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PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 4, 2001)
1,800,000
CORPORATE BACKED TRUST CERTIFICATES,
Series 2001-1, Class A-1
(Underlying Securities will be 7.54% Cumulative Capital Securities Due
January 15, 2027 issued by JPM Capital Trust I)
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<CAPTION>
NUMBER OF INTEREST PRICE TO UNDERWRITING
CERTIFICATES RATE PUBLIC DISCOUNT
<S> <C> <C> <C> <C>
Class A-1 Certificates 1,800,000 7.85% $25 $0.7875
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THE CERTIFICATES The Trust
REPRESENT NON-
RECOURSE OBLIGATIONS o will be formed pursuant to a Trust Agreement between Lehman ABS
OF THE TRUST ONLY AND Corporation and U.S. Bank Trust National Association.
DO NOT REPRESENT AN
INTEREST IN OR o will issue two classes of certificates, the Class A-1 Certificates and
OBLIGATION OF LEHMAN the Class A-2 Certificates, of which only the Class A-1 Certificates
ABS, THE TRUSTEE OR are offered hereby.
ANY OF THEIR
AFFILIATES. The Certificates
o represent an interest in the assets of the Trust, which consist solely
of the securities described herein.
o currently have no trading market.
o are not insured or guaranteed by any governmental agency.
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YOU SHOULD REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-11 OF THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 5 OF THE PROSPECTUS.
For complete information about the offered certificates, read both this
prospectus supplement and the prospectus. This prospectus supplement must be
accompanied by the prospectus if it is being used to offer and sell the offered
certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these certificates or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
Subject to the satisfaction of certain conditions, the underwriters named below
will purchase the offered certificates from Lehman ABS. See "Method of
Distribution" in this prospectus supplement. The offered certificates will be
issued in book-entry form only on or about January 16, 2001.
------------------------------------------
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
UBS WARBURG LLC
January 4, 2001
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate documents
that progressively provide more detail: (a) the accompanying prospectus, which
provides general information, some of which does not apply to your series of
certificates and (b) this prospectus supplement, which describes the specific
terms of your series of certificates.
If the terms of your series of certificates vary between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement. It is important for you to read and consider all
of the information contained in both this prospectus supplement and the
accompanying prospectus in making your investment decision.
We include cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials where you can find further related
discussions. The following table of contents and the table of contents included
in the accompanying prospectus provide the pages on which these captions are
located.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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<S> <C>
Summary of Principal Economic Terms...................................................................S-4
Summary of Prospectus Supplement......................................................................S-8
Formation of the Trust...............................................................................S-11
Risk Factors.........................................................................................S-11
Description of the Deposited Assets..................................................................S-15
Description of the Certificates......................................................................S-19
Description of the Trust Agreement...................................................................S-23
Certain Federal Income Tax Consequences..............................................................S-25
ERISA Considerations.................................................................................S-30
Method of Distribution...............................................................................S-32
Ratings..............................................................................................S-33
Legal Opinions.......................................................................................S-33
Index of Terms for Prospectus Supplement.............................................................S-34
PROSPECTUS
Important Notice about Information Presented in this Prospectus and the Accompanying Prospectus
Supplement..............................................................................................2
Where You Can Find More Information.....................................................................3
Incorporation of Certain Documents by Reference.........................................................4
Reports to Certificateholders...........................................................................4
Important Currency Information..........................................................................4
Risk Factors............................................................................................5
Lehman ABS..............................................................................................7
Use of Proceeds.........................................................................................8
Formation of the Trust..................................................................................8
Maturity and Yield Considerations.......................................................................9
Description of the Certificates........................................................................11
Description of Deposited Assets and Credit Support.....................................................30
Description of the Trust Agreement.....................................................................43
Limitations on Issuance of Bearer Certificates.........................................................54
Currency Risks.........................................................................................55
Plan of Distribution...................................................................................58
Legal Opinions.........................................................................................59
</TABLE>
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Terms for Prospectus Supplement" beginning on page S-34 of
this document.
S-2
<PAGE>
THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES, INCLUDING OVER-ALLOTMENT,
STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES AND THE
IMPOSITION OF PENALTY BIDS, IN EACH CASE IN CONNECTION WITH THE OFFERING OF THE
CERTIFICATES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "METHOD OF
DISTRIBUTION" HEREIN.
------------------------
For 90 days following the date of this prospectus supplement, all dealers
selling the offered certificates are required to deliver a prospectus supplement
and prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriter of the offered certificates and with
respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the offered certificates in any state where the offer is not
permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
S-3
<PAGE>
SUMMARY OF PRINCIPAL ECONOMIC TERMS
This summary highlights the principal economic terms of the
Certificates being issued by the Trust and of the Underlying Securities. It does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
Certificates, you should read carefully this prospectus supplement and the
accompanying prospectus in full. Certain capitalized terms used in this
prospectus supplement are defined on the pages indicated in the "Index of
Terms".
THE CERTIFICATES
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<TABLE>
<S> <C>
The Trust................................ Lehman ABS and the Trustee will form the Corporate Backed Trust
Certificates, Series 2001-1 Trust.
Securities Offered....................... Corporate Backed Trust Certificates, Series 2001-1, consisting
of Class A-1 Certificates. The Trust will also issue Class A-2
Certificates, which are not being offered hereby.
Initial Number
of Securities............................ 1,800,000.
Final Scheduled Distribution
Date..................................... January 15, 2027.
Interest Rate............................ 7.85%.
Deposited
Assets................................... The Deposited Assets will consist of the Underlying
Securities. See "-The Underlying Securities" and "Description
of the Deposited Assets" below.
Original Issue
Date..................................... January 16, 2001.
Distribution Dates....................... January 15th and July 15th, or if any such date is not a
business day, then the next succeeding business day, commencing
July 15, 2001 (absent the exercise by the Underlying Securities
Issuer of its right to defer interest payments).
Record Date.............................. The 1st day immediately preceding each Distribution Date.
Optional Call............................ On any date occurring on or after January 15, 2006 (or after
the announcement of any redemption or other unscheduled payment
of the Underlying Securities) that the Call Rights holder
designates as a Call Date, the Certificates may be called in
whole or in part at a call price equal to the outstanding
principal amount thereof, plus any accrued and unpaid interest
to the Call Date.
S-4
<PAGE>
Mandatory Redemption..................... On any date the Underlying Securities are redeemed, including
as a result of a Special Event, Tax Event, Investment Company
Act Event or a Capital Treatment Event (each defined herein),
the Certificates shall be redeemed.
Denominations;
Specified
Currency................................. The Certificates will be denominated and payable in U.S.
dollars (the "Specified Currency") and will each have an
initial principal amount of $25.
Interest Accrual
Periods.................................. Semi-annual periods (or, in the case of the first Interest
Accrual Period, from and including the Original Issue Date to,
but excluding, the first Distribution Date).
Form of
Security................................. Book-entry certificates with The Depository Trust Company. See
"Description of the Certificates - Definitive Certificates."
Distributions will be settled in immediately available
(same-day) funds.
Trustee.................................. U.S. Bank Trust National Association, as trustee.
Ratings.................................. "A" by Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc. and "aa3" by Moody's Investors
Service, Inc. See "Ratings."
THE UNDERLYING SECURITIES
-------------------------
Underlying Securities.................... $46,851,000 aggregate principal amount of JPM Capital Trust I
7.54% Cumulative Capital Securities issued by the Underlying
Securities Issuer.
Underlying Securities Issuer...............JPM Capital Trust I.
Underlying Securities Trustee............ U.S. Bank Trust National Association. The Underlying
Securities have been issued pursuant to a declaration between
U.S. Bank Trust National Association and the Underlying
Securities Issuer.
Underlying Securities Original
Issue Date............................... December 4, 1996.
Underlying Securities Final
Payment Date............................. January 15, 2027.
S-5
<PAGE>
Denominations............................ The Underlying Securities are denominated and payable in U.S.
dollars and are available in minimum denominations of $1,000
and multiples thereof.
Underlying Securities Payment
Dates.................................... January 15th and July 15th.
Underlying Securities
Rate..................................... 7.54% per annum.
Underlying Securities Interest
Accrual Periods.......................... Semi-annual periods.
Junior Subordinated Debentures due 2027.. The assets of the Underlying Securities Issuer consist solely
of the 7.54% Junior Subordinated Debentures due 2027 issued by
J.P. Morgan & Co. Incorporated, which recently merged with The
Chase Manhattan Corporation to form J.P. Morgan Chase & Co.
The Junior Subordinated Debentures are payable after other
senior and subordinated indebtedness of J.P. Morgan Chase & Co.
Guarantee................................ The Underlying Securities, are guaranteed, on a subordinated
basis, by J.P. Morgan Chase & Co., but only to the extent
payments have been made on the Junior Subordinated Debentures
due 2027.
Form of Security......................... Book-entry debt securities with DTC.
Paying Agent............................. U.S. Bank Trust National Association.
Redemption............................... The Underlying Securities Issuer has the right, at its option
to redeem the Underlying Securities in whole or in part on or
after January 15, 2007, at an amount equal to the par amount of
the Underlying Securities, plus accrued interest and a
redemption premium (as described herein). The Underlying
Securities Issuer also has the right to redeem the Underlying
Securities in whole or in part at any time if there is more
than an insubstantial risk that certain adverse tax events or
capital treatment events may occur with respect to J.P. Morgan
Chase & Co. or the Underlying Securities Issuer or that the
Underlying Securities Issuer could be deemed an Investment
Company under the Investment Company Act of 1940.
Ratings.................................. "A" by Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc. and "aa3" by Moody's Investors
Service, Inc. See "Ratings."
This Prospectus Supplement does not provide information with
respect to the Underlying Securities Issuer. No investigation of the Underlying
Securities Issuer or J.P. Morgan Chase & Co. (including, without limitation, no
investigation as to their 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 J.P. Morgan Chase & Co. and the Underlying
S-6
<PAGE>
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 Underwriters, or any
of their respective affiliates, assumes any responsibility for the accuracy or
completeness of any publicly available information of J.P. Morgan Chase & Co. or
the Underlying Securities Issuer filed with the SEC or otherwise made publicly
available or considered by a purchaser of the Certificates in making its
investment decision in connection therewith.
S-7
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary highlights selected information from
this prospectus supplement and is qualified by reference to the detailed
information appearing elsewhere herein and in the prospectus.
Depositor................................... Lehman ABS Corporation, an indirect wholly-owned subsidiary of
Lehman Brothers Inc. See "Lehman ABS" in the prospectus.
Certificates................................ The Class A-1 Certificates (the "Certificates") are being offered
hereby and will be issued pursuant to the trust agreement. The
Trust will also issue Class A-2 Certificates in the initial
principal amount of $1,851,000, which Class A-2 Certificates are
not being offered hereby. The Class A-2 Certificates do not bear
interest.
The $25 initial principal amount of each Certificate
represents the amount that the certificate holder is entitled
to receive as distributions allocable to principal. Such
amount due to a certificate holder will decline to the extent
distributions allocable to principal are made.
The Underlying Securities................... Interest on the Underlying Securities accrues at the Underlying
Securities Rate for each Underlying Securities Interest Accrual
Period and is payable on each Underlying Securities Payment
Date. The entire principal amount of the Underlying Securities
will be payable on the Underlying Securities Final Payment Date.
The Underlying Securities have a remaining term to maturity of
approximately 26 years.
Distributions............................... Holders of the Certificates will be entitled to receive on each
Distribution Date, to the extent of available funds, after
payment of certain Extraordinary Expenses of the Trustee and its
respective agents,
o all distributions of interest on the Underlying Securities to
pay interest on the outstanding principal amount of the
Certificates, and
o a pro rata share of distributions of principal on the
Underlying Securities.
Distributions will be made to Certificateholders only if, and
to the extent that, payments are made with respect to the
Underlying Securities or are otherwise covered by any
guarantees. In the event that principal distributions with
respect to the Underlying Securities are insufficient to pay
the outstanding principal amounts of the Certificates and the
Class A-2 Certificates, the holders will share in the
distributions on a pro rata basis. See "Description of the
Certificates-Distributions."
Special Distribution Dates.................. If a payment with respect to the Underlying Securities is made to
the Trustee after the Underlying Securities Payment Date on which
S-8
<PAGE>
payment was due, then the Trustee will distribute any such
amounts received on the next occurring Business Day (a "Special
Distribution Date") as if the funds had constituted Available
Funds on the Distribution Date immediately preceding such Special
Distribution Date; provided, however, that the Record Date for
such Special Distribution Date shall be five Business Days (as
such term is defined in the prospectus, "Business Day") prior to
the day on which the related payment was received from the
Underlying Securities Trustee.
Optional Call............................... On any date occurring on or after January 15, 2006 (or after the
announcement of any redemption or other unscheduled payment of
the Underlying Securities) that the holder of the Call Rights
(described below) designates as a Call Date, the Certificates may
be called in whole or in part at a price (the "Call Price") equal
to the outstanding principal amount thereof, plus any accrued and
unpaid interest to the Call Date. The Class A-2 Certificates are
subject to a call at a price that may be less than their
certificate principal amounts. See "Description of the Trust
Agreement-Termination" herein and "Description of Trust
Agreement-Termination" in the prospectus.
The Call Rights............................. The Call Rights, as defined herein, represent the rights to
purchase the Certificates at the Call Price in connection with an
Optional Call. The initial Call Rights holder will be the
Depositor or an affiliate thereof. The Call Rights are not
offered hereby.
Certain Federal Income Tax In the opinion of tax counsel to the Trust, the Trust will be
Consequences................................ classified for Federal income tax purposes as a grantor trust and
not as an association taxable
as a corporation. Accordingly,
each holder will be treated
for federal income tax
purposes as the owner of a pro
rata undivided interest in the
Underlying Securities and as
having issued a pro rata
portion of the Call Rights.
