or other disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
On the sale of a Certificate, any gain attributable to the holder's
share of any accrued market discount on the Underlying Securities that has
not otherwise been included in the holder's income would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets
that would give rise to
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such special reporting requirements. Thus, to avoid those special reporting
requirements, the Trust will elect to include market discount in income as
it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the
Certificate.
Allocations Between Transferors and Transferees
In general, the Trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month allocable to a
particular class of Certificates will be apportioned among holders of such
Certificates in proportion to the principal amount of such Certificates
owned by them as of the first business day following the end of such month.
As a result, a holder purchasing Certificates may be allocated tax items
(which will affect its tax liability and tax basis) attributable to periods
before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If such a convention is not allowed (or only applies to
transfers of less than all of a partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificate Owners. The
Trustee is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election
In the event that a Certificate Owner sells its Certificates at a
profit (loss), the purchasing Certificate Owner will have a higher (lower)
basis in the Certificates than the selling Certificate Owner had. The tax
basis of the Trust's assets will not be adjusted to reflect that higher (or
lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust will not make such
election. As a result Certificate Owners might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters
The Trustee is required to keep complete and accurate books of the
Trust. Such books will be maintained for financial reporting and tax
purposes on an accrual basis and the fiscal year of the Trust will be the
calendar year. The Trustee will file a partnership information return
(Service Form 1065) with the Service for each taxable year of the Trust and
will report each Certificate Owner's allocable share of items of Trust
income and expense to holders and the Service on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide
the Trust with the information statement described below and such nominees
will be required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that
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are consistent with the information return filed by the Trust or be subject
to penalties, unless the holder notifies the Service of all such
inconsistencies.
Under Code Section 6031, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and taxpayer
identification number of such person, (y) whether such person is not a
United States person, a tax-exempt entity, or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
either of the foregoing, and (z) certain information on Certificates that
were held, bought or sold on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Certificates through
a nominee are required to furnish directly to the Trust information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for
any calendar year must be furnished to the Trust on or before the following
January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
The Company, as the tax matters partner, will be responsible for
representing the Certificate Owners in any dispute with the Service. The
Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the
appropriate taxing authorities could result in an adjustment of the returns
of the Certificate Owners and, under certain circumstances, a Certificate
Owner may be precluded from separately litigating a proposed adjustment to
the items of the Trust. An adjustment could also result in an audit of a
Certificate Owner's returns and adjustments of items not related to the
income (or loss) of the Trust.
Tax Consequences to Foreign Certificate Owners
It is not clear whether the Trust would be considered to be engaged in
a trade or business in the United States for purposes of Federal withholding
taxes with respect to non-U.S. persons because there is no clear authority
dealing with that issue under facts substantially similar to those described
herein. [Although it is not expected that the Trust would be engaged in a
trade or business in the United States for such purposes, the Trust expects
to withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificate Owners pursuant to Code Section 1446, as if such income were
effectively connected to U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a
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holder's nonforeign status, the Trust may rely on Form W-8, Form W-9 or the
holder's certification of nonforeign status signed under penalties of
perjury.]
[Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the Service and submit
that number to the Trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be
entitled to file with the Service a claim for refund with respect to taxes
withheld by the Trust, taking the position that no taxes were due because
the Trust was not engaged in a U.S. trade or business. The Trust will
cooperate in any such refund claim if it can do so without incurring any
out-of-pocket cost. No assurance can be given as to whether any such refund
claim would be granted.]
[The foregoing summary will be modified, as necessary, to reflect
differences caused by the precise nature of the Deposited Assets relating to
a given Series of Certificates.]
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31%
unless, in general, the Certificate Owner fails to comply with certain
reporting procedures and is not an exempt recipient under applicable
provisions of the Code.
[CERTAIN STATE TAX CONSEQUENCES
[Describe any applicable state tax consequences that may arise,
including as a result of the specific nature of the Deposited Assets
relating to a given Series of Certificates or the degree of servicing
required with respect to such Deposited Assets.]]
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee
benefit plan (as defined in Section 3(3) of ERISA), (b) a plan described in
Section 4975(e)(I) of the Code or (c) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"Plan"). Moreover, based on the reasoning of the United States Supreme
Court's decision in John Hancock Life Ins. Co. v. Harris Trust and Sav.
Bank, 114 S.Ct. 517 (1993), an insurance company investing assets in its
general account might be treated as a Plan on the grounds that such an
investor may be investing assets of an employee benefit plan subject to
ERISA.
In accordance with ERISA's general fiduciary standards, before
investing in a Certificate, a Plan fiduciary should determine whether such
an investment is permitted under the
S-39
governing Plan instruments and is appropriate for the Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the
meaning of ERISA of "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Certificates should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of
the Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the
Trust, might be prohibited transactions under ERISA and the Code. Neither
ERISA nor the Code defines the term "plan assets." Under Section 2510.3-101
of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
prohibited transaction provisions of ERISA and the Code, if the Plan
acquires an "equity interest" in such entity. Thus, if a Plan acquired a
Certificate of a particular class, for certain purposes (including the
prohibited transaction provisions) the Plan would be considered to own its
share of the underlying assets of the Trust unless (1) such Certificate is a
"publicly-offered security" or (2) equity participation in such class by
benefit plan investors is not "significant."
A publicly-offered security is a security that is (1) freely
transferable, (2) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another at the conclusion of
the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act, or (B) sold to
the Plan as a part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. The Company does not anticipate that
the Certificates of any class will be considered publicly-offered securities
within the meaning of the Regulation.
Participation by benefit plan investors in any class of Certificates
would not be significant if immediately after the most recent acquisition of
Certificates of such class, whether or not from the Company or an Agent or
Underwriter, less than 25 percent of the value of such class were held by
benefit plan investors, which are defined as Plans and employee benefit
plans not subject to ERISA (for example, governmental plans). There can be
no assurance that less than 25 percent of the value of any given class of
Certificates will be held by benefit plan investors.
If assets of the Trust were deemed to be Plan assets, certain
transactions involving the Trust, including the acquisition of the
Certificates themselves by a Plan, could be prohibited transactions. If, for
example, an obligor with respect to any of the Deposited Assets, or any of
such obligor's affiliates, were a party in interest or disqualified person
with respect to an acquiring Plan, the acquisition of the Certificate could
be construed as a prohibited indirect loan from the Plan to the obligor. Any
such prohibited transaction could be treated as exempt under ERISA and the
Code if
S-40
the Certificates were acquired pursuant to and in accordance with one or
more "class exemptions" issued by the DOL, such as Prohibited Transaction
Class Exemption ("PTCE") 84-14 (an exemption for certain transactions
determined by an independent qualified professional asset manager), PTCE
91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions
involving insurance company pooled separate accounts) or PTCE 95-60 (an
exemption for certain transactions involving insurance company general
accounts).
Certificates will not be sold to any Plan unless such Plan represents
that the acquisition of a Certificate would not be prohibited under ERISA
and the Code because an exemption is applicable to the acquisition and
holding of the Certificates and the activities of the Trust. To the extent
an insurance company invests assets treated as assets of a Plan, it will be
required to make the foregoing representation as a condition to the
acquisition of a Certificate. Alternatively, if the Company is able to
confirm the existence of at least 100 independent purchasers of a class, the
foregoing representation will not be a condition to acquisition of
Certificates of such class.
Any Plan or insurance company investing assets of its general account
proposing to acquire Certificates should consult with its counsel.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of [ ]. 199[ ] (the "Underwriting Agreement"), the
Company as agreed to sell and [Lehman Brothers Inc. (an affiliate of the
Company)] [each of the Underwriters named below, including Lehman Brothers
Inc. (an affiliate of the Company)] (the "Underwriter[s]")[,] has
[severally] agreed to purchase, the [Certificates] [the principal amount of
each class of Certificates set forth below opposite its name].
Class [ ] Class [ ] Class [ ]
--------- --------- ---------
Lehman Brothers Inc. . . . . $ $ $
--------- --------- ---------
Total . . . . . . . . . . $ $ $
========= ========= =========
[Lehman Brothers Inc. has] [The Several Underwriters have] agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to
purchase all Certificates offered hereby if any of such Certificates are
purchased. [In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments
of non- defaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.]
The Company has been advised by the Underwriter[s] that [it] [they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be
S-41
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling Certificates to or through dealers and such dealers
may receive compensation in the form of underwriting discounts, concessions
or commissions from the Underwriter[s] and any purchasers of Certificates
for whom they may act as agents. The Underwriter[s] and any dealers that
participate with the Underwriter[s] in the distribution of Certificates may
be deemed to be underwriters, and any profit on the resale of Certificates
by them may be deemed to be underwriting discounts or commissions under the
Securities Act.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities
under the Securities Act, or will contribute to payments the Underwriter[s]
may be required to make in respect thereof.
Lehman Brothers Inc. is an affiliate of the Company, and the
participation by Lehman Brothers Inc. in the offering of the Certificates
complies with Schedule E of the By-Laws of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates be rated not lower than [specify ratings applicable to each
class] by [Standard & Poor's Corporation ("Standard & Poor's)] [Moody's
Investors Service, Inc. ("Moody's")] [Fitch Investors Service, L.P.
("Fitch")] [and] [Duff & Phelps Credit Rating Company ("Duff & Phelps")]
(the Rating [Agency] [Agencies]"). The ratings address the likelihood of the
receipt by the Certificateholders of payments required under the Trust
Agreement, and are based primarily on the credit quality of the Deposited
Assets and any provider of Credit Support, as well as on the relative
priorities of the Certificateholders of each class of the Certificates with
respect to collections and losses with respect to the Deposited Assets. The
rating on the Certificates does not, however, constitute a statement
regarding the occurrence or frequency of redemptions or prepayments on, or
extensions of the maturity of, the Deposited Assets, the corresponding
effect on yield to investors, or whether investors in the Class [ ]
Certificates [specify class with Notional Amount] may fail to recover fully
their initial investment.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each security rating should be evaluated
independently of any other security rating.
The Company has not requested a rating on the Certificates by any
rating agency other than the Rating [Agency] [Agencies]. However, there can
be no assurance as to whether any other rating agency will rate the
Certificates, or, if it does, what rating would be assigned by an such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Certificates
by the Rating [Agency] [Agencies].
S-42
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company and the Underwriter[s] by [Weil, Gotshal & Manges, New York,
New York].
S-43
Subject to Completion Dated November 15, 1995
Prospectus
Trust Certificates
(Issuable in Series)
Lehman ABS Corporation
Depositor
The Trust Certificates (the "Certificates") offered hereby and by
supplements (each a "Prospectus Supplement") to this Prospectus will be
offered from time to time in one or more series (each a "Series") and in
one or more classes within each such Series (each a "Class"), denominated
in dollars or one or more foreign or composite currencies, including the
European Currency Unit ("ECU"). Certificates of each respective Series and
Class will be offered on terms to be determined at the time of sale as
described in the related Prospectus Supplement accompanying the delivery of
this Prospectus. Certificates may be sold for United States dollars or for
one or more foreign or composite currencies, and the principal of, premium
on, if any, and any interest to be distributed in respect of Certificates
may be payable in United States dollars or in one or more foreign or
composite currencies. Each Series and Class of Certificates may be issuable
as individual securities in registered form without coupons ("Registered
Certificates") or in bearer form with or without coupons attached ("Bearer
Certificates") or as one or more global securities in registered or bearer
form (each a "Global Security").
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
together with certain other assets described herein and in the related
Prospectus Supplement (such assets, together with the Underlying
Securities, the "Deposited Assets"), to be deposited in a trust (the
"Trust") for the benefit of holders of Certificates of such Series
("Certificateholders") by Lehman ABS Corporation (the "Company") pursuant
to a Trust Agreement and a series supplement thereto with respect to any
given Series (collectively, the "Trust Agreement") among the Company, the
administrative agent, if any (the "Administrative Agent") and the trustee
(the "Trustee") named in the related Prospectus Supplement. The Underlying
Securities will be purchased by the Company in the secondary market (either
directly or through an affiliate of the Company), and will not be acquired
from the issuer thereof as part of any distribution by or pursuant to any
agreement with such issuer. Each of the Underlying Securities discussed
herein and in the related Prospectus Supplement represents an obligation
issued by or guaranteed by one or more foreign governments, foreign
political subdivisions or agencies or instrumentalities thereof. If so
specified in the related Prospectus Supplement, the Trust for a Series of
Certificates may also include, or the Certificateholders of such
Certificates may have the benefit of, any combination of insurance
policies, letters of credit, reserve accounts and other types of rights or
assets designed to support or ensure the servicing and distribution of
amounts due in respect of the Deposited Assets (collectively, "Credit
Support"). See "Description of Certificates" and "Description of Deposited
Assets and Credit Support."
Each Class of Certificates of any Series will represent the right, which
may be senior to those of one or more of the other Classes of such Series,
to receive specified portions of payments of principal, interest and
certain other amounts on the Deposited Assets in the manner described
herein and in the related Prospectus Supplement. A Series may include two
or more Classes differing as to the timing, sequential order or amount of
distributions of principal, interest or premium and one or more Classes
within such Series may be subordinated in certain respects to other Classes
of such Series.
Lehman Brothers
November 15, 1995
Information contained herein is subject to completion or amendment. A
registratioin statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
Except as otherwise provided herein and in the applicable prospectus
supplement, the Company's only obligations with respect to each Series of
Certificates will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets
and certain related documents to the applicable Trustee and, in certain
cases, to provide for the Credit Support, if any. The principal obligations
of an Administrative Agent, if any is named in the applicable Prospectus
Supplement, with respect to a Series of Certificates will be pursuant to
its contractual administrative obligations and, only as and to the extent
provided in the related Prospectus Supplement, its obligation to make
certain cash advances in the event of payment delinquencies on the
Deposited Assets. See "Description of the Certificates--Advances in Respect
of Delinquencies."
The Certificates of each Series will not represent an obligation of or
interest in the Company, any Administrative Agent or any of their
respective affiliates, except to the limited extent described herein and in
the related Prospectus Supplement. Neither the Certificates nor the
Deposited Assets (unless otherwise specified in such Prospectus Supplement)
will be guaranteed or insured by any governmental agency or
instrumentality, or by the Company, any Administrative Agent or their
respective affiliates.
Prospective investors should consider the factors set forth herein under
"Risk Factors," beginning on page 5.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
------------
The Certificates may be offered and sold to or through underwriters,
through dealers or agents or directly to purchasers, as more fully
described under "Plan of Distribution" and in the related Prospectus
Supplement. This Prospectus may not be used to consummate sales of
Certificates offered hereby unless accompanied by a Prospectus Supplement.
2
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the
following with respect to such Series: (a) the specific designation and
aggregate principal amount, (b) the currency or currencies in which the
principal (the "Specified Principal Currency"), premium, if any (the
"Specified Premium Currency"), and any interest (the "Specified Interest
Currency") are distributable (the Specified Principal Currency, the
Specified Premium Currency and the Specified Interest Currency being
collectively referred to as the "Specified Currency"), (c) the number of
Classes of such Series and, with respect to each Class of such Series, its
designation, aggregate principal amount or, if applicable, notional amount
and authorized denominations, (d) certain information concerning the type,
characteristics and specifications of the Deposited Assets and any Credit
Support for such Series or Class, (e) the relative rights and priorities of
each such Class (including the method for allocating collections from the
Deposited Assets to the Certificateholders of each Class and the relative
ranking of the claims of the Certificateholders of each Class to such
Deposited Assets), (f) the name of the Trustee and the Administrative
Agent, if any, for such Series, (g) the Pass Through Rate (as defined
below) or the terms relating to the applicable method of calculation
thereof, (h) the time and place of distribution (each such date, a
"Distribution Date") of any interest, premium (if any) and/or principal,
(i) the date of issue, (j) the scheduled final Distribution Date, if
applicable, (k) the offering price, (l) any exchange, whether mandatory or
optional, the redemption terms and any other specific terms of Certificates
of each such Series or Class. See "Description of Certificates--General"
for a listing of other items that may be specified in the applicable
Prospectus Supplement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company does
not intend to send any financial reports to Certificateholders.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the Certificates. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Certificates shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests
for such copies should be directed to the Secretary of Lehman ABS
Corporation, 3 World Financial Center, New York, New York 10285. Telephone
requests for such copies should be directed to the Secretary of Lehman ABS
Corporation at (212) 526-5594.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive Certificates are issued, on each Distribution
Date unaudited reports containing information concerning the related Trust
will be prepared by the related Trustee and sent on behalf of each Trust
only to Cede & Co. ("Cede"), as nominee of DTC and registered holder of the
Certificates. See "Description of Certificates--Global Securities" and
"Description of the Trust Agreement--Reports to Certificateholders;
Notice." Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Company, on
behalf of each Trust, will cause to be filed with the Commission such
periodic reports as are required under the Exchange Act.
