<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 33-?????
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated November 15, 1995)
$20,000,000
CORPORATE BOND-BACKED CERTIFICATES, Series 1996-Wal-Mart
(UNDERLYING SECURITIES WILL BE 7.25% DEBENTURES DUE JUNE 1, 2013 ISSUED BY
WAL-MART STORES, INC.)
7.00% FIXED RATE PASS-THROUGH CERTIFICATES
Each Corporate Bond-Backed Certificate, Series 1996-Wal-Mart offered
hereby (collectively, the "Certificates") represents a beneficial interest in
a trust (the "Trust") formed pursuant to the Trust Agreement dated as of
February 28, 1996 between Lehman ABS Corporation (the "Depositor") and The
Bank of New York, as trustee (the "Trustee").
The principal assets of the Trust will be $20,000,000 aggregate principal
amount of 7.25% Debentures due June 1, 2013 (the "Underlying Securities")
issued by Wal-Mart Stores, Inc. (the "Underlying Securities Issuer"), having
the characteristics described herein under "Description of the Underlying
Securities."
"Wal-Mart" is a registered trademark of Wal-Mart Stores, Inc. Wal-Mart
Stores, Inc. is not participating in, and will not receive any proceeds in
connection with, the offering of the Certificates, and is not an affiliate of
the Depositor or any of its affiliates. The Underlying Securities were
originally issued and sold as part of a public offering in June 1993, and
will be acquired by an affiliate of the Depositor in the secondary market
before being deposited by the Depositor into the Trust for the benefit of
Certificateholders.
Distributions of interest and principal on the Certificates will be made
on or about June 1 and December 1 of each year, beginning on June 1, 1996
(each, a "Distribution Date"). The Certificates will receive interest
distributions at a rate of 7.00% per annum, and will receive principal
distributions as principal is received on the Underlying Securities (the
original principal amount of the Underlying Securities is due at maturity
thereof on June 1, 2013); or as described herein, from Early Redemption of
the Certificates. The last day on which distributions on the Certificates are
scheduled to be made is June 1, 2013 (the "Final Scheduled Distribution
Date"). It is a condition to the issuance of the Certificates that the
Certificates have ratings assigned by Moody's Investors Service, Inc.
("Moody's") and by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P") equivalent to the ratings of the Underlying
Securities, which, as of the date of this Prospectus Supplement were "Aa1" by
Moody's and "AA" by S&P. On December 12, 1995, Moody's announced that it had
placed the long-term debt ratings of Wal-Mart Stores, Inc. on review for
possible downgrade. As of the date of this Prospectus Supplement, no such
action had been taken.
The Certificates are redeemable in whole on any Distribution Date on or
after the June 1997 Distribution Date at a price equal to par (the
"Redemption Price") plus accrued and unpaid interest, upon exercise of the
optional redemption right by the holder of the Call Warrant. See "Special
Considerations -- Maturity and Yield Considerations" and "Description of the
Certificates -- Early Redemption" herein.
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ("NYSE").
See "Risk Factors" herein on pages S-9 and S-10, and in the Prospectus on
pages 4 and 5.
(cover continued on next page)
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY OF ITS 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 Certificates offered hereby will be purchased by Lehman Brothers Inc.
(the "Underwriter") from the Depositor and will be offered by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. The Underwriter has agreed to purchase
the Certificates from the Depositor at 100% of the outstanding principal
balance thereof ($20,000,000 aggregate proceeds to the Depositor, before
deducting expenses), subject to the terms and conditions set forth in the
Underwriting Agreement referred to herein under "Underwriting." 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 Certificates will be made in book-entry form through the facilities of
The Depository Trust Company on or about February 28, 1996 (the "Closing
Date").
LEHMAN BROTHERS
February 22, 1996
<PAGE>
(cover page continued)
As and to the extent described herein, collections received by the Trustee
with respect to the Underlying Securities will be distributed to
Certificateholders in the manner and priority described herein.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop or,
if it does develop, that it will continue. See "Risk Factors" in the
Prospectus.
The Certificates 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
("Participants"). Definitive certificates will be available for such
Certificates only under the limited circumstances described herein. See
"Description of the Certificates -- Definitive Certificates."
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR 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 NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, 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
<PAGE>
SUMMARY
The following summary of certain pertinent information 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" and "Description of the
Underlying Securities". Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index
of Defined Terms" or, to the extent not defined herein, have the meanings
assigned to such terms in the Prospectus.
THE CERTIFICATES
CERTIFICATES OFFERED ... The Corporate Bond-Backed Certificates,
Series 1996-Wal- Mart (the
"Certificates"). The Certificates, each of
which represents a fractional undivided
beneficial interest in the Trust, will be
issued pursuant to the Trust Agreement and
will consist of a single class offered
hereby. The Underlying Securities will be
the sole asset of the Trust from which
Certificateholders will receive any
distributions.
THE TRUST .............. The Corporate Bond-Backed Certificates
Trust, Series 1996-Wal-Mart (the
"Trust"). The Trust will be formed
pursuant to the Standard Terms for Trust
Agreements dated as of February 28, 1996
(the "Standard Terms for Trust
Agreements"), between the Depositor and
the Trustee, as supplemented by the Series
1996-Wal-Mart Supplement dated as of the
Closing Date (the "Series Supplement" and,
together with the Standard Terms for Trust
Agreements, the "Trust Agreement").
DEPOSITOR .............. Lehman ABS Corporation (the "Depositor"), an
indirect wholly-owned subsidiary of
Lehman Brothers Inc., will deposit the
Underlying Securities into the Trust. See
"The Depositor" in the Prospectus.
TRUSTEE ................ The Bank of New York
CLOSING DATE ........... February 28, 1996
INITIAL OUTSTANDING
PRINCIPAL BALANCE ..... $20,000,000
FINAL SCHEDULED
DISTRIBUTION DATE ..... June 1, 2013
TRUST ASSETS ........... The principal assets of the Trust will be
$20,000,000 aggregate principal amount of
the 7.25% Debentures due June 1, 2013 (the
"Underlying Securities") issued by
Wal-Mart Stores, Inc. (the "Underlying
Securities Issuer"), having the
characteristics described herein. The
assets of the Trust will be subject to the
rights of the holder of the Retained
Interest, described below.
RETAINED INTEREST ...... Under the Trust Agreement, the holder of the
Retained Interest will retain the rights
with respect to the Underlying Securities
S-3
<PAGE>
to receive on each Distribution Date, from
payments received on the Underlying
Securities, a distribution equal to 0.25%
per annum multiplied by the principal
amount of the Underlying Securities (the
"Interest Strip"). The rights of the
holder of the Retained Interest to the
Interest Strip from payments received on
the Underlying Securities is of equal
priority with the rights of
Certificateholders to receive
distributions of interest. See "The
Underlying Securities" and "Description of
the Underlying Securities" below. The
initial holder of the Retained Interest
will be the Depositor or an affiliate
thereof. The Retained Interest is not
being offered hereby.
DISTRIBUTION DATES ..... June 1 and December 1 of each year (or if
such date is not a Business Day, the next
succeeding Business Day); commencing on
June 1, 1996 and ending on the earlier of
the Final Scheduled Distribution Date or
the Redemption Date (each, a "Distribution
Date"). Certificateholders will be
entitled to receive on each Distribution
Date interest on the Certificates at the
Interest Rate and all principal amounts
received from the Underlying Securities
Issuer in respect of the Underlying
Securities during the applicable
Collection Period. See "Description of the
Certificates Collection and
Distributions."
INTEREST RATE .......... The Interest Rate applicable to the
calculation of the interest distributable
on any Distribution Date on the
Certificates is fixed at 7.00% per annum
and will be calculated on a 30/360 basis.
INTEREST ACCRUAL PERIODS For any Distribution Date, the period from
and including the preceding Distribution
Date (or, in the case of the first
Interest Accrual Period, from and
including the Closing Date) to but
excluding the current Distribution Date.
REDEMPTION DATES ....... On any Distribution Date occurring on or
after the Distribution Date occurring in
June 1997, the Certificates may be
redeemed, in whole only, at a price equal
to the Redemption Price.
REDEMPTION PRICE ....... Par.
THE CALL WARRANT ....... The Call Warrant (as defined herein)
represents the right to request the
Trustee to cause an Optional Redemption of
the Certificates in their entirety. Upon
such Optional Redemption, the holder of
the Call Warrant (the "Warrantholder")
will be entitled to 100% of the excess, if
any, of the Liquidation Price over the
Redemption Price for the Underlying
Securities liquidated pursuant to the
Optional Redemption Provisions. The
initial Warrantholder will be the
Depositor or an affiliate thereof. No Call
Warrant is being offered hereby.
S-4
<PAGE>
OPTIONAL REDEMPTION
PROVISIONS ............ The Warrantholder may provide notice to the
Trustee (a "Redemption Request") no less
than 18 days prior to a Distribution Date
occurring on or after the Distribution
Date occurring in June 1997 (such
Distribution Date being the "Redemption
Date") that it requests an Optional
Redemption of the Certificates on such
Redemption Date.