See "Certain Federal Income
Tax Consequences."
Ratings..................................... It is a condition to the issuance of the Certificates that the
Certificates have the ratings specified above under "Summary of
Principal Economic Terms--The Certificates-Ratings." A security
rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the
assigning rating agency. A security rating does not address the
occurrence or frequency of redemptions or prepayments on, or
extensions of the maturity of, the Underlying Securities, or 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") should consult its advisors concerning
the ability of such Plan to purchase Certificates under ERISA or
the Code. See "ERISA Considerations."
S-9
<PAGE>
Listing..................................... The Certificates have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
However, it is unlikely that trading of the Certificates on the
New York Stock Exchange will be active. See "Method of
Distribution" herein.
S-10
<PAGE>
FORMATION OF THE TRUST
The Trust will be formed pursuant to the trust agreement (the
"Trust Agreement") (including the Series 2001-1 supplement) between Lehman ABS
and the Trustee. At the time of the execution and delivery of the Series 2001-1
supplement, Lehman ABS will deposit the Underlying Securities in the Trust. The
Trustee, on behalf of the Trust, will accept such Underlying Securities and will
deliver the Certificates in accordance with the instructions of Lehman ABS.
The Underlying Securities will be purchased by Lehman ABS in
the secondary market (either directly or through an affiliate of Lehman ABS).
The Underlying Securities will not be acquired from JPM Capital Trust I as part
of any distribution by or pursuant to any agreement with such issuer. JPM
Capital Trust I and J.P. Morgan Chase & Co. are not participating in this
offering and will not receive any of the proceeds of the sale of the Underlying
Securities to Lehman ABS or the issuance of the Certificates. Neither Lehman ABS
nor any of its affiliates participated in the initial public offering of the
Underlying Securities.
RISK FACTORS
NO DUE DILIGENCE INVESTIGATION OF THE UNDERLYING None of the Depositor, the underwriters (the
SECURITIES, JPM CAPITAL TRUST I OR J.P. MORGAN CHASE "Underwriters") or the Trustee (a) has made, or
& CO. HAS BEEN MADE BY THE DEPOSITOR, THE will make, any due diligence investigation of the
UNDERWRITERS OR THE TRUSTEE. business condition, financial or otherwise, of the
Underlying Securities, the Underlying Securities
Issuer or J.P. Morgan Chase & Co. or (b) has
verified, or will verify, any reports or
information filed by the Underlying Securities
Issuer or J.P. Morgan Chase & Co. with the
Securities and Exchange Commission or otherwise
made available to the public. It is strongly
recommended that prospective investors in the
Certificates consider publicly available financial
and other information regarding the Underlying
Securities Issuer and J.P. Morgan Chase & Co. The
issuance of the Certificates should not be
construed as an endorsement by the Depositor, the
Underwriters or the Trustee of the financial
condition or business prospects of JPM Capital
Trust I or J.P. Morgan Chase & Co. See
"Description of the Deposited Assets-Underlying
Securities."
THE UNDERLYING SECURITIES ISSUER IS THE ONLY PAYMENT The payments made by the Underlying Securities
SOURCE. Issuer on the Underlying Securities are the only
source of payment for your Certificates. The
payments made by J.P. Morgan Chase & Co. on the
Junior Subordinated Debentures are the only source
of payment for the Underlying Securities. J.P.
Morgan Chase & Co. is subject to laws permitting
bankruptcy, moratorium, reorganization or other
actions; financial difficulties experienced by J.P.
Morgan Chase & Co. could result in delays in
payment, partial payment or nonpayment of the
Junior Subordinated Debentures, and in turn the
S-11
<PAGE>
Underlying Securities and your Certificates. In the
event of nonpayment on the Junior Subordinated
Debentures by J.P. Morgan Chase & Co. and in turn on
the Underlying Securities by the Underlying Securities
Issuer, you will bear the risk of such nonpayment. See
"Description of the Certificates" herein.
DISTRIBUTION ON THE UNDERLYING SECURITIES, AND Distributions on the Underlying Securities, and
CONSEQUENTLY THE CERTIFICATES, MAY BE DEFERRED WITH consequently the Certificates, may be deferred by the
POSSIBLE MARKET PRICE CONSEQUENCES. Underlying Securities Issuer in the event J.P. Morgan
Chase & Co. defers payments on its 7.54% Junior
Subordinated Debentures. The deferral may be for up to
ten (10) semiannual interest distribution dates
provided that such extension period may not extend
beyond the maturity date for the Junior Subordinated
Debentures. During any extension period, interest on
the 7.54% Junior Subordinated Debentures will continue
to accrue (and the amount of distributions to which
holders of such Debentures are entitled will continue
to accumulate) at the otherwise applicable interest
rate, compounded semi-annually. Interest will also
continue to accrue on the Certificates, compounded
semi-annually. However, interest that accrues on
deferred and compounded interest on the Underlying
Securities will not be sufficient to pay interest at
the otherwise applicable rate of 7.85% on deferred and
compounded interest on the Certificates. Interest on
deferred and compounded interest on the Certificates
will be owing only to the extent that such interest is
actually received on the Underlying Securities. Any
interest that accrues on the Junior Subordinated
Debentures during an extension period will be
distributed to the Certificateholders pro rata when it
is received by the Trust. See "Description of the
Certificates-Distributions" herein.
Should J.P. Morgan Chase & Co. elect to exercise its
rights to defer payments of interest on the 7.54%
Junior Subordinated Debentures in the future, the
market price of the Underlying Securities, and
consequently the Certificates, is likely to be
adversely affected. A holder that disposes of its
Certificates during a deferral period, therefore,
might not receive the same return on its investment as
a holder that continues to hold its Certificates. In
addition, merely as a result of the existence of J.P.
Morgan Chase & Co.'s right to defer payments of
interest on the 7.54% Junior Subordinated Debentures,
the market price of the Underlying Securities, and
consequently the Certificates, may be more volatile
S-12
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than the market prices of other securities that are
not subject to such deferrals.
DEFERRAL OF DISTRIBUTIONS MAY Should J.P. Morgan Chase & Co. exercise its right to
HAVE TAX CONSEQUENCES. defer payments of interest on the 7.54% Junior
Subordinated Debentures, each holder of the Underlying
Securities, and thus A each holder of the
Certificates, will be required to accrue income (as
original issue discount) in respect of the deferred
interest allocable to its undivided interest in the
Underlying Securities or Certificates, for United
States federal income tax purposes, which will be
accrued but not distributed to it. As a result, each
holder of a Certificate will recognize income for
United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash
related to such income from the Underlying Securities
Issuer if the holder disposes of its Certificates
prior to the record date for the payment of
distributions thereafter. See "Certain Federal Income
Tax Consequences" herein.
THE JUNIOR SUBORDINATED DEBENTURES ARE UNSECURED The Junior Subordinated Debentures are unsecured
OBLIGATIONS AND ARE SUBORDINATED TO OTHER DEBT obligations of J.P. Morgan Chase & Co. and will be
OBLIGATIONS OF J.P. MORGAN CHASE & CO. subordinated and junior in regards to payment to
other senior and subordinated indebtedness of J.P.
Morgan Chase & Co. (but will be senior to its
capital stock). In the event of the insolvency of
J.P. Morgan Chase & Co., other creditors will have
a preferred claim over the assets of J.P. Morgan
Chase & Co. that ranks prior to that represented by
the Junior Subordinated Debentures, thereby
reducing your chances of receiving payment on the
Certificates. The Guarantee by J.P. Morgan Chase &
Co. of the Underlying Securities is similarly
subordinated. The Junior Subordinated Debentures
are not insured or guaranteed by any governmental
agency, and in particular are not insured by the
Federal Deposit Insurance Corporation.
THE UNDERLYING SECURITIES GUARANTEE PROVIDES FOR FULL The Underlying Securities Guarantee provides a
PAYMENT OF THE UNDERLYING SECURITIES ONLY TO THE guarantee from the time of issuance of the
EXTENT J.P. MORGAN CHASE & CO. HAS MADE PAYMENT ON Underlying Securities of amounts due on the
THE JUNIOR SUBORDINATED DEBENTURES. Underlying Securities, but only to the extent
payments have been made on the Junior Subordinated
Debentures. If J.P. Morgan Chase & Co. does not
make payments on the Junior Subordinated
Debentures, it will not be liable on the Underlying
Securities Guarantee, and the Underlying Securities
Trustee will not make distributions on the
Underlying Securities. See "Description of the
Deposited Assets--Underlying Securities Guarantee"
herein.
S-13
<PAGE>
CERTIFICATEHOLDERS ARE NOT LIKELY TO RECEIVE ANY In certain circumstances, redemption of the Underlying
REDEMPTION PREMIUMS OR MARKET VALUE APPRECIATION. Securities by the Underlying Securities Issuer
requires payment of a redemption premium. In addition,
the market value of the Underlying Securities may
increase to a value in excess of their face amounts.
However, in such circumstances it is likely that the
Call Rights holder (initially, the Depositor) would
exercise its right to purchase the Certificates
pursuant to an Optional Call. The Call Price equals
the outstanding principal amount of the Certificates,
plus accrued interest. If the Call Rights holder does
so, a Certificateholder may receive less than the
market value of the Underlying Securities and will not
receive any premium. See "Description of Deposited
Assets-Redemption of Certificates Upon Redemption of
the Underlying Securities" herein.
A CHANGE OR WITHDRAWAL BY THE At the time of issuance, the Certificates will have
RATING AGENCIES OF THEIR INITIAL ratings assigned by Moody's and S&P equivalent to the
RATINGS MAY REDUCE THE MARKET ratings of the Underlying Securities, which, as of the
VALUE OF THE CERTIFICATES. date of this Prospectus Supplement were "aa3" by
Moody's and "A" by S&P. It is expected that the
ratings of the Certificates will change if the ratings
of the Underlying Securities change.
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.
MOODY'S INVESTORS SERVICE, INC. MAY CHANGE ITS Moody's Investors Service, Inc. is contemplating a
RATINGS CRITERIA WHICH COULD RESULT IN REASSIGNMENT change in its ratings criteria, which could result in
OF MOODY'S RATING OF THE UNDERLYING SECURITIES. a reassignment of the rating of the Underlying
Securities (and a corresponding reassignment of the
rating of the Certificates) by Moody's Investors
Service, Inc.
</TABLE>
See "Risk Factors" and "Maturity and Yield Considerations" in the prospectus.
S-14
<PAGE>
DESCRIPTION OF THE DEPOSITED ASSETS
GENERAL
This prospectus supplement sets forth certain relevant terms
with respect to the Underlying Securities, but does not provide detailed
information with respect to the Underlying Securities 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 is derived from
publicly available documents. The Underlying Securities were originally issued
by the Underlying Securities Issuer as part of an underwritten public offering
of $750,000,000 of such securities pursuant to registration statement no.
333-15079, filed by the Underlying Securities Issuer with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
No investigation has been made of the financial condition or
creditworthiness of the Underlying Securities Issuer or J.P. Morgan Chase & Co.
(the "Company") in connection with the issuance of the Certificates. The Company
is subject to the information reporting requirements of the Exchange Act.
NEITHER LEHMAN ABS NOR THE UNDERWRITERS HAVE PARTICIPATED IN THE PREPARATION OF
SUCH DOCUMENTS, OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO THE
INFORMATION PROVIDED THEREIN. Neither the Depositor nor the Underwriters have
verified the accuracy or completeness of such documents or reports. There can be
no assurance that events affecting the Underlying Securities, the Company 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 SIGNIFICANT ASSETS OTHER THAN THE
UNDERLYING SECURITIES 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 FINANCIAL CONDITION OF THE COMPANY
AND THE EFFECT THEREOF ON THE UNDERLYING SECURITIES ISSUER 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 COMPANY, THE UNDERLYING SECURITIES OR THE UNDERLYING SECURITIES
ISSUER. ALL INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT REGARDING THE
COMPANY, THE UNDERLYING SECURITIES ISSUER AND THE UNDERLYING SECURITIES IS
DERIVED SOLELY FROM PUBLICLY AVAILABLE DOCUMENTS.
UNDERLYING SECURITIES
The Underlying Securities consist of $46,851,000 aggregate
principal amount of JPM Capital Trust I 7.54% Cumulative Capital Securities
issued by JPM Capital Trust I on December 4, 1996. The interest rate on the
Underlying Securities is 7.54% per annum; interest is payable semi-annually. The
Final Payment Date on the Underlying Securities will occur on January 15, 2027.
The Underlying Securities have been issued pursuant to
agreements among the Company, the Underlying Securities Issuer and underlying
securities trustees. The following summary describes certain general terms of
the Indenture (as defined herein) and the declaration of trust dated as of
November 27, 1996 (the "Declaration"), but investors should refer to the
Indenture and Declaration themselves for all the terms governing the Underlying
Securities.
Each of the Indenture and Declaration limits the ability of
the Underlying Securities Issuer to engage in certain activities and
transactions and requires that the Underlying Securities Issuer perform certain
obligations with respect to the Underlying Securities. The Underlying Securities
Issuer solely exists for the purpose of issuing securities for cash and
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investing the gross proceeds thereof in an equivalent amount of Junior
Subordinated Debentures due 2027 of the Company (the "Junior Subordinated
Debentures"), and pursuant to the Declaration it is not permitted to incur any
indebtedness or make any investment other than in the Junior Subordinated
Debentures .
The following is a summary of the Underlying Security Events
of Default:
o failure for 30 days to pay interest on the Junior
Subordinated Debentures of such series when due;
provided that a valid extension of the interest
payment period by the Company shall not constitute a
default in the payment of interest for this purpose;
o failure to pay principal of or premium, if any, on
the Junior Subordinated Debentures of such series
when due whether at maturity, upon redemption, by
declaration or otherwise;
o failure to observe or perform any other covenant
contained in the Indenture (as defined below) with
respect to such series for 90 days after written
notice to the Company from the indenture trustee or
the holders of at least 25% in principal amount of
the outstanding Junior Subordinated Debentures of
such series; or
o certain events of bankruptcy, insolvency or
reorganization of the Company.