4
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Certificate in the Specified
Principal Currency for such Certificate. Currently, there are limited
facilities in the United States for conversion of U.S. dollars into foreign
currencies and vice versa, and banks do not currently offer non-U.S. dollar
checking or savings account facilities in the United States. However, if
requested by a prospective purchaser of a Certificate having a Specified
Principal Currency other than U.S. dollars, Lehman Brothers Inc. (the
"Offering Agent") will arrange for the exchange of U.S. dollars into such
Specified Principal Currency to enable the purchaser to pay for such
Certificate. Such request must be made on or before the fifth Business Day
(as defined below) preceding the date of delivery of such Certificate or by
such later date as is determined by the Offering Agent. Each such exchange
will be made by the Offering Agent on such terms and subject to such
conditions, limitations and charges as the Offering Agent may from time to
time establish in accordance with its regular foreign exchange practice.
All costs of exchange will be borne by the purchaser.
References herein to "U.S. dollars," "U.S.$," USD, "dollar" or "$" are
to the lawful currency of the United States.
RISK FACTORS
Limited Liquidity. There will be no market for any Series (or Class
within such Series) of Certificates prior to the issuance thereof, and
there can be no assurance that a secondary market will develop or, if it
does develop, that it will provide Certificateholders with liquidity of
investment or will continue for the life of such Certificates.
Certain Legal Aspects. The applicable Prospectus Supplement may set
forth certain legal considerations that are applicable to a specific Series
(or Class or Classes within such Series) of Certificates being offered in
connection with that Prospectus Supplement or the assets deposited in or
assigned to the related Trust.
Limited Obligations and Interest. The Certificates will not represent
a recourse obligation of or interest in the Company or any of its
affiliates. Unless otherwise specified in the applicable Prospectus
Supplement, the Certificates of each Series will not be insured or
guaranteed by any government agency or instrumentality, the Company, any
Person affiliated with the Company or the Issuer, or any other Person. The
obligations, if any, of the Company with respect to the Certificates of any
Series will only be pursuant to certain limited representations and
warranties. The Company does not have, and is not expected in the future to
have, any significant assets with which to satisfy any claims arising from
a breach of any representation or warranty. If, for example, the Company
were required to repurchase a Underlying Security with respect to which the
Company has breached a representation or warranty, its only sources of
funds to make such repurchase would be from funds obtained from the
enforcement of a corresponding obligation, if any, on the part of the
seller of such Underlying Security to the Company, or from a reserve fund
established to provide
5
funds for such repurchases. The Company has no obligation to establish or
maintain any such reserve fund.
Credit Support; Limited Assets. Although the Trust for any Series (or
Class of such Series) of Certificates may include, or the
Certificateholders of such Certificates may have the benefit of, certain
assets which are designed to support the payment upon, or otherwise ensure
the servicing or distribution with respect to, the Deposited Assets related
to such Series or Class as described in the related Prospectus Supplement,
the Certificates do not represent obligations of the Company, any
Administrative Agent or any of their affiliates and, unless otherwise
specified in the applicable Prospectus Supplement, are not insured or
guaranteed by the Company, any Administrative Agent, any of their
affiliates or any other person or entity. Accordingly, Certificateholders'
receipt of distributions in respect of the Certificates will depend
entirely on the performance of and the Trust's receipt of payments with
respect to the Deposited Assets and any Credit Support identified in the
related Prospectus Supplement. See "Description of Deposited Assets and
Credit Support."
Maturity and Redemption Considerations. The timing of distributions of
interest, premium (if any) and principal of any Series (or of any Class
within such Series) of Certificates is affected by a number of factors,
including the performance of the related Deposited Assets, the extent of
any early redemption, repayment or extension of maturity with respect to
the related Underlying Securities (including acceleration resulting from
any default or rescheduling resulting from any moratorium or similar
circumstance with respect to a Underlying Securities Issuer) and the manner
and priority in which collections from such Underlying Securities and any
other Deposited Assets are allocated to each Class of such Series. Certain
of these factors may be influenced by a variety of accounting, tax,
economic, social, political and other factors. The related Prospectus
Supplement will discuss any calls, puts or other redemption options, any
extension of maturity provisions and certain other terms applicable to such
Underlying Securities and any other Deposited Assets. See "Maturity and
Yield Considerations."
Tax Considerations. The Federal income tax consequences of the
purchase, ownership and disposition of the Certificates and the tax
treatment of the Trust will depend on the specific terms of the
Certificates, the Trust, any Credit Support and the Deposited Assets. See
the description under "Certain Federal Income Tax Considerations" in the
related Prospectus Supplement. Purchasers of the Certificates may also be
affected by the tax treatment of the Underlying Securities by the relevant
issuing government.
Ratings of the Certificates. At the time of issue, the Certificates of
any given Series (or each Class of such Series that is offered hereby) will
be rated in one of the investment grade categories recognized by one or
more nationally recognized rating agencies (a "Rating Agency"). Unless
otherwise specified in the applicable Prospectus Supplement, the rating of
any Series or Class of Certificates is based primarily on the related
Deposited Assets and any Credit Support and the relative priorities of the
Certificateholders of such Series or Class to receive collections from, and
to assert claims against, the Trust with respect to such Deposited Assets
and any Credit Support. The rating is not a recommendation to purchase,
hold or sell Certificates, inasmuch as such rating does
6
not comment as to market price or suitability for a particular investor.
There can be no assurance that the rating will remain for any given period
of time or that the rating will not be lowered or withdrawn entirely by the
Rating Agency if in its judgment circumstances in the future so warrant.
Any Class or Classes of a given Series of Certificates may not be offered
pursuant to this Prospectus, in which case such Class or Classes may or may
not be rated in an investment grade category by a Rating Agency.
Global Securities. Unless otherwise specified in the related
Prospectus Supplement, the Certificates of each Series (or, if more than
one Class exists, each Class of such Series) will initially be represented
by one or more Global Securities deposited with, or on behalf of, a
Depositary (as defined below) and will not be issued as individual
definitive Certificates to the purchasers of such Certificates.
Consequently, unless and until such individual definitive Certificates of a
particular Series or Class are issued, such purchasers will not be
recognized as Certificateholders under the Trust Agreement. Hence, until
such time, such purchasers will only be able to exercise the rights of
Certificateholders indirectly through the Depositary and its respective
participating organizations and, as a result, the ability of any such
purchaser to pledge that Certificate to persons or entities that do not
participate in the Depositary's system, or to otherwise act with respect to
such Certificate, may be limited. See "Description of Certificates--Global
Securities" and "Limitations on Issuance of Bearer Certificates" and any
further description contained in the related Prospectus Supplement.
Foreign Government Issuer. The Underlying Securities will include
obligations of, or guaranteed by, foreign governments, foreign political
subdivisions, or agencies and instrumentalities thereof (each such issuer
and guarantor, if any, sometimes referred to herein as a "Foreign
Government Issuer" and a "Foreign Government Guarantor," respectively; and
collectively referred to as "Foreign Governments"). Consequently, it may be
difficult for the applicable Trust as a holder of the Underlying Securities
to obtain or realize upon judgments in the United States against such
obligor. In the absence of a waiver of immunity by a Foreign Government, it
would not be possible to obtain a United States judgment against such
Foreign Government unless a court were to determine that such issuer is not
entitled under the Sovereign Immunities Act of 1976 (the "Immunities Act")
to sovereign immunity with respect to such action. Even if such an issuer
is amenable to suit in the United States, the enforceability of any
judgment obtained may be limited by a lack of substantial assets which can
be levied upon in the United States or the inability to obtain recognition
and enforcement of the judgment in the issuer's country. Because the
Underlying Securities represent direct or indirect obligations of foreign
governments, Certificateholders should consider the political, economic and
other risks attendant on holding the obligations of a foreign government
which are not typically associated with an investment in securities of a
domestic issuer. Such risks include future political and economic
developments, governmental repudiation, moratorium on payment or
rescheduling of external debts, confiscatory taxation, imposition of any
withholding tax, exchange rate fluctuations, political or social
instability or diplomatic developments and the imposition of additional
governmental laws or restrictions. While a Foreign Government Issuer may
make certain information available by filing periodic reports and other
information with the Commission, such information (including financial
information) may differ in timing, form and substance from that normally
available with respect to domestic issuers.
7
Currency Risks. The Certificates of any given Series (or Class within
such Series) may be denominated in a currency other than U.S. dollars to
the extent specified in the applicable Prospectus Supplement. This
Prospectus does not describe all the risks of an investment in such
Certificates, and the Company disclaims any responsibility to advise
prospective purchasers of such risks as they exist from time to time.
Prospective purchasers of such Certificates should consult their own
financial and legal advisors as to the risks entailed by an investment in
such Certificates denominated in a currency other than U.S. dollars. See
"Currency Risks." In addition, there are certain risks associated with
Underlying Securities denominated in a currency other than the local
currency of a Foreign Government. Governments have from time to time
imposed, and may in the future impose, exchange controls that could affect
the availability of a currency for making distributions in respect of
Underlying Securities denominated in such currency.
Passive Nature of the Trust. The Trustee with respect to any Series of
Certificates will hold the Deposited Assets for the benefit of the
Certificateholders. Each Trust will generally hold the related Deposited
Assets to maturity and not dispose of them, regardless of adverse events,
financial or otherwise, which may affect any Underlying Securities Issuer
or the value of the Deposited Assets. Under certain circumstances the
holders of the Certificates may direct the Trustee to dispose of the
Underlying Securities or take certain other actions in respect of the
Deposited Assets.
The Prospectus Supplement for each Series of Certificates will set
forth information regarding additional risk factors, if any, applicable to
such Series (and each Class within such Series).
THE COMPANY
The Company was incorporated in the State of Delaware on January 29,
1988, as an indirect, wholly-owned, limited-purpose subsidiary of Lehman
Brothers Inc. The principal office of the Company is located in 3 World
Financial Center, New York, New York 10285. Its telephone number is (212)
526-5594.
The Certificate of Incorporation of the Company provides that the
Company may conduct any lawful activities necessary or incidental to
serving as depositor of one or more trusts that may issue and sell
Certificates. The Certificate of Incorporation of the Company provides that
any securities, except for subordinated securities, issued by the Company
must be rated in one of the four highest categories available by any Rating
Agency rating the Series. Formation of a grantor trust will not relieve the
Company of its obligation to issue only securities, except for subordinated
securities, rated in one of the four highest rating categories. Pursuant to
the terms of the Trust Agreement, the Company may not issue any securities
which would result in the lowering of the then current ratings of the
outstanding Certificates of any Series.
8
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
the net proceeds to be received from the sale of each Series or Class of
Certificates (whether or not offered hereby) will be used by the Company to
purchase the related Deposited Assets and arrange certain Credit Support
including, if specified in the related Prospectus Supplement, making
required deposits into any reserve account or the applicable Certificate
Account (as defined below) for the benefit of the Certificateholders of
such Series or Class. Any remaining net proceeds, if any, will be used by
the Company for general corporate purposes.
FORMATION OF THE TRUST
The Company will assign the Deposited Assets for each Series of
Certificates to the Trustee named in the applicable Prospectus Supplement,
in its capacity as Trustee, for the benefit of the Certificateholders of
such Series. See "Description of the Trust Agreement -- Assignment of
Deposited Assets." The Trustee named in the applicable Prospectus
Supplement will administer the Deposited Assets pursuant to the Trust
Agreement and will receive a fee for such services (the "Trustee's Fee").
Any Administrative Agent named in the applicable Prospectus Supplement will
perform such tasks as are specified therein and in the Trust Agreement and
will receive a fee for such services (the "Administration Fee") as
specified in the Prospectus Supplement. See "Description of the Trust
Agreement--Collection and Other Administrative Procedures" and "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses." The
Trustee or an Administrative Agent, if applicable, will either cause the
assignment of the Deposited Assets to be recorded or will obtain an opinion
of counsel that no recordation is required to obtain a first priority
perfected security interest in such Deposited Assets.
Unless otherwise stated in the Prospectus Supplement, the Company's
assignment of the Deposited Assets to the Trustee will be without recourse.
To the extent provided in the applicable Prospectus Supplement, the
obligations of an Administrative Agent so named therein with respect to the
Deposited Assets will consist primarily of its contractual-administrative
obligations, if any, under the Trust Agreement, its obligation, if any, to
make certain cash advances in the event of delinquencies in payments on or
with respect to any Deposited Assets in amounts described under
"Description of the Trust Agreement -- Advances in Respect of
Delinquencies," and its obligations, if any, to purchase Deposited Assets
as to which there has been a breach of certain representations and
warranties or as to which the documentation is materially defective. The
obligations of an Administrative Agent, if any, named in the applicable
Prospectus Supplement to make advances will be limited to amounts which any
such Administrative Agent believes ultimately would be recoverable under
any Credit Support, insurance coverage, the proceeds of liquidation of the
Deposited Assets or from other sources available for such purposes. See
"Description of the Trust Agreement -- Advances in Respect of
Delinquencies."
9
Unless otherwise provided in the related Prospectus Supplement, each
Trust will consist of (i) such Deposited Assets, or interests therein,
exclusive of any interest in such assets (the "Retained Interest") retained
by the Company or any previous owner thereof, as from time to time are
specified in the Trust Agreement; (ii) such assets as from time to time are
identified as deposited in the related Certificate Account; (iii) property,
if any, acquired on behalf of Certificateholders by foreclosure or
repossession and any revenues received thereon; (iv) those elements of
Credit Support, if any, provided with respect to any Class within such
Series that are specified as being part of the related Trust in the
applicable Prospectus Supplement, as described therein and under
"Description of Deposited Assets and Credit Support -- Credit Support"; (v)
the rights of the Company under the agreement or agreements entered into by
the Trustee on behalf of the Certificateholders which constitute, or
pursuant to which the Trustee has acquired, such Deposited Assets; and (vi)
the rights of the Trustee in any cash advances, reserve fund or surety
bond, if any, as described under "Description of the Trust Agreement --
Advances in Respect of Delinquencies."
In addition, to the extent provided in the applicable Prospectus
Supplement, the Company will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related
Underlying Securities and the terms, if any, upon which such Underlying
Securities may be subject to early redemption (either by the applicable
obligor or pursuant to a third-party call option), repayment (at the option
of the holders thereof) or extension of maturity. The provisions of the
Underlying Securities with respect to the foregoing will, unless otherwise
specified in the applicable Prospectus Supplement, affect the weighted
average life of the related Series of Certificates.
The effective yield to holders of the Certificates of any Series (and
Class within such Series) may be affected by certain aspects of the
Deposited Assets or any Credit Support or the manner and priorities of
allocations of collections with respect to such Deposited Assets between
the Classes of a given Series. With respect to any Series of Certificates
the Underlying Securities of which consist of one or more redeemable
securities, extendable securities or securities subject to a third-party
call option, the yield to maturity of such Series (or Class within such
Series) may be affected by any optional or mandatory redemption or
repayment or extension of the related Underlying Securities prior to the
stated maturity thereof. A variety of political, economic, social, tax,
accounting and other factors influence whether a Foreign Government will
exercise any right of redemption in respect of its securities. All else
remaining equal, if prevailing interest rates fall significantly below the
interest rates on the related Underlying Securities, the likelihood of
redemption would be expected to increase. There can be no certainty as to
whether any Underlying Security redeemable at the option of a Foreign
Government will be repaid prior to its stated maturity.
10
Unless otherwise specified in the related Prospectus Supplement, each
of the Underlying Securities will be subject to acceleration upon the
occurrence of certain Underlying Security Events of Default (as defined
below). The maturity and yield on the Certificates will be affected by any
early repayment of the Underlying Securities as a result of the
acceleration of the Outstanding Debt Securities by the holders thereof. See
"Description of the Deposited Assets -- Underlying Securities." If a
Foreign Government Issuer or Foreign Government Guarantor, as applicable,
repudiates or places any limitation or moratorium on the payment of
external indebtedness or imposes any confiscatory or withholding tax, the
timing and amount of payments on the Certificates may be materially and
adversely affected. A variety of factors could influence a Foreign
Government's willingness or ability to satisfy its obligations under the
related Underlying Securities, and no assurance can be given as to the
probability of a moratorium or other action affecting any Underlying
Security.
The extent to which the yield to maturity of such Certificates may
vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to the rate and timing of payments on the
Deposited Assets.
The yield to maturity of any Series (or Class) of Certificates will
also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that
the Pass-Through Rate for such Series (or Class) is based on variable or
adjustable interest rates. With respect to any Series of Certificates
representing an interest in a pool of foreign government debt securities,
disproportionate principal payments (whether resulting from differences in
amortization schedules, payments due on scheduled maturity or upon early
redemption) on the related Underlying Securities having interest rates
higher or lower than the then applicable Pass-Through Rates applicable to
such Certificates may affect the yield thereon.
A variety of economic, social, political, tax, accounting and other
factors may affect the degree to which any of the Underlying Securities are
redeemed or called (whether by the applicable obligor or pursuant to a
third-party call option) or the maturity of such Underlying Securities is
extended, as specified in the related Prospectus Supplement. There can be
no assurance as to the rate or likelihood of redemption, third-party call
or extension of maturity, in each case to the extent applicable, of any
Underlying Security. The applicable Prospectus Supplement will, to the
extent available, provide further information with respect to any such
experience applicable to the related Underlying Securities. In addition,
the Prospectus Supplement for each Series of Certificates will set forth
additional information regarding yield and maturity considerations
applicable to such Series (and each Class within such Series) and the
related Deposited Assets, including the applicable Underlying Securities.