Upon receiving such Redemption Request from
the Warrantholder, the Trustee will
immediately direct the Market Agent (as
defined herein) to sell in compliance with
the Sales Procedures (as defined herein)
the Underlying Securities at a price not
less than the Redemption Price. The Market
Agent will inform the Trustee no later
than 16 days prior to the Redemption Date
that it can liquidate the Underlying
Securities at such a sales price (the
"Liquidation Price"), and the Trustee will
notify Certificateholders of the Optional
Redemption no less than 15 days prior to
the Redemption Date. The settlement of the
liquidation of the Underlying Securities
will occur no earlier than two Business
Days prior to the Redemption Date.
If the Market Agent is unable to sell the
Underlying Securities at a price equal to
or greater than the Redemption Price, the
Market Agent will so notify the Trustee no
later than 16 days prior to the requested
Redemption Date, the Trustee will so
notify the Warrantholder, and such
Redemption Request will be deemed not
effective with respect to such
Distribution Date and the Certificates,
the Retained Interest and the Call Warrant
shall continue to remain outstanding.
MARKET AGENT ........... Lehman Brothers Inc. will serve as market
agent (the "Market Agent") for the Trust.
The Market Agent will act on behalf of the
Trust in connection with the sale of the
Underlying Securities in the case of an
Optional Redemption and may perform other
duties. See "The Market Agent Agreement"
herein.
RECORD DATES ........... The day immediately preceding each
Distribution Date.
DENOMINATIONS; SPECIFIED
CURRENCY .............. The Certificates will be denominated and
payable in U.S. dollars (the "Specified
Currency") and will be available for
purchase in minimum denominations of
$1,000 and integral multiples thereof.
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) funds.
CUSIP NUMBER ........... 21987H AA 3
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
S-5
<PAGE>
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
ratings assigned by Moody's Investors
Service, Inc. ("Moody's") and by Standard
& Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P") equivalent to the
ratings of the Underlying Securities,
which, as of the date of this Prospectus
Supplement were "Aa1" by Moody's and "AA"
by S&P. On December 12, 1995, Moody's
announced that it had placed the long-term
debt ratings of Wal-Mart Stores, Inc. on
review for possible downgrade. As of the
date of this Prospectus Supplement, no
such action had been taken. The rating of
the Certificates by Moody's addresses the
likelihood of the ultimate payment of
principal and interest on the
Certificates. The rating of the
Certificates by S&P addresses the
likelihood of timely receipt of interest
and ultimate receipt of principal on the
Certificates on or before the Final
Scheduled Distribution Date. There is no
assurance that any such rating will
continue for any period of time or that it
will not be revised or withdrawn entirely
by the related rating agency if, in its
judgment, circumstances (including,
without limitation, the rating of the
Underlying Securities) so warrant. A
revision or withdrawal of such rating may
have an adverse effect on the market price
of Certificates. A security rating is not
a recommendation to buy, sell or hold
securities. The rating on the Certificates
does not constitute a statement regarding
the occurrence or frequency of redemptions
on, or extensions of the maturity of, the
Underlying Securities, and the
corresponding effect on yield to
investors. See "Ratings."
ERISA CONSIDERATIONS ... An employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including an
individual retirement account (an "IRA")
or Keogh plan (a "Keogh") (each, a "Plan")
may purchase Certificates if either (i)
the Underwriter is able to confirm the
existence of at least 100 independent
purchasers or (ii) the Plan can represent
that its purchase of the Certificates
would not be prohibited under ERISA or the
Code. See "ERISA Considerations."
THE UNDERLYING SECURITIES
UNDERLYING SECURITIES .. $20,000,000 aggregate principal amount of
the 7.25% Debentures due June 1, 2013,
comprising a portion of a fixed rate,
publicly issued, unsecured debt security
issue of Wal-Mart Stores, Inc. which,
according to the Prospectus relating to
the Underlying Securities, rank on a
parity with all other unsecured and
unsubordinated debt of Wal-Mart Stores,
Inc. Interest on the Underlying Securities
accrues at the Underlying Securities Rate
for each Underlying Securities Accrual
Period and is payable on each Underlying
Securities Pay-
S-6
<PAGE>
ment Date. The entire principal amount of
the Underlying Securities will be payable
on the Underlying Securities Maturity
Date. As of the date of this Prospectus
Supplement, the Underlying Securities have
a remaining term to maturity of
approximately 17.34 years. The Retained
Interest in the Underlying Securities will
initially be held by the Depositor or an
affiliate thereof.
UNDERLYING SECURITIES
ISSUER ................ Wal-Mart Stores, Inc. is a U.S. corporation
whose principal executive offices are
located at 702 S.W. Eighth Street,
Bentonville, Arkansas 72716 and whose
telephone number is (501) 273-4000. See
"Description of the Underlying
Securities."
UNDERLYING SECURITIES
ORIGINAL ISSUE DATE ... June 2, 1993
UNDERLYING SECURITIES
MATURITY DATE ......... June 1, 2013
AMORTIZATION ........... None
DENOMINATIONS;
UNDERLYING
SECURITIES CURRENCY ... The Underlying Securities are denominated
and payable in U.S. dollars and are
available in minimum denominations of
$1,000 and integral multiples thereof.
UNDERLYING SECURITIES
PAYMENT DATES .......... June 1 and December 1, commencing December
1, 1993.
UNDERLYING SECURITIES
RATE .................. 7.25% per annum
UNDERLYING SECURITIES
INTEREST
ACCRUAL PERIODS ....... Semi-annually
PRIORITY ............... According to the Prospectus relating to the
Underlying Securities, the Underlying
Securities rank on a parity with all other
unsecured and unsubordinated indebtedness
of the Underlying Securities Issuer.
SECURITY ............... None
REDEMPTION/PUT/OTHER
FEATURES .............. None
FORM OF UNDERLYING
SECURITIES ............ Book-entry debt securities with DTC.
CUSIP NUMBER ........... 931142 AS 2
RECORD DATES ........... 15th of the month immediately preceding the
month of Payment Date.
UNDERLYING SECURITIES
TRUSTEE ............... The First National Bank of Chicago (the
"Underlying Securities Trustee"). The
Underlying Securities have been issued
pur-
S-7
<PAGE>
suant to an indenture dated as of
September 9, 1992 (the "Indenture"),
between the Underlying Securities Trustee
and the Underlying Securities Issuer.
RATINGS OF THE
UNDERLYING SECURITIES
AS OF THE CLOSING DATE "Aa1" by Moody's and "AA" by S&P. On
December 12, 1995, Moody's announced that
it had placed the long-term debt ratings
of Wal-Mart Stores, Inc. on review for
possible downgrade. As of the date of this
Prospectus Supplement, no such action has
been taken. See "Description of the
Underlying Securities Ratings of
Underlying Securities."
INFORMATION WITH RESPECT
TO THE UNDERLYING
SECURITIES ISSUER ..... Wal-Mart Stores, Inc. is subject to the
informational requirements of the
Securities Exchange Act of 1934, as
amended, and in accordance therewith files
reports, including reports on Forms 10-K
and 10-Q, and other information with the
Securities and Exchange Commission (the
"SEC"). Such reports and other information
may be inspected and copied at the public
reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional
Offices of the SEC: New York Regional
Office, Room 1100, 7 World Trade Center,
New York, New York 10048 and Chicago
Regional Office, Suite 1400, Northwestern
Atrium Center, 500 W. Madison Street,
Chicago, Illinois 60661-2511, and copies
of such material can be obtained from the
Public Reference Section of the SEC,
Washington, D.C. 20549, at prescribed
rates. Such reports and other information
may also be inspected at the Information
Center of the New York Stock Exchange
Inc., 20 Broad Street, New York, New York
10005 and at the American Stock Exchange,
86 Trinity Place, New York, New York
10006.
This Prospectus Supplement does not provide information with respect to
the Underlying Securities Issuer. No investigation of the Underlying
Securities Issuer (including, without limitation, no investigation as to its
financial condition or creditworthiness) or of the Underlying Securities
(including, without limitation, no investigation as to its rating) has been
made. Potential Certificateholders should obtain and evaluate the same
information concerning the Underlying Securities Issuer as it would obtain
and evaluate if it were investing directly in the Underlying Securities or in
other securities issued by the Underlying Securities Issuer. None of the
Depositor, the Trustee, the Underwriter, or any of their respective
affiliates, assume any responsibility for the accuracy or completeness of any
publicly available information of the Underlying Securities Issuer filed with
the Commission or otherwise made publicly available or considered by a
purchaser of the Certificates in making its investment decision in connection
therewith.
S-8
<PAGE>
RISK FACTORS
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under "RISK FACTORS" in the
Prospectus) in connection with an investment in the Certificates.
Limited Liquidity. There is currently no secondary market for the
Certificates. Lehman Brothers is under no obligation to make a market in the
Certificates. It is unlikely that a secondary market will develop and, if a
secondary market does develop, it is unlikely that it will provide
Certificateholders with liquidity of investment or will continue for the life
of the Certificates.
Maturity and Yield Considerations. If a Warrantholder exercises the right
to cause an Optional Redemption of its ratable share of the Underlying
Securities, the Certificates will have a shorter average maturity than if
such right were not exercised. Additionally, such right is likely to be
exercised, if at all, at a time when the market value of the Underlying
Securities has increased due to a declining interest rate environment. In
such an environment, the interest rates available on potential reinvestment
can be expected to be lower than the return that would have been earned over
the remaining life of the Certificates if they had not been called. See "Risk
Factors" and "Maturity and Yield Considerations" in the Prospectus.