Upon the occurrence of an Underlying Securities Event of
Default, the Underlying Securities Trustee as the holder of all the Junior
Subordinated Debentures will have the right under the Indenture to declare the
principal of, and interest on, the Junior Subordinated Debentures to be
immediately due and payable. In addition, the Underlying Securities Trustee will
have the power to exercise all rights, powers and privileges under the
Indenture. If the Underlying Securities Trustee fails to enforce its rights
under the Indenture, any holder of Underlying Securities may, to the extent
permitted by applicable law, after a period of 30 days has elapsed from such
holder's written request to the Underlying Securities Trustee to enforce such
rights, institute a legal proceeding against the Company to enforce the
Underlying Securities Trustee's rights.
Notwithstanding the foregoing, if an Underlying Securities
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay interest or principal on the Junior
Subordinated Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then a holder of
Underlying Securities may directly institute suit against the Company for
enforcement of payment to such holder of the principal of or interest on Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Underlying Securities held by such holder on or after
the respective due date specified in the Junior Subordinated Debentures. The
holders of Underlying Securities will not be able to exercise directly against
the Company any other remedy available to the holders of the Junior Subordinated
Debentures unless the Underlying Securities Trustee first fails to do so.
REDEMPTION OF THE UNDERLYING SECURITIES
The Company has the right to redeem the Junior Subordinated
Debentures on or after January 15, 2007, in whole or in part at any time. A
redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of Underlying Securities having an aggregate liquidation amount equal
to the principal amount of Junior Subordinated Debentures redeemed (an
"Underlying Optional Redemption"). The "Redemption Price" in the case of such a
redemption shall equal the following prices expressed in percentages of the
stated liquidation amount together with accrued distributions to but excluding
the date fixed for redemption. If redeemed during the 12-month period beginning
January 15,
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Year Redemption Price
---- ----------------
2007 103.770%
2008 103.393%
2009 103.016%
2010 102.639%
2011 102.262%
2012 101.885%
2013 101.508%
2014 101.131%
2015 100.754%
2016 100.377%
and at 100% on or after January 15, 2017.
In addition, if a Special Event (as defined below) occurs, on
not less than 30 nor more than 60 days' notice, the Company will have the option
either to redeem the Junior Subordinated Debentures in whole, thus causing a
redemption of the Underlying Securities, (such redemption, a "Special Event
Redemption") or to cause the termination of the Company and the distribution of
the Junior Subordinated Debentures pro rata to the holders of the Underlying
Securities. The redemption price in the case of a Special Event Redemption prior
to January 15, 2007 will be the Special Event Prepayment Price. The "Special
Event Prepayment Price" will equal the greater of (i) 100% of the principal
amount of the Underlying Securities or (ii) the sum of the present value of the
remaining scheduled payments of principal of, and accrued interest on, the
Junior Subordinated Debentures through January 15, 2007 discounted to the date
of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve thirty day months) at a certain treasury benchmark rate plus 0.50%, plus,
in each case (i) and (ii), accrued interest thereon to the date of redemption. A
"Special Event" means any of (A) the receipt by the Company and the Underlying
Securities Issuer of an opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that, as a result of (i) any amendment
to, or changes (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or (ii) any amendment to or change in an
interpretation or application of such laws or regulations, there is more than an
insubstantial risk that (a) the Underlying Securities Issuer would be subject to
United States federal income tax with respect to income accrued or received on
the Junior Subordinated Debentures, (b) interest payable to the Underlying
Securities Issuer on the Junior Subordinated Debentures would not be deductible
by the Company for United States federal income tax purposes or (c) the
Underlying Securities Issuer would be subject to more than a de minimis amount
of other taxes, duties or other governmental charges, which charge or amendment
becomes effective after February 26, 1997 (a "Tax Event"); (B) the receipt by
the Company, and the Underlying Securities Issuer of an opinion of nationally
recognized independent counsel to the effect that as a result of a change in law
or regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority after November 26, 1996, there is more than an insubstantial risk that
the Underlying Securities Issuer is or will be considered an investment company
under the Investment Company Act of 1940 (an "Investment Company Act Event") or
(C) the Company has reasonably determined that, as the result of the occurrence
of a change in law or regulation or a change in the interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Company will not be able to treat the minority interest in the Underlying
Securities Issuer as "Tier 1 capital" (or the equivalent) for purposes of the
capital adequacy guidelines of the Federal Reserve Board, as then in effect and
applicable to the Company (a "Capital Treatment Event").
In the event that the Junior Subordinated Debentures are
distributed to the Trust in exchange for the Underlying Securities upon the
occurrence of a Special Event Redemption, such distribution will not cause the
Certificates to be redeemed. The Trust will hold the Junior Subordinated
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Debentures for the benefit of the holders of Certificates in accordance with the
terms of the Trust Agreement.
UNDERLYING SECURITIES GUARANTEE
Pursuant to the Underlying Securities Guarantee, the Company
will irrevocably and unconditionally agree, to the extent set forth therein, to
pay in full, to the holders of the Underlying Securities to the extent not paid
by the Underlying Securities Issuer, regardless of any defense, right of set-off
or counterclaim that the Underlying Securities Issuer may have or assert, the
following payments or distributions with respect to Underlying Securities: (i)
any accrued and unpaid distributions on Underlying Securities, and the
redemption price, including all accrued and unpaid distributions to the date of
redemption, with respect to any Underlying Securities called for redemption by
the Underlying Securities Issuer, but if and only to the extent that in each
case the Company has made a payment to the Underlying Securities Trustee of
interest or principal on the Junior Subordinated Debentures deposited in the
Underlying Securities Issuer as trust assets and (ii) upon a voluntary or
involuntary liquidation, dissolution, winding-up or termination of the
Underlying Securities Issuer (other than in connection with the distribution of
such Junior Subordinated Debentures to the holders of the Underlying Securities
or the redemption of all the Underlying Securities upon the maturity or
redemption of such Junior Subordinated Debentures) the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid distributions on
the Underlying Securities to the date of payment, to the extent the Underlying
Securities Issuer has funds available therefor, or (b) the amount of assets of
the Underlying Securities Issuer remaining available for distribution to holders
of the Underlying Securities upon liquidation of the Underlying Securities
Issuer. The Company's obligation to make such payments may be satisfied by
direct payment of the required amounts by the Company to the holders of the
Underlying Securities or by causing the Underlying Securities Issuer to pay such
amounts to such holders.
The Company's obligations under the Declaration, the
Underlying Securities Guarantee, the Junior Subordinated Debentures purchased by
the Underlying Securities Issuer and the Indenture in the aggregate will provide
a guarantee on a subordinated basis by the Company of payments due on the
Underlying Securities. However, the Underlying Securities Guarantee covers
distributions and other payments on the Underlying Securities only if and to the
extent that the Company has made a payment to the Underlying Securities Trustee
of interest or principal on the Junior Subordinated Debentures deposited in the
Underlying Securities Issuer as trust assets. If the Company does not make
interest or principal payments on the Junior Subordinated Debentures deposited
in the Underlying Securities Issuer as trust assets, the Underlying Securities
Trustee will not make distributions on the Underlying Securities of the
Underlying Securities Issuer and the Underlying Securities Issuer will not have
funds available therefor.
JUNIOR SUBORDINATED DEBENTURES
The assets of the Underlying Securities Issuer consist solely
of $46,851,000 aggregate principal amount of the 7.54% Junior Subordinated
Debentures issued on December 4, 1996 by J.P. Morgan & Co. Incorporated. The
interest rate on the Junior Subordinated Debentures is 7.54% per annum; interest
is payable semi-annually. The Final Payment Date on the Junior Subordinated
Debentures will occur on January 15, 2027.
The Junior Subordinated Debentures are unsecured, junior
subordinated obligations of the Company. The indenture, which terms includes all
supplements thereto (the "Indenture"), does not limit the amount of additional
indebtedness the Company or any of its subsidiaries may incur. Since the Company
is a holding company, the Company's rights and the rights of its creditors,
including the holders of Junior Subordinated Debentures, to participate in the
assets of any subsidiary upon the latter's liquidation or recapitalization will
be subject to the prior claims of the subsidiary's creditors, except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary.
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The Indenture does not limit the aggregate principal amount of
indebtedness which may be issued thereunder and provides that Junior
Subordinated Debentures may be issued thereunder from time to time in one or
more series. The Junior Subordinated Debentures are issuable in one or more
series pursuant to an indenture supplement to the Indenture.
The Junior Subordinated Debentures are unsecured and are
subordinate in right of payment to all senior indebtedness, subordinated
indebtedness and to derivative obligations of the Company whether outstanding as
of this date or hereafter incurred. The Company and its subsidiaries are subject
to claims by creditors for long-term and short-term debt obligations, including
substantial obligations for federal funds purchased and securities sold under
repurchase agreements, as well as deposit liabilities. There are also various
legal limitations on the extent to which subsidiaries of the Company may pay
dividends or otherwise supply funds to the Company.
The Junior Subordinated Debentures are subordinate in right of
payment as provided in the Indenture to all general indebtedness of the Company.
No payment pursuant to the Junior Subordinated Debentures may be made and no
holder of the Junior Subordinated Debentures or any coupon appertaining thereto
shall be entitled to demand or receive any such payment (i) unless all amounts
of principal, premium, if any, and interest then due on all general indebtedness
of the Company shall have been paid in full or duly provided for or (ii) if, at
the time of such payment or immediately after giving effect thereto, there shall
exist with respect to any given general indebtedness of the Company any event of
default permitting the holders thereof to accelerate the maturity or payment
thereof or any event which, with notice or lapse of time, or both, will become
such an event of default.
In the event of the acceleration of the maturity of any Junior
Subordinated Debentures, the holders of all general indebtedness outstanding at
the time of such acceleration will first be entitled to receive payment in full
of all amounts due thereon (including any amounts due upon acceleration) before
the holders of Junior Subordinated Debentures will be entitled to receive or
retain any payment on the Junior Subordinated Debentures; however, holders of
subordinated debt will not be entitled to receive payment of any such amounts in
preference to the Junior Subordinated Debentures to the extent that such
subordinated debt is by its terms subordinated to trade creditors.
Upon any distribution of the assets of the Company upon
dissolution, winding up, liquidation or reorganization, the holders of general
indebtedness of the Company will be entitled to receive payment in full of
principal, premium, if any, and interest before any payment may be made on the
Junior Subordinated Debentures. By reason of such subordination, in the event of
a bankruptcy or insolvency of the Company, holders of general indebtedness of
the Company may receive more, ratably, and holders of the Junior Subordinated
Debentures may receive less, ratably, than the other creditors of the Company.
Such subordination will not prevent the occurrence of any event of default in
respect of the Junior Subordinated Debentures. The Indenture does not limit the
amount of general indebtedness the Company may incur.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be denominated and distributions with
respect thereto will be payable in the Specified Currency. The Certificates,
along with the Class A-2 Certificates (which initially will be retained by the
Depositor), represent in the aggregate the entire beneficial ownership interest
in the Trust. The property of the Trust will consist of (i) the Underlying
Securities and (ii) all payments on or collections in respect of the Underlying
Securities received on or after the Closing Date. The property of the Trust will
be held for the benefit of the holders of the Certificates by the Trustee.
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The Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its Participants in denominations of $25.
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 Lehman ABS, the "Clearing
Agency"), except as provided below. Lehman ABS has been informed by DTC that
DTC's nominee will be CEDE & Co. 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 certificate owners
or their nominees, respectively, rather than to DTC or its nominee, only if (i)
Lehman ABS advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
each class of Certificates and Lehman ABS is unable to locate a qualified
successor or (ii) Lehman ABS, 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 the Certificates. Thereafter the Trustee will recognize the
holders of the definitive certificates as Certificateholders under the Trust
Agreement.
COLLECTIONS AND DISTRIBUTIONS
Except as otherwise provided herein, collections on the
Underlying Securities that are received by the Trustee for a given Interest
Accrual Period and deposited from time to time into the Certificate Account will
be applied by the Trustee on each applicable Distribution Date, solely to the
extent of Available Funds (as defined below) on such Distribution Date:
o The interest portion of Available Funds will be paid
in the following order of priority:
(a) to the Trustee, reimbursement for any Extraordinary
Expenses incurred by the Trustee in accordance with the Trust
Agreement pursuant to instructions of not less than 100% of
the Certificateholders;
(b) to the holders of the Certificates, interest at the rate
of 7.85% per annum on the principal amount of the Certificates
(provided, however that following a Deferral Period (as
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defined herein), all deferred interest will be paid to the
Certificateholders to the extent it is distributed by the
Underlying Securities Issuer and received by the Trustee);
(c) to the Depositor, any remaining Available Funds.
o The principal portion of Available Funds will be paid
in the following order of priority:
(a) to the Trustee, reimbursement for any Extraordinary
Expenses incurred by the Trustee in accordance with the Trust
Agreement pursuant to instructions of not less than 100% of
the Certificateholders; and
(b) to the holders of the Certificates and the Class A-2
Certificates, pro rata in the proportion that the outstanding
principal amount of the Certificates bears to the outstanding
principal amount of the Class A-2 Certificates.
"Available Funds" for any Distribution Date means the sum of
all amounts received on or with respect to the Underlying Securities during the
preceding Interest Accrual Period.