11
DESCRIPTION OF CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within
such Series) of Certificates will be issued pursuant to a Trust Agreement
and a separate series supplement thereto among the Company, the
Administrative Agent, if any, and the Trustee named in the related
Prospectus Supplement, a form of which Trust Agreement is attached as an
exhibit to the Registration Statement. The provisions of the Trust
Agreement (as so supplemented) may vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the Deposited
Assets, Credit Support and related Trust. The following summaries describe
certain provisions of the Trust Agreement which may be applicable to each
Series of Certificates. The applicable Prospectus Supplement for a Series
of Certificates will describe any provision of the Trust Agreement that
materially differs from the description thereof contained in this
Prospectus. The following summaries do not purport to be complete and are
subject to the detailed provisions of the form of Trust Agreement to which
reference is hereby made for a full description of such provisions,
including the definition of certain terms used, and for other information
regarding the Certificates. Article and section references in parentheses
below are to articles and sections in the Trust Agreement. Wherever
particular sections or defined terms of the Trust Agreement are referred
to, such sections or defined terms are incorporated herein by reference as
part of the statement made, and the statement is qualified in its entirety
by such reference. As used herein with respect to any Series, the term
"Certificate" refers to all the Certificates of that Series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires.
A copy of the applicable series supplement to the Trust Agreement
relating to each Series of Certificates issued from time to time will be
filed by the Company as an exhibit to a Current Report on Form 8-K to be
filed with the Commission following the issuance of such Series.
General
There is no limit on the amount of Certificates that may be issued
under the Trust Agreement, and the Trust Agreement will provide that
Certificates of the applicable Series may be issued in multiple Classes
(Section 5.01). The Series (or Classes within such Series) of Certificates
to be issued under the Trust Agreement will represent the entire beneficial
ownership interest in the Trust for such Series created pursuant to the
Trust Agreement and each such Class will be allocated certain relative
priorities to receive specified collections from, and a certain percentage
ownership interest of the assets deposited in, such Trust, all as
identified and described in the applicable Prospectus Supplement. See
"Description of Deposited Assets and Credit Support -- Collections."
Reference is made to the related Prospectus Supplement for a
description of the following terms of the Series (and if applicable,
Classes within such Series) of Certificates in respect of which this
Prospectus and such Prospectus Supplement are being delivered: (i) the
title of such Certificates; (ii) the Series of such Certificates and, if
applicable, the number and designation of Classes of such Series; (iii)
certain information concerning the type, characteristics and specifications
of the Deposited Assets being deposited into the related Trust by the
Company (and, with respect to
12
any Underlying Security which at the time of such deposit represents a
significant portion of all such Deposited Assets and any related Credit
Support, certain information concerning the terms of each such Underlying
Security, the identity of the issuer thereof and where publicly available
information regarding such issuer may be obtained); (iv) the limit, if any,
upon the aggregate principal amount or notional amount, as applicable, of
each Class thereof; (v) the dates on which or periods during which such
Series or Classes within such Series may be issued (each, an "Original
Issue Date"), the offering price thereof and the applicable Distribution
Dates on which the principal, if any, of (and premium, if any, on) such
Series or Classes within such Series will be distributable; (vi) if
applicable, the relative rights and priorities of each such Class
(including the method for allocating collections from and defaults or
losses on the Deposited Assets to the Certificateholders of each such
Class); (vii) whether the Certificates of such Series or each Class within
such Series are Fixed Rate Certificates or Floating Rate Certificates (each
as defined below) and the applicable interest rate (the "Pass-Through
Rate") for each such Class, including the applicable rate, if fixed (a
"Fixed Pass-Through Rate"), or the terms relating to the particular method
of calculation thereof applicable to such Series or each Class within such
Series, if variable (a "Variable Pass-Through Rate"); the date or dates
from which such interest will accrue; the applicable Distribution Dates on
which interest, principal and premium, in each case as applicable, on such
Series or Class will be distributable and the related Record Dates, if any;
(viii) the option, if any, of any Certificateholder of such Series or Class
to withdraw a portion of the assets of the Trust in exchange for
surrendering such Certificateholder's Certificate or of the Company or
Administrative Agent, if any, or another third party to purchase or
repurchase any Deposited Assets (in each case to the extent not
inconsistent with the Company's continued satisfaction of the applicable
requirements for exemption under Rule 3a-7 under the Investment Company Act
of 1940 and all applicable rules, regulations and interpretations
thereunder) and the periods within which or the dates on which, and the
terms and conditions upon which any such option may be exercised, in whole
or in part; (ix) the rating of each Series or each Class within such Series
offered hereby (provided, however, that one or more Classes within such
Series not offered hereunder may be unrated or may be rated below
investment grade); (x) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which such Series or Class
within such Series will be issuable; (xi) whether the Certificates of any
Class within a given Series are to be entitled to (1) principal
distributions, with disproportionate, nominal or no interest distributions,
or (2) interest distributions, with disproportionate, nominal or no
principal distributions ("Strip Certificates"), and the applicable terms
thereof; (xii) whether the Certificates of such Series or of any Class
within such Series are to be issued as Registered Certificates or Bearer
Certificates or both and, if Bearer Certificates are to be issued, whether
coupons ("Coupons") will be attached thereto; whether Bearer Certificates
of such Series or Class may be exchanged for Registered Certificates of
such Series or Class and the circumstances under which and the place or
places at which any such exchanges, if permitted, may be made; (xiii)
whether the Certificates of such Series or of any Class within such series
are to be issued in the form of one or more Global Securities and, if so,
the identity of the Depositary (as defined below), if other than The
Depository Trust Company, for such Global Security or Securities; (xiv) if
a temporary Certificate is to be issued with respect to such Series or any
Class within such Series, whether any interest thereon distributable on a
Distribution Date prior to the issuance of a definitive Certificate of such
Series or Class will be credited to the account of the Persons entitled
thereto on such Distribution Date; (xv) if a temporary Global Security is
to be issued
13
with respect to such Series or Class, the terms upon which beneficial
interests in such temporary Global Security may be exchanged in whole or in
part for beneficial interests in a definitive Global Security or for
individual Definitive Certificates (as defined below) of such Series or
Class and the terms upon which beneficial interests in a definitive Global
Security, if any, may be exchanged for individual Definitive Certificates
of such Series or Class; (xvi) if other than U.S. dollars, the Specified
Currency applicable to the Certificates of such Series or Class for
purposes of denominations and distributions on such Series or each Class
within such Series and the circumstances and conditions, if any, when such
Specified Currency may be changed, at the election of the Company or a
Certificateholder, and the currency or currencies in which any principal of
or any premium or any interest on such Series or Class are to be
distributed pursuant to such election; (xvii) any additional Administrative
Agent Termination Events (as defined below), if applicable, provided for
with respect to such Class; (xviii) all applicable Required Percentages and
Voting Rights (each as defined below) relating to the manner and percentage
of votes of Certificateholders of such Series and each Class within such
Series required with respect to certain actions by the Company or the
applicable Administrative Agent, if any, or Trustee under the Trust
Agreement or with respect to the applicable Trust; and (xix) any other
terms of such Series or Class within such Series of Certificates not
inconsistent with the provisions of the Trust Agreement relating to such
Series.
Unless otherwise indicated in the applicable Prospectus Supplement,
Certificates of each Series (including any Class of Certificates not
offered hereby) will be issued only as Registered Certificates in
denominations of $1,000 and any integral multiple thereof and will be
payable only in U.S. dollars (Section 5.01). The authorized denominations
of Registered Certificates of a given Series or Class within such Series
having a Specified Currency other than U.S. dollars will be set forth in
the applicable Prospectus Supplement.
The United States Federal income tax consequences and ERISA
consequences relating to any Series or any Class within such Series of
Certificates will be described in the applicable Prospectus Supplement. In
addition, any risk factors, the specific terms and other information with
respect to the issuance of any Series or Class within such Series of Bearer
Certificates or Certificates on which the principal of and any premium and
interest are distributable in a Specified Currency other than U.S. dollars
will be described in the applicable Prospectus Supplement relating to such
Series or Class. Unless otherwise specified in the applicable Prospectus
Supplement, the U.S. dollar equivalent of the public offering price or
purchase price of a Certificate having a Specified Principal Currency other
than U.S. dollars will be determined on the basis of the noon buying rate
in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the "Market
Exchange Rate") for such Specified Principal Currency on the applicable
issue date. As specified in the applicable Prospectus Supplement, such
determination will be made by the Company, the Trustee, the Administrative
Agent, if any, or an agent thereof as exchange rate agent for each Series
of Certificates (the "Exchange Rate Agent").
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Certificates may be transferred or exchanged for like
Certificates of the same Series and Class at the corporate trust office or
agency of the applicable Trustee in the City and State of New York, subject
14
to the limitations provided in the Trust Agreement, without the payment of
any service charge, other than any tax or governmental charge payable in
connection therewith (Section 5.04). Bearer Certificates will be
transferable by delivery. Provisions with respect to the exchange of Bearer
Certificates will be described in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
Registered Certificates may not be exchanged for Bearer Certificates. The
Company may at any time purchase Certificates at any price in the open
market or otherwise. Certificates so purchased by the Company may, at the
discretion of the Company, be held or resold or surrendered to the Trustee
for cancellation of such Certificates.
Distributions
Distributions allocable to principal, premium (if any) and interest on
the Certificates of each Series (and Class within such Series) will be made
in the Specified Currency for such Certificates by or on behalf of the
Trustee on each Distribution Date as specified in the related Prospectus
Supplement and the amount of each distribution will be determined as of the
close of business on the date specified in the related Prospectus
Supplement (the "Determination Date"). If the Specified Currency for a
given Series or Class within such Series is other than U.S. dollars, the
Administrative Agent, if any, or otherwise the Trustee will (unless
otherwise specified in the applicable Prospectus Supplement) arrange to
convert all payments in respect of each Certificate of such Series or Class
to U.S. dollars in the manner described in the following paragraph. The
Certificateholder of a Registered Certificate of a given Series or Class
within such Series denominated in a Specified Currency other than U.S.
dollars may (if the applicable Prospectus Supplement and such Certificate
so indicate) elect to receive all distributions in respect of such
Certificate in the Specified Currency by delivery of a written notice to
the Trustee and Administrative Agent, if any, for such Series not later
than fifteen calendar days prior to the applicable Distribution Date,
except under the circumstances described under "Currency Risks -- Payment
Currency" below. Such election will remain in effect until revoked by
written notice to such Trustee and Administrative Agent, if any, received
by each of them not later than fifteen calendar days prior to the
applicable Distribution Date.
Unless otherwise specified in the applicable Prospectus Supplement, in
the case of a Registered Certificate of a given Series or Class within such
Series having a Specified Currency other than U.S. dollars, the amount of
any U.S dollar distribution in respect of such Registered Certificate will
be determined by the Exchange Rate Agent based on the highest firm bid
quotation expressed in U.S. dollars received by the Exchange Rate Agent at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Distribution Date (or, if no such rate is quoted
on such date, the last date on which such rate was quoted), from three (or,
if three are not available, then two) recognized foreign exchange dealers
in The City of New York (one of which may be the Offering Agent and another
of which may be the Exchange Rate Agent) selected by the Exchange Rate
Agent, for the purchase by the quoting dealer, for settlement on such
Distribution Date, of the aggregate amount payable in such Specified
Currency on such payment date in respect of all Registered Certificates.
All currency exchange costs will be borne by the Certificateholders of such
Registered Certificates by deductions from such distributions. If no such
bid quotations are available,
15
such distributions will be made in such Specified Currency, unless such
Specified Currency is unavailable due to the imposition of exchange
controls or to other circumstances beyond the Company's control, in which
case such distributions will be made as described under "Currency Risks --
Payment Currency" below. The applicable Prospectus Supplement will specify
such information with respect to Bearer Certificates.
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect
to Certificates will be made (in the case of Registered Certificates) at
the corporate trust office or agency of the Trustee specified in the
applicable Prospectus Supplement in The City of New York or (in the case of
Bearer Certificates) at the principal London office of the applicable
Trustee; provided, however, that any such amounts distributable on the
final Distribution Date of a Certificate will be distributed only upon
surrender of such Certificate at the applicable location set forth above
(Sections 4.01 and 9.01). Except as otherwise provided in the applicable
Prospectus Supplement, no distribution on a Bearer Certificate will be made
by mail to an address in the United States or by wire transfer to an
account maintained by the Certificateholder thereof in the United States.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Certificates in U.S. dollars will be made,
except as provided below, by check mailed to the Registered
Certificateholders of such Certificates (which, in the case of Global
Securities, will be a nominee of the Depositary); provided, however, that,
in the case of a Series or Class of Registered Certificates issued between
a Record Date (as defined below) and the related Distribution Dates,
interest for the period beginning on the issue date for such Series or
Class and ending on the last day of the interest accrual period ending
immediately prior to or coincident with such Distribution Date will, unless
otherwise specified in the applicable Prospectus Supplement, be distributed
on the next succeeding Distribution Date to the Registered
Certificateholders of the Registered Certificates of such Series or Class
on the related Record Date. A Certificateholder of $10,000,000 (or the
equivalent thereof in a Specified Principal Currency other than U.S.
dollars) or more in aggregate principal amount of Registered Certificates
of a given Series shall be entitled to receive such U.S. dollar
distributions by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee for such Series not later than fifteen calendar days prior to the
applicable Distribution Date. Simultaneously with the election by any
Certificateholder to receive payments in a Specified Currency other than
U.S. dollars (as provided above), such Certificateholder shall provide
appropriate wire transfer instructions to the Trustee for such Series, and
all such payments will be made by wire transfer of immediately available
funds to an account maintained by the payee with a bank located outside the
United States.
Except as otherwise specified in the applicable Prospectus Supplement,
"Business Day" with respect to any Certificate means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in (a) The City of
New York or (b) if the Specified Currency for such Certificate is other
than U.S. dollars, the financial center of the country issuing such
Specified Currency (which, in the case of ECU, shall be Brussels, Belgium)
and (ii) if the Pass-Through Rate for such Certificate is based on LIBOR, a
16
London Banking Day. "London Banking Day" with respect to any Certificate
means any day on which dealings in deposits in the Specified Currency of
such Certificate are transacted in the London interbank market. The Record
Date with respect to any Distribution Date for a Series or Class of
Registered Certificates shall be specified as such in the applicable
Prospectus Supplement.
Interest on the Certificates
General. Each Class of Certificates (other than certain Classes of
Strip Certificates) of a given Series may have a different Pass-Through
Rate, which may be a fixed or variable Pass-Through Rate, as described
below. In the case of Strip Certificates with no or, in certain cases, a
nominal Certificate Principal Balance, such distributions of interest will
be in an amount (as to any Distribution Date, "Stripped Interest")
described in the related Prospectus Supplement. For purposes hereof,
"Notional Amount" means the notional principal amount specified in the
applicable Prospectus Supplement on which interest on Strip Certificates
with no or, in certain cases, a nominal Certificate Principal Balance will
be made on each Distribution Date. Reference to the Notional Amount of a
Class of Strip Certificates herein or in a Prospectus Supplement does not
indicate that such Certificates represent the right to receive any
distribution in respect of principal in such amount, but rather the term
"Notional Amount" is used solely as a basis for calculating the amount of
required distributions and determining certain relative voting rights, all
as specified in the related Prospectus Supplement.