Limited Assets. The Trust has no significant assets other than the
Underlying Securities. If the Underlying Securities are insufficient to make
payments or distributions on the Certificates, no other assets will be
available for payment of the deficiency.
No Management of Underlying Securities. Except pursuant to an Optional
Redemption as described herein, the Trust will not dispose of any Underlying
Security, regardless of adverse events, financial or otherwise, which may
affect the value of the Underlying Security or the Underlying Securities
Issuer. If there is a payment default on any Underlying Security or any other
default which may result in acceleration of the Underlying Security, the
Trust will only dispose of or otherwise deal with the defaulted Underlying
Security in the manner provided in the Trust Agreement.
Credit Risk. The Certificates represent interests in obligations of a
single obligor. In particular, the Certificates will be subject to all the
risks associated with a direct investment in unsecured debt obligations of
Wal-Mart Stores, Inc.
No Investigation of Underlying Securities. None of the Depositor, the
Underwriter or the Trustee will (i) make any investigation of the business
condition, financial or otherwise, of the Underlying Securities Issuer, or
(ii) verify any reports or information filed by the Underlying Securities
Issuer with the Commission. Investors are encouraged to consider publicly
available financial and other information regarding Wal-Mart Stores, Inc. The
issuance of the Certificates should not be construed as an endorsement by the
Depositor, the Underwriter or the Trustee of the financial condition or
business prospects of Wal-Mart Stores, Inc.
Ratings of the Certificates. At the time of issuance, the Certificates
will have ratings assigned by Moody's and S&P equivalent to the ratings of
the Underlying Securities, which, as of the date of this Prospectus
Supplement were "Aa1" by Moody's and "AA" by S&P. On December 12, 1995,
Moody's announced that it had placed the long-term debt ratings of Wal-Mart
Stores, Inc. on review for possible downgrade. As of the date of this
Prospectus Supplement, no such action had been taken. A downgrade, if any, of
such ratings should result in a downgrade by Moody's of the ratings of the
Certificates. Such a downgrade could result in a reduction of the value of
the Certificates.
Any rating issued with respect to the Certificates is not a recommendation
to purchase, sell or hold a security inasmuch as such ratings do not comment
on the market price of the Certificates or their suitability for a particular
investor. There can be no assurance that the ratings will remain for any
given period of time or that the ratings will not be revised or withdrawn
entirely by the related rating agency if, in its judgment, circumstances
(including, without limitation, the rating of the Underlying Securities) so
warrant. A revision or withdrawal of such rating may have an adverse effect
on the market price of the Certificates.
S-9
<PAGE>
Unsecured Status of Underlying Securities. According to the Prospectus
relating to the Underlying Securities, the Underlying Securities are general
unsecured obligations of the Underlying Securities Issuer, which rank on a
parity with all other unsecured and unsubordinated indebtedness of the
Underlying Securities Issuer, but which are subordinate in right of payment
to the Underlying Securities Issuer's existing and future senior secured
indebtedness.
THE TRUST
The Trust will be formed pursuant to the Standard Terms for Trust
Agreements, as supplemented by the Series 1996-Wal-Mart Supplement (the
"Series Supplement" and together with the Standard Terms for Trust
Agreements, the "Trust Agreement") between the Depositor and the Trustee.
Concurrently with the execution and delivery of the Series Supplement, the
Depositor will deposit the Underlying Securities into the Trust subject to
the Retained Interest. The Trustee, on behalf of the Trust, will accept such
Underlying Securities and will deliver the Certificates to or upon the order
of the Depositor.
The Underlying Securities will be purchased by the Depositor in the
secondary market (either directly or through an affiliate of the Depositor).
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 Depositor or the issuance of the
Certificates. Neither the Depositor nor any of its affiliates participated in
the initial public offering of the Underlying Securities.
DESCRIPTION OF THE UNDERLYING SECURITIES
GENERAL
The Underlying Securities represent the sole assets of the Trust that are
available to make distributions in respect of the Certificates. The aggregate
principal amount of the Underlying Securities is $20,000,000. The primary
economic terms of the Underlying Securities are described in "SUMMARY -- The
Underlying Securities" herein.
The Underlying Securities will be deposited into the Trust subject to the
right of the holder of the Retained Interest to receive on each Distribution
Date from payments received on the Underlying Securities, a distribution
equal to 0.25% per annum multiplied by the principal amount of the Underlying
Securities (the "Interest Strip"). The right of the holder of the Retained
Interest to receive the Interest Strip is of equal priority with the rights
of the Certificateholders to receive distributions of interest on the
Certificates.
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 or the Underlying Securities Issuer.
This Prospectus Supplement relates only to the Certificates offered hereby
and does not relate to the Underlying Securities. All disclosure contained
herein with respect to the Underlying Securities Issuer and Underlying
Securities is derived from publicly available documents.
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, the offering of the Certificates.
The Underlying Securities will be purchased by the Depositor in the secondary
market (either directly or through an affiliate of the Depositor) and will be
deposited into the Trust. The Underlying Securities will not be acquired
either from the Underlying Securities Issuer or pursuant to any distribution
by or agreement with the Underlying Securities Issuer.
According to Wal-Mart Stores, Inc.'s publicly available documents, its
principal executive offices are located at 702 S.W. Eighth Street,
Bentonville, Arkansas 72716 and its telephone number is (501) 273-4000. The
Underlying Securities Issuer is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "SEC"). Such reports and other information may be inspected
and copied at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the SEC: New York Regional Office,
S-10
<PAGE>
Room 1100, 7 World Trade Center, New York, New York 10048 and Chicago
Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511, and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C.
20549, at prescribed rates. Such reports and other information may also be
inspected at the Information Center of the New York Stock Exchange Inc., 20
Broad Street, New York, New York 10005 and at the American Stock Exchange, 86
Trinity Place, New York, New York 10006.
Although the Depositor has no reason to believe the information concerning
the Underlying Securities, the Underlying Securities Issuer or each
Underlying Securities Prospectus related to the Underlying Securities is not
reliable, neither the Depositor nor the Underwriter 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 or have not yet been publicly disclosed which would affect the
accuracy or completeness of the publicly available documents described above.
THE TRUST WILL HAVE NO OTHER SIGNIFICANT ASSETS FROM WHICH TO MAKE
DISTRIBUTIONS OF AMOUNTS DUE IN RESPECT OF THE CERTIFICATES. CONSEQUENTLY,
THE ABILITY OF CERTIFICATEHOLDERS TO RECEIVE DISTRIBUTIONS IN RESPECT OF THE
CERTIFICATES WILL DEPEND ENTIRELY ON THE TRUST'S RECEIPT OF PAYMENTS ON THE
UNDERLYING SECURITIES. PROSPECTIVE PURCHASERS OF THE CERTIFICATES SHOULD
CONSIDER CAREFULLY THE UNDERLYING SECURITIES ISSUER'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 OR THE UNDERLYING SECURITIES
ISSUER. ALL INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT REGARDING THE
UNDERLYING SECURITIES ISSUER IS DERIVED FROM PUBLICLY AVAILABLE DOCUMENTS.
NONE OF THE DEPOSITOR, THE UNDERWRITER OR THE TRUSTEE PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR TAKES ANY RESPONSIBILITY FOR THE ACCURACY OR
COMPLETENESS OF THE INFORMATION PROVIDED THEREIN.
UNDERLYING SECURITIES INDENTURE
The Underlying Securities have been issued pursuant to an agreement (the
"Indenture") between the Underlying Securities Issuer and the Underlying
Securities Trustee. The following summary describes certain general terms of
such Indenture and is based upon the Prospectus dated May 18, 1993 relating
to debt securities of the Underlying Securities Issuer, but investors should
refer to the Indenture itself for all of the terms governing the Underlying
Securities.
The Indenture does not limit the amount of debt securities that may be
issued thereunder and provides that debt securities may be issued thereunder
from time to time in one or more series.
Restrictions on Liens. The Indenture provides that the Underlying
Securities Issuer will not, and will not permit any subsidiary to, issue,
assume or guarantee any debt for money borrowed (herein referred to as
"Debt") if such Debt is secured by any mortgage, deed of trust, security
interest, pledge, lien or other encumbrance (herein referred to as a
"mortgage") upon any Operating Property of the Underlying Securities Issuer
or of any subsidiary or any shares of stock or indebtedness of any
subsidiary, whether owned at the date of the Indenture or thereafter
acquired, without effectively securing the Underlying Securities equally and
ratably with such Debt. The foregoing restriction does not apply to (i)
mortgages on any property acquired, constructed or improved by the Underlying
Securities Issuer or any subsidiary after January 31, 1991, which are created
or assumed within 60 months after such acquisition, or completion of such
construction or improvement (or within six months thereafter pursuant to a
firm commitment for financing arrangement entered into within such 60-month
period) to secure or provide for the payment of the purchase price or cost
thereof, or certain mortgages existing on any property at the time of its
acquisition; (ii) mortgages existing on any property acquired from a
corporation merged with or into the Underlying Securities Issuer or a
subsidiary; (iii) mortgages on property of any corporation existing at the
time it becomes a subsidiary; (iv) mortgages to secure Debt of a subsidiary
to the Underlying Securities Issuer or to another subsidiary; (v) mortgages
in favor of governmental bodies to secure partial progress, advance or other
payments pursuant to any contract or statute or to secure indebtedness
incurred to finance the purchase price or cost of constructing or improving
the property subject to such mortgages; or (vi) mortgages for extending,
renewing or replacing Debt secured by any mortgage referred to in the
foregoing clauses (i) to (v), inclusive, or in this clause (vi) or any
mortgages
S-11
<PAGE>
existing on January 31, 1991. Such restriction does not apply to the
issuance, assumption or guarantee by the Company or any subsidiary of Debt
secured by a mortgage which would otherwise be subject to the foregoing
restrictions up to an aggregate amount which, together with all other secured
Debt of the Underlying Securities Issuer and its subsidiaries (not including
secured Debt permitted under the foregoing exceptions) and the Value of Sale
and Lease-back Transactions existing at such time (other than Sale and
Lease-back Transactions the proceeds of which have been applied to the
retirement of certain long-term indebtedness or to the purchase of other
Operating Property, and other than Sale and Lease-back Transactions in which
the property involved would have been permitted to be mortgaged under clause
(i) above), does not exceed the greater of 10% of Consolidated Net Tangible
Assets or 15% of Consolidated Capitalization (Section 3.03 of the Indenture).