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 holders of Certificates as a result of
any such delay; provided, however, that any additional interest owed and paid by
the Underlying Securities Issuer as a result of such delay shall be paid to the
holders of Certificates to the extent accrued on such overdue payment at the
rate stated above and to the extent such additional interest has been
distributed by the Underlying Issuer. In the event of a default on the
Underlying Securities, approved Extraordinary Expenses (see "Description of the
Trust Agreement - The Trustee" herein) of the Trustee may be reimbursed to the
Trustee out of Available Funds before any distributions to Certificateholders
are made.
All amounts received on or with respect to the Underlying
Securities, 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 constitute property of the Trust and shall be included in
Available Funds. "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 ratings 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.
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. To the extent Available Funds
are insufficient to make any such distribution due to the Certificates, any
shortfall will be carried over and will be distributable on the next
Distribution Date on which sufficient funds exist to pay such shortfalls.
Each Certificate evidences the right to receive, to the extent
received on the Underlying Securities, a semiannual distribution of interest on
January 15 and July 15 of each year, commencing July 15, 2001, and a
distribution of principal on January 15, 2027, or if any such day is not a
Business Day, the next succeeding Business Day, or upon early redemption. For
purposes of the foregoing, "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed. Distributions of
interest on the Certificates, however, may be deferred as a result of the
deferral of payment on the Junior Subordinated Debentures held by the Underlying
Securities Issuer. Distributions on the Junior Subordinated Debentures may be
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deferred by the Company for up to ten (10) consecutive semiannual interest
periods (such deferral period, the "Deferral Period") provided that no Extension
Period extends beyond January 15, 2027. During any Deferral Period, interest on
the Junior Subordinated Debentures will continue to accrue (and the amount of
distributions to which holders of the Junior Subordinated Debentures are
entitled, will continue to accumulate) at the applicable rate per annum
compounded semi-annually. However, during such Deferral Period, interest
accruing on such deferred interest (also referred to as compounded interest) on
the Underlying Securities would not be sufficient to cover interest accruing at
7.85% on deferred interest on the Certificates, and consequently, the
Certificateholders shall only be entitled to such interest to the extent it is
distributed by the Underlying Securities Issuer.
THE CALL RIGHTS; OPTIONAL CALL
On any date on or after January 15, 2006 (a "Call Date"), the
Call Rights holder may exercise its option to purchase, in whole or in part, the
Certificates at par value plus any accrued and unpaid interest to the Call Date
(the "Call Rights"); provided that the Call Rights holder deposits such purchase
price on or prior to such Call Date (an "Optional Call"). Lehman ABS, or an
affiliate thereof, will be the initial Call Rights holder.
The Class A-2 Certificates are subject to call at a price that
may be less than their certificate principal amounts.
DEFAULT ON UNDERLYING SECURITIES
In the event of the occurrence of a payment default on the
Underlying Securities or an acceleration of the maturity of the Underlying
Securities in connection with a default thereon, the Trustee will promptly give
notice to DTC or, for any Certificates which are not then held by DTC or any
other depository, directly to the registered holders of the Certificates
thereof. Such notice will set forth (i) the identity of the issue of Underlying
Securities, (ii) the date and nature of such payment default or acceleration,
(iii) the amount of the interest or principal in default, (iv) the Certificates
affected by the payment default or acceleration, and (v) any other information
which the Trustee may deem appropriate.
In the event of a payment default, the Trustee is required to
proceed against the Underlying Securities Issuer on behalf of the
Certificateholders to enforce the Underlying Securities or otherwise to protect
the interests of the Certificateholders, subject to the receipt of indemnity in
form and substance satisfactory to the Trustee; provided, that holders of
Certificates representing a majority of the voting rights on the Certificates
will be entitled to direct the Trustee in any such proceeding or direct the
Trustee to sell the Underlying Securities, subject to the Trustee's receipt of
satisfactory indemnity. In the event of an acceleration and a corresponding
payment on the Underlying Securities, the Trustee will distribute the proceeds
to the Certificateholders no later than two Business Days after the receipt of
immediately available funds.
In the event that the Trustee receives money or other property
in respect of the Underlying Securities (other than a scheduled payment on or
with respect to an interest payment date) as a result of a payment default on
the Underlying Securities (including from the sale thereof), the Trustee will
promptly give notice as provided in the Trust Agreement to DTC, or for any
Certificates which are not then held by DTC or any other depository, directly to
the registered holders of the Certificates then outstanding and unpaid. Such
notice will state that, not later than 30 days after the receipt of such moneys
or other property, the Trustee will allocate and distribute such moneys or other
property to the holders of Certificates and Class A-2 Certificates then
outstanding and unpaid, pro rata by principal amount (after deducting the costs
incurred in connection therewith). Property other than cash will be liquidated
by the Trustee, and the proceeds thereof distributed in cash, only to the extent
necessary to avoid distribution of fractional securities to Certificateholders.
In-kind distribution of Underlying Securities to Certificateholders will be
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deemed to reduce the principal amount of Certificates on a dollar-for-dollar
basis. Following such in kind distribution, all Certificates will be cancelled.
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 Lehman ABS with the SEC
following the issuance and sale of the Certificates. The Trust created under the
Trust Agreement (including the Series 2001-1 supplement) will consist of:
o the Underlying Securities; and
o all collections or payments received in respect of
the Underlying Securities due after January 16, 2001.
On July 15, 2001, the Trustee will pay to Lehman ABS the amount of interest
accrued on the Underlying Securities from January 15, 2001 to but not including
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 Trust Agreement, to
which reference is hereby made for a full description of such provisions,
including the definition of certain terms used herein.
THE TRUSTEE
U.S. Bank Trust National Association, a national banking
association, will act as trustee for the Certificates and the Trust pursuant to
the Trust Agreement. The Trustee's offices are located at 100 Wall Street, New
York, New York 10005 and its telephone number is (212) 361-2500.
Pursuant to the Trust Agreement, the Trustee shall receive
compensation at the rate set forth in the Trust Agreement. The Trustee will be
entitled to payment of its fees by the Depositor pursuant to a separate
agreement with the Depositor, but will not have any claim against the Trust with
respect thereto.
The Trust Agreement will provide that the Trustee and any
director, officer, employee or agent of the Trustee will be indemnified by the
Trust and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Trust Agreement or as a result of a breach, or by
reason of reckless disregard, of the Trustee's obligations and duties under the
Trust Agreement.
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EVENTS OF DEFAULT
An event of default (an "event of default") with respect to
the Certificates under the Trust Agreement will consist of:
o 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);
o 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
o any other event specified as an "Event of Default" in
the Indenture for the Junior Subordinated Debentures.
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 to the holders of such certificates notice, transmitted by
mail, of all such uncured or unwaived events of default known to it. However,
except in the case of an event of default relating to the payment of principal,
if any, or interest on any of the Underlying Securities, the Trustee will be
protected in withholding such notice if in good faith it determines that the
withholding of such notice is in the interest of the holders of the Certificates
of such class.
No holder of any certificate will have the right to institute
any proceeding with respect to the Trust Agreement, unless (i) the holder
previously has given to the Trustee written notice of a continuing breach, (ii)
the holders of certificates of such series evidencing not less than the
"Required Percentage--Remedies" specified in the applicable series supplement of
the aggregate Voting Rights of such series have requested in writing that the
Trustee institute such proceeding in its own name as trustee, (iii) the holder
or holders have offered the Trustee reasonable indemnity, (iv) the Trustee has
for 15 days failed to institute such proceeding and (v) no direction
inconsistent with such written request has been given to the Trustee during such
15-day period by the holders of certificates of such series evidencing not less
than the Required Percentage. "Required Percentage-Remedies" shall mean 66 2/3%
of the Voting Rights.
VOTING RIGHTS
The Voting Rights will be allocated among all holders of the
Certificates and the Class A-2 Certificates in proportion to the then
outstanding Certificate Principal Amounts of their respective certificates.
VOTING OF UNDERLYING SECURITIES
The Trustee, as holder of the Underlying Securities, has the
right to vote and give consents and waivers in respect of 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, or any other
document thereunder or relating thereto, or receives any other solicitation for
any action with respect to the Underlying Securities, the Trustee shall mail a
notice of such proposed amendment, modification, waiver or solicitation to each
certificateholder of record as of such date. The Trustee shall request
instructions from the certificateholders as to whether or not to consent to or
vote to accept such amendment, modification, waiver or solicitation. The Trustee
shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative certificate principal amounts) as the
Certificates and the Class A-2 Certificates of the Trust were actually voted or
not voted by the certificateholders thereof as of a date determined by the
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Trustee prior to the date on which such consent or vote is required; provided,
however, that, notwithstanding anything to the contrary, the Trustee shall at no
time vote or consent to any matter (i) unless such vote or consent would not
(based on an opinion of counsel) alter the status of the Trust as a grantor
trust for Federal income tax purposes, (ii) which would alter the timing or
amount of any payment on the Underlying Securities, including, without
limitation, any demand to accelerate the Underlying Securities, except in the
event of an event of default with respect to the Underlying Securities or an
event which with the passage of time would become an event of default with
respect to the Underlying Securities and with the unanimous consent of all
holders of outstanding Certificates and Class A-2 Certificates or (iii) which
would result in the exchange or substitution of any of the outstanding
Underlying Securities pursuant to a plan for the refunding or refinancing of
such Underlying Securities except in the event of a default under the Underlying
Securities and only with the consent of certificateholders representing 100% of
the aggregate voting rights of each outstanding class of the certificates. The
Trustee will not be liable 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 issuer of the
Underlying Securities to issue new obligations in exchange and substitution for
any of the Underlying Securities or any other offer is made for the Underlying
Securities, the Trustee will notify the certificateholders of such offer as
promptly as practicable. The Trustee must reject any such offer unless an event
of default under the Underlying Securities has occurred, the Trustee is directed
by the affirmative vote of all of the certificateholders to accept such offer
and the Trustee has received the tax opinion described above. Accordingly, a
certificateholder generally would be required to effect a withdrawal of
Requested Underlying Securities from the Trust in order to accept such offer.
See "Description of Certificates--Optional Exchange" in the prospectus.
If an event of default under the Underlying Securities occurs
and is continuing and if directed by a majority of the holders of outstanding
Certificates and Class A-2 Certificates, the Trustee will vote Underlying
Securities in an outstanding principal amount equal to the outstanding
certificate principal amount of the Certificates and Class A-2 Certificates in
favor of directing, or take such other action as may be appropriate to direct,
the Underlying Securities Trustee to declare the unpaid principal amount of the
Underlying Securities and any accrued and unpaid interest thereon to be due and
payable. In connection with a vote concerning whether to declare the
acceleration of the Underlying Securities, the certificateholders' interests may
differ from holders of other outstanding debt securities of the Underlying
Securities Issuer.
TERMINATION
The circumstances under which the obligations created by the
Trust Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the prospectus. In no event will
the Trust created by the Trust Agreement for the Certificates continue beyond
the expiration of 21 years from the death of the survivor of the person or
persons named in the Trust Agreement. See "Description of Trust
Agreement--Termination" in the prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the material
federal income tax consequences of the ownership and disposition of the
Certificates and is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated and proposed thereunder (the
"Regulations"), judicial decisions and published administrative rulings and
pronouncements of the Internal Revenue Service (the "Service"), all as in effect
on the date hereof. Legislative, judicial or administrative changes or
interpretations hereafter enacted or promulgated could alter or modify the
analysis and conclusions set forth below, possibly on a retroactive basis. This
summary does not purport to address the federal income tax consequences either
to special classes of taxpayers (such as S corporations, banks, thrifts, other
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financial institutions, insurance companies, mutual funds, small business
investment companies, real estate investment trusts, regulated investment
companies, broker-dealers, tax-exempt organizations and persons that hold the
Certificates as part of a straddle, hedging or conversion transaction) or to a
person or entity holding an interest in a holder (e.g., as a stockholder,
partner, or holder of an interest as a beneficiary). This summary assumes that
the Certificates will be held by the holders thereof as capital assets as
defined in the Code and describes the consequences of Certificates which
represent an interest in securities that are properly characterized as debt for
federal income tax purposes. The discussion is generally limited to initial
purchasers of the Certificates. No information is provided herein with respect
to any foreign, state or local tax consequences of the ownership and disposition
of the Certificates or any federal alternative minimum tax or estate and gift
tax considerations. Except for "--Non-U.S. Certificate Owners" and
"--Information Reporting and Backup Withholding" below, the following discussion
applies only to a U.S. Certificateholder (defined below).
PROSPECTIVE INVESTORS ARE THEREFORE URGED TO CONSULT THEIR OWN
TAX ADVISORS WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF PURCHASING, HOLDING
AND DISPOSING OF THE CERTIFICATES IN THEIR OWN PARTICULAR CIRCUMSTANCES, AS WELL
AS THE TAX CONSEQUENCES ARISING UNDER THE FEDERAL ALTERNATIVE MINIMUM TAX AND
ESTATE AND GIFT TAX LAWS AND THE LAWS OF ANY STATE, FOREIGN COUNTRY OR OTHER
JURISDICTION TO WHICH THEY MAY BE SUBJECT.
For purposes of this discussion, "U.S. Person" means a citizen
or resident of the United States, a corporation or partnership organized in or
under the laws of the United States, any state thereof, or any political
subdivision of either (including the District of Columbia), an estate, the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source or a trust with respect to which a court in
the U.S. is able to exercise primary authority over its administration and one
or more U.S. persons have the authority to control all of its substantial
decisions. The term "Certificateholder" or "holder" means any U.S. Person and
any other person to the extent that the income attributable to its interest in a
Certificate is effectively connected with that person's conduct of a U.S. trade
or business. A "Non-U.S. Certificate Owner" means a person other than a
Certificateholder and persons subject to rules applicable to former citizens and
residents of the United States.
TAX STATUS OF TRUST AS A GRANTOR TRUST
In the opinion of Weil, Gotshal & Manges LLP ("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, the Trust will not be subject to
federal income tax and each holder will be subject to federal income taxation as
if it owned directly the portion of the Underlying Securities allocable to such
certificates, and as if it paid directly its share of expenses paid by the
Trust.