Fixed Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a fixed Pass-
Through Rate ("Fixed Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date, or from the last date to which
interest has been paid, at the fixed Pass-Through Rate stated on the face
thereof and in the applicable Prospectus Supplement until the principal
amount thereof is distributed or made available for repayment (or in the
case of Fixed Rate Certificates with no or a nominal principal amount,
until the Notional Amount thereof is reduced to zero), except that, if so
specified in the applicable Prospectus Supplement, the Pass-Through Rate
for such Series or any such Class or Classes may be subject to adjustment
from time to time in response to designated changes in the rating assigned
to such Certificates by one or more rating agencies, in accordance with a
schedule or otherwise, all as described in such Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement,
interest on each Series or Class of Fixed Rate Certificates will be
distributable in arrears on each Distribution Date specified in such
Prospectus Supplement. Each such distribution of interest shall include
interest accrued through the day specified in the applicable Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, interest on Fixed Rate Certificates will be computed on the
basis of a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a variable
Pass-Through Rate ("Floating Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date to the first Interest Reset Date
(as defined below) for such
17
Series or Class at the Initial Pass-Through Rate set forth on the face
thereof and in the applicable Prospectus Supplement. Thereafter, the
Pass-Through Rate on such Series or Class for each Interest Reset Period
(as defined below) will be determined by reference to an interest rate
basis (the "Base Rate"), plus or minus the Spread, if any, or multiplied by
the Spread Multiplier, if any. The "Spread" is the number of basis points
(one basis point equals one one-hundredth of a percentage point) that may
be specified in the applicable Prospectus Supplement as being applicable to
such Series or Class, and the "Spread Multiplier" is the percentage that
may be specified in the applicable Prospectus Supplement as being
applicable to such Series or Class, except that if so specified in the
applicable Prospectus Supplement, the Spread or Spread Multiplier on such
Series or any such Class or Classes of Floating Rate Certificates may be
subject to adjustment from time to time in response to designated changes
in the rating assigned to such Certificates by one or more rating agencies,
in accordance with a schedule or otherwise, all as described in such
Prospectus Supplement. The applicable Prospectus Supplement, unless
otherwise specified therein, will designate one of the following Base Rates
as applicable to a Floating Rate Certificate: (i) LIBOR (a "LIBOR
Certificate"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Certificate"), (iii) the Treasury Rate (a "Treasury Rate Certificate"),
(iv) the Federal Funds Rate (a "Federal Funds Rate Certificate"), (v) the
CD Rate (a "CD Rate Certificate") or (vi) such other Base Rate (which may
be based on, among other things, one or more market indices or the interest
and/or other payments (whether scheduled or otherwise) paid, accrued or
available with respect to a designated asset, pool of assets or type of
asset) as is set forth in such Prospectus Supplement and in such
Certificate. The "Index Maturity" for any Series or Class of Floating Rate
Certificates is the period of maturity of the instrument or obligation from
which the Base Rate is calculated. "H.15(519)" means the publication
entitled "Statistical Release H.15(519), Selected Interest Rates," or any
successor publications, published by the Board of Governors of the Federal
Reserve System. "Composite Quotations" means the daily statistical release
entitled "Composite 3:30 p.m. Quotations for U.S. Government Securities"
published by the Federal Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest
may accrue during any interest accrual period specified in the applicable
Prospectus Supplement ("Maximum Pass-Through Rate") and (ii) a minimum
limitation, or floor, on the rate at which interest may accrue during any
such interest accrual period ("Minimum Pass-Through Rate"). In addition to
any Maximum Pass-Through Rate that may be applicable to any Series or Class
of Floating Rate Certificates, the Pass-Through Rate applicable to any
Series or Class of Floating Rate Certificates will in no event be higher
than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application. The Floating Rate
Certificates will be governed by the law of the State of New York and,
under such law as of the date of this Prospectus, the maximum rate of
interest, with certain exceptions, is 25% per annum on a simple interest
basis.
18
The Company will appoint, and enter into agreements with, agents (each
a "Calculation Agent") to calculate Pass-Through Rates on each Series or
Class of Floating Rate Certificates. The applicable Prospectus Supplement
will set forth the identity of the Calculation Agent for each Series or
Class of Floating Rate Certificates. All determinations of interest by the
Calculation Agent shall, in the absence of manifest error, be conclusive
for all purposes and binding on the holders of Floating Rate Certificates
of a given Series or Class.
The Pass-Through Rate on each Class of Floating Rate Certificates will
be reset daily, weekly, monthly, quarterly, semiannually or annually (such
period being the "Interest Reset Period" for such Class, and the first day
of each Interest Reset Period being an "Interest Reset Date"), as specified
in the applicable Prospectus Supplement. Interest Reset Dates with respect
to each Series, and any Class within such Series of Floating Rate
Certificates will be specified in the applicable Prospectus Supplement;
provided, however, that unless otherwise specified in such Prospectus
Supplement, the Pass-Through Rate in effect for the ten days immediately
prior to the Scheduled Final Distribution Date will be that in effect on
the tenth day preceding such Scheduled Final Distribution Date. If an
Interest Reset Date for any Class of Floating Rate Certificates would
otherwise be a day that is not a Business Day, such Interest Reset Date
will occur on a prior or succeeding Business Day, specified in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Certificates shall be the
accrued interest from and including the Original Issue Date of such Series
or Class or the last Interest Reset Date to which interest has accrued and
been distributed, as the case may be, to but excluding the immediately
following Distribution Date.
With respect to a Floating Rate Certificate, accrued interest shall be
calculated by multiplying the Certificate Principal Balance of such
Certificate (or, in the case of a Strip Certificate with no or a nominal
Certificate Principal Balance, the Notional Amount specified in the
applicable Prospectus Supplement) by an accrued interest factor. Such
accrued interest factor will be computed by adding the interest factors
calculated for each day in the period for which accrued interest is being
calculated. Unless otherwise specified in the applicable Prospectus
Supplement, the interest factor (expressed as a decimal calculated to seven
decimal places without rounding) for each such day is computed by dividing
the Pass-Through Rate in effect on such day by 360, in the case of LIBOR
Certificates, Commercial Paper Rate Certificates, Federal Funds Rate
Certificates and CD Rate Certificates or by the actual number of days in
the year, in the case of Treasury Rate Certificates. For purposes of making
the foregoing calculation, the variable Pass-Through Rate in effect on any
Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement,
all percentages resulting from any calculation of the Pass-Through Rate on
a Floating Rate Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
19
Interest on any Series (or Class within such Series) of Floating Rate
Certificates will be distributable on the Distribution Dates and for the
interest accrual periods as and to the extent set forth in the applicable
Prospectus Supplement.
Upon the request of the holder of any Floating Rate Certificate of a
given Series or Class, the Calculation Agent for such Series or Class will
provide the Pass-Through Rate then in effect and, if determined, the Pass-
Through Rate that will become effective on the next Interest Reset Date
with respect to such Floating Rate Certificate.
(1) CD Rate Certificates. Each CD Rate Certificate will bear interest
for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any,
specified in such Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "CD Rate" for each Interest Reset Period shall be the rate as of the
second Business Day prior to the Interest Reset Date for such Interest
Reset Period (a "CD Rate Determination Date") for negotiable certificates
of deposit having the Index Maturity designated in the applicable
Prospectus Supplement as published in H.15(519) under the heading "CDs
(Secondary Market)." In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such CD Rate Determination Date, then the "CD Rate" for such
Interest Reset Period will be the rate on such CD Rate Determination Date
for negotiable certificates of deposit of the Index Maturity designated in
the applicable Prospectus Supplement as published in Composite Quotations
under the heading "Certificates of Deposit." If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "CD Rate" for such Interest
Reset Period will be calculated by the Calculation Agent for such CD Rate
Certificate and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination
Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Certificate for negotiable certificates of deposit
of major United States money center banks of the highest credit standing
(in the market for negotiable certificates of deposit) with a remaining
maturity closest to the Index Maturity designated in the related Prospectus
Supplement in a denomination of $5,000,000; provided, however, that if the
dealers selected as aforesaid by such Calculation Agent are not quoting
offered rates as mentioned in this sentence, the "CD Rate" for such
Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Pass-Through Rate).
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD
Rate Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (b) the second Business Day preceding the date
any distribution of interest is required to be made following the
applicable Interest Reset Date.
20
(2) Commercial Paper Rate Certificates. Each Commercial Paper Rate
Certificate will bear interest for each Interest Reset Period at the
Pass-Through Rate calculated with reference to the Commercial Paper Rate
and the Spread or Spread Multiplier, if any, specified in such Certificate
and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate
Certificate as of the second Business Day prior to the Interest Reset Date
for such Interest Reset Period (a "Commercial Paper Rate Determination
Date") and shall be the Money Market Yield (as defined below) on such
Commercial Paper Rate Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
"Commercial Paper." In the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate
for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published
in either H.15(519) or Composite Quotations, then the "Commercial Paper
Rate" for such Interest Reset Period shall be the Money Market Yield of the
arithmetic mean of the offered rates, as of 11:00 a.m., New York time, on
such Commercial Paper Rate Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent
for such Commercial Paper Rate Certificate for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are
rated "AA" or the equivalent by a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting offered rates as mentioned in this
sentence, the "Commercial Paper Rate" for such Interest Reset Period will
be the same as the Commercial Paper Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate).
"Money Market Yield" shall be a yield calculated in accordance with
the following formula:
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar
day after such Commercial Paper Rate Determination Date or, if such day is
not a Business Day, the next succeeding Business Day or (b)
21
the second Business Day preceding the date any distribution of interest is
required to be made following the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate
Certificate will bear interest for each Interest Reset Period at the Pass-
Through Rate calculated with reference to the Federal Funds Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
the "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Federal Funds Rate
Determination Date, the "Federal Funds Rate" for such Interest Reset Period
shall be the rate on such Federal Funds Rate Determination Date as
published in Composite Quotation under the heading "Federal Funds/Effective
Rate." If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not yet published in either H.15(519) or Composite Quotations, then
the "Federal Funds Rate" for such Interest Reset Period shall be the rate
on such Federal Funds Rate Determination Date made publicly available by
the Federal Reserve Bank of New York which is equivalent to the rate which
appears in H.15(519) under the heading "Federal Funds (Effective)";
provided, however, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York City time, on such
Calculation Date, the "Federal Funds Rate" for such Interest Reset Period
will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Pass-Through Rate). Unless otherwise specified in the
applicable Prospectus Supplement, in the case of a Federal Funds Rate
Certificate that resets daily, the Pass-Through Rate on such Certificate
for the period from and including a Monday to but excluding the succeeding
Monday will be reset by the Calculation Agent for such Certificate on such
second Monday (or, if not a Business Day, on the next succeeding Business
Day) to a rate equal to the average of the Federal Funds Rate in effect
with respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding Business Day.
(4) LIBOR Certificates. Each LIBOR Certificate will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any, specified
in such Certificate and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rate for U.S. dollar
deposits, unless otherwise specified in the applicable Prospectus
Supplement, "LIBOR" for each Interest Reset Period will be determined by
the Calculation Agent for any LIBOR Certificate as follows:
22
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Certificate will determine the
arithmetic mean of the offered rates for deposits in U.S. dollars for
the period of the Index Maturity specified in the applicable Prospectus
Supplement, commencing on such Interest Reset Date, which appear on the
Reuters Screen LIBO Page at approximately 11:00 a.m., London time, on
such LIBOR Determination Date. "Reuters Screen LIBO Page" means the
display designated as page "LIBOR" on the Reuters Monitor Money Rates
Service (or such other page may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks). If at least two such offered rates appear on the Reuters Screen
LIBO Page, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of such offered rates as determined by the Calculation
Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Certificate will request the principal London offices of
each of four major banks in the London interbank market selected by
such Calculation Agent to provide such Calculation Agent with its
offered quotations for deposits in U.S. dollars for the period of the
specified Index Maturity, commencing on such Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date and in a principal amount
equal to an amount of not less than $1,000,000 that is representative
of a single transaction in such market at such time. If at least two
such quotations are provided, "LIBOR" for such Interest Reset Period
will be the arithmetic mean of such quotations. If fewer than two such
quotations are provided, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Certificate
at approximately 11:00 a.m., New York City time, on such LIBOR
Determination Date for loans in U.S. dollars to leading European banks,
for the period of the specified Index Maturity, commencing on such
Interest Reset Date, and in a principal amount equal to an amount of
not less than $1,000,000 that is representative of a single transaction
in such market at such time; provided, however, that if fewer than
three banks selected as aforesaid by such Calculation Agent are quoting
rates as mentioned in this sentence, "LIBOR" for such Interest Reset
Period will be the same as LIBOR for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate).
If LIBOR with respect to any LIBOR Certificate is indexed to the
offered rates for deposits in a currency other than U.S. dollars, the
applicable Prospectus Supplement will set forth the method for determining
such rate.
(5) Treasury Rate Certificates. Each Treasury Rate Certificate will
bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in such Certificate and in the applicable
Prospectus Supplement.
23
Unless otherwise specified in the applicable Prospectus Supplement,
the "Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under
the heading "U.S. Government Certificates-Treasury bills-auction average
(investment)" or, in the event that such rate is not published prior to
3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Treasury Rate Determination Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) on such Treasury Rate
Determination Date as otherwise announced by the United States Department
of the Treasury. In the event that the results of the auction of Treasury
bills having the specified Index Maturity are not published or reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date,
or if no such auction is held on such Treasury Rate Determination Date,
then the "Treasury Rate" for such Interest Reset Period shall be calculated
by the Calculation Agent for such Treasury Rate Certificate and shall be a
yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of
three leading primary United States government securities dealers selected
by such Calculation Agent for the issue of Treasury bills with a remaining
maturity closest to the specified Index Maturity; provided, however, that
if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate"
for such Interest Reset Period will be the same as the Treasury Rate for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Pass-Through Rate).
The "Treasury Rate Determination Date" for such Interest Reset Period
will be the day of the week in which the Interest Reset Date for such
Interest Reset Period falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be
held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the
Treasury Rate Determination Date pertaining to the Interest Reset Period
commencing in the next succeeding week. Unless otherwise specified in the
applicable Prospectus Supplement, if an auction date shall fall on any day
that would otherwise be an Interest Reset Date for a Treasury Rate
Certificate, then such Interest Reset Date shall instead be the Business
Day immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a Business Day,
the next succeeding Business Day or (b) the second Business Day preceding
the date any distribution of interest is required to be made following the
applicable Interest Reset Date.
24
Principal of the Certificates
Unless the related Prospectus Supplement provides otherwise, each
Certificate (other than certain Classes of Strip Certificates) will have a
"Certificate Principal Balance" which, at any time, will equal the maximum
amount that the holder thereof will be entitled to receive in respect of
principal out of the future cash flow on the Deposited Assets and other
assets included in the related Trust. Unless otherwise specified in the
related Prospectus Supplement, distributions generally will be applied to
undistributed accrued interest on, then to principal of, and then to
premium (if any) on, each such Certificate of the Class or Classes entitled
thereto (in the manner and priority specified in such Prospectus
Supplement) until the aggregate Certificate Principal Balance of such Class
or Classes has been reduced to zero. The outstanding Certificate Principal
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon, and, if applicable pursuant to the terms of the related
Series, by the amount of any net losses realized on any Deposited Asset
("Realized Losses") allocated thereto. Unless the related Prospectus
Supplement provides otherwise, the initial aggregate Certificate Principal
Balance of all Classes of Certificates of a Series will equal the
outstanding aggregate principal balance of the related Deposited Assets as
of the applicable Cut-off Date. The initial aggregate Certificate Principal
Balance of a Series and each Class thereof will be specified in the related
Prospectus Supplement. Distributions of principal of any Class of
Certificates will be made on a pro rata basis among all the Certificates of
such Class. Strip Certificates with no Certificate Principal Balance will
not receive distributions of principal.
Foreign Currency Certificates
If the specified currency of any Certificate is not U.S. dollars (a
"Foreign Currency Certificate"), certain provisions with respect thereto
will be set forth in the related Prospectus Supplement which will specify
the denominations, the currency or currencies in which the principal and
interest with respect to such Certificate are to be paid and any other
terms and conditions relating to the non-U.S. dollar denominations or
otherwise applicable to the Certificates.
Indexed Certificates
From time to time, the Issuer may offer a Series of Certificates
("Indexed Certificates"), the principal amount payable at the stated
maturity date of which (the "Indexed Principal Amount") and/or interest
with respect to which is determined by reference to (i) the rate of
exchange between the specified currency for such Certificate and the other
currency or composite currency (the "Indexed Currency") specified therein;
(ii) the difference in the price of a specified commodity (the "Indexed
Commodity") on specified dates; (iii) the difference in the level of a
specified stock index (the "Stock Index"), which may be based on U.S. or
foreign stocks, on specified dates; or (iv) such other objective price or
economic measure as are described in the related Prospectus Supplement. The
manner of determining the Indexed Principal Amount of an Indexed
Certificate, and historical and other information concerning the Indexed
Currency, Indexed Commodity, Stock Index or other price or economic measure
used in such determination, will be set
25
forth in the related Prospectus Supplement, together with any information
concerning tax consequences to the Holders of such Indexed Certificates.
Except as otherwise specified in the related Prospectus Supplement,
interest on an Indexed Certificate will be payable based on the amount
designated in the related Prospectus Supplement as the "Face Amount" of
such Indexed Certificate. The related Prospectus Supplement will describe
whether the principal amount of the related Indexed Certificate that would
be payable upon redemption or repayment prior to the stated maturity date
will be the Face Amount of such Indexed Certificate, the Indexed Principal
Amount of such Indexed Certificate at the time of redemption or repayment,
or another amount described in such Prospectus Supplement.
Dual Currency Certificates
Certificates may be issued as dual currency certificates ("Dual
Currency Certificates"), in which case payments of principal and/or
interest in respect of Dual Currency Certificates will be made in such
currencies, and rates of exchange will be calculated upon such bases, as
indicated in the Certificates and described in the related Prospectus
Supplement. Other material terms and conditions relating to Dual Currency
Certificates will be set forth in the Certificates and the related
Prospectus Supplement.