Restrictions on Sale and Lease-back Transactions. The Indenture provides
that Sale and Lease-back Transactions by the Underlying Securities Issuer or
any subsidiary of any Operating Property are prohibited (except for temporary
leases for a term, including renewals, of not more than 48 months and except
for leases between the Underlying Securities Issuer and a subsidiary or
between subsidiaries) unless the net proceeds of such Sale and Lease-back
Transaction are at least equal to the sum of all costs incurred by the
Underlying Securities Issuer in connection with the acquisition of, and
construction of any improvement on, the Operating Property to be leased and
either (a) the Underlying Securities Issuer or such subsidiary would be
entitled to incur Debt secured by a mortgage on the property to be leased
without securing the Underlying Securities pursuant to clause (i) under
"Restrictions on Liens" or (b) the Value thereof would be an amount permitted
under the last sentence under "Restrictions on Liens" or (c) the Underlying
Securities Issuer applies an amount equal to the sum of all costs incurred by
the Underlying Securities Issuer in connection with the acquisition of, and
the construction of any improvements on, such property (i) to the payment or
other retirement of certain long-term indebtedness of the Underlying
Securities Issuer or a subsidiary or (ii) to the purchase of Operating
Property (other than that involved in such Sale and Lease-back Transaction).
(Section 3.04 of the Indenture).
Definitions (Section 1.01 of the Indenture). The term "Consolidated
Capitalization" is defined in the Indenture as the total of all the assets
appearing on the Consolidated Balance Sheets of the Underlying Securities
Issuer and its subsidiaries, less the following: (1) current liabilities; and
(2) deferred income taxes.
The term "Consolidated Net Tangible Assets" is defined in the Indenture as
the total of all the assets appearing on the Consolidated Balance Sheets of
the Underlying Securities Issuer and its subsidiaries less the following: (1)
current liabilities; (2) reserves for depreciation and other asset valuation
reserves; (3) intangible assets such as goodwill, trademarks, trade names,
patents, and unamortized debt discount and expense; and (4) appropriate
adjustments on account of minority interests of other persons holding stock
in any subsidiary of the Underlying Securities Issuer.
The term "Operating Property" is defined in the Indenture as any
manufacturing or processing plant, office facility, retail store, wholesale
club, supercenter, hypermarket, warehouse, distribution center or equipment
located within the United States of America or its territories or possessions
and owned and operated now or hereafter by the Underlying Securities Issuer
or any subsidiary and having a book value on the date as of which the
determination is being made of more than 0.60% of Consolidated Net Tangible
Assets; provided, however, that separate items of equipment with an aggregate
book value in excess of $200,000,000 that are secured pursuant to the same
financing transaction constitute one "Operating Property."
The term "Sale and Lease-back Transaction" is defined as any arrangement
with any person providing for the leasing to the Underlying Securities Issuer
or any subsidiary of any Operating Property (except for temporary leases for
a term, including any renewal thereof, of not more than 48 months and except
for leases between the Underlying Securities Issuer and a subsidiary or
between subsidiaries), which Operating Property has been or is to be sold or
transferred by the Underlying Securities Issuer or such subsidiary to such
person.
S-12
<PAGE>
The term "Value" is defined in the Indenture to mean, with respect to a
Sale and Lease-back Transaction, as of any particular time, the amount equal
to the greater of (1) the net proceeds from the sale or transfer of the
property leased pursuant to such Sale and Lease-back Transaction or (2) the
sum of all costs of the Underlying Securities Issuer incurred in connection
with the acquisition of such property and the construction of any
improvements thereon, as determined in good faith by the Underlying
Securities Issuer at the time of entering into such Sale and Lease-back
Transaction, in either case multiplied by a fraction, the numerator of which
shall be equal to the number of full years of the term of the lease remaining
at the time of determination and the denominator of which shall be equal to
the number of full years of such term, without regard to any renewal or
extension options contained in the lease.
Events of Default, Notice and Waiver. An Event of Default with respect to
the Underlying Securities is defined in the Indenture as a default in payment
of principal or premium, if any, at maturity; a default for 30 days in
payment of any interest; a failure by the Underlying Securities Issuer for 60
days after notice to perform any other of the covenants or agreements in the
Indenture; a default in the payment of any indebtedness of the Underlying
Securities Issuer or acceleration of any such indebtedness under the terms of
the instrument under which such indebtedness is issued, if such default in
payment is not cured or such acceleration is not annulled within 10 days
after written notice; certain events in bankruptcy, insolvency or
reorganization of the Underlying Securities Issuer; or any other Event of
Default provided with respect to the Underlying Securities (Section 5.01 of
the Indenture).
The Indenture provides that if an Event of Default shall have occurred and
be continuing with respect to the Underlying Securities and be continuing,
either the Trustee or the holders of at least 25% in principal amount then
outstanding of the Underlying Securities may declare the principal of all the
Underlying Securities to be due and payable immediately, but upon certain
conditions such declaration may be annulled and past defaults (except, unless
theretofore cured, a default in payment of principal or interest on the
Underlying Securities) may be waived by the holders of a majority in
principal amount then outstanding of the Underlying Securities. (Sections
5.01 and 5.06).
The Indenture does not require the payment of interest on overdue interest
or provide for a higher rate of interest following default.
The Indenture requires the Underlying Securities Issuer to file annually
with the Underlying Securities Trustee a certificate either stating the
absence of any default or specifying any default that exists. (Section 3.09)
The Indenture provides that the Underlying Securities Trustee shall, within
90 days after the occurrence of a default with respect to the Underlying
Securities, give to the holders of the Underlying Securities notice of all
uncured defaults known to it; provided that, except in the case of default in
the payment of principal and premium, if any, or interest on the Underlying
Securities, the Underlying Securities Trustee shall be protected in
withholding such notice if the Underlying Securities Trustee in good faith
determines that the withholding of such notice is in the interest of the
holders of the Underlying Securities. The term "default" for the purpose of
this provision only shall mean the occurrence of any of the Events of Default
specified above excluding any grace periods. (Section 5.07)
The Indenture entitles the Underlying Securities Trustee, subject to the
duty of the Underlying Securities Trustee during a default to act with the
required standard of care, to be indemnified by the holders of the Underlying
Securities before proceeding to exercise any right or power under the
Indenture at the request of such holders. (Section 6.02) The Indenture
provides that the holders of a majority in principal amount of outstanding
Underlying Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Underlying Securities Trustee, or
exercising any trust or power conferred on the Underlying Securities Trustee,
provided that the Trustee may decline to act if such direction is contrary to
law or if the Underlying Securities Trustee determines in good faith that the
proceeding so directed would be illegal or would involve it in personal
liability. (Section 5.06)
Modification of the Indenture. The Indenture provides that the Underlying
Securities Issuer and the Underlying Securities Trustee, with the consent of
the holders of not less than 66 2/3% in aggregate principal amount of each
series of the Underlying Securities at the time outstanding affected thereby,
may execute supplemental indentures amending, changing or eliminating the
provisions of the Indenture or of
S-13
<PAGE>
any supplemental indenture or modifying in any manner the rights of the
holders of such Underlying Securities; provided that no such supplemental
indenture shall (i) extend the fixed maturity of any Underlying Securities or
reduce the rate or extend the time of payment of interest thereon, or reduce
the principal amount thereof, or reduce any premium payable upon the
redemption thereof, without the consent of the holder of each Underlying
Securities so affected or (ii) reduce the aforesaid percentage of Underlying
Securities, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all the
affected Underlying Securities then outstanding. (Section 9.02) Under certain
circumstances, the holders of a majority in aggregate principal amount of
Underlying Securities may waive all defaults and rescind and annul a
declaration that the Underlying Securities have become due and payable and
the consequences of such a declaration. (Section 5.01)
The Underlying Securities are not subject to any put, call or other
conversion or redemption options and, according to the Prospectus Supplement
relating to the Underlying Securities, "rank on a parity with all other
unsecured and unsubordinated indebtedness of [Wal-Mart Stores, Inc.]"
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be denominated and distributions with respect
thereto will be payable in U.S. dollars (the "Specified Currency"). The
Certificates have in the aggregate an initial outstanding principal balance
of $20,000,000.