INCOME OF U.S. CERTIFICATEHOLDERS
The purchase of a Certificate, for federal income tax
purposes, represents the purchase of an undivided interest in the Underlying
Securities and the granting of a call option with respect such Certificates. The
purchase price allocable to the interest in the Underlying Securities should
equal such interest's fair market value (the "Allocated Purchase Price"). The
difference between such fair market value and the purchase price of the
Certificates represents an option premium deemed paid by the Call Rights holder
for the Call Rights. To the extent that the portion of the purchase price of a
Certificate allocated to a holder's undivided interest in a Underlying Security
as so determined is greater than or less than the portion of the principal
balance of the Underlying Security allocable to the Certificate, such interest
in the Underlying Security will have been acquired at a premium or discount, as
the case may be. To the extent that the Allocated Purchase Price is less than
the principal balance of an Underlying Security by more than a statutorily
defined de minimis amount, the holder's interest in such Underlying Security
will be treated as purchased with "original issue discount." See the discussion
below under "Interest Income and Original Issue Discount". Conversely, to the
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extent that the Allocated Purchase Price exceeds the principal balance of an
Underlying Security, the holder's interest therein will be treated as purchased
with "bond premium." See the discussion below under "Bond Premium." Because of
the difficulty of allocating the purchase price and the tax reporting relating
thereto, the Trust intends to take the position for information reporting
purposes that the Call Rights are worthless and the Allocated Purchase Price
equals the purchase price of the Certificates. This may result in accelerating
income to holders if they would otherwise have been treated as having purchased
their interest in the Underlying Securities at a premium or at a smaller
discount. Potential investors are urged to advise with their tax advisors
regarding the foregoing.
Interest Income and Original Issue Discount. The proper
federal income tax treatment of the Certificates is unclear. The Certificates
represent an interest in a pro rata portion of the principal amount of the
Underlying Securities and 100 percent of the interest payable on the Underlying
Securities. In effect, a portion of the principal of the Underlying Securities
has been "stripped" off the Underlying Securities. Under the tax rules
applicable to stripped debt obligations, on the date a Certificate is purchased
the security backing the Certificate will be treated as newly issued, possibly
with original issue discount. Assuming the Certificates are purchased at par and
subject to the discussion in the next paragraph, the Trust intends to take the
position that the Certificates do not represent an interest in securities having
original issue discount. Based upon the forgoing and subject to the next
paragraph, each holder will be required to report on its federal income tax
return, in a manner consistent with its method of tax accounting, its share of
the interest income earned by the Trust with respect to the Underlying
Securities. If, however, the Service successfully challenges this position, the
Certificates would represent an interest in securities having original issue
discount and the holders would be required to accrue income based upon a
constant yield method without respect to the receipt of cash regardless of their
normal method of tax accounting. Holders of Certificates other than a holder who
purchased the Certificates upon original issuance may be considered to have
acquired their undivided interests in the Underlying Securities with original
issue discount or bond premium. Such holders are advised to consult their own
tax advisors as to the tax consequences of the acquisition, ownership and
disposition of the Certificates.
Payment of interest on the Underlying Securities may be
deferred if the Company defers the payment of interest on the 7.54% Junior
Subordinated Debentures. The Company. in the offering materials pursuant to
which the Underlying Securities were issued, expressed the view that the
Underlying Securities were not issued with original issue discount because the
likelihood of its exercising the right to defer interest on the 7.54% Junior
Subordinated Debentures was remote. It is unclear whether the remoteness of the
exercise by the Company of its right to defer interest on the 7.54% Junior
Subordinated Debentures must be retested at the time the Certificates are
issued. The Trust intends to treat the Certificates as representing an interest
in debt securities which were not issued with original issue discount based upon
the assumption that the likelihood that the Company will exercise its rights to
defer interest, if subject to retesting at the time the Certificates are issued,
is still remote. If the Service was to successfully challenge this treatment (or
the Company's initial assertion that the exercise of the deferral right was
remote) the Certificates would be subject to the original issue discount rules.
Similarly, if the Company does exercise its right to defer interest payments on
the 7.54% Junior Subordinated Debentures the Certificates will represent an
interest in debt securities with original issue discount at all times after the
beginning of the first deferral period. If the original issue discount rules
apply to the Certificates, in such case, all the interest payments thereafter
payable will be treated as original issue discount. If the payments were treated
as original issue discount (either because the Company exercises the right to
defer interest payments or because the exercise of such right was not remote at
the time of issuance), holders must include that discount in income on an
economic accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting, and any holders who dispose of
Certificates prior to the record date for payment of distributions thereon
following such deferral period will include original issue discount in gross
income but will not receive any cash related thereto from the Trust. The amount
of original issue discount that accrues in any semi-annual period will
approximately equal the amount of the interest that accrues in that semi-annual
period at the stated interest rate. In the event that the interest payment
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period is extended, holders will accrue original issue discount approximately
equal to the amount of the interest payment due at the end of the extended
interest payment period on an economic accrual basis over the length of the
extended interest period. A holder's tax basis for the Certificates will be
increased by original issue discount accrued into income, and decreased by cash
distributions of interest.
Bond Premium. To the extent a holder is deemed to have
purchased its pro rata undivided interest in the Underlying Securities at a
premium (i.e., the purchase price of a Certificate allocable to the Underlying
Security exceeds the total amount payable on the Underlying Security to the
Certificateholder other than qualified stated interest), such premium will be
amortizable by the holder as an offset to interest income (with a corresponding
reduction in the certificate owner's basis) under a constant yield method over
the term of the underlying Underlying Security if an election under Section 171
of the Code is made or was previously in effect. Any such election will 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.
DEDUCTIBILITY OF TRUST'S FEES AND EXPENSES
In computing its federal income tax liability, a holder will
be entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees, if any, paid or
incurred by the Trust as provided in Section 162 or 212 of the Code. If a holder
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.
SALE OR EXCHANGE BY HOLDERS
If a Certificate is sold or exchanged, including pursuant to
the exercise of the Call Rights, the selling Certificateholder will recognize
gain or loss equal to the difference between the amount realized upon the sale
or exchange and its adjusted basis in its Certificate. A holder's adjusted basis
of a Certificate will equal its cost, increased by any unpaid original issue
discount includible in income with respect to the Certificate prior to its sale,
and reduced by any principal payments previously received with respect to the
Certificate and any bond premium amortization previously applied to offset
interest income. The gain or loss recognized on the sale or exchange of a
Certificate will generally be capital gain or loss if the Certificate was held
as a capital asset. The purchase of a Certificate represents the purchase of an
interest in the Underlying Securities and the issuance of a call in the form of
the Call Rights on the Certificates. Accordingly, under the Code, the issuance
of the Call Rights likely represents a straddle with respect to the Underlying
Securities, and if so, under Code Section 1092 any gain realized upon the sale
or exchange of a Certificate will be short-term capital gain or loss regardless
of how long the Certificate was held by the Certificateholder at the time of the
disposition.
NON-U.S. CERTIFICATE OWNERS
As described above, the Certificates represent an undivided
interest in securities intended to be classified as debt for federal income tax
purposes. If the Certificates are so treated:
(a) Interest paid to a nonresident alien or foreign
corporation or partnership would be exempt from U.S. withholding taxes
(including backup withholding taxes), provided the holder complies with
applicable identification requirements (and neither actually or constructively
owns 10% or more of the voting stock of the Company nor is a controlled foreign
corporation with respect to the Company nor is an individual who ceased being a
U.S. citizen or long-term resident for tax avoidance purposes). Applicable
identification requirements will be satisfied if there is delivered to a
securities clearing organization (or bank or other financial institution that
holds Certificates on behalf of the customer in the ordinary course of its trade
or business), (i) IRS Form W-8BEN signed under penalties of perjury by the
beneficial owner of the Certificates stating that the holder is not a U.S.
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person and providing such holder's name and address, or claiming exemption from
withholding under an applicable tax treaty or (ii) IRS Form W-8ECI signed by the
beneficial owner of the Certificates or such owner's agent claiming exception
from withholding of tax on income connected with the conduct of a trade or
business in the United States; provided that in any such case (x) the applicable
form is delivered pursuant to applicable procedures and is properly transmitted
to the United States entity otherwise required to withhold tax and (y) none of
the entities receiving the form has actual knowledge that the holder is a U.S.
person or that any certification on the form is false;
(b) a holder of a Certificate who is a nonresident alien or
foreign corporation will not be subject to United States federal income tax on
gain realized on the sale, exchange or redemption of such Certificate provided
that (i) such gain is not effectively connected to a trade or business carried
on by the holder in the United States, (ii) in the case of a holder that is an
individual, such holder neither is present in the United States for 183 days or
more during the taxable year in which such sale, exchange or redemption occurs,
nor ceased being a U.S. citizen or long-term resident for tax avoidance purposes
and (iii) in the case of gain representing accrued interest, the conditions
described in clause (a) are satisfied; and
(c) a Certificate held by an individual who at the time of
death is a nonresident alien will not be subject to United States federal estate
tax as a result of such individual's death if, immediately before his death (i)
the individual did not actually or constructively own 10% or more of the voting
stock of the Company, (ii) the holding of such Certificate was not effectively
connected with the conduct by the decedent of a trade or business in the United
States and (iii) the individual did not cease being a U.S. citizen or long-term
resident for tax avoidance purposes.
The Service recently issued final regulations (the "New
Regulations") which would provide alternative methods of satisfying the
certification requirement described above. The New Regulations would require, in
the case of Certificates held by a foreign partnership, that (x) the
certification described in clause (a) above be provided by the partners rather
than by the foreign partnership and (y) the partnership provide certain
information. A look-through rule would apply in the case of tiered partnerships.
NON-U.S. CERTIFICATE OWNERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF THE CERTIFICATION REQUIREMENTS IN THE NEW
REGULATIONS.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31
percent may apply to payments made in respect of a Certificate to a registered
owner who is not an "exempt recipient" and who fails to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the manner required. Generally, individuals are not exempt recipients
whereas corporations and certain other entities are exempt recipients. Payments
made in respect of a holder must be reported to the Service, unless the holder
is an exempt recipient or otherwise establishes an exemption. Compliance with
the identification procedures (described in the preceding section) would
establish an exemption from backup withholding for a Non-U.S. Certificate Owner
who is not an exempt recipient.
In addition, upon the sale of a Certificate to (or through) a
"broker," the broker must withhold 31 percent of the entire purchase price,
unless either (i) the broker determines that the seller is a corporation or
other exempt recipient or (ii) the seller provides certain identifying
information in the required manner, and in the case of a Non-U.S. Certificate
Owner certifies that the seller is a Non-U.S. Certificate Owner (and certain
other conditions are met). Such a sale must also be reported by the broker to
the Service, unless either (i) the broker determines that the seller is an
exempt recipient or (ii) the seller certifies its non-U.S. status (and certain
other conditions are met). Certification of the registered owner's non-U.S.
status normally would be made on Form W-8BEN under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence. As defined by Treasury regulations, the term "broker" includes all
persons who stand ready to effect sales made by others in the ordinary course of
a trade or business, as well as brokers and dealers registered as such under the
laws of the United States or a state. These requirements generally will apply to
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a U.S. office of a broker, and the information reporting requirements generally
will apply to a foreign office of a U.S. broker as well as to a foreign office
of a foreign broker (i) that is a controlled foreign corporation within the
meaning of section 957(a) of the Code or (ii) 50 percent or more of whose gross
income from all sources for the three year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
foreign broker has been in existence) was effectively connected with the conduct
of a trade or business within the United States.
Any amounts withheld under the backup withholding rules from a
payment to a certificateholder would be allowed as a refund or a credit against
such certificateholder's U.S. federal income tax, provided that the required
information is furnished to the Service.
Recently issued final Treasury regulations will revise some of
the foregoing information reporting and backup withholding procedures generally
beginning January 1, 2001. Holders should consult their tax advisers concerning
the impact to them, if any, of such revised procedures.
STATE AND LOCAL TAX CONSIDERATIONS
Potential holders should consider the state and local income
tax consequences of the purchase, ownership and disposition of the Certificates.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, potential holders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Certificates.
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)(1) of the Code or (c) any entity whose underlying assets are
treated as assets of any such plan by reason of such plan's investment in the
entity (each, a "Plan").
In accordance with ERISA's fiduciary standards, before
investing in a Certificate, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its investment policy and the composition of its
portfolio. Other provisions of ERISA and the Code prohibit certain transactions
involving the assets of a Plan and persons who have specified relationships to
the Plan ("parties in interest" within the meaning of ERISA or "disqualified
persons" within the meaning of Section 4975 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 non-exempt prohibited transaction
under ERISA or the Code.
Under a "look-through rule" set forth in 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 under ERISA if the Plan acquires an
equity interest in such entity. Thus, unless an exception to the look-through
rule applies, 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 subject to the prohibited transaction provisions under ERISA and the
Code.
If assets of the Trust were deemed to be Plan assets,
transactions involving the Depositor, Underwriters, Trustee, Underlying
Securities Trustee and the Company might constitute non-exempt prohibited
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transactions with respect to a Plan holding a Certificate unless (i) one or more
prohibited transaction class exemptions ("PTCEs") applies or (ii) in the case of
the Company, it is not a disqualified person or party in interest with respect
to such Plan. Plans maintained or contributed to by the Depositor, Underwriters,
Trustee, Underlying Securities Trustee and the Company, or any of their
affiliates ("Excluded Plans"), should not acquire or hold any Certificate.
If the Trust is deemed to hold Plan assets, the Underlying
Securities would appear to be an indirect loan between the Company and any Plan
owning Certificates; however, such loan, by itself, would not constitute a
prohibited transaction unless the Company is a party in interest or disqualified
person with respect to such Plan.