Optional Exchange
If a holder may exchange Certificates of any given Series for a pro
rata portion of the Deposited Assets, the applicable Prospectus Supplement
will designate such Series as an "Exchangeable Series." The terms upon
which a holder may exchange Certificates of any Exchangeable Series for a
pro rata portion of the Deposited Assets of the related Trust will be
specified in the related Prospectus Supplement; provided that any right of
exchange shall be exercisable only to the extent that such exchange would
not be inconsistent with the Company's and such Trust's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7
under the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder. Such terms may relate to, but
are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for
exchange;
(c) a requirement that the Certificate Principal Balance or
Notional Amount, as applicable, of each Certificate tendered for
exchange be an integral multiple of an amount specified in the
Prospectus Supplement;
26
(d) specified dates during which a holder may effect such an
exchange (each, an "Optional Exchange Date");
(e) limitation on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-Underlying
Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in
order for a Certificate of a given Exchangeable Series (or Class within
such Exchangeable Series) to be exchanged by the applicable
Certificateholder, the trustee for such Certificate must receive, at least
30 (or such shorter period acceptable to the Trustee) but not more than 45
days prior to an Optional Exchange Date (i) such Certificate with the form
entitled "Option to Elect Exchange" on the reverse thereof duly completed,
or (ii) in the case of Registered Certificates, a telegram, telex,
facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc., the
Depositary (in accordance with its normal procedures) or a commercial bank
or trust company in the United States setting forth the name of the holder
of such Registered Certificate, the Certificate Principal Balance or
Notional Amount of such Registered Certificate to be exchanged, the
certificate number or a description of the tenor and terms of such
Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to
be exchanged with the form entitled "Option to Elect Exchange" on the
reverse of the Registered Certificate duly completed will be received by
such Trustee not later than five Business Days after the date of such
telegram, telex, facsimile transmission or letter. If the procedure
described in clause (ii) of the preceding sentence is followed, then such
Registered Certificate and form duly completed must be received by such
Trustee by such fifth Business Day. Any tender of a Certificate by the
holder for exchange shall be irrevocable. The exchange option may be
exercised by the holder of a Certificate for less than the entire
Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized
denomination and all other exchange requirements set forth in the related
Prospectus Supplement are satisfied. Upon such partial exchange, such
Certificate shall be cancelled and a new Certificate or Certificates for
the remaining Certificate Principal Balance thereof shall be issued (which,
in the case of any Registered Certificate, shall be in the name of the
holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement,
because initially and until Definitive Certificates are issued each
Certificate will be represented by a Global Security, the Depositary's
nominee will be the Certificateholder of such Certificate and therefore
will be the only entity that can exercise a right of exchange. In order to
ensure that the Depositary's nominee will timely exercise a right of
exchange with respect to a particular Certificate, the beneficial owner of
such Certificate must instruct the broker or other direct or indirect
participant through which it
27
holds an interest in such Certificate to notify the Depositary of its
desire to exercise a right of exchange. Different firms have different cut-
off times for accepting instructions from their customers and, accordingly,
each beneficial owner should consult the broker or other direct or indirect
participant through which it holds an interest in a Certificate in order to
ascertain the cut-off time by which such an instruction must be given in
order for timely notice to be delivered to the Depositary.
Unless otherwise provided in the applicable Prospectus Supplement,
upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related Deposited Assets, as described in
such Prospectus Supplement, the applicable Certificateholder will be
entitled to receive a distribution of a pro rata share of the Deposited
Assets related to the Exchangeable Series (and Class within such
Exchangeable Series) of the Certificate being exchanged, in the manner and
to the extent described in such Prospectus Supplement. Alternatively, to
the extent so specified in the applicable Prospectus Supplement, the
applicable Certificateholder, upon satisfaction of such conditions, may
direct the related Trustee to sell, on behalf of such Certificateholder,
such pro rata share of the Deposited Assets, in which event the
Certificateholder shall be entitled to receive the net proceeds of such
sale, less any costs and expenses incurred by such Trustee in facilitating
such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
28
Global Securities
Unless otherwise specified in the applicable Prospectus Supplement,
all Certificates of a given Series (or, if more than one Class exists, any
given Class within that Series) will, upon issuance, be represented by one
or more Global Securities that will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (for Registered Certificates
denominated and payable in U.S. dollars), or such other depositary
identified in the related Prospectus Supplement (the "Depositary"), and
registered in the name of a nominee of the Depositary. Global Securities
may be issued in either registered or bearer form and in either temporary
or definitive form. See "Limitations on Issuance of Bearer Certificates"
for provisions applicable to Certificates issued in bearer form. Unless and
until it is exchanged in whole or in part for the individual Certificates
represented thereby (each a "Definitive Certificate"), a Global Security
may not be transferred except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary
to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor (Sections 5.02 and 5.04).
The Depository Trust Company has advised the Company as follows: The
Depositary Trust Company is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depository Trust Company
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among the institutions
that have accounts with such Depositary ("participants") in such securities
through electronic book-entry changes in accounts of the participants,
thereby eliminating the need for physical movement of securities
certificates. Such Depositary's participants include securities brokers and
dealers (including the Offering Agent), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own such Depositary. Access to such Depositary's
book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The
Depository Trust Company has confirmed to the Company that it intends to
follow such procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Certificates represented
by such Global Security to the accounts of its participants. The accounts
to be accredited shall be designated by the underwriters of such
Certificates, or, if such Certificates are offered and sold directly
through one or more agents, by the Company or such agent or agents.
Ownership of beneficial interests in a Global Security will be limited to
participants or Persons that may hold beneficial interests through
participants. Ownership of beneficial interests in a Global Security will
be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary for such Global Security or
by participants or Persons that hold through participants. The laws of some
states require that certain purchasers of securities take
29
physical delivery of such securities. Such limits and such laws may limit
the market for beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is
the owner of such Global Security, such Depositary or such nominee, as the
case may be, will be considered the sole Certificateholder of the
individual Certificates represented by such Global Security for all
purposes under the Trust Agreement governing such Certificates. Except as
set forth below, owners of beneficial interests in a Global Security will
not be entitled to have any of the individual Certificates represented by
such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of any such Certificates and will not
be considered the Certificateholder thereof under the Trust Agreement
governing such Certificates. Because the Depositary can only act on behalf
of its participants, the ability of a holder of any Certificate to pledge
that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate,
may be limited due to the lack of a physical certificate for such
Certificate.
Subject to the restrictions discussed under "Limitations on Issuance
of Bearer Certificates" below, distributions of principal of (and premium,
if any) and any interest on individual Certificates represented by a Global
Security will be made to the Depositary or its nominee, as the case may be,
as the Certificateholder of such Global Security. None of the Company, the
Administrative Agent, if any, the Trustee for such Certificates, any Paying
Agent or the Certificate Registrar for such Certificates will have
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in such Global Security or
for maintaining, supervising or reviewing any records relating to such
beneficial interests.
The Company expects that the Depositary for Certificates of a given
Class and Series, upon receipt of any distribution of principal, premium or
interest in respect of a definitive Global Security representing any of
such Certificates, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of
such Depositary. The Company also expects that payments by participants to
owners of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments of principal, premium
or interest in respect thereof will be subject to the restrictions
discussed below under "Limitations on Issuance of Bearer Certificates"
below.
If the Depositary for Certificates of a given Class of any Series is
at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within ninety days, the Company
will issue individual Definitive Certificates in exchange for the Global
Security or Securities representing such Certificates. In addition, the
Company may at any time and in its sole discretion determine not to have
any Certificates of a given Class represented by one or more Global
Securities and, in such event, will issue individual Definitive
Certificates of
30
such Class in exchange for the Global Security or Securities representing
such Certificates. Further, if the Company so specifies with respect to the
Certificates of a given Class, an owner of a beneficial interest in a
Global Security representing Certificates of such Class may, on terms
acceptable to the Company and the Depositary of such Global Security,
receive individual Definitive Certificates in exchange for such beneficial
interest. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery of individual
Definitive Certificates of the Class represented by such Global Security
equal in principal amount to such beneficial interest and to have such
Definitive Certificates registered in its name (if the Certificates of such
Class are issuable as Registered Certificates). Individual Definitive
Certificates of such Class so issued will be issued (a) as Registered
Certificates in denominations, unless otherwise specified by the Company,
of $1,000 and integral multiples thereof if the Certificates of such Class
are issuable as Registered Certificates, (b) as Bearer Certificates in the
denomination or denominations specified by the Company if the Certificates
of such Class are issuable as Bearer Certificates or (c) as either
Registered or Bearer Certificates, if the Certificates of such Class are
issuable in either form (Section 5.03). See, however, "Limitations on
Issuance of Bearer Certificates" below for a description of certain
restrictions on the issuance of individual Bearer Certificates in exchange
for beneficial interests in a Global Security.
The applicable Prospectus Supplement will set forth any specific terms
of the depositary arrangement with respect to any Class or Series of
Certificates being offered thereby to the extent not set forth or different
from the description set forth above.
31
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
General
Each Certificate of each Series (or if more than one Class exists,
each Class (whether or not each such Class is offered hereby) within such
Series) will represent an ownership interest specified for such Series (or
Class) of Certificates in a designated, publicly issued, fixed income debt
security or a pool of such debt securities (the "Underlying Securities"),
purchased by the Company (or an affiliate thereof) in the secondary market
and assigned to a Trust as described in the applicable Prospectus
Supplement. Each Underlying Security will represent an obligation issued or
guaranteed by a foreign government, political subdivision or agency or
instrumentality thereof. Any pool of such publicly offered foreign
government debt securities may include both registered and unregistered
offerings. Each Underlying Security, or Underlying Securities in the case
of debt securities with a common obligor, that represents ten percent or
more of the total Underlying Securities with respect to any Series of
Certificates as of the date of the related Prospectus Supplement
("Concentrated Underlying Securities") will represent an obligation issued
or guaranteed by a foreign government, one of its political subdivisions or
an agency or instrumentality of the foregoing which has offered debt
securities in the United States pursuant to a registration statement filed
with the Commission containing information required by Schedule B of the
Securities Act ("Schedule B"), which qualifies as a "seasoned" issuer under
Commission practice and which issuer or guarantor the Company reasonably
believes (based on publicly available information) is eligible to use
Schedule B as of the time of any offering of Certificates hereunder. The
Underlying Securities may include obligations of any or all of the
following Foreign Governments (which may include obligations guaranteed by
the following): Austria, Australia, Canada, Canadian Provinces, Denmark,
Finland, France, Germany, Ireland, Japan, Norway, Italy, Spain, Sweden and
the United Kingdom. The Prospectus Supplement for any series will set forth
the Foreign Government obligations included in the related Trust.
This Prospectus relates only to the Certificates offered hereby and
does not relate to the Underlying Securities. The following description of
the Underlying Securities is intended only to summarize certain
characteristics of the Underlying Securities the Company is permitted to
deposit in a Trust and does not purport to be a complete description of any
Underlying Security and is qualified in its entirety by reference to the
applicable Prospectus Supplement, Underlying Security Prospectus (as
defined below) and Underlying Securities themselves.
Underlying Securities
General. Unless otherwise specified in the related Prospectus
Supplement none of the Underlying Security will have been issued pursuant
to an indenture and no trustee is provided for with respect to any
Underlying Security. Generally, there will be a fiscal agent (each, a
"Fiscal Agent") for the Foreign Government Issuer with respect to the
Underlying Securities whose actions will be governed by a fiscal agency
agreement. A Fiscal Agent does not have the same responsibilities or duties
to act on behalf of the holders of a Foreign Government's debt securities
as would a trustee. Unless otherwise specified in the Prospectus
Supplement, the due and punctual payment of each
32
Underlying Security and the due and timely performance of all obligations
with respect thereto will be backed by the full faith and credit of the
related Foreign Government Issuer or unconditionally guaranteed by the
related Foreign Government Guarantor, as the case may be.
Contractual Restrictions. There will generally be few, if any,
contractual restrictions on the Foreign Government Issuers or Foreign
Government Guarantors in respect of the Underlying Securities. The
Underlying Securities by their terms and provisions may, however, restrict
certain actions of the related Foreign Governments and may also require,
among other things, the creation or maintenance of reserves or a sinking
fund or contain an undertaking or pledge of the Foreign Government not to
encumber its assets to secure any other external indebtedness without
providing like security for the related Underlying Security. Certain
actions in respect of the debt securities of Foreign Governments may also
be subject to proper executive, legislative or administrative approval.
The Prospectus Supplement used to offer any Series of Certificates
will describe material covenants or undertakings in relation to any
Concentrated Underlying Security and, as applicable, will describe material
covenants or undertakings which are common to any pool of Underlying
Securities. There can be no assurance that any such provision will protect
the Trust as a holder of the Underlying Securities against losses. In the
event of a breach of any such covenant or undertaking, it may not be
possible to force any action in respect of the Underlying Securities or to
obtain an enforceable judgment against a Foreign Government.
Events of Default. Debt securities issued by foreign governments
generally provide that any one of a number of specified events will
constitute an event of default with respect to such securities. Such events
of default typically include the following or variations thereof: (i)
failure by the issuer to pay an installment of interest or principal on the
securities at the time required (subject to any specified grace period) or
to redeem any of the securities when required (subject to any specified
grace period); (ii) failure by the issuer to observe or perform any
covenant, agreement or condition contained in the securities, which failure
is materially adverse to security holders and continues for a specified
period after notice thereof; (iii) the declaration of a moratorium on
payment of interest or principal in respect of external indebtedness; and
(iv) failure by the issuer to make any required payment of principal (and
premium, if any) or interest with respect to certain of the other
outstanding debt obligations of the issuer (including other external
indebtedness) or the acceleration by or on behalf of the holders thereof of
such securities.
Each Underlying Security may include some, all or none of the
foregoing provisions or variations thereof or additional events of default
not discussed herein. The Prospectus Supplement with respect to any Series
of Certificates will describe the events of default under the Underlying
Securities with respect to any Concentrated Underlying Security
("Underlying Security Events of Default") and applicable remedies with
respect thereto. With respect to any Trust comprised of a pool of
securities, the applicable Prospectus Supplement will describe certain
common Underlying Security Events of Default with respect to such pool.
There can be no assurance that any such provision will protect the Trust,
as a holder of the Underlying Securities, against losses. If a Underlying
Security Event of Default occurs and the Trustee as a holder of the
Underlying Securities
33
is entitled to vote or take such other action to declare the principal
amount of a Underlying Security and any accrued and unpaid interest thereon
to be due and payable, the Certificateholders' objectives may differ from
those of holders of other Outstanding Debt Securities in determining
whether to declare the acceleration of a Underlying Security.
Remedies. Generally, upon the occurrence of an event of default, the
holders of not less than a specified percentage of the outstanding
securities of a Foreign Government may enforce their rights under the
securities, including in some cases, the right to declare all or a portion
of the principal and accrued interest on the outstanding securities
immediately due and payable, subject to the issuer's right to cure, if
applicable. A fiscal agency agreement will not typically provide for the
agent to enforce the rights of the security holders as would an indenture
trustee. Consequently, any rights in respect of the Underlying Securities
must be pursued through the Trustee as a holder thereof in the manner
prescribed with respect to the Underlying Securities. There can be no
assurance that the Trustee will be able to enforce any contractual
obligation against a Foreign Government. Additionally, where action may be
taken in respect of the Underlying Securities only by a specified
percentage of the holders of the Outstanding Debt Securities, the Trustee's
ability to influence such action will be limited by the proportion of such
securities held by the Trust.
Principal Economic Terms of Underlying Securities
Reference is made to the applicable Prospectus Supplement with respect
to each Series of Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and
series of such Underlying Securities, the aggregate principal amount,
denomination and form thereof; (ii) whether such securities are senior or
subordinated to any other obligations of the issuer; (iii) whether any of
the obligations are secured or unsecured and the nature of any collateral;
(iv) the limit, if any, upon the aggregate principal amount of such debt
securities; (v) the dates on which, or the range of dates within which, the
principal of (and premium, if any, on) such debt securities will be
payable; (vi) the rate or rates or the method of determination thereof, at
which such Underlying Securities will bear interest, if any ("Underlying
Securities Rate"); the date or dates from which such interest will accrue
("Underlying Securities Interest Accrual Periods"); and the dates on which
such interest will be payable ("Underlying Securities Payment Dates");
(vii) the obligation, if any, of the issuer to redeem the securities
pursuant to any sinking fund or analogous provisions, or at the option of a
holder thereof, and the periods within which or the dates on which, the
prices at which and the terms and conditions upon which such debt
securities may be redeemed or repurchased, in whole or in part, pursuant to
such obligation; (viii) the periods within which or the dates on which, the
prices at which and the terms and conditions upon which such debt
securities may be redeemed, if any, in whole or in part, at the option of
the issuer; (ix) whether the Underlying Securities were issued at a price
lower than the principal amount thereof; (x) if other than United States
dollars, the foreign or composite currency in which such debt securities
are denominated, or in which payment of the principal of (and premium, if
any) or any interest on such Underlying Securities will be made (the
"Underlying Securities Currency"), and the circumstances, if any, when such
currency of payment may be changed; (xi) material events of default or
restrictive covenants
34
provided for with respect to such Underlying Securities; (xii) the rating
thereof, if any; and (xiii) any other material terms of such Underlying
Securities.
With respect to a Trust comprised of a pool of Underlying Securities,
the related Prospectus Supplement will describe the composition of the
Underlying Securities pool as of the Cut-off Date, certain material events
of default or restrictive covenants common to the Underlying Securities,
and, on an aggregate, percentage or weighted average basis, as applicable,
the characteristics of the pool with respect to the terms set forth in
(ii), (iii), (v), (vi), (vii), (viii) and (ix) of the preceding paragraph
and any other material terms regarding such pool of securities.