The Certificates will be delivered in registered form. The Certificates
will be issued, maintained and transferred on the book-entry records of DTC
and its Participants in minimum denominations of $1,000 and integral
multiples thereof. The Certificates will each initially be represented by one
or more global certificates registered in the name of the nominee of DTC
(together with any successor clearing agency selected by the Depositor, the
"Clearing Agency"), except as provided below. The Depositor 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 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 Certificateholders or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as Clearing Agency with
respect to the Certificates and the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, elects to terminate the
book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue such Certificates
as Definitive Certificates issued in the respective principal amounts owned
by the individual owners of such Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as
Certificateholders under the Trust Agreement.
S-14
<PAGE>
LISTING ON THE NEW YORK STOCK EXCHANGE
The Certificates have been authorized for listing, upon official notice of
issuance, with the NYSE. There can be no assurance that the Certificates,
once listed, will continue to be eligible for trading on the NYSE.
COLLECTIONS AND DISTRIBUTIONS
Collections on the Underlying Securities 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 Certificateholders and the holder of the Retained
Interest, pro rata, the Required Interest and the Interest Strip,
respectively; and
(ii) to the Certificateholders, Required Principal (if any).
If the Trustee has not received payment on the Underlying Securities on or
prior to a Distribution Date, such distribution will be made upon receipt of
payment on the Underlying Securities. No additional amounts will accrue on
the Certificates or be owed to Certificateholders as a result of any such
delay.
All amounts received on or with respect to the Underlying Securities,
including amounts received in connection with the receipt of Liquidation
Proceeds in the event of an Optional Redemption, which are not distributed to
Certificateholders on the date of receipt, shall be invested by the Trustee
in Eligible Investments. Income on such investments will not constitute
property of the Trust and will not be available to Certificateholders.
There can be no assurance that collections received from the Underlying
Securities over a specified period will be sufficient to make all required
distributions to the Certificateholders and the holder of the Retained
Interest. To the extent Available Funds are insufficient to make any such
distributions due to any such Series, any shortfall will be carried over and
will be distributable on the next Distribution Date on which sufficient funds
exist to pay such shortfalls. The holder of the Retained Interest will pay
the Ordinary Expenses of the Trustee from amounts otherwise distributable as
the Interest Strip.
For purposes hereof, the following terms have the following meanings:
"Available Funds" for any Distribution Date means the sum of all
amounts received on or with respect to the Underlying Securities during
the preceding Collection Period.
"Eligible Investments" means, with respect to the Certificates, those
investments consistent with the Trust's status as a grantor trust for
federal income tax purposes and acceptable to the Rating Agencies 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 on any given Distribution
Date means the accrued and unpaid interest on the outstanding principal
balance of the Certificates, computed at the Interest Rate.
"Interest Strip" allocable to the Retained Interest for any
Distribution Date means accrued and unpaid interest on the outstanding
principal balance of the Certificates, computed at an annual rate of
0.25%.
"Required Principal" for the Certificates for any Distribution Date
means the amount received on the Underlying Securities attributable to
principal payments thereon during the related Collection Period. No
principal payments are scheduled to be made on the Underlying Securities
until June 1, 2013.
OPTIONAL REDEMPTION
On each Distribution Date, or the next succeeding Business Day if such
Distribution Date is not a Business Day, on or after the Distribution Date in
June, 1997, the Certificates may be redeemed by the
S-15
<PAGE>
Trust at the request of the holder of the Call Warrant (see below) at a price
of par (the "Redemption Price"). In addition, the Certificateholders shall be
entitled to receive interest up to, but not including, the Redemption Date.
The holder of the Call Warrant (the "Warrantholder") (see below) may
provide notice to the Trustee (a "Redemption Request") no less than 18 days
prior to a Distribution Date occurring on or after the Distribution Date
occurring in June 1997 (such date being the "Redemption Date") that it
requests an Optional Redemption of all of the Certificates on such Redemption
Date.
Upon receiving such Redemption Request, the Trustee will immediately
direct the Market Agent to sell in compliance with the Sales Procedures the
Underlying Securities at a price not less than the Redemption Price. The
Market Agent will inform the Trustee no later than 16 days prior to the
Redemption Date that it can liquidate the Underlying Securities at such a
sales price (the "Liquidation Price"), and the Trustee will notify
Certificateholders of the Optional Redemption not less than 15 days prior to
the Redemption Date. The settlement of the liquidation of the Underlying
Securities will occur no earlier than two Business days prior to the
Redemption Date, and all liquidation proceeds will be deposited directly into
the Certificate Account established by the Trustee.
If the Market Agent is unable to sell the Underlying Securities at a price
equal or greater than the Redemption Price, the Market Agent will so notify
the Trustee no later than 16 days prior to the requested Redemption Date, the
Trustee will so notify the Warrantholder, and such Redemption Request will be
deemed not effective with respect to such Distribution Date and the
Certificates, the Retained Interest and the Call Warrant shall continue to
remain outstanding.
Deliveries of the Underlying Securities by the Trust to the purchaser of
the Underlying Securities (the "Purchaser") will only be made against payment
by the Purchaser in same day funds. Such payment must occur no later than
10:00 a.m. New York City time on the Redemption Date. In the event that the
Purchaser fails to make payment by such time (a "Purchase Default"), the sale
of the Underlying Securities will be voided, the Optional Redemption will be
deemed to not be effective with respect to such Distribution Date, and the
Certificates and the Call Warrant shall continue to remain outstanding;
provided however, that if such Purchaser is the Warrantholder or an affiliate
thereof, the Warrantholder's rights with respect to the Call Warrant shall be
deemed surrendered.
CALL WARRANT
The Call Warrant represents the right to request the Trustee to cause an
Optional Redemption of the Certificates in their entirety. The Warrantholder
is entitled to 100% of excess, if any, of the Liquidation Price over the
Redemption Price for the Underlying Securities liquidated pursuant to the
Optional Redemption Provisions. The initial Warrantholder will be the
Depositor or an affiliate thereof. No Call Warrant is being offered hereby.
For certain purposes under the Prospectus, the Call Warrant and the Retained
Interest shall be deemed to be a separate class of uncertificated
Certificates.
Under the terms of the Call Warrant and the Trust Agreement,
Certificateholders will not be entitled to terminate the Trust or cause the
sale or other disposition of the Underlying Securities without the consent of
the holder of the Call Warrant. In addition, amendment of the Trust Agreement
may require, and amendment of the Call Warrant generally will require,
consent of the Warrantholder. See "Description of the Trust Agreement --
Voting Rights".
THE DEPOSITOR
Lehman ABS Corporation (the "Depositor") was incorporated in the State of
Delaware on January 29, 1988. The Depositor is a wholly owned, special
purpose subsidiary of Lehman Commercial Paper Inc. ("LCPI"), which is itself
a wholly owned subsidiary of Lehman Brothers Inc. ("Lehman Brothers"), which
is a wholly owned subsidiary of Lehman Brothers Holdings Inc. ("Holdings").
None of Lehman Brothers, LCPI, Holdings or the Depositor, nor any affiliate
of the foregoing, has guaranteed or is otherwise obligated with respect to
the Certificates.
The principal executive offices of the Depositor are located at Three
World Financial Center, New York, New York 10285 (Telephone: (212) 526-7000).
See "The Depositor" in the Prospectus.
S-16
<PAGE>
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 Depositor with the Commission
following the issuance and sale of the Certificates. The Trust created under
the Trust Agreement (including the Series 1996-Wal-Mart Supplement) will
consist of (i) the Underlying Securities and (ii) all payments on or
collections in respect of the Underlying Securities due after the Closing
Date. 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 discussions in the Prospectus under "DESCRIPTION OF THE TRUST
AGREEMENT -- Advances in Respect of Delinquencies", "-- Certain Matters
Regarding the Administrative Agent and the Depositor" (to the extent the
discussion relates to the Administrative Agent), "-- Administrative Agent
Termination Events; Rights Upon Administrative Agent Termination Event", and
"-- Evidence as to Compliance" are not applicable to the Certificates.
THE TRUSTEE
The Bank of New York, a New York banking corporation, will act as trustee
(the "Trustee") for the Certificates and the Trust pursuant to the Trust
Agreement. The Trustee's offices are located at 101 Barclay Street, New York,
New York 10286 and its telephone number is (212) 815-5098.
Pursuant to the Trust Agreement, the Trustee shall receive compensation
for Ordinary Expenses, payable by the holder of the Retained Interest. The
Trustee will be permitted to deduct its compensation from periodic
distributions on the Interest Strip.
"Ordinary Expenses" are defined in the Trust Agreement and are generally
described as the Trustee's customary fee for its services as Trustee,
including (i) the costs and expenses of preparing, sending and receiving all
reports, statements, notices, returns, filings, solicitation of consent or
instructions, or other communications required by the Trust Agreement, (ii)
the costs and expenses of holding and making ordinary collection or payments
on the assets of the Trust and of determining and making payments of interest
or principal, (iii) the costs and expenses of the Trust's or Trustee's
counsel, accountants and other experts for ordinary or routine consultation
or advice in connection with the establishment, administration and
termination of the Trust, and (iv) any other costs and expenses that are or
reasonably should have been expected to be incurred in the ordinary course of
administration of the Trust.