The Underwriters are broker-dealers registered under the
Securities Exchange Act of 1934, as amended, and customarily purchase and sell
securities for their own accounts in the ordinary course of their business as
broker-dealers. Accordingly, the sale of Certificates by the Underwriters to
Plans may be exempt under PTCE 75-1 if the following conditions are satisfied:
(i) the Underwriters are not fiduciaries with respect to the Plan and are
parties in interest or disqualified persons solely by reason of Section 3(14)(B)
of ERISA or Section 4975(e)(2)(B) of the Code or a relationship to a person
described in such Sections, (ii) the transaction is at least as favorable to the
Plan as an arm's-length transaction with an unrelated party and is not a
prohibited transaction within the meaning of Section 503(b) of the Code, and
(iii) the Plan maintains for at least six years such records as are necessary to
determine whether the conditions of PTCE 75-1 have been met.
The custodial and other services rendered by the Trustee and
Underlying Securities Trustee might be exempt pursuant to Section 408(b)(2) of
ERISA and Section 4975(d)(2) of the Code, which exempt services necessary for
the establishment or operation of a Plan under a reasonable contract or
arrangement and for which no more than reasonable compensation is paid. An
arrangement would not be treated as reasonable unless it can be terminated upon
reasonably short notice under the circumstances without penalty. The Trustee may
each be terminated upon 60 days prior notice and the approval of
Certificateholders owning more than 66 2/3% of the aggregate beneficial interest
of Certificates. The Depositor believes the compensation of the Trustee is
reasonable under the circumstances. The statutory exemption for services noted
above does not provide exemptive relief from prohibited transactions described
in Section 406(b) of ERISA or Section 4975(c)(1)(E) or (F) of the Code. In that
regard, a fiduciary with respect to a Plan should consider whether a sale of a
portion of the Underlying Securities by the Trustee to an Underwriter or its
affiliate might constitute a non-exempt prohibited transaction by reason of the
relationship between the Trustee and any such purchaser, notwithstanding the
sale procedure to accept the highest bid submitted and the certification of the
highest bid and identity of bidders to the Trustee, or the possibility that the
Trustee may not solicit an Underwriter and its affiliates to avoid the
possibility of a non-exempt prohibited transaction. The Trustee shall, prior to
any sale of Underlying Securities to an Underwriter or any of its affiliates,
certify in writing that any such purchaser submitted the highest of at least
three bids and shall identify the other bidders.
Other prohibited transaction class exemptions could apply to
the acquisition and holding of Certificates by Plans, and the operation of the
Trust, including, but not limited to: PTCE 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts) or PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts).
By acquiring and holding a Certificate, a Plan shall be deemed
to have represented and warranted to the Depositor, Trustee and Underwriters
that such acquisition and holding of a Certificate does not involve a non-exempt
prohibited transaction with respect to such Plan, including with respect to the
activities of the Trust.
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METHOD OF DISTRIBUTION
Lehman ABS has agreed to sell and the Underwriters named below
have agreed to purchase, the Certificates.
Number of Certificates
----------------------
Lehman Brothers Inc......................... 700,000
Prudential Securities Incorporated.......... 550,000
UBS Warburg LLC............................. 550,000
Total....................................... 1,800,000
The Underwriters have agreed, subject to certain terms and
conditions, to purchase all Certificates offered hereby if any of such
Certificates are purchased.
Lehman ABS has been advised by the Underwriters that they
propose initially to offer the Certificates to the public at the public offering
price set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $0.50 per Certificate.
The Underwriters may allow and such dealers may reallow a concession not in
excess of $0.35. After the initial public offering, the public offering price
and the concessions may be changed.
The Certificates are a new issue of securities with no
established trading market. The Certificates will be approved for listing,
subject to official notice of issuance, on the New York Stock Exchange ("NYSE").
The Certificates will be eligible for trading on the NYSE within the 30-day
period after the initial delivery thereof but it is not likely that substantial
amounts of the certificates will be traded on the NYSE. In order to meet one of
the requirements for listing the Certificates on the NYSE, the Underwriters have
undertaken to sell the Certificates to a minimum of 400 beneficial owners. The
Underwriters have told the Company that they presently intend to make a market
in the Certificates prior to commencement of trading on the NYSE, as permitted
by applicable laws and regulations. The Underwriters are not obligated, however,
to make a market in the Certificates. Any market making by the Underwriters may
be discontinued at any time at the sole discretion of the Underwriters. No
assurance can be given as to whether a trading market for the Certificates will
develop or as to the liquidity of any trading market.
Lehman Brothers Inc. is an affiliate of Lehman ABS, and the
participation by Lehman Brothers Inc. in the offering of the certificates
complies with Section 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
In connection with the sale of the Certificates, Securities
and Exchange Commission rules permit the Underwriters to engage in transactions
that stabilize the price of the Certificates. These transactions may include
purchases for the purpose of fixing or maintaining the price of the
Certificates. The Underwriters may create a short position in the Certificates
in connection with the offering. That means they may sell a larger number of the
Certificates than is shown on the cover page of this prospectus supplement. If
they create a short position, the Underwriters may purchase Certificates in the
open market to reduce the short position. If the Underwriters purchase the
Certificates to stabilize the price or to reduce their short position, the price
of the Certificates could be higher than it might be if they had not made such
purchases. The Underwriters make no representation or prediction about any
effect that these purchases may have on the price of the Certificates. The
Underwriters may suspend any of these activities at any time.
The Underwriters may also impose a penalty bid on certain
dealers and selling group members. This means that if the representatives of the
Underwriters purchase Certificates in the open market to reduce the
Underwriters' short position or to stabilize the price of the Certificates, they
S-32
<PAGE>
may reclaim the amount of the selling concession from the Underwriters or
selling group members who sold those Certificates as part of this offering.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates be rated not lower than "A" by Standard & Poor's Ratings Services,
a division of The McGraw Hill Companies, Inc. ("Standard & Poor's") and "aa3" by
Moody's Investors Service, Inc. ("Moody's") (the "Rating Agencies"). The ratings
address the likelihood of the receipt by the Certificateholders of payments
required under the Trust Agreement, and are based primarily on the credit
quality of the Underlying Securities, as well as on the relative priorities of
the Certificateholders with respect to collections and losses with respect to
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, the
corresponding effect on yield to investors, or whether investors in the
Certificates may fail to recover fully their initial investment.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each security rating should be evaluated independently
of any other security rating.
Lehman ABS 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.
LEGAL OPINIONS
Certain legal matters relating to the certificates will be
passed upon for Lehman ABS and the Underwriters by Weil, Gotshal & Manges LLP,
New York, New York.
S-33
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
Allocated Purchase Price.......................26
Available Funds................................21
Business Day....................................8
Call Date......................................22
Call Price......................................9
Call Rights....................................22
Capital Treatment Event........................17
Certificates....................................8
Clearing Agency................................20
Code...........................................25
Company........................................15
Declaration....................................15
Deferral Period................................22
DOL............................................30
Eligible Investments...........................21
ERISA.......................................9, 30
event of default...............................24
Excluded Plans.................................31
Indenture......................................18
Investment Company Act Event...................17
IRA.............................................9
Junior Subordinated Debentures.................16
Keogh...........................................9
Moody's........................................33
New Regulations................................29
NYSE...........................................32
Optional Call..................................22
parties in interest............................30
Plan........................................9, 30
PTCEs..........................................31
Rating Agencies................................33
Regulation.....................................30
Regulations....................................25
Required Percentage- Remedies..................24
Service........................................25
Special Distribution Date.......................8
Special Event..................................17
Special Event Prepayment Price.................17
Special Event Redemption.......................17
Specified Currency..............................5
Standard & Poor's..............................33
Tax Event......................................17
Tier 1 capital.................................17
Trust Agreement................................11
Underlying Optional Redemption.................16
Underwriters...................................11
S-34
<PAGE>
PROSPECTUS
TRUST CERTIFICATES
(ISSUABLE IN SERIES)
LEHMAN ABS CORPORATION
DEPOSITOR
THE TRUST--
<TABLE>
<S> <C>
o may periodically issue asset backed certificates in one or more series with
----------------------------- one or more classes; and
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 5 o will own--
IN THIS PROSPECTUS.
o a publicly issued, fixed income debt security or a pool of such debt
securities;
Unless otherwise specified o payments due on those securities; and/or
in the applicable prospectus
supplement, the certificates o other assets described in this prospectus and in the accompanying prospectus
are not insured or supplement.
guaranteed by any government
agency. THE CERTIFICATES--
o will represent interests in the trust and will be paid only from the trust
The certificates will assets;
represent interests in the
trust only and will not o will be denominated and sold for U.S. dollars or for one or more foreign or
represent interests in or composite currencies and any payments to certificateholders may be payable in
obligations of Lehman ABS or U.S. dollars or in one or more foreign or composite currencies; and
of the administrative agent
of the trust or any of their o will be issued as part of a designated series which may include one or more
affiliates. classes of certificates and enhancement.
This prospectus may be used THE CERTIFICATEHOLDERS--
to offer and sell any series
of certificates only if o will receive interest and principal payments from the assets deposited with
accompanied by the the trust.
prospectus supplement for
that series.
-----------------------------
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
LEHMAN BROTHERS
January 4, 2001
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two
separate documents that progressively provide more detail: (a) this prospectus,
which provides general information, some of which may not apply to a particular
series of certificates, including your series, and (b) the accompanying
prospectus supplement, which will describe the specific terms of your series of
certificates, including:
o the currency or currencies in which the principal, premium, if
any, and any interest are distributable,
o 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,
o information concerning the type, characteristics and
specifications of the securities deposited with the trust (the
"Underlying Securities") and any other assets deposited with
the trust (together with the Underlying Securities, the
"Deposited Assets") and any credit support for such series or
class,
o 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 the Deposited Assets),
o the name of the trustee and the administrative agent, if any,
for the series,
o the Pass -Through Rate (as defined below) or the terms
relating to the applicable method of calculation thereof,
o the time and place of distribution (a "Distribution Date") of
any interest, premium (if any) and/or principal (if any),
o the date of issue,
o the Final Scheduled Distribution Date (as defined below), if
applicable,
o the offering price,
o any exchange, whether mandatory or optional, the redemption
terms and any other specific terms of certificates of each
series or class.
See "Description of Certificates--General" for a listing of other items that may
be specified in the applicable prospectus supplement.
2
<PAGE>
IF THE TERMS OF A PARTICULAR SERIES OF CERTIFICATES VARY BETWEEN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this
prospectus and the accompanying prospectus supplement including the information
incorporated by reference. We have not authorized anyone to provide you with
different information. We are not offering the certificates in any state where
the offer is not permitted. We do not claim the accuracy of the information in
this prospectus or the accompanying prospectus supplement as of any date other
than the dates stated on their respective covers.
We include cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The following table of contents and the table
of contents included in the accompanying prospectus supplement provide the pages
on which these captions are located.
TABLE OF CONTENTS
Important Notice about Information Presented in this Prospectus and the
Accompanying
Prospectus Supplement......................................................2
Where You Can Find More Information........................................3
Incorporation of Certain Documents by Reference............................4
Reports to Certificateholders..............................................4
Important Currency Information.............................................4
Risk Factors...............................................................5
Lehman ABS.................................................................7
Use of Proceeds............................................................8
Formation of the Trust.....................................................8
Maturity and Yield Considerations .........................................9
Description of the Certificates............................................11
Description of Deposited Assets and Credit Support.........................30
Description of the Trust Agreement.........................................43
Limitations on Issuance of Bearer Certificates.............................54
Currency Risks.............................................................55
Plan of Distribution.......................................................58
Legal Opinions.............................................................59
WHERE YOU CAN FIND MORE INFORMATION
Each trust is subject to the informational requirements of the
Exchange Act and we file on behalf of each trust reports and other information
with the SEC. You may read and copy any reports, statements or other information
we file at the SEC's public reference room in Washington, D.C. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at (800) SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings are also available to
the public on the SEC Internet site (http://www.sec.gov). We do not intend to
send any financial reports to certificateholders.
3
<PAGE>
We filed a registration statement relating to the certificates
with the SEC. This prospectus is part of the registration statement, but the
registration statement includes additional information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information we
file with it, which means that we can disclose important information to you by
referring you to those documents. We are incorporating by reference all
documents that we have filed with the SEC pursuant to the Exchange Act prior to
the date of this prospectus. The information incorporated by reference is
considered to be part of this prospectus. Information that we file later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the accompanying prospectus supplement. We
incorporate by reference any future SEC reports filed by or on behalf of the
trust until we terminate our offering of the certificates.
As a recipient of this prospectus, you may request a copy of
any document we incorporate by reference, except exhibits to the documents
(unless the exhibits are specifically incorporated by reference), at no cost, by
writing or calling us at: Secretary of Lehman ABS Corporation, 3 World Financial
Center, New York, New York 10285, (212) 526-7000.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable prospectus
supplement, unless and until definitive certificates (as defined below) are
issued, on each Distribution Date unaudited reports containing information
concerning each trust will be prepared by the trustee and sent on behalf of each
trust only to Cede & Co., as nominee of DTC and registered holder of the
certificates. See "Description of the Certificates--Global Securities" and
"Description of the Trust Agreement--Reports to Certificateholders; Notice."
These reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. We will file with the SEC on
behalf of the trust periodic reports as are required under the Exchange Act.
IMPORTANT CURRENCY INFORMATION
References herein to "U.S. dollars," "U.S.$," "USD," "dollar"
or "$" are to the lawful currency of the United States.
Purchasers are required to pay for each certificate in the
currency in which the certificate is denominated. 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 denominated in a currency
other than U.S. dollars, Lehman Brothers will arrange for the exchange of U.S.
dollars into such currency to enable the purchaser to pay for the certificate.