Publicly Available Information
In addition to the foregoing, with respect to each Concentrated
Underlying Security the applicable Prospectus Supplement will disclose the
identity of the applicable obligor and will describe the existence and type
of certain information that is made publicly available by each obligor
regarding such Underlying Security or Underlying Securities and will
disclose where and how prospective purchasers of the Certificates may
obtain such publicly available information with respect to each such
obligor.
Certain Foreign Government Issuers have obtained no-action letters
from the Commission which condition a Foreign Government Issuer's
eligibility to continue to use shelf procedures for delayed offerings and
incorporation of certain documents by reference on such such Foreign
Government Issuer periodically filing with the Commission on Form 18-K
under the Exchange Act. However, a Foreign Government Issuer is not
required to use these delayed offering procedures to offer securities in
the United States and is not subject to the reporting requirements of the
Exchange Act by reason of having filed a registration statement under
Schedule B. Foreign Government Issuers are subject to the reporting
requirements of the Exchange Act only if, and for so long as, their
securities are listed on a U.S. exchange. With respect to any Foreign
Government Issuer whose obligations represent ten percent or more of the
total Underlying Securities of a Trust, the applicable Prospectus
Supplement will set forth whether the prospectus offering the related
Underlying Securities states that such obligor is subject to the
informational requirements of the Exchange Act or if such obligor files
periodic reports with the Commission on a voluntary basis. The precise
source and nature of publicly available information and where and how it
may be obtained with respect to any such Foreign Government Issuer will
vary, and, as described above will be set forth in the applicable
Prospectus Supplement with respect to any such obligor. If any Foreign
Government Issuer of Concentrated Underlying Securities ceases to file
periodic reports with the Commission, the Company, on behalf of the related
Trust, will continue to be subject to the reporting requirements of the
Exchange Act, but certain information with respect to such Foreign
Government Issuer may be unavailable.
35
Other Deposited Assets
In addition to the Underlying Securities, the Company may also deposit
into a given Trust, or the Trustee on behalf of the Certificateholders of a
Trust may enter into an agreement constituting or providing for the
purchase of, to the extent described in the related Prospectus Supplement,
certain assets related or incidental to one or more of such Underlying
Securities or to some other asset deposited in the Trust, including hedging
contracts and other similar arrangements (such as puts, calls, interest
rate swaps, currency swaps, floors, caps and collars, cash and assets
ancillary or incidental to the foregoing or to the Underlying Securities
(including assets obtained through foreclosure or in settlement of claims
with respect thereto) and direct obligations of the United States (all such
assets for any given Series, together with the related Underlying
Securities, the "Deposited Assets"). The applicable Prospectus Supplement
will, to the extent appropriate, contain analogous disclosure with respect
to the foregoing assets as referred to above with respect to the Underlying
Securities.
Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Certificates and the related Trust
will not constitute Deposited Assets for any other Series of Certificates
and the related Trust and the Certificates of each Class of a given Series
possess an equal and ratable undivided ownership interest in such Deposited
Assets. The applicable Prospectus Supplement may, however, specify that
certain assets constituting a part of the Deposited Assets relating to any
given Series may be beneficially owned solely by or deposited solely for
the benefit of one Class or a group of Classes within such Series. In such
event, the other Classes of such Series will not possess any beneficial
ownership interest in those specified assets constituting a part of the
Deposited Assets.
Credit Support
As specified in the applicable Prospectus Supplement for a given
Series of Certificates, the Trust for any Series of Certificates may
include, or the Certificateholders of such Series (or any Class or group of
Classes within such Series) may have the benefit of, Credit Support for any
Class or group of Classes within such Series. Such Credit Support may be
provided by any combination of the following means described below or any
other means described in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will set forth whether the Trust for any
Class or group of Classes of Certificates contains, or the
Certificateholders of such Certificates have the benefit of, Credit Support
and, if so, the amount, type and other relevant terms of each element of
Credit Support with respect to any such Class or Classes and certain
information with respect to the obligors of each such element, including
financial information with respect to any such obligor providing Credit
Support for 20% or more of the aggregate principal amount of such Class or
Classes.
Subordination. As discussed below under "--Collections," the rights of
the Certificateholders of any given Class within a Series of Certificates
to receive collections from the Trust for such Series and any Credit
Support obtained for the benefit of the Certificateholders of such
36
Series (or Classes within such Series) may be subordinated to the rights of
the Certificateholders of one or more other Classes of such Series to the
extent described in the related Prospectus Supplement. Such subordination
accordingly provides some additional credit support to those
Certificateholders of those other Classes. For example, if losses are
realized during a given period on the Deposited Assets relating to a Series
of Certificates such that the collections received thereon are insufficient
to make all distributions on the Certificates of such Series, those
realized losses would be allocated to the Certificateholders of any Class
of any such Series that is subordinated to another Class, to the extent and
in the manner provided in the related Prospectus Supplement. In addition,
if so provided in the applicable Prospectus Supplement, certain amounts
otherwise payable to Certificateholders of any Class that is subordinated
to another Class may be required to be deposited into a reserve account.
Amounts held in any reserve account may be applied as described below under
"-Reserve Accounts" and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit
Support for any Series or Class of Certificates may include, in addition to
the subordination of certain Classes of such Series and the establishment
of a reserve account, any of the other forms of Credit Support described
below. Any such other forms of Credit Support that are solely for the
benefit of a given Class will be limited to the extent necessary to make
required distributions to the Certificateholders of such Class or as
otherwise specified in the related Prospectus Supplement. In addition, if
so provided in the applicable Prospectus Supplement, the obligor of any
other forms of Credit Support may be reimbursed for amounts paid pursuant
to such Credit Support out of amounts otherwise payable to one or more of
the Classes of the Certificates of such Series.
Letter of Credit; Surety Bond. The Certificateholders of any Series
(or Class or group of Classes of Certificates within such Series) may, if
specified in the applicable Prospectus Supplement, have the benefit of a
letter or letters of credit (a "Letter of Credit") issued by a bank (a
"Letter of Credit Bank") or a surety bond or bonds (a "Surety Bond") issued
by a surety company (a "Surety"). In either case, the Trustee or such other
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to cause the Letter of Credit or the Surety Bond, as the
case may be, to be obtained, to be kept in full force and effect (unless
coverage thereunder has been exhausted through payment of claims) and to
pay timely the fees or premiums therefor unless, as described in the
related Prospectus Supplement, the payment of such fees or premiums is
otherwise provided for. The Trustee or such other person specified in the
applicable Prospectus Supplement will make or cause to be made draws under
the Letter of Credit or the Surety Bond, as the case may be, under the
circumstances and to cover the amounts specified in the applicable
Prospectus Supplement. Any amounts otherwise available under the Letter of
Credit or the Surety Bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable Prospectus Supplement will
provide the manner, priority and source of funds by which any such draws
are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in
the event that the Letter of Credit Bank or the Surety, as applicable,
ceases to satisfy any credit rating or other applicable requirements
specified in the related Prospectus Supplement, the Trustee or such other
37
person specified in the applicable Prospectus Supplement will use its
reasonable efforts to obtain or cause to be obtained a substitute Letter of
Credit or Surety Bond, as applicable, or other form of credit enhancement
providing similar protection, that meets such requirements and provides the
same coverage to the extent available for the same cost. There can be no
assurance that any Letter of Credit Bank or any Surety, as applicable, will
continue to satisfy such requirements or that any such substitute Letter of
Credit, Surety Bond or similar credit enhancement will be available
providing equivalent coverage for the same cost. To the extent not so
available, the credit support otherwise provided by the Letter of Credit or
the Surety Bond (or similar credit enhancement) may be reduced to the level
otherwise available for the same cost as the original Letter of Credit or
Surety Bond.
Reserve Accounts. If so provided in the related Prospectus Supplement,
the Trustee or such other person specified in the Prospectus Supplement
will deposit or cause to be deposited into an account maintained with an
eligible institution (which may be the Trustee) (a "Reserve Account") any
combination of cash or permitted investments in specified amounts, which
will be applied and maintained in the manner and under the conditions
specified in such Prospectus Supplement. In the alternative or in addition
to such deposit, a Reserve Account may be funded through application of a
portion of collections received on the Deposited Assets for a given Series
of Certificates, in the manner and priority specified in the applicable
Prospectus Supplement. Amounts may be distributed to Certificateholders of
such Class or group of Classes within such Series, or may be used for other
purposes, in the manner and to the extent provided in the related
Prospectus Supplement. Amounts deposited in any Reserve Account will be
invested in certain permitted investments by, or at the direction of, the
Trustee, the Company or such other person named in the related Prospectus
Supplement.
Collections
The Trust Agreement will establish procedures by which the Trustee or
such other person specified in the Prospectus Supplement is obligated, for
the benefit of the Certificateholders of each Series of Certificates, to
administer the related Deposited Assets, including making collections of
all payments made thereon, depositing from time to time prior to any
applicable Distribution Date such collections into a segregated account
maintained or controlled by the applicable Trustee for the benefit of such
Series (each a "Certificate Account"). An Administrative Agent, if any is
appointed pursuant to the applicable Prospectus Statement, will direct the
Trustee, and otherwise the Trustee will make all determinations, as to the
appropriate application of such collections and other amounts available for
distribution to the payment of any administrative or collection expenses
(such as the administrative fee) and certain Credit Support-related ongoing
fees (such as insurance premiums, letter of credit fees or any required
account deposits) and to the payment of amounts then due and owing on the
Certificates of such Series (and Classes within such Series), all in the
manner and priorities described in the related Prospectus Supplement. The
applicable Prospectus Supplement will specify the collection periods, if
applicable, and Distribution Dates for a given Series of Certificates and
the particular requirements relating to the segregation and investment of
collections received on the Deposited Assets during a given collection
period or on or by certain specified dates. There can be no assurance that
amounts received from the Deposited Assets and any Credit Support obtained
for
38
the benefit of Certificateholders for a particular Series or Class of
Certificates over a specified period will be sufficient, after payment of
all prior expenses and fees for such period, to pay amounts then due and
owing to holders of such Certificates. The applicable Prospectus Supplement
will also set forth the manner and priority by which any Realized Loss will
be allocated among the Classes of any Series of Certificates, if
applicable.
The relative priorities of distributions with respect to collections
from the assets of the Trust assigned to Classes of a given Series of
Certificates may permanently or temporarily change over time upon the
occurrence of certain circumstances specified in the applicable Prospectus
Supplement. Moreover, the applicable Prospectus Supplement may specify that
the relative distribution priority assigned to each Class of a given Series
for purposes of payments of certain amounts, such as principal, may be
different from the relative distribution priority assigned to each such
Class for payments of other amounts, such as interest or premium.
DESCRIPTION OF THE TRUST AGREEMENT
General
The following summary of certain provisions of the Trust Agreement and
the Certificates do not purport to be complete and such summary is
qualified in its entirety by reference to the detailed provisions of the
form of Trust Agreement filed as an exhibit to the Registration Statement.
Article and section references in parentheses below are to articles and
sections in the Trust Agreement. Wherever particular sections or defined
terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made,
and the statement is qualified in its entirety by such reference.
Assignment of Deposited Assets
At the time of issuance of any Series of Certificates, the Company
will cause the Underlying Securities to be included in the related Trust,
and any other Deposited Asset specified in the Prospectus Supplement, to be
assigned to the related Trustee, together with all principal, premium (if
any) and interest received by or on behalf of the Company on or with
respect to such Deposited Assets after the cut-off date specified in the
Prospectus Supplement (the "Cut-off Date"), other than principal, premium
(if any) and interest due on or before the Cut-off Date and other than any
Retained Interest (Section 2.01). The Trustee will, concurrently with such
assignment, deliver the Certificates to the Company in exchange for certain
assets to be deposited in the Trust (Section 2.06). Each Deposited Asset
will be identified in a schedule appearing as an exhibit to the Trust
Agreement. Such schedule will include certain statistical information with
respect to each Underlying Security and each other Deposited Asset as of
the Cut-off Date, and in the event any Underlying Security represents ten
percent or more of the total Underlying Securities with respect to any
Series of Certificates, such schedule will include, to the extent
applicable, information regarding the payment
39
terms thereof, the Retained Interest, if any, with respect thereto, the
maturity or terms thereof, the rating, if any, thereof and certain other
information with respect thereto.
In addition, the Company will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) all documents necessary to transfer ownership of
such Deposited Asset to the Trustee. The Trustee (or such custodian) will
review such documents upon receipt thereof or within such period as is
permitted in the Prospectus Supplement, and the Trustee (or such custodian)
will hold such documents in trust for the benefit of the Certificateholders
(Sections 2.01 and 2.02).
Each of the Company and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Trust
Agreement. Upon a breach of any such representation of the Company or any
such Administrative Agent, as the case may be, which materially and
adversely affects the interests of the Certificateholders, the Company or
any such Administrative Agent, respectively, will be obligated to cure the
breach in all material respects (Section 2.05).
Collection and Other Administrative Procedures
General. With respect to any Series of Certificates the Trustee or
such other person specified in the Prospectus Supplement directly or
through sub-administrative agents, will make reasonable efforts to collect
all scheduled payments under the Deposited Assets and will follow or cause
to be followed such collection procedures, if any, as it would follow with
respect to comparable financial assets that it held for its own account,
provided that such procedures are consistent with the Trust Agreement and
any related instrument governing any Credit Support (collectively, the
"Credit Support Instruments") and provided that, except as otherwise
expressly set forth in the applicable Prospectus Supplement, it shall not
be required to expend or risk its own funds or otherwise incur personal
financial liability.
Sub-Administration. Any Trustee or Administrative Agent may delegate
its obligations in respect of the Deposited Assets to third parties they
deem qualified to perform such obligations (each, a "Sub-Administrative
Agent"), but the Trustee or Administrative Agent will remain obligated with
respect to such obligations under the Trust Agreement. Each Sub-
Administrative Agent will be required to perform the customary functions of
an administrator of comparable financial assets, including, if applicable,
collecting payments from obligors and remitting such collections to the
Trustee; maintaining accounting records relating to the Deposited Assets,
attempting to cure defaults and delinquencies; and enforcing any other
remedies with respect thereto all as and to the extent provided in the
applicable Sub-Administration Agreement (as defined below).
The agreement between any Administrative Agent or Trustee and a
Sub-Administrative Agent (a "Sub-Administration Agreement") will be
consistent with the terms of the Trust Agreement and such assignment to the
Sub-Administrator by itself will not result in a withdrawal or downgrading
of the rating of any Class of Certificates issued pursuant to the Trust
40
Agreement. With respect to any Sub-Administrative Agreement between an
Administrative Agent and a Sub-Administrative Agent, although each such
Sub-Administration Agreement will be a contract solely between such
Administrative Agent and the Sub-Administrative Agent, the Trust Agreement
pursuant to which a Series of Certificates is issued will provide that, if
for any reason such Administrative Agent for such Series of Certificates is
no longer acting in such capacity, the Trustee or any successor
Administrative Agent must recognize the Sub-Administrative Agent's rights
and obligations under such Sub-Administration Agreement.
The Administrative Agent or Trustee, as applicable, will be solely
liable for all fees owed by it to any Sub-Administrative Agent,
irrespective of whether the compensation of the Administrative Agent or
Trustee, as applicable, pursuant to the Trust Agreement with respect to the
particular Series of Certificates is sufficient to pay such fees. However,
a Sub-Administrative Agent may be entitled to a Retained Interest in
certain Deposited Assets to the extent provided in the related Prospectus
Supplement. Each Sub-Administrative Agent will be reimbursed by the
Administrative Agent, if any, or otherwise the Trustee for certain
expenditures which it makes, generally to the same extent the
Administrative Agent or Trustee, as applicable, would be reimbursed under
the terms of the Trust Agreement relating to such Series. See "--Retained
Interest; Administrative Agent Compensation and Payment of Expenses."
The Administrative Agent or Trustee, as applicable, may require any
Sub-Administrative Agent to agree to indemnify the Administrative Agent or
Trustee, as applicable, for any liability or obligation sustained by the
Administrative Agent or Trustee, as applicable, in connection with any act
or failure to act by the Sub-Administrative Agent.
Realization upon Defaulted Deposited Assets. Unless otherwise
specified in the applicable Prospectus Supplement, as administrator with
respect to the Deposited Assets, the Trustee, on behalf of the
Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support
Instrument, and will take such reasonable steps as are necessary to receive
payment or to permit recovery thereunder with respect to defaulted
Deposited Assets. As set forth above, all collections by or on behalf of
the Trustee or Administrative Agent under any Credit Support Instrument are
to be deposited in the Certificate Account for the related Trust, subject
to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee will be obligated to follow or
cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Deposited Asset
(Section 3.12), provided that, except as otherwise expressly provided in
the applicable Prospectus Supplement, it shall not be required to expend or
risk its own funds or otherwise incur personal financial liability. If the
proceeds of any liquidation of the defaulted Deposited Asset are less than
the sum of (i) the outstanding principal balance of the defaulted Deposited
Asset, (ii) interest accrued thereon at the applicable interest rate and
(iii) the aggregate amount of expenses incurred by the Administrative Agent
and the Trustee, as applicable, in connection with such proceedings to the
extent reimbursable
41
from the assets of the Trust under the Trust Agreement, the Trust will
realize a loss in the amount of such difference. Only if and to the extent
provided in the applicable Prospectus Supplement, the Administrative Agent
or Trustee, as so provided, will be entitled to withdraw or cause to be
withdrawn from the related Certificate Account out of the net proceeds
recovered on any defaulted Deposited Asset, prior to the distribution of
such proceeds to Certificateholders, amounts representing its normal
administrative compensation on the Deposited Asset, unreimbursed
administrative expenses incurred with respect to the Deposited Asset and
any unreimbursed advances of delinquent payments made with respect to the
Deposited Asset (Section 3.12).