The Trust Agreement provides that the Trustee may not take any action
which, in the Trustee's opinion, would or might cause it to incur
Extraordinary Expenses, unless (i) the Trustee is satisfied that it will have
adequate security or indemnity in respect of such costs, expenses and
liabilities and (ii) the Trustee has been instructed to do so by
Certificateholders representing not less than 66 2/3% of the Certificates
then outstanding. "Extraordinary Expenses" are defined in the Trust Agreement
as any and all costs, expenses or liabilities arising out of the
establishment, existence or administration of the Trust, other than (i)
Ordinary Expenses and (ii) costs and expenses payable by a particular
Certificateholder, the Trustee or the Depositor pursuant to the Trust
Agreement.
EVENTS OF DEFAULT
An event of default with respect to the 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.
S-17
<PAGE>
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Certificates, the Trustee
will give notice to the Certificateholders, the Warrantholder and the holder
of the Retained Interest, 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 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 Certificateholders, the Warrantholder and
the holder of the Retained Interest.
No Certificateholder will have the right to institute any proceeding with
respect to the Trust Agreement, unless (i) such Certificateholder previously
has given to the Trustee written notice of a continuing breach, (ii)
Certificateholders evidencing not less than the Required Percentage Remedies
of the aggregate Voting Rights have requested in writing that the Trustee
institute such proceeding in its own name as Trustee, (iii) such
Certificateholder or Certificateholders 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 Certificateholders
evidencing not less than the Required Percentage Remedies of the aggregate
Voting Rights. "Required Percentage-Remedies" shall mean 66 2/3%.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated among all
Certificateholders, in proportion to the then Outstanding principal balances
of their respective Certificates. The "Required Percentage- Amendment" of
Voting Rights of those Certificates that are materially adversely affected by
any modification or amendment of the Trust Agreement necessary to consent to
such modification or amendment shall be 66 2/3%. In addition to the other
restrictions on modification and amendment, the Trustee will not enter into
any amendment or modification of the Trust Agreement which would adversely
affect in any material respect the interests of the Retained Interest or the
Warrantholder without the consent of the holder of the Retained Interest or
the Warrantholder, respectively; provided, however, that no such amendment or
modification will be permitted which would alter the timing or amount of any
payment of the Redemption Price or which would alter the status of the Trust
as a grantor trust for Federal Income tax purposes. See "Description of the
Trust Agreement -- Modification and Waiver" in the Prospectus. Further, no
amendment to the Retained Interest or the Call Warrant will be permitted
which would adversely affect in any material respect the interests of the
Certificateholders without the consent of Certificateholders representing
66 2/3% of the aggregate Voting Rights of those Certificates that are
materially adversely affected by such modification or amendment and without
confirmation by each Rating Agency that such amendment will not result in a
downgrading or withdrawal of its rating of the Certificates; provided,
however, that no such amendment or modification will be permitted which would
alter the timing or amount of any payment of the Redemption Price, without
the consent of Certificateholders representing 100% of the aggregate Voting
Rights of the Certificates or which would alter the status of the Trust as a
grantor trust for Federal Income tax purposes. In addition, the Call Warrant
may not be amended without the consent of the Warrantholder, and the Retained
Interest may not be amended without the consent of the holder thereof.
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
S-18
<PAGE>
outstanding principal balances of the Certificates) as the Certificates of
the Trust were actually voted or not voted by the Certificateholders thereof
as of a date determined by the Trustee prior to the date on which such
consent or vote is required; provided, however, that, notwithstanding
anything to the contrary, 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 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 outstanding Certificateholders, the holders of the Retained Interest
and the Warrantholder 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 the
outstanding Certificates, the holders of the Retained Interest and the
Warrantholder. 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 Underlying Securities or any other offer is made for the
Underlying Securities, the Trustee shall notify the Certificateholders, the
holders of the Retained Interest and the Warrantholder of such offer as
promptly as practicable. The Trustee must reject any such offer unless the
Trustee is directed by the affirmative vote of all of the Certificateholders,
the holders of the Retained Interest and the Warrantholder to accept such
offer and the Trustee has received the tax opinion described above.
If an event of default under the Indenture occurs and is continuing and if
directed by all of the outstanding Certificateholders, the holders of the
Retained Interest and the Warrantholder, 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 interests of the Certificateholders, the Warrantholder and the holders of
the Retained Interest may differ from each other and from those of other
holders of outstanding Underlying Securities.
TERMINATION OF THE TRUST
The Trust shall terminate upon the earliest to occur of the payment in
full at maturity or sale by the Trust in accordance with the Call Warrant of
all of the Underlying Securities and the distribution in full of all amounts
due to the Certificateholders, the Retained Interest and the Warrantholder.
See "Description of the Trust Agreement -- Termination" in the Prospectus.
Under the terms of the Trust Agreement, the Certificateholders will not be
entitled to terminate the Trust or cause the sale or other disposition of the
Underlying Securities, if and for so long as any Call Warrant remains
outstanding, without the consent of the Warrantholder.
S-19
<PAGE>
THE MARKET AGENT AGREEMENT
MARKET AGENT
Pursuant to the Market Agent Agreement, dated as of the Closing Date
between Lehman Brothers Inc., solely in its capacity as Market Agent, and the
Trust (the "Market Agent Agreement"), the Market Agent shall: (a) act on
behalf of the Trust in connection with the sale of the Underlying Securities
with respect to an Optional Redemption as provided in the Trust Agreement;
and (b) perform its other duties and comply with the provisions set forth in
the Market Agent Agreement.
The Market Agent Agreement provides that the Market Agent has no liability
for any act or omission except as results from the Market Agent's negligence
or willful misconduct. The Market Agent may assign any and all of its duties,
obligations and rights as Market Agent to any organization controlled by or
under common control with Lehman Brothers Inc. The Market Agent may at any
time resign and be discharged of the duties and obligations created by the
Market Agent Agreement by providing at least 30 days notice to the Trustee.
SALE OF THE UNDERLYING SECURITIES
Upon receiving a Redemption Request from the Warrantholder, the Trustee
will immediately direct the Market Agent to sell the Underlying Securities in
compliance with the Sale Procedures (as defined herein) at a price not less
than the Redemption Price. The Market Agent will inform the Trustee no later
than 10 days prior to the Redemption Date that the Underlying Securities can
be liquidated at such a sales price (the "Liquidation Price"), and the
Trustee will promptly notify Certificateholders of the Optional Redemption.
The settlement of the liquidation of the Underlying Securities will occur no
earlier than two Business days prior to the Redemption Date, and the
liquidation proceeds will be deposited into the Certificate Account
maintained by the Trustee. Deliveries of the Underlying Securities by the
Trust to the Purchaser of such Underlying Securities will only be made
against payment in same day funds.
"Sale Procedures" means the procedures by which the Market Agent will, on
behalf of the Trust, sell the Underlying Securities to the highest of not
less than two solicited bidders for such Underlying Securities (which bidders
(i) may include Lehman Brothers Inc. or the Warrantholder or any affiliates
thereof, provided however, that neither Lehman Brothers Inc. nor the
Warrantholder, nor any of their affiliates will be obligated to bid, and (ii)
need not be limited to recognized broker dealers). In the sole judgment of
the Market Agent, bids may be evaluated on the basis of bids for all or a
portion of the Underlying Securities being sold or on any other basis
selected in good faith by the Market Agent. No assurance can be given as to
whether the Market Agent will be successful in soliciting bids to purchase
the Underlying Securities. No bid will be accepted by the Trustee unless the
bid price equals at least the outstanding principal amount of such Underlying
Securities, plus accrued interest to the Redemption Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
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, and the assets collateralizing or otherwise
supporting such Certificate.
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.
S-20
<PAGE>
The Trust will be provided with an opinion of Weil, Gotshal & Manges LLP
(a limited liability partnership including professional corporations),
special Federal tax counsel to the Depositor ("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.
THE TAX DISCUSSION CONTAINED HEREIN ASSUMES THAT THE AGGREGATE DEEMED
PURCHASE PRICE OF THE CERTIFICATES (AS DESCRIBED HEREIN) WILL AT LEAST EQUAL
THE STATED PRINCIPAL AMOUNT OF THE UNDERLYING SECURITIES.
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
Certificateholder will be subject to Federal income taxation as if it owned
directly the portion of the Underlying Securities allocable to such
Certificates, as if it issued directly the portion of the Call Warrant
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 Certificateholders will not realize OID except
with respect to a "stripped interest" (as defined below).
INCOME OF CERTIFICATEHOLDERS
In General. A Certificateholder will allocate the amount it paid (or, as
explained in the next sentence, is deemed to have paid) for its Certificate
among the portions of the Underlying Securities allocable to such
Certificate, in proportion to their relative fair market values on the date
of purchase of the Certificate. In addition, a Certificateholder should be
deemed to have paid for its Certificates the full fair market value of the
portion of the Underlying Securities that are allocable to its Certificates
and, to the extent that the aggregate amount of such fair market values
exceeds the amount a Certificateholder actually paid for a Certificate,
should be deemed to have been paid such excess by the Warrantholder as a Call
Premium. Accordingly, a Certificateholder should have a tax basis in its
Certificate (which basis will be allocated among the Underlying Securities,
as described above) equal to the fair market value of its interest in such
assets. A Certificateholder would calculate separately its income, gain, loss
or deduction realized with respect to each such asset.
The Federal income tax treatment of a Certificateholder will depend upon
whether the interest in the Underlying Securities represented by such
Certificate 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. Each Certificate will be considered in its entirety
to represent a stripped interest in the Underlying Securities if any person
is entitled to receive interest on the Underlying Securities which is
disproportionately less than the principal which such person is entitled to
receive on the Underlying Securities, or if such person (e.g., a
Warrantholder) is entitled to receive all or part of the interest on the
Underlying Securities but no principal on the Underlying Securities.