Requests must be made on or before the fifth Business Day (as defined below)
preceding the date of delivery of the certificate or by a later date as
determined by Lehman Brothers. Each exchange will be made by Lehman Brothers on
the terms and subject to the conditions, limitations and charges that Lehman
Brothers may from time to time establish in accordance with its regular foreign
exchange practice. All costs of exchange will be borne by the purchaser.
4
<PAGE>
RISK FACTORS
Limited Liquidity. Prior to the issuance of any series (or
class within such series) of certificates there will not be a public market for
those securities. We cannot predict the extent to which a trading market will
develop or how liquid that market might become or for how long it may continue.
Legal Aspects. A prospectus supplement may set forth legal
considerations that are applicable to a specific series (or class or classes
within such series) of certificates being offered in connection with that
prospectus supplement or the assets deposited in or assigned to the related
trust.
Limited Obligations and Interests. The certificates will not
represent a recourse obligation of or interest in Lehman ABS 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, Lehman ABS, any person affiliated with the
Lehman ABS or the trust, or any other person. Any obligation of Lehman ABS with
respect to the certificates of any series will only be pursuant to limited
representations and warranties. Lehman ABS 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 Lehman ABS were
required to repurchase an Underlying Security, its only sources of funds to make
a repurchase would be from funds obtained from the enforcement of a
corresponding obligation, if any, on the part of the seller of the Underlying
Security to Lehman ABS, or from a reserve fund established to provide funds for
repurchases. Lehman ABS is not obligated to establish or maintain a reserve
fund.
Credit Support; Limited Assets. The trust for any series (or
class of such series) of certificates may include assets which are designed to
support the payment or ensure the servicing or distribution with respect to the
Deposited Assets. However, the certificates do not represent obligations of
Lehman ABS, any administrative agent or any of their affiliates and, unless
otherwise specified in the applicable prospectus supplement, are not insured or
guaranteed by any person or entity. Accordingly, certificateholders' receipt of
distributions will depend entirely on 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 any
distribution with respect to any series (or of any class within such series) of
certificates is affected by a number of factors, including:
o the performance of the related Deposited Assets,
o the extent of any early redemption, repayment or
extension of maturity of the related Underlying
5
<PAGE>
Securities (including acceleration resulting from any
default or rescheduling resulting from the bankruptcy
or similar proceeding with respect to the issuer of
the Underlying Securities), and
o the manner and priority in which collections from the
Underlying Securities and any other Deposited Assets
are allocated to each class of such series.
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 other terms applicable to the 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 Consequences" in the related prospectus supplement. If the
Deposited Assets include securities issued by one or more government agencies or
instrumentalities, purchasers of the certificates may also be affected by the
tax treatment of the Underlying Securities by the relevant issuing government.
Ratings of the Certificates. At the time of issue, the
certificates of any given series (or each class of such series that is offered
hereby) will be rated in one of the investment grade categories recognized by
one or more nationally recognized rating agencies. 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. A rating does not comment as to market price or suitability for a
particular investor and is not a recommendation to purchase, hold or sell
certificates. We cannot be certain 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 in the future.
Global Securities. 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 a Depositary (as
defined below) and purchasers will not receive individual certificates.
Consequently, unless and until individual definitive certificates of a
particular series or class are issued, purchasers will not be recognized as
certificateholders under the Trust agreement. Until such time, purchasers will
only be able to exercise the rights of certificateholders indirectly through the
Depositary and its respective participating organizations. The ability of any
purchaser to pledge a certificate to persons or entities that do not participate
in the Depositary's system, or to otherwise act with respect to a certificate,
may be limited. See "Description of Certificates--Global Securities" and
"Limitations on Issuance of Bearer Certificates" and any further description
contained in the related prospectus supplement.
Foreign Issuers. The Underlying Securities may include
obligations of foreign issuers. Consequently, it may be difficult for the
applicable trust as a holder of the Underlying Securities to obtain or realize
upon judgments in the United States against the obligor. Even if an issuer is
amenable to suit in the United States, the enforceability of any judgment
obtained may be limited by a lack of substantial assets which can be levied upon
in the United States or the inability to obtain recognition and enforcement of
the judgment in the issuer's country. Because the Underlying Securities may
represent direct or indirect obligations of foreign issuers, certificateholders
6
<PAGE>
should consider the political, economic and other risks attendant on holding the
obligations of a foreign issuer which are not typically associated with an
investment in securities of a domestic issuer. Such risks include:
o future political and economic developments,
o moratorium on payment or rescheduling of external
debts,
o confiscatory taxation,
o imposition of any withholding tax,
o exchange rate fluctuations,
o political or social instability or diplomatic
developments, and
o the imposition of additional governmental laws or
restrictions.
Currency Risks. The certificates of any given series (or class
within such series) may be denominated in a currency other than U.S. dollars.
This prospectus does not describe all the risks of an investment in such
certificates, and Lehman ABS disclaims any responsibility to advise prospective
purchasers of such risks as they exist from time to time. 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. See "Currency Risks." In addition, there are risks associated with
Underlying Securities denominated in a currency other than the local currency of
a foreign government. Governments have from time to time imposed, and may in the
future impose, exchange controls that could affect the availability of a
currency for making distributions in respect of Underlying Securities
denominated in such currency.
Passive Nature of the Trust. The trustee with respect to any
series of certificates will hold the Deposited Assets for the benefit of the
certificateholders. Each trust will generally hold the related Deposited Assets
to maturity and not dispose of them, regardless of adverse events, financial or
otherwise, which may affect any issuer of Underlying Securities or the value of
the Deposited Assets. Under specified circumstances the holders of the
certificates may direct the trustee to dispose of the Underlying Securities or
take certain other actions in respect of the Deposited Assets.
In addition, the prospectus supplement for each series of
certificates will set forth information regarding additional risk factors,
applicable to such series (and each class within such series).
LEHMAN ABS
Lehman ABS 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 Lehman ABS is located in 3 World
Financial Center, New York, New York 10285. Its telephone number is (212)
526-7000.
7
<PAGE>
The Certificate of Incorporation of Lehman ABS provides that
Lehman ABS 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 Lehman ABS provides that any securities, except
for subordinated securities, issued by Lehman ABS 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 Lehman ABS 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,
Lehman ABS may not issue any securities which would result in the lowering of
the then current ratings of the outstanding certificates of any series.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus
supplement, the net proceeds to be received from the sale of each series or
class of certificates (whether or not offered hereby) will be used by Lehman ABS
to purchase the related Deposited Assets and arrange 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 Lehman ABS for general corporate purposes.
FORMATION OF THE TRUST
A separate trust will be created for each series of trust
certificates. Lehman ABS 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 these services. Any administrative agent named in the applicable
prospectus supplement will perform the tasks as are specified therein and in the
trust agreement and will receive a fee for these services as specified in the
prospectus supplement. See "Description of the Trust Agreement--Collection and
Other Administrative Procedures" and "--Retained Interest; Administrative Agent
Compensation and Payment of Expenses." The trustee or an administrative agent,
if applicable, will either cause the assignment of the Deposited Assets to be
recorded or will obtain an opinion of counsel that no recordation is required to
obtain a first priority perfected security interest in such Deposited Assets.
Unless otherwise stated in the prospectus supplement, Lehman
ABS' 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 will consist primarily of:
o its contractual--administrative obligations, if any, under the
trust agreement,
o its obligation, if any, to make 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
8
<PAGE>
o its obligations, if any, to purchase Deposited Assets as to
which there has been a breach of specified 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 the 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:
o the Deposited Assets, or interests therein, exclusive of any
interest in such assets (the "Retained Interest") retained by
Lehman ABS or any previous owner thereof, as from time to time
are specified in the trust agreement;
o such assets as from time to time are identified as deposited
in the related certificate account;
o property, if any, acquired on behalf of certificateholders by
foreclosure or repossession and any revenues received thereon;
o 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";
o the rights of Lehman ABS relating to any breaches of
representations or warranties by the issuer of the Deposited
Assets; and
o 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, Lehman ABS will obtain credit support for the benefit of
the certificateholders of any related series (or class within such series) of
certificates.
MATURITY AND YIELD CONSIDERATIONS
Each prospectus supplement will contain any applicable
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 redemption, repayment or extension of maturity will, unless otherwise
specified in the applicable prospectus supplement, affect the weighted average
life of the related series of certificates.
9
<PAGE>
The effective yield to holders of the certificates of any
series (and class within such series) may be affected by aspects of the
Deposited Assets or any credit support or the manner and priorities of
allocations of collections with respect to the 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 an issuer
exercises any right of redemption in respect of its securities. The rate of
redemption may also be influenced by prepayments on the obligations a government
sponsored entity issuer holds for its own account. All else remaining equal, if
prevailing interest rates fall significantly below the interest rates on the
related Underlying Securities, the likelihood of redemption would be expected to
increase. There can be no certainty as to whether any Underlying Security
redeemable at the option of its 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 specified 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 (as defined below) by the holders thereof.
See "Description of the Deposited Assets--Underlying Securities Indenture." If
an issuer of Underlying Securities 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 the ability
of an issuer of Underlying Securities to satisfy its obligations under the
Underlying Securities, including the company's operating and financial
condition, leverage, and social, geographic, legal and economic factors. In
addition, if the Underlying Securities are issued by a foreign government and
the foreign government issuer or guarantor repudiates or places any limitation
or moratorium on the payment of external indebtedness or imposes any
confiscatory or withholding tax, the timing and amount of payments on the
certificates may be materially and adversely affected. A variety of factors
could influence a foreign government's willingness or ability to satisfy its
obligations under the related Underlying Securities. We cannot predict the
probability of a moratorium or other action affecting any Underlying Security.
The extent to which the yield to maturity of such certificates
may vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are purchased at
a discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any series (or class) of certificates
will also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such certificates, to the extent that the
Pass-Through Rate (as defined below) 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 government, foreign
government or 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
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Securities having interest rates higher or lower than the then applicable
Pass-Through Rates applicable to such certificates may affect the yield on the
certificates.
A variety of economic, social, political, tax, accounting and
other factors may affect the degree to which any of the Underlying Securities
are redeemed or called (whether by the applicable obligor or pursuant to a
third-party call option) or the maturity of such Underlying Securities is
extended, as specified in the related prospectus supplement. There can be no
assurance as to the rate or likelihood of redemption, third-party call or
extension of maturity of any Underlying Security. The applicable prospectus
supplement will, to the extent available, provide further information with
respect to any such experience applicable to the related Underlying Securities.
In addition, the prospectus supplement for each series of certificates will set
forth additional information regarding yield and maturity considerations
applicable to such series (and each class within such series) and the related
Deposited Assets, including the applicable Underlying Securities.
DESCRIPTION OF THE 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 Lehman ABS, 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 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 Lehman ABS as an exhibit to a Current Report on Form 8-K to be filed
with the SEC following the issuance of such series.
GENERAL
There is no limit on the amount of certificates that may be
issued under the trust agreement, and the trust agreement will provide that
certificates of the applicable series may be issued in multiple classes (Section
5.01). The series (or classes within such series) of certificates to be issued
under the trust agreement will represent the entire beneficial ownership
interest in the trust for the series created pursuant to the trust agreement and
each class will be allocated certain relative priorities to receive specified
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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:
o the title of such certificates;
o the series of such certificates and, if applicable, the number
and designation of classes of such series;
o information concerning the type, characteristics and
specifications of the Deposited Assets being deposited into
the related trust by Lehman ABS (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, 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);
o the limit, if any, upon the aggregate principal amount or
notional amount, as applicable, of each class thereof;
o 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;
o if applicable, the relative rights and priorities of each
class (including the method for allocating collections from
and defaults or losses on the Deposited Assets to the
certificateholders of each class);
o whether the certificates of such series or each class within
such series are Fixed Rate Certificates or Floating Rate
Certificates (each as defined below) and the applicable
interest rate (the "Pass-Through Rate") for each such class
including the applicable rate, if fixed (a "Fixed Pass-Through
Rate"), or the terms relating to the particular method of
calculation thereof applicable to such series or each class
within such series, if variable (a "Variable Pass-Through
Rate"); the date or dates from which such interest will
accrue; the applicable Distribution Dates on which interest,
principal and premium, in each case as applicable, on such
series or class will be distributable and the related Record
Dates (as defined in the related prospectus supplement), if
any;
o 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 Lehman ABS 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 Lehman ABS'
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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;
o 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);
o 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;
o 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;
o 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 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;
o whether the certificates of such series or of any class within
such series are to be issued in the form of one or more global
securities and, if so, the identity of the Depositary (as
defined below), if other than The Depository Trust Company,
for such global security or securities;
o 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 permanent certificate of such series or
class will be credited to the account of the persons entitled
thereto on such Distribution Date;
o 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 permanent
global security or for individual definitive certificates of
such series or class and the terms upon which beneficial
interests in a permanent global security, if any, may be
exchanged for individual definitive certificates of such
series or class;
o if other than U.S. dollars, the 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 (the "Specified Currency") and the
circumstances and conditions, if any, when such currency may
be changed, at the election of Lehman ABS 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;
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o any additional Administrative Agent Termination Events (as
defined below), if applicable, provided for with respect to
such class;
o 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 Lehman
ABS or the applicable administrative agent, if any, or trustee
under the trust agreement or with respect to the applicable
trust; and
o 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 the
consequences of the Employee Retirement Income Security Act of 1974, as amended,
relating to any series or any class within such series of certificates will be
described in the applicable prospectus supplement. Furthermore, an election may
be made to treat a trust as a "financial asset securitization investment trust"
("FASIT"). To date, final Treasury regulations have not been issued describing
the federal income tax consequences to holders of interests in FASIT's of owning
such interests. The prospectus supplement relating to any class or series of
certificates representing interests in a FASIT will describe the federal income
tax consequences of the purchase and ownership of such certificates. In
addition, any risk factors, the specific terms and other information with
respect to the issuance of any series or class within such series of bearer
certificates or certificates on which the principal of and any premium and
interest are distributable in a Specified Currency other than U.S. dollars will
be described in the applicable prospectus supplement relating to such series or
class. Unless otherwise specified in the applicable prospectus supplement, the
U.S. dollar equivalent of the public offering price or purchase price of a
certificate having a Specified 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
Currency on the applicable issue date. As specified in the applicable prospectus
supplement, such determination will be made by Lehman ABS, 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.