Retained Interest; Administrative Agent Compensation
and Payment of Expenses
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Deposited Assets, and,
if so, the owner thereof. If so provided, the Retained Interest will be
established on an asset-by-asset basis and will be specified in an exhibit
to the applicable series supplement to the Trust Agreement. A Retained
Interest in a Deposited Asset represents a specified interest therein.
Payments in respect of the Retained Interest will be deducted from payments
on the Deposited Assets as received and, in general, will not be deposited
in the applicable Certificate Account or become a part of the related
Trust. Unless otherwise provided in the applicable Prospectus Supplement,
any partial recovery of interest on a Deposited Asset, after deduction of
all applicable administration fees, will be allocated between the Retained
Interest (if any) and interest distributions to Certificateholders on a
pari passu basis.
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of
Certificates.
If and to the extent specified in the applicable Prospectus
Supplement, in addition to amounts payable to any Sub-Administrative Agent,
the Administrative Agent, if any; and otherwise the Trustee will pay from
its compensation certain expenses incurred in connection with its
administration of the Deposited Assets, including, without limitation,
payment of the fees and disbursements of the Trustee, if applicable, and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement (Section 3.14).
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable Prospectus Supplement,
the Administrative Agent, if any, specified therein will have no obligation
to make any advances with respect to collections on the Deposited Assets or
in favor of the Certificateholders of the related Series of Certificates.
However, to the extent provided in the applicable Prospectus Supplement,
any such Administrative Agent will advance on or before each Distribution
Date its own funds or funds held in the Certificate Account for such Series
that are not part of the funds available for distribution for such
Distribution Date, in an amount equal to the aggregate of payments of
principal, premium (if
42
any) and interest (net of related administration fees and any Retained
Interest) with respect to the Deposited Assets that were due during the
related Collection Period and were delinquent on the related Determination
Date, subject to (i) any such Administrative Agent's good faith
determination that such advances will be reimbursable from Related Proceeds
(as defined below) and (ii) such other conditions as may be specified in
the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled
interest, premium (if any) and principal payments to holders of the Class
or Classes of Certificates entitled thereto, rather than to guarantee or
insure against losses. Unless otherwise provided in the related Prospectus
Supplement, advances of an Administrative Agent's funds, if any, will be
reimbursable only out of related recoveries on the Deposited Assets (and
amounts received under any form of Credit Support) for such Series with
respect to which such advances were made (as to any Deposited Assets,
"Related Proceeds"); provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Accounts for such Series
to the extent that such Administrative Agent shall determine, in its sole
judgment, that such advance (a "Nonrecoverable Advance") is not ultimately
recoverable from Related Proceeds. If advances have been made by such
Administrative Agent from excess funds in the Certificate Account for any
Series, such Administrative Agent will replace such funds in such
Certificate Account on any future Distribution Date to the extent that
funds in such Certificate Account on such Distribution Date are less than
payments required to be made to Certificateholders on such date (Section
4.03). If so specified in the related Prospectus Supplement, the
obligations, if any, of an Administrative Agent to make advances may be
secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any
obligor on, any such surety bond, will be set forth in the related
Prospectus Supplement.
Certain Matters Regarding the Administrative Agent and the Company
An Administrative Agent, if any, for each Series of Certificates under
the Trust Agreement will be named in the related Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the
Trustee, the Company, as affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business
relationships with the Trustee, the Company, their affiliates or the
Deposited Asset Provider.
The Trust Agreement will provide that an Administrative Agent may
resign from its obligations and duties under the Trust Agreement with
respect to any Series of Certificates only if such resignation, and the
appointment of a successor, will not result in a withdrawal or downgrading
of the rating of any Class of Certificates of such Series or upon a
determination that its duties under the Trust Agreement with respect to
such Series are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor has
assumed the Administrative Agent's obligations and duties under the Trust
Agreement with respect to such Series (Section 6.04).
The Trust Agreement will further provide that neither such an
Administrative Agent, the Company nor any director, officer, employee, or
agent or the Administrative Agent or the Company will incur any liability
to the related Trust or Certificateholders for any action taken, or for
43
refraining from taking any action, in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the
Administrative Agent, the Company nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. The Trust Agreement will further provide that, unless otherwise
provided in the applicable series supplement thereto, such an
Administrative Agent, the Company and any director, officer, employee or
agent of the Administrative Agent or the Company will be entitled to
indemnification by the related Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Trust Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Trust Agreement will provide that neither such an Administrative Agent nor
the Company will be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to their respective
responsibilities under the Trust Agreement or which in its opinion may
involve it in any expense or liability. Each of such Administrative Agent
or the Company may, however, in its discretion undertake any such action
which it may deem necessary or desirable with respect to the Trust
Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder (Section 6.03). The
applicable Prospectus Supplement will describe how such legal expenses and
costs of such action and any liability resulting therefrom will be
allocated.
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to
which an Administrative Agent is a part, or any person succeeding to the
business of an Administrative Agent, will be the successor of the
Administrative Agent under the Trust Agreement with respect to the
Certificates of any given Series (Section 6.02).
Administrative Agent Termination Events;
Rights Upon Administrative Agent Termination Event
Unless otherwise provided in the related Prospectus Supplement,
"Administrative Agent Termination Events" under the Trust Agreement with
respect to any given Series of Certificates will consists of the following:
(i) any failure by an Administrative Agent to remit to the Trustee any
funds in respect of collections on the Deposited Assets and Credit Support,
if any, as required under the Trust Agreement, that continues unremedied
for five days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Company, or to the
Administrative Agent, the Company and the Trustee by the holders of such
Certificates evidencing not less than 25% of the Voting Rights (as defined
below); (ii) any failure by an Administrative Agent duly to observe or
perform in any material respect any of its other covenants or obligations
under the Trust Agreement with respect to such Series which continues
unremedied for thirty days after the giving of written notice of such
failure to the Administrative Agent by the Trustee or the Company, or to
the Administrative Agent, the Company and the Trustee by the holders of
such Certificates evidencing not less than 25% of the Voting Rights; and
(iii) certain events of insolvency, readjustment of debt,
44
marshalling of assets and liabilities or similar proceedings and certain
actions by or on behalf of an Administrative Agent indicating its
insolvency or inability to pay its obligations (Section 7.01). Any
additional Administrative Agent Termination Events with respect to any
given Series of Certificates will be set forth in the applicable Prospectus
Supplement. In addition, the applicable Prospectus Supplement and the
related series supplement to the Trust Agreement will specify as to each
matter requiring the vote of holders of Certificates of a Class or group of
Classes within a given Series, the circumstances and manner in which the
Required Percentage (as defined below) applicable to each such matter is
calculated. "Required Percentage" means with respect to any matter
requiring a vote of holders of Certificates of a given Series, the
specified percentage (computed on the basis of outstanding Certificate
Principal Balance or Notional Amount, as applicable) of Certificates of a
designated Class or group of Classes within such Series (either voting as
separate classes or as a single class) applicable to such matter, all as
specified in the applicable Prospectus Supplement and the related series
supplement to the Trust Agreement. "Voting Rights" evidenced by any
Certificate will be the portion of the voting rights of all the
Certificates in the related Series allocated in the manner described in the
related Prospectus Supplement (Article I).
Unless otherwise specified in the applicable Prospectus Supplement, so
long as an Administrative Agent Termination Event under the Trust Agreement
with respect to a given Series of Certificates remains unremedied, the
Company or the Trustee may, and at the direction of holders of such
Certificates evidencing not less than the "Required Percentage--
Administrative Agent Termination" of the Voting Rights, the Trustee will,
terminate all rights and obligations of such Administrative Agent under the
Trust Agreement relating to the applicable Trust and in and to the related
Deposited Assets (other than any Retained Interest of such Administrative
Agent), whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of such Administrative Agent under the Trust
Agreement with respect to such Series (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding
delinquent Deposited Assets, then the Trustee will not be so obligated) and
will be entitled to similar compensation arrangements. In the event that
the Trustee is unwilling or unable to act, it may or, at the written
request of the holders of such Certificates evidencing not less than the
"Required Percentage--Administrative Agent Termination" of the Voting
Rights, it will appoint, or petition a court of competent jurisdiction for
the appointment of, an administration agent acceptable to the Rating Agency
with a net worth at the time of such appointment of at least $15,000,000 to
act as successor to such Administrative Agent under the Trust Agreement
with respect to such Series. Pending such appointment, the Trustee is
obligated to act in such capacity (except that if the Trustee is prohibited
by law from obligating itself to make advances regarding delinquent
Deposited Assets, then the Trustee will not be so obligated). The Trustee
and any such successor may agree upon the compensation be paid to such
successor, which in no event may be greater than the compensation payable
to such Administrative Agent under the Trust Agreement with respect to such
Series (Sections 7.01 and 7.02).
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less than the "Required Percentage--Remedies"
of the Voting Rights have made written request upon the Trustee to
institute such
45
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for fifteen days has
neglected or refused to institute any such proceeding (Section 10.03). The
Trustee, however, is under no obligation to exercise any of the trusts or
powers vested in it by the Trust Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or
direction of any of the holders of Certificates covered by the Trust
Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby (Section 8.02).
Modification and Waiver
Unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement for each Series of Trust Certificates may be amended by
the Company and the Trustee with respect to such Series, without notice to
or consent of the Certificateholders, for certain purposes including (i) to
cure any ambiguity, (ii) to correct or supplement any provision therein
which may be inconsistent with any other provision therein or in the
Prospectus Supplement, (iii) to add or supplement any Credit Support for
the benefit of any Certificateholders (provided that if any such addition
affects any series or class of Certificateholders differently than any
other series or class of Certificateholders, then such addition will not,
as evidenced by an opinion of counsel, have a material adverse effect on
the interests of any affected series or class of Certificateholders), (iv)
to add to the covenants, restrictions or obligations of the Company, the
Administrative Agent, if any, or the Trustee for the benefit of the
Certificateholders, (v) to add, change or eliminate any other provisions
with respect to matters or questions arising under such Trust Agreement so
long as (x) any such addition, change or elimination will not, as evidenced
by an opinion of counsel, affect the tax status of the Trust or result in a
sale or exchange of any Certificate for tax purposes and (y) the Trustee
has received written confirmation from each Rating Agency rating such
Certificates that such amendment will not cause such Rating Agency to
reduce or withdraw the then current rating thereof, or (vi) to comply with
any requirements imposed by the Code. Without limiting the generality of
the foregoing, unless otherwise specified in the applicable Prospectus
Supplement, the Trust Agreement may also be modified or amended from time
to time by the Company, and the Trustee, with the consent of the holders of
Certificates evidencing not less than the "Required Percentage--Amendment"
of the Voting Rights of those Certificates that are materially adversely
affected by such modification or amendment for the purpose of adding any
provision to or changing in any manner or eliminating any provision of the
Trust Agreement or of modifying in any manner the rights of such
Certificateholders; provided, however, that in the event such modification
or amendment would materially adversely affect the rating of any Series or
Class by each Rating Agency, the "Required Percentage--Amendment" specified
in the related series supplement to the Trust Agreement shall include an
additional specified percentage of the Certificates of such Series or
Class.
Except as otherwise set forth in the applicable Prospectus Supplement,
no such modification or amendment may, however, (i) reduce in any manner
the amount of or alter the timing of, distributions or payments which are
required to be made on any Certificate without the consent of the holder of
such Certificate or (ii) reduce the aforesaid Required Percentage of Voting
Rights
46
required for the consent to any such amendment without the consent
of the holders of all Certificates covered by the Trust Agreement then
outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Certificates evidencing not less than the "Required
Percentage--Waiver" of the Voting Rights of a given Series may, on behalf
of all Certificateholders of that Series, (i) waive, insofar as that Series
is concerned, compliance by the Company, the Trustee or the Administrative
Agent, if any, with certain restrictive provisions, if any, of the Trust
Agreement before the time for such compliance and (ii) waive any past
default under the Trust Agreement with respect to Certificates of that
Series, except a default in the failure to distribute amounts received as
principal of (and premium, if any) or any interest on any such Certificate
and except a default in respect of a covenant or provision the modification
or amendment of which would require the consent of the holder of each
outstanding Certificate affected thereby (Section 7.04).
Reports to Certificateholders; Notices
Reports to Certificateholders. Unless otherwise provided in the
applicable Prospectus Supplement, with each distribution to
Certificateholders of any Class of Certificates of a given Series, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such
Certificateholder, to the Company and to such other parties as may be
specified in the Trust Agreement, a statement setting forth:
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest
as of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through
Rate, the Pass-Through Rate applicable to such Distribution Date, as
calculated in accordance with the method specified herein and in the
related Prospectus Supplement;
(iii) the amount of compensation received by the Administrative
Agent, if any, and the Trustee for the period relating to such
Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary
or desirable to enable Certificateholders to prepare their tax returns;
(iv) if the Prospectus Supplement provides for advances, the
aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(v) the aggregate stated principal amount or, if applicable,
notional principal amount of the Deposited Assets and the current
interest rate thereon at the close of business on such Distribution
Date;
47
(vi) the aggregate Certificate Principal Balance or aggregate
Notional Amount, if applicable, of each Class of Certificates
(including any Class of Certificates not offered hereby) at the close
of business on such Distribution Date, separately identifying any
reduction in such aggregate Certificate Principal Balance or aggregate
Notional Amount due to the allocation of any Realized Losses or
otherwise; and
(vii) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount of coverage of each
element of Credit Support included therein as of the close of business
on such Distribution Date.
In the case of information furnished pursuant to subclauses (i) and
(iii) above, the amounts shall be expressed as a U.S. dollar amount (or
equivalent thereof in any other Specified Currency) per minimum
denomination of Certificates or for such other specified portion thereof.
Within a reasonable period of time after the end of each calendar year, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the
calendar year was a Certificateholder a statement containing the
information set forth in subclauses (i) and (iii) above, aggregated for
such calendar year or the applicable portion thereof during which such
person was a Certificateholder. Such obligation of the Administrative Agent or
the Trustee, as applicable, shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Administrative Agent or the Trustee, as applicable, pursuant to any
requirements of the Code as are from time to time in effect (Section 4.02).
Notices. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Certificate will be mailed to the last address of such holder set forth in
the applicable Certificate Register. Any notice required to be given to a
holder of a Bearer Certificate will be published in a daily morning
newspaper of general circulation in the city or cities specified in the
Prospectus Supplement relating to such Bearer Certificate.
Evidence as to Compliance
Unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement will provide that commencing on a certain date and on
or before a specified date in each year thereafter, a firm of independent
public accountants will furnish a statement to the Trustee to the effect
that such firm has examined certain documents and records relating to the
administration of the Deposited Assets during the related 12-month period
(or, in the case of the first such report, the period ending on or before
the date specified in the Prospectus Supplement, which date shall not be
more than one year after the related Original Issue Date) and that, on the
basis of certain agreed upon procedures considered appropriate under the
circumstances, such firm is of the opinion that such administration was
conducted in compliance with the terms of the Trust Agreement, except for
such exceptions as such firm shall believe to be immaterial and such other
exceptions and qualifications as shall be set forth in such report (Section
3.16).
48
The Trust Agreement will also provide for delivery to the Company, the
Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an
annual statement signed by two officers of the Trustee to the effect that
the Trustee has fulfilled its obligations under the Trust Agreement
throughout the preceding year with respect to any Series of Certificates
(Section 3.15).
Copies of the annual accountants' statement, if any, and the statement
of officers of the Trustee may be obtained by Certificateholders without
charge upon written request to either the Administrative Agent or the
Trustee, as applicable, at the address set forth in the related Prospectus
Supplement.
Replacement Certificates
Unless otherwise provided in the applicable Prospectus Supplement, if
a Certificate is mutilated, destroyed, lost or stolen, it may be replaced
at the corporate trust office or agency of the applicable Trustee in the
City and State of New York (in the case of Registered Certificates) or at
the principal London office of the applicable Trustee (in the case of
Bearer Certificates), or such other location as may be specified in the
applicable Prospectus Supplement, upon payment by the holder of such
expenses as may be incurred by the applicable Trustee in connection
therewith and the furnishing of such evidence and indemnity as such Trustee
may require. Mutilated Certificates must be surrendered before new
Certificates will be issued (Section 5.05).