Under Section 1286 of the Code, a stripped bond is treated as having OID
if the stated redemption price at maturity exceeds such stripped bond's
ratable share of the purchase price. If a Certificate represents an interest
in a stripped bond, a holder would (subject to a de-minimis exception) be
required to include in income the portion of the OID allocable to such
Certificate based upon the constant yield method. Because the Underlying
Securities are being purchased at a premium, the application of Section 1286
should not result in any OID.
Based upon the foregoing, each Certificateholder 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 earned on the Underlying Securities, and any gain or loss upon
collection or disposition of the Underlying Securities. The portion of each
payment to a Certificateholder that is allocable to
S-21
<PAGE>
principal on the Underlying Securities will represent a recovery of capital,
which will reduce the tax basis of such Certificateholder's undivided
interest in the Underlying Securities.
Bond Premium. To the extent that the portion of the purchase price of a
Certificate allocated to a Certificateholder's undivided interest in the
Underlying Securities is greater than the portion of the principal balance of
the Underlying Securities allocable to the Certificate, such interest in the
Underlying Securities will have been acquired at a premium. In determining
the amount of such premium, a portion of the purchase price for a Certificate
will be allocated to the accrued interest on the Underlying Securities at the
time of purchase as though such accrued interest were a separate asset, thus
reducing the portion of the purchase price allocable to the
Certificateholder's undivided interest in the Underlying Securities (the
"Allocated Purchase Price").
In the event that a Certificate represents either an unstripped interest
in the Underlying Securities, 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 Securities
to the Certificateholder other than qualified stated interest), such premium
will be amortizable by the Certificateholder as an offset to interest income
(with a corresponding reduction in the Certificateholder's basis) under a
constant yield method over the term of the Underlying Securities if an
election under Section 171 of the Code is made or was previously in effect.
Any such election would also apply to all debt instruments held by the
Certificateholder during the year in which the election is made and all debt
instruments acquired thereafter.
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 Certificateholders on which they would recognize gain or
loss.
DEDUCTIBILITY OF TRUST'S FEES AND EXPENSES
In computing its Federal income tax liability, a Certificateholder 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 and paid out of the Trust corpus 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 Certificateholder 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 Certificateholder's tax basis in a Certificate generally will equal the
cost of such Certificate (A) increased by the sum of (i) the fair market
value of the Call Warrant allocable to such Certificate, and (ii) any amounts
of undistributed taxable income and (B) reduced by any (i) amortized premium
(as described above) and (ii) payments other than of qualified stated
interest on the Underlying Securities 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 Underlying
Securities and the Certificateholder'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.
CALL PREMIUM; EXERCISE OF CALL WARRANT
As described above, each Certificateholder should be deemed to have
received at the time of its purchase of its Certificate a Call Premium in an
amount equal to the fair market value of the portion of the Call Warrant
allocable to its Certificate. The receipt of such Call Premium should not be
a taxable event to the Certificateholder until such time as the Call Warrant
so allocable to its Certificate is exercised or lapses. If the Call Warrant
lapses unexercised, the Certificateholder will be required to include the
Call Premium in income for the taxable year the Call Warrant terminated as
short-term capital gain. If the Warrant is exercised, the proceeds of sale of
the Certificate will be increased by the amount of the Call Premium. The gain
from such sale will be long-term or short-term capital gain, depending upon
whether the Certificate was then held for the requisite holding period.
S-22
<PAGE>
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 Certificateholder fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
FOREIGN CERTIFICATEHOLDERS
To the extent that amounts paid to Certificateholder that are not United
States persons ("Foreign Certificateholders") 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 Certificateholder 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.
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 includable in gross income for U.S. Federal income tax
purposes, regardless of its source.
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 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, 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
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
S-23
<PAGE>
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
Depositor anticipates that the Certificates will be considered
publicly-offered securities within the meaning of the Regulation.
Participation by benefit plan investors in the Certificates would not be
significant if immediately after the most recent acquisition of Certificates,
whether or not from the Depositor or an Agent or Underwriter, less than 25
percent of the value of such Certificates 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 the 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 Underlying Securities, 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 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 Depositor is able to confirm the existence
of at least 100 independent purchasers of the Certificates, the foregoing
representation will not be a condition to acquisition of Certificates.
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 February 28, 1996 (the "Underwriting Agreement"), the
Depositor has agreed to sell to Lehman Brothers Inc. (an affiliate of the
Depositor) (the "Underwriter"), and the Underwriter has agreed to purchase,
the Certificates.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter 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 and
any purchasers of Certificates for whom they may act as agents. The
Underwriter and any dealers that participate with the Underwriter 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. Discounts and concessions
to dealers will vary but will not exceed 1.5% of the face amount of the
Certificates. The acquisition by the Depositor of the Call Warrant and the
Retained Interest at a discount to their value may be deemed to represent
underwriting compensation.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter may be
required to make in respect thereof.
S-24
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter by Weil, Gotshal & Manges LLP, New York,
New York.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates have ratings assigned by Moody's Investors Service, Inc.
("Moody's") and by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P") equivalent to the ratings of the Underlying
Securities, which, as of the date of this Prospectus Supplement were "Aa1" by
Moody's and "AA" by S&P. On December 12, 1995, Moody's announced that it had
placed the long-term debt ratings of Wal-Mart Stores, Inc. on review for
possible downgrade. As of the date of this Prospectus Supplement, no such
action had been taken. The rating of the Certificates by Moody's addresses
the likelihood of the ultimate payment of principal of and interest on the
Certificates. The rating of the Certificates by S&P addresses the likelihood
of timely receipt of interest and ultimate receipt of principal on the
Certificates on or before the Final Scheduled Distribution Date. The ratings
address the likelihood of the receipt by Certificateholders of payments
required under the Trust Agreement, and are based primarily on the credit
quality of the Underlying Securities. 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
Underlying Securities, and the corresponding effect on yield to investors.
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
similar ratings on different securities.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Rating Agencies. However, there can be no assurance as
to whether any other rating agency will rate the Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating
on the Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Certificates by the Rating Agencies.
S-25
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Allocated Purchase Price ............... S-22
Available Funds ........................ S-15
CEDE ................................... S-14
Certificates ........................... S-1, S-3
Clearing Agency ........................ S-14
Closing Date ........................... S-1
Code ................................... S-20
Consolidated Capitalization ............ S-12
Consolidated Net Tangible Assets ...... S-12
Debt ................................... S-11
Depositor .............................. S-1, S-3, S-16
Distribution Date ...................... S-1, S-4
DOL .................................... S-23
DTC .................................... S-2, S-5
Eligible Investments ................... S-15
ERISA .................................. S-6, S-23
Event of Default ....................... S-17
Extraordinary Expenses ................. S-17
Federal Tax Counsel .................... S-21
Final Scheduled Distribution Date ..... S-1
Foreign Certificateholders ............. S-23
Holdings ............................... S-16
Indenture .............................. S-8, S-11
Interest Strip ......................... S-4, S-10, S-15
IRA .................................... S-6
Keogh .................................. S-6
LCPI ................................... S-16
Lehman Brothers ........................ S-16
Liquidation Price ...................... S-5, S-16, S-20
Market Agent ........................... S-5
Market Agent Agreement ................. S-20
Moody's ................................ S-1, S-6, S-25
NYSE ................................... S-1
OID .................................... S-21
Operating Property ..................... S-12
Ordinary Expenses ...................... S-17
Participants ........................... S-2
Plan ................................... S-6, S-23
PTCE ................................... S-24
Purchase Default ....................... S-16
Purchaser .............................. S-16
Redemption Date ........................ S-5, S-16
Redemption Price ....................... S-1, S-16
Redemption Request ..................... S-5, S-16
Regulation ............................. S-23
Required Interest ...................... S-15
Required Percentage-Amendment .......... S-18
Required Percentage-Remedies ........... S-18
Required Principal ..................... S-15
S-26
<PAGE>
S&P .................................... S-1, S-6, S-25
Sale and Lease-back Transaction ....... S-12
Sale Procedures ........................ S-20
SEC .................................... S-8, S-10
Series Supplement ...................... S-3, S-10
Service ................................ S-21
Specified Currency ..................... S-5, S-14
Standard Terms for Trust Agreements ... S-3
Trust .................................. S-1, S-3
Trust Agreement ........................ S-3, S-10
Trustee ................................ S-1, S-17
Underlying Securities .................. S-1, S-3
Underlying Securities Issuer ........... S-1, S-3
Underlying Securities Trustee .......... S-7
Underwriter ............................ S-1, S-24
Underwriting Agreement ................. S-24
United States person ................... S-23
Value .................................. S-12
Wal-Mart ............................... S-1
Warrantholder .......................... S-4, S-16
</TABLE>
S-27
<PAGE>
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 "Depositor") pursuant to a Trust Agreement and a
series supplement thereto with respect to any given Series (collectively, the
"Trust Agreement") among the Depositor, 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
Depositor in the secondary market (either directly or through an affiliate of
the Depositor), 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, 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.
Except as otherwise provided herein and in the applicable Prospectus
Supplement, the Depositor'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 Depositor, 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 Depositor, 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 ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Certificates may be offered and sold to or through underwriters,
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.