Termination
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related Certificate Account or by an
Administrative Agent, if any, and required to be paid to them pursuant to
the Trust Agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition
of all property acquired upon foreclosure or liquidation of any such
Deposited Asset and (ii) the purchase of all the assets of the Trust by the
party entitled to effect such termination, under the circumstances and in
the manner set forth in the related Prospectus Supplement. In no event,
however, will any trust created by the Trust Agreement continue beyond the
respective date specified in the related Prospectus Supplement. Written
notice of termination of the obligations with respect to the related Series
of Certificates under the Trust Agreement will be provided as set forth
above under "--Reports to Certificateholders; Notices--Notices," and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination (Section 9.01).
Any such purchase of Deposited Assets and property acquired in respect
of Deposited Assets evidenced by a Series of Certificates shall be made at
a price approximately equal to the aggregate fair market value of all the
assets in the Trust (as determined by the Trustee, the
49
Administrative Agent, if any, and, if different than both such persons, the
person entitled to effect such termination), in each case taking into
account accrued interest at the applicable interest rate to the first day
of the month following such purchase or, to the extent specified in the
applicable Prospectus Supplement, a specified price as determined therein
(such price, a "Purchase Price"). The exercise of such right will effect
early retirement of the Certificates of that Series, but the right of the
person entitled to effect such termination is subject to the aggregate
principal balance of the outstanding Deposited Assets for such Series at
the time of purchase being less than the percentage of the aggregate
principal balance of the Deposited Assets at the Cut-off Date for that
Series specified in the related Prospectus Supplement (Section 9.01).
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the Certificates of any Series or any Deposited
Asset or related document and is not accountable for the use or application
by or on behalf of any Administrative Agent of any funds paid to such
Administrative Agent or its designee in respect of such Certificates or the
Deposited Assets, or deposited into or withdrawn from the related
Certificate Account or any other account by or on behalf of such
Administrative Agent (Section 8.03). If no Administrative Agent Termination
Event has occurred and is continuing with respect to any given Series, the
Trustee is required to perform only those duties specifically required
under the Trust Agreement with respect to such Series. However, upon
receipt of the various certificates, reports or other instruments required
to be furnished to it, the Trustee is required to examine such documents
and to determine whether they conform to the applicable requirements of the
Trust Agreement (Section 8.01).
The Trustee
The Trustee for any given Series of Certificates under the Trust
Agreement will be named in the related Prospectus Supplement. The
commercial bank, national banking association or trust company serving as
Trustee will be unaffiliated with, but may have normal banking
relationships with, the Company, any Administrative Agent and their
respective affiliates.
LIMITATIONS ON ISSUANCE OF BEARER CERTIFICATES
In compliance with United States Federal income tax laws and
regulations, the Company and any underwriter, agent or dealer participating
in the offering of any Bearer Certificate will agree that, in connection
with the original issuance of such Bearer Certificate and during the period
ending 40 days after the issue of such Bearer Certificate, they will not
offer, sell or deliver such Bearer Certificate, directly or indirectly, to
a U.S. Person or to any person within the United States; except to the
extent permitted under U.S. Treasury regulations.
Bearer Certificates will bear a legend to the following effect: "Any
United States Person who holds this obligation will be subject to
limitations under the United States income tax
50
laws, including the limitations provided in Sections 165(j) and 1287(a) of
the Internal Revenue Code." The sections referred to in the legend provide
that, with certain exceptions, a United States taxpayer who holds Bearer
Certificates will not be allowed to deduct any loss with respect to, and
will not be eligible for capital gain treatment with respect to any gain
realized on a sale, exchange, redemption or other disposition of, such
Bearer Certificates.
As used herein, "United States" means the United States of America and
its possessions, and "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States, or an estate or trust
the income of which is subject to United States Federal income taxation
regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Certificates, as the case may be, Certificates that are issuable as
Bearer Certificates may initially be represented by a single temporary
Global Security, without interest coupons, to be deposited with a common
depositary in London for Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System ("Euroclear"), and
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") for credit to
the accounts designated by or on behalf of the purchasers thereof.
Following the availability of a definitive Global Security in bearer form,
without coupons attached, or individual Bearer Certificates and subject to
any further limitations described in the applicable Prospectus Supplement,
the temporary Global Security will be exchangeable for interests in such
definitive Global Security or for such individual Bearer Certificates,
respectively, only upon receipt of a "Certificate of Non-U.S. Beneficial
Ownership." A "Certificate of Non-U.S. Beneficial Ownership" is a
certificate to the effect that a beneficial interest in a temporary Global
Security is owned by a person that is not a U.S. Person or is owned by or
through a financial institution in compliance with applicable U.S. Treasury
regulations. No Bearer Certificate will be delivered in or to the United
States. If so specified in the applicable Prospectus Supplement, interest
on a temporary Global Security will be distributed to each of Euroclear and
CEDEL with respect to that portion of such temporary Global Security held
for its account, but only upon receipt as of the relevant Distribution Date
of a Certificate of Non-U.S. Beneficial Ownership.
CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in a Certificate having a Specified Currency other than
U.S. dollars entails significant risks that are not associated with a
similar investment in a security denominated in U.S. dollars. Such risks
include, without limitation, the possibility of significant changes in
rates of exchange between the U.S. dollar and such Specified Currency and
the possibility of the imposition or modification of foreign exchange
controls with respect to such Specified Currency. Such risks generally
depend on factors over which the Company has no control, such as economic
and political events and the supply of and demand for the relevant
currencies. In recent years, rates of exchange
51
between the U.S. dollar and certain currencies have been highly volatile,
and such volatility may be expected in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in the rate that may occur during the
term of any Certificate. Depreciation of the Specified Currency for a
Certificate against the U.S. dollar would result in a decrease in the
effective yield of such Certificate below its Pass-Through Rate and, in
certain circumstances, could result in a loss to the investor on a U.S.
dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a Specified Currency for making distributions in respect of
Certificates denominated in such currency. At present, the Company has
identified the following currencies in which distributions of principal,
premium and interest on Certificates may be made: Australian dollars,
Canadian dollars, Danish kroner, Italian lire, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, Certificates distributable with
Specified Currencies other than those listed may be issued at any time.
There can be no assurance that exchange controls will not restrict or
prohibit distributions of principal, premium or interest in any Specified
Currency. Even if there are no actual exchange controls, it is possible
that, on a Distribution Date with respect to any particular Certificate,
the currency in which amounts then due to be distributed in respect of such
Certificate are distributable would not be available. In that event, such
payments will be made in the manner set forth above under "Description of
Certificates--General" or as otherwise specified in the applicable
Prospectus Supplement.
As set forth in the applicable Prospectus Supplement, certain of the
Underlying Securities may be denominated in a currency other than the
Specified Currency. Although payments in respect of principal and interest
on the Certificates will be made in the Specified Currency, such payments
may be based in whole or in part upon receipt by the related Trust of
payments in the Underlying Securities Currency. An investment in
Certificates supported by Underlying Securities denominated in a currency
other than the Specified Currency entails significant risks not associated
with an investment in securities supported by obligations denominated in
the same currency as the currency of payment on such securities. Such risks
include, without limitation, the possibility of significant changes in
rates of exchange between the Specified Currency and the Underlying
Securities Currency and the possibility of the imposition or modification
of foreign exchange controls with respect to either the Specified Currency
or the Underlying Securities Currency.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus is directed to
prospective purchasers of Certificates who are United States residents. The
applicable Prospectus Supplement for certain issuances of Certificates may
set forth certain information applicable to prospective purchasers who are
residents of countries other than the United States with respect to matters
that may affect the
52
purchase or holding of, or receipt of distributions of principal, premium
or interest in respect of, such Certificates.
Any Prospectus Supplement relating to Certificates having a Specified
Currency other than U.S. dollars will contain information concerning
historical exchange rates for such currency against the U.S. dollar, a
description of such currency, any exchange controls affecting such currency
and any other required information concerning such currency.
Payment Currency
Except as set forth below or unless otherwise provided in the
applicable Prospectus Supplement, if distributions in respect of a
Certificate are required to be made in a Specified Currency other than U.S.
dollars and such currency is unavailable due to the imposition of exchange
controls or other circumstances beyond the Company's control or is no
longer used by the government of the country issuing such currency or for
the settlement of transactions by public institutions of or within the
international banking community, then all distributions in respect of such
Certificate shall be made in U.S. dollars until such currency is again
available or so used. The amounts so payable on any date in such currency
shall be converted into U.S. dollars on the basis of the most recently
available Market Exchange Rate for such currency or as otherwise indicated
in the applicable Prospectus Supplement.
If distribution in respect of a Certificate is required to be made in
ECU and ECU is no longer used in the European Monetary System, then all
distributions in respect of such Certificate shall be made in U.S. dollars
until ECU is again so used. The amount of each distribution in U.S. dollars
shall be computed on the basis of the equivalent of the ECU in U.S.
dollars, determined as described below, as of the second Business Day prior
to the date on which such distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined for the Certificates of any Series and
Class by the applicable Trustee on the following basis. The component
currencies of the ECU for this purpose (the "Components") shall be the
currency amounts that were components of the ECU as of the last date on
which the ECU was used in the European Monetary System. The equivalent of
the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar
equivalents of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by such Trustee on the basis of the most
recently available Market Exchange Rates for such Components or as
otherwise indicated in the applicable Prospectus Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a
Component shall be divided or multiplied in the same proportion. If two or
more component currencies are consolidated into a single currency, the
amounts of those currencies as Components shall be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
component currencies expressed in such single
53
currency. If any component currency is divided into two or more currencies,
the amount of that currency as a Component shall be replaced by amounts of
such two or more currencies, each of which shall be equal to the amount of
the former component currency divided by the number of currencies into
which that currency was divided.
All determinations referred to above made by the applicable Trustee
shall be at its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and binding on the related
Certificateholders of such Series.
Foreign Currency Judgments
Unless otherwise specified in the applicable Prospectus Supplement,
the Certificates will be governed by and construed in accordance with the
law of the State of New York. Courts in the United States customarily have
not rendered judgments for money damages denominated in any currency other
than the U.S. dollar. A 1987 amendment to the Judiciary Law of the State of
New York provides, however, that an action based upon an obligation
denominated in a currency other than U.S. dollars will be rendered in the
foreign currency of the underlying obligation and converted into U.S.
dollars at the rate of exchange prevailing on the date of the entry of the
judgment or decree.
PLAN OF DISTRIBUTION
Certificates may be offered in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the
terms of the offering of any Series of Certificates, which may include the
names of any underwriters, or initial purchasers, the purchase price of
such Certificates and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers, any securities
exchanges on which such Certificates may be listed, any restrictions on the
sale and delivery of Certificates in bearer form and the place and time of
delivery of the Certificates to be offered thereby.
If underwriters are used in the sale, Certificates will be acquired by
the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Such Certificates may be offered to the public either through underwriting
syndicates represented by managing underwriters or by underwriters without
a syndicate. Such managing underwriters or underwriters in the United
States will include Lehman Brothers Inc., an affiliate of the Company.
Unless otherwise set forth in the applicable Prospectus Supplement, the
obligations of the underwriters to purchase such Certificates will be
subject to certain conditions precedent, and the underwriters will be
obligated to purchase all such Certificates if any of such Certificates are
purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from
time to time.
54
Certificates may also be sold through agents designated by the Company
from time to time. Any agent involved in the offer or sale of Certificates
will be named, and any commissions payable by the Company to such agent
will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent
will act on a best efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Certificates at the public offering
price described in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in
such Prospectus Supplement. Such contracts will be subject only to those
conditions set forth in the applicable Prospectus Supplement and such
Prospectus Supplement will set forth the commissions payable for
solicitation of such contracts.
Any underwriters, dealers or agents participating in the distribution
of Certificates may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of Certificates may be
deemed to be underwriting discounts and commissions under the Securities
Act. Agents and underwriters may be entitled under agreements entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or underwriters may
be required to make in respect thereof. Agents and underwriters may be
customers of, engage in transactions with, or perform services for, the
Company or its affiliates in the ordinary course of business.
Lehman Brothers Inc. is an affiliate of the Company. Lehman Brothers
Inc.'s participation in the offer and sale of Certificates complies with
the requirements of Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. regarding underwriting securities of an
affiliate.
As to each Series of Certificates, only those Classes rated in one of
the investment grade rating categories by a Rating Agency will be offered
hereby. Any unrated Classes or Classes rated below investment grade may be
retained by the Company or sold at any time to one or more purchasers.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the
Underwriters so acting will be named, and its affiliation with the
Underwriters described, in the related Prospectus Supplement. Also,
affiliates of the Underwriters may act as principals or agents in
connection with market-making transactions relating to the Certificates. A
Prospectus Supplement will be prepared with respect to the Certificates for
use by such affiliates in connection with offers and sales related to
market-making transactions in the Certificates.
55
LEGAL OPINIONS
Certain legal matters with respect to the Certificates will be passed
upon for the Company and the underwriters by Weil, Gotshal & Manges, New
York, New York or other counsel identified in the applicable Prospectus
Supplement.
56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than
underwriting compensation, are as set forth below. All such expenses,
except for the SEC registration and filing fees, are estimated:
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . $100,000*
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . $ **
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . $ **
Trustee's Fees and Expenses
(including counsel Fees) . . . . . . . . . . . . . . . . . . $ **
Blue Sky Qualification Fees
and expenses . . . . . . . . . . . . . . . . . . . . . . . . $ **
Printing and Engraving Fees . . . . . . . . . . . . . . . . . . $ **
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . $ **
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . $ **
----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ **
__________________
* $344.83 was previously paid.
** To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General corporation Law of Delaware empowers
a corporation to indemnify any person who was or is a party or witness
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. Depending on the character
of the proceeding, a corporation may indemnify against expenses, costs and
fees (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action
suit or proceeding if the person indemnified acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. If the person indemnified is not wholly successful in such
action, suit or proceeding, but is successful, on the merits or otherwise,
in one or more but less than all claims, issues or matters in such
proceeding, he or she may be indemnified against expenses actually and
reasonably incurred in connection with each successfully resolved claim,
issue or matter. In the case of an action or suit by or in the right of the
corporation, no indemnification may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine that despite
the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem
proper. Section 145 provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of
any action, suit or proceeding referred to above or in the defense of any
claim, issue or manner therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith.
The Certification of Incorporation of the Registrant provides that
no Director of the Registrant shall be personally liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
Director; provided, however, that this limitation of liability of a
Director shall not apply with respect to (i) any breach of the Director's
duty of loyalty to the Registrant or its stockholder, (ii) acts or omissions
not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any
liability arising under Section 174 of the General Corporation Law of the
State of Delaware and (iv) for any transaction from which the Director
derives an improper personal benefit. The Bylaws of the Registrant are
silent as to the indemnification of officers and directors.
Reference is made to Section 7 of the form of Underwriting Agreement
filed as Exhibit 1.1 hereto for provisions relating to the
indemnification of directors, officers and controlling persons against
certain liabilities including liabilities under the Securities Act of 1933,
as amended.
Item 16. Exhibits:
**1.1 Form of Underwriting Agreement.
**3.1 Certificate of Incorporation of Lehman ABS
Corporation as currently in effect
**3.2 Bylaws of Lehman ABS Corporation as currently in effect
**4.1 Form of Trust Agreement, with forms of Certificates
attached thereto.
**4.2 Form of qualified Trust Agreement, to be used in
connection with transactions required to be qualified
under the Trust Indenture Act of 1939, as amended.
**5.1 Opinion of Weil, Gotshal & Manges as to legality
(including consent of such firm)
**8.1 Opinion of Weil, Gotshal & Manges as to certain tax
matters (including consent of such firm)
**24.1 Consent of Weil, Gotshal & Manges (included in
Exhibits 5.1 and 8.1)
**25.1 Power of Attorney
*26.1(a) Statement of eligibility of Trustee
_________________
* To be filed by amendment.
** Previously filed; incorporated by reference.
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. Filing Incorporating Subsequent Exchange Act Documents By Reference.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant, as the case may be, will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
D. Undertaking in respect of the eligibility of the Trustee.
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned hereby certifies on behalf of Lehman ABS Corporation (the
"Company") that he has reasonable grounds to believe that the Company meets
all of the requirements for filing on Form S-3 and has duly caused
this Amendment Number 6 to its Registration Statement dated as of
November 15, 1995 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 15th day
of November, 1995.
LEHMAN ABS CORPORATION
By: /s/ Michael J. O'Hanlon
Michael J. O'Hanlon
Pursuant to the requirements of the Securities Act of 1933, this
Amendment Number 6 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Position Date
- --------- -------- ----
* President November 15, 1995
- -----------------------
Ted Janulis
* Chief Financial Officer November 15, 1995
- ----------------------- (Principal Financial
Robert Matza Officer)
/s/ Michael J. O'Hanlon Director November 15, 1995
- -----------------------
Michael J. O'Hanlon
* Director November 15, 1995
- -----------------------
James J. Sullivan
* Director November 15, 1995
- -----------------------
Brian R. Zipp
*By /s/ Michael J. O'Hanlon
-----------------------
Michael J. O'Hanlon
Attorney-in-Fact