LEHMAN BROTHERS
November 15, 1995
<PAGE>
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 Depositor 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 Depositor 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 Depositor does not intend to send any financial reports
to Certificateholders.
The Depositor 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor 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 Depositor 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
2
<PAGE>
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 Depositor, on
behalf of each Trust, will cause to be filed with the Commission such
periodic reports as are required under the Exchange Act.
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.
3
<PAGE>
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 Depositor 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 Depositor, any Person affiliated
with the Depositor or the Issuer, or any other Person. The obligations, if
any, of the Depositor with respect to the Certificates of any Series will
only be pursuant to certain limited representations and warranties. The
Depositor 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 Depositor were required
to repurchase a Underlying Security with respect to which the Depositor 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 Depositor, or from a reserve fund established to
provide funds for such repurchases. The Depositor 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 Depositor, any Administrative Agent or any
of their affiliates and, unless otherwise specified in the applicable
Prospectus Supplement, are not insured or guaranteed by the Depositor, 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
4
<PAGE>
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, 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 Depository (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
Depository 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 Depository's system, or otherwise to
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 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 Depositor 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 DEPOSITOR
The Depositor 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 Depositor is located at 3 World
Financial Center, New York, New York 10285. Its telephone number is (212)
526-5594.
The Certificate of Incorporation of the Depositor provides that the
Depositor 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 Depositor provides that
any securities, except for subordinated securities, issued by the Depositor
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
Depositor 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 Depositor may not issue any securities
which would result in the lowering of the then current ratings of the
outstanding Certificates of any Series.
5
<PAGE>
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 Depositor 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 Depositor for
general corporate purposes.
FORMATION OF THE TRUST
The Depositor 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 on the books and records of DTC 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 Depositor'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."
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
Depositor 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 Depositor 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 Depositor will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
6
<PAGE>
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 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 an 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 an
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.
7
<PAGE>
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 Depositor, 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
Depositor 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).
Each 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 Depositor (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
8
<PAGE>
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 Depositor 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 Depositor'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 Depository (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 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
Depositor 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 Depositor 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
9
<PAGE>
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 Depositor, 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). 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 Depositor may at any time
purchase Certificates at any price in the open market or otherwise.
Certificates so purchased by the Depositor may, at the discretion of the
Depositor, 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,
such distributions will be made in such Specified Currency, unless such
Specified Currency is unavailable due to the imposition of exchange controls
or to
10
<PAGE>
other circumstances beyond the Depositor'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 Depository); 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 (15) 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
11
<PAGE>
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 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
12
<PAGE>
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 Depositor 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).
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.
13
<PAGE>
(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.
(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 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
14
<PAGE>
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 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:
(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
15
<PAGE>
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 their 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.
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
16
<PAGE>
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.
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")
17
<PAGE>
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.
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 Depositor'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
18
<PAGE>
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 Depository (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 Depository'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 Depository'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 Depository 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 Depository.
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.
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 "Depository"), and registered in the name
of a nominee of the Depository. 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
19
<PAGE>
part for the individual Certificates represented thereby (each a "Definitive
Certificate"), a Global Security may not be transferred except as a whole by
the Depository for such Global Security to a nominee of such Depository or by
a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any such nominee to a successor of such
Depository or a nominee of such successor (Sections 5.02 and 5.04).
The Depository Trust Company has advised the Depositor 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 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 Depository ("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
Depository'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 Depository. Access to such Depository'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
Depositor that it intends to follow such procedures.
Upon the issuance of a Global Security, the Depository 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 Depositor 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
Depository 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.
So long as the Depository for a Global Security, or its nominee, is the
owner of such Global Security, such Depository 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
Certificateholders thereof under the Trust Agreement governing such
Certificates. Because the Depository 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
Depository'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 Depository or its nominee, as the case may be,
as the Certificateholder of such Global Security. None of the Depositor, 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 Depositor expects that the Depository 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
20
<PAGE>
any of such Certificates, will immediately credit 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
Depository. The Depositor 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 Depository 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 Depositor within ninety (90) days, the
Depositor will issue individual Definitive Certificates in exchange for the
Global Security or Securities representing such Certificates. In addition,
the Depositor 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 in exchange for the Global Security or Securities representing such
Certificates. Further, if the Depositor 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 Depositor and the Depository 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 Depositor, 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 Depositor 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.
21
<PAGE>
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 Depositor (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, an "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 Depositor 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 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
22
<PAGE>
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 obtaining the
consent of the indenture trustee, that the proceeding be brought for the
ratable benefit of all holders of the security, and/or that 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.
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 comprising 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.
23
<PAGE>
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 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 that 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
composed 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, and 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 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
24
<PAGE>
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 Depositor, 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 Depositor 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 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
25
<PAGE>
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 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
26
<PAGE>
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 Depositor 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.
27
<PAGE>
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The following summary of certain provisions of the Trust Agreement and the
Certificates does 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 Depositor 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 Depositor 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 Depositor 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 Depositor 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 Depositor, and the Administrative
Agent, if any, and otherwise the Trustee shall immediately notify the
relevant person who sold the applicable Deposited Asset to the Depositor (a
"Deposited Asset Provider"). If and to the extent specified in the applicable
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 of 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 Depositor 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 Depositor 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
28
<PAGE>
Agreement. Upon a breach of any such representation of the Depositor or any
such Administrative Agent, as the case may be, which materially and adversely
affects the interests of the Certificateholders, the Depositor or any such
Administrative Agent, respectively, will be obligated to cure the breach in
all material respects (Sections 2.04 and 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
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
29
<PAGE>
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 (Section 3.12). Only if and
to the extent provided in the applicable Prospectus Supplement, the
Administrative Agent or Trustee, as so provided, may 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.
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
30
<PAGE>
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 DEPOSITOR
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 Depositor, as affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business relationships
with the Trustee, the Depositor, 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 Depositor nor any director, officer, employee, or
agent or the Administrative Agent or the Depositor 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 Depositor and any director, officer, employee or agent of the
Administrative Agent or the Depositor 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 Depositor will be
under any obligation to
31
<PAGE>
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 Depositor 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 Depositor, or to the Administrative Agent, the
Depositor 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 Depositor, or to the Administrative Agent, the Depositor 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
Depositor 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
32
<PAGE>
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 Trust Certificates may be amended by the
Depositor 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 Depositor, 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 Depositor, 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.
33
<PAGE>
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 Depositor, 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 Depositor 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;
(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).
34
<PAGE>
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).
The Trust Agreement will also provide for delivery to the Depositor, 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
35
<PAGE>
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
Depositor, any Administrative Agent and their respective affiliates.
36
<PAGE>
LIMITATIONS ON ISSUANCE OF BEARER CERTIFICATES
In compliance with United States Federal income tax laws and regulations,
the Depositor 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.
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 Depositor 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.
37
<PAGE>
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 Depositor 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 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 Depositor'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.
38
<PAGE>
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 Depositor 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 Depositor. 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 Depositor
from time to time. Any agent involved in the offer or sale of Certificates
will be named, and any commissions payable by the Depositor 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 Depositor
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.
39
<PAGE>
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 Depositor to indemnification by the Depositor 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 Depositor or
its affiliates in the ordinary course of business.
Lehman Brothers Inc. is an affiliate of the Depositor. 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 Depositor 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.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor and the underwriters by Weil, Gotshal & Manges, New York,
New York or other counsel identified in the applicable Prospectus Supplement.
40
<PAGE>
No dealer, salesman or other person has been authorized to given any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or Lehman Brothers. This Prospectus Supplement and the Prospectus
do not constitute an offer of any securities other than those to which they
relate or an offer to sell, or a solicitation of an offer to buy, to any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus Supplement and the
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
time subsequent to their respective dates.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary ............................................ S-3
Risk Factors ....................................... S-9
The Trust .......................................... S-10
Description of the Underlying Securities .......... S-10
Description of the Certificates .................... S-14
The Depositor ...................................... S-16
Description of the Trust Agreement ................. S-17
The Market Agent Agreement ......................... S-20
Certain Federal Income Tax Consequences ............ S-20
ERISA Considerations ............................... S-23
Method of Distribution ............................. S-24
Legal Matters ...................................... S-25
Ratings ............................................ S-25
Index of Defined Terms ............................. S-26
PROSPECTUS
PAGE
--------
Prospectus Supplement .............................. 2
Available Information .............................. 2
Incorporation of Certain Documents by Reference ... 2
Reports to Certificateholders ...................... 3
Important Currency Information ..................... 3
Risk Factors ....................................... 4
The Depositor ...................................... 5
Use of Proceeds .................................... 6
Formation of the Trust ............................. 6
Maturity and Yield Considerations .................. 7
Description of the Certificates .................... 8
Description of Underlying Securities and Credit
Support ........................................... 22
Description of the Trust Agreement ................. 28
Limitations on Issuance of Bearer Certificates .... 37
Currency Risks ..................................... 37
Plan of Distribution ............................... 39
Legal Opinions ..................................... 40
</TABLE>
$20,000,000
Corporate Bond-Backed Certificates,
Series 1996-Wal-Mart
(Underlying Securities will be
7.25% Debentures due June 1, 2013
issued by
Wal-Mart Stores, Inc.)
7.00% Fixed Rate Pass-Through Certificates
Lehman ABS Corporation
(Depositor)
PROSPECTUS SUPPLEMENT
February 22, 1996
LEHMAN BROTHERS