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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. Lehman ABS may at any time purchase certificates at any
price in the open market or otherwise. Certificates so purchased by Lehman ABS
may, at the discretion of Lehman ABS, 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. An
election will remain in effect until revoked by written notice to such trustee
and administrative agent, if any, received by each of them not later than
fifteen calendar days prior to the applicable Distribution Date.
Unless otherwise specified in the applicable prospectus
supplement, in the case of a registered certificate of a given series or class
within such series having a Specified Currency other than U.S. dollars, the
amount of any U.S. dollar distribution in respect of such Registered Certificate
will be determined by the Exchange Rate Agent based on the highest firm bid
quotation expressed in U.S. dollars received by the Exchange Rate Agent at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Distribution Date (or, if no such rate is quoted on
such date, the last date on which such rate was quoted), from three (or, if
three are not available, then two) recognized foreign exchange dealers in The
City of New York (one of which may be the Offering Agent and another of which
may be the Exchange Rate Agent) selected by the Exchange Rate Agent, for the
purchase by the quoting dealer, for settlement on such Distribution Date, of the
aggregate amount payable in such Specified Currency on such payment date in
respect of all registered certificates. All currency exchange costs will be
borne by the certificateholders of such registered certificates by deductions
from such distributions. If no such bid quotations are available, such
distributions will be made in such Specified Currency, unless such Specified
Currency is unavailable due to the imposition of exchange controls or to other
circumstances beyond Lehman ABS' 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.
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Unless otherwise provided in the applicable prospectus
supplement and except as provided in the succeeding paragraph, distributions
with respect to certificates will be made (in the case of registered
certificates) at the corporate trust office or agency of the trustee specified
in the applicable prospectus supplement in The City of New York or (in the case
of bearer certificates) at the principal London office of the applicable
Trustee; provided, however, that any such amounts distributable on the final
Distribution Date of a certificate will be distributed only upon surrender of
such certificate at the applicable location set forth above (Sections 4.01 and
9.01). Except as otherwise provided in the applicable prospectus supplement, no
distribution on a bearer certificate will be made by mail to an address in the
United States or by wire transfer to an account maintained by the
certificateholder thereof in the United States.
Unless otherwise specified in the applicable prospectus
supplement, distributions on registered certificates in U.S. dollars will be
made, except as provided below, by check mailed to the registered
certificateholders of such certificates (which, in the case of global
securities, will be a nominee of the Depositary); provided, however, that, in
the case of a series or class of registered certificates issued between a Record
Date 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 Currency other than U.S. dollars) or more in
aggregate principal amount of registered certificates of a given series shall be
entitled to receive such U.S. dollar distributions by wire transfer of
immediately available funds, but only if appropriate wire transfer instructions
have been received in writing by the trustee for such series not later than
fifteen calendar days prior to the applicable Distribution Date. Simultaneously
with the election by any certificateholder to receive payments in a Specified
Currency other than U.S. dollars (as provided above), such certificateholder
shall provide appropriate wire transfer instructions to the trustee for such
series, and all such payments will be made by wire transfer of immediately
available funds to an account maintained by the payee with a bank located
outside the United States.
Except as otherwise specified in the applicable prospectus
supplement, "Business Day" with respect to any certificate means any day, other
than a Saturday or Sunday, that is (i) not a day on which banking institutions
are authorized or required by law or regulation to be closed in (a) The City of
New York or (b) if the Specified Currency for such certificate is other than
U.S. dollars, the financial center of the country issuing such Specified
Currency (which, in the case of ECU, shall be Brussels, Belgium) and (ii) if the
Pass-Through Rate for such certificate is based on LIBOR, a London Banking Day.
"London Banking Day" with respect to any certificate means any day on which
dealings in deposits in the Specified Currency of such certificate are
transacted in the London interbank market. The Record Date with respect to any
Distribution Date for a series or class of registered certificates shall be
specified as such in the applicable prospectus supplement.
INTEREST ON THE CERTIFICATES
General. Each class of certificates (other than certain
classes of Strip Certificates) of a given series may have a different
Pass-Through Rate, which may be a Fixed or Variable Pass-Through Rate, as
described below. In the case of Strip Certificates with no or, in certain cases,
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a nominal Certificate Principal Balance, such distributions of interest will be
in an amount (as to any Distribution Date, "Stripped Interest") described in the
related prospectus supplement. For purposes hereof, "Notional Amount" means the
notional principal amount specified in the applicable prospectus supplement on
which interest on Strip Certificates with no or, in certain cases, a nominal
Certificate Principal Balance will be made on each Distribution Date. Reference
to the Notional Amount of a class of Strip Certificates herein or in a
prospectus supplement does not indicate that such certificates represent the
right to receive any distribution in respect of principal in such amount, but
rather the term "Notional Amount" is used solely as a basis for calculating the
amount of required distributions and determining certain relative voting rights,
all as specified in the related prospectus supplement.
Fixed Rate Certificates. Each series (or, if more than one
class exists, each class within such series) of certificates with a Fixed
Pass-Through Rate ("Fixed Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance (as defined below) (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 ("Initial Pass-Through
Rate"). 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
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prospectus supplement, unless otherwise specified therein, will designate one of
the following Base Rates as applicable to a Floating Rate Certificate:
o LIBOR (a "LIBOR Certificate"),
o the Commercial Paper Rate (a "Commercial Paper Rate
Certificate"),
o the Treasury Rate (a "Treasury Rate Certificate"),
o the Federal Funds Rate (a "Federal Funds Rate Certificate"),
o the CD Rate (a "CD Rate Certificate") or
o such other Base Rate (which may be based on, among other
things, one or more market indices or the interest and/or
other payments (whether scheduled or otherwise) paid, accrued
or available with respect to a designated asset, pool of
assets or type of asset) as is set forth in such prospectus
supplement and in such certificate.
The "Index Maturity" for any series or class of Floating Rate Certificates is
the period of maturity of the instrument or obligation from which the Base Rate
is calculated. "H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates," or any successor publications, published by
the Board of Governors of the Federal Reserve System. "Composite Quotations"
means the daily statistical release entitled "Composite 3:30 p.m. Quotations for
U.S. Government Securities" published by the Federal Reserve Bank of New York.
As specified in the applicable prospectus supplement, Floating
Rate Certificates of a given series or class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period specified in the applicable prospectus
supplement ("Maximum Pass-Through Rate") and (ii) a minimum limitation, or
floor, on the rate at which interest may accrue during any such interest accrual
period ("Minimum Pass-Through Rate"). In addition to any Maximum Pass-Through
Rate that may be applicable to any series or class of Floating Rate
Certificates, the Pass-Through Rate applicable to any series or class of
Floating Rate Certificates will in no event be higher than the maximum rate
permitted by applicable law, as the same may be modified by United States law of
general application.
Lehman ABS 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;
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provided, however, that unless otherwise specified in such prospectus
supplement, the Pass-Through Rate in effect for the ten days immediately prior
to the Final Scheduled Distribution Date (as defined in the prospectus
supplement) will be that in effect on the tenth day preceding such Final
Scheduled 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.
(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.
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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
CD Rate 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 CD Rate 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 "CD Rate 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
Commercial Paper Rate 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
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"Commercial Paper." If by 3:00 p.m., New York City time, on such Commercial
Paper Rate 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 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 "Commercial Paper Rate Calculation Date" pertaining to any
Commercial Paper Rate Determination Date shall be the first to occur of (a) the
tenth calendar day after such Commercial Paper Rate Determination Date or, if
such day is not a Business Day, the next succeeding Business Day or (b) the
second Business Day preceding the date any distribution of interest is required
to be made following the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate
Certificate will bear interest for each Interest Reset Period at the
Pass-Through Rate calculated with reference to the Federal Funds Rate and the
Spread or Spread Multiplier, if any, specified in such certificate and in the
applicable prospectus supplement.
Unless otherwise specified in the applicable prospectus
supplement, the "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Federal
Funds Rate Calculation Date (as defined below) pertaining to such Federal Funds
Rate Determination Date, the "Federal Funds Rate" for such Interest Reset Period
shall be the rate on such Federal Funds Rate Determination Date as published in
Composite Quotations under the heading "Federal Funds/Effective Rate." If by
3:00 p.m., New York City time, on such Federal Funds Rate 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
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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 Federal Funds Rate 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 "Federal Funds Rate 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 determine
the arithmetic mean of the offered rates for deposits in U.S. dollars
for the period of the Index Maturity specified in the applicable
prospectus supplement, commencing on such Interest Reset Date, which
appear on the Reuters Screen LIBO Page at approximately 11:00 a.m.,
London time, on such LIBOR Determination Date. "Reuters Screen LIBO
Page" means the display designated as page "LIBOR" on the Reuters
Monitor Money Rates Service (or such other page may replace the LIBO
page on that service for the purpose of displaying London interbank
offered rates of major banks). If at least two such offered rates
appear on the Reuters Screen LIBO Page, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such offered rates as determined
by the Calculation Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters
Screen LIBO Page on such LIBOR Determination Date, the Calculation
Agent for such LIBOR Certificate will request the principal London
offices of each of four major banks in the London interbank market
selected by such Calculation Agent to provide such Calculation Agent
with its offered quotations for deposits in U.S. dollars for the period
of the specified Index Maturity, commencing on such Interest Reset
Date, to prime banks in the London interbank market at approximately
11:00 a.m., London time, on such LIBOR Determination Date and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest
Reset Period will be the arithmetic mean of such quotations. If fewer
than two such quotations are provided, "LIBOR" for such Interest Reset
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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 specified in this sentence, "LIBOR" for such
Interest Reset Period will be the same as LIBOR for the immediately
preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Pass-Through Rate).
If LIBOR with respect to any LIBOR Certificate is indexed to
the offered rates for deposits in a currency other than U.S. dollars, the
applicable prospectus supplement will set forth the method for determining such
rate.
(5) Treasury Rate Certificates. Each Treasury Rate Certificate
will bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in such certificate and in the applicable
prospectus supplement.
Unless otherwise specified in the applicable prospectus
supplement, the "Treasury Rate" for each Interest Reset Period will be the rate
for the auction held on the Treasury Rate Determination Date (as defined below)
for such Interest Reset Period of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
prospectus supplement, as such rate shall be published in H.15(519) under the
heading "U.S. Government Certificates-Treasury bills-auction average
(investment)" or, in the event that such rate is not published prior to 3:00
p.m., New York City time, on the Treasury Rate 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 Treasury Rate Calculation Date, or if no such auction is
held on such Treasury Rate Determination Date, then the "Treasury Rate" for such
Interest Reset Period shall be calculated by the Calculation Agent for such
Treasury Rate Certificate and shall be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 p.m., New York City time, on such Treasury Rate
Determination Date, of three leading primary United States government securities
dealers selected by such Calculation Agent for the issue of Treasury bills with
a remaining maturity closest to the specified Index Maturity; provided, however,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate" for
such Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Pass-Through Rate).
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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 "Treasury Rate 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.
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INDEXED CERTIFICATES
From time to time, the trust 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
o the rate of exchange between the specified currency for such
certificate and the other currency or composite currency (the
"Indexed Currency") specified therein;
o the difference in the price of a specified commodity (the
"Indexed Commodity") on specified dates;
o 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
o 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.
CREDIT DERIVATIVES
If so provided in the related prospectus supplement, a trust
issuing a series of certificates may enter into a credit derivative arrangement
such as a credit default swap agreement. Under such a swap agreement the trust
would agree, in return for a fee or other consideration, to assume the default
or other credit risk on a security not owned by the trust (a "Reference
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Security"). Upon the occurrence of a default or other objective credit event
with respect to the Reference Security, the trust would suffer the resulting
loss pursuant to (i) a provision requiring the trust to pay the counterparty the
difference between the face amount of the Reference Security and its then
current market value as determined by independent quotations (which payment
would be made from the proceeds of the sale of the Underlying Securities), (ii)
a provision requiring the trust to deliver the Underlying Securities to the
counterparty in exchange for the Reference Securities, which would then either
be distributed in kind to certificateholders or sold (and the proceeds
distributed) or (iii) other provisions set forth in the related prospectus
supplement with similar effects. Similarly, if so provided in the related
Prospectus Supplement, a trust may enter into a put option arrangement pursuant
to which the trust will agree to purchase a Reference Security for a
predetermined price, thus assuming the risk of loss thereon.
Reference Securities will be of the same types as the
Underlying Securities described herein. The related Prospectus Supplement will
include information regarding Reference Securities and the issuer thereof that
is analogous to that provided with respect to Underlying Securities.
OPTIONAL EXCHANGE
If a holder may exchange certificates of any given series for
a pro rata portion of the Deposited Assets, (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 and the related trust agreement; provided
that any right of exchange shall be exercisable only to the extent that such
exchange would not be inconsistent with Lehman ABS' 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:
o a requirement that the exchanging holder tender to the trustee
certificates of each class within such Exchangeable Series;
o a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each certificate being tendered
for exchange;
o 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;
o specified dates during which a holder may effect such an
exchange (each, an "Optional Exchange Date");
o 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
o 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
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Extraordinary Trust Expenses as set forth in the applicable
prospectus supplement, if applicable.
Unless otherwise specified in the related prospectus
supplement, in order for a certificate of a given Exchangeable Series (or class
within such Exchangeable Series) to be exchanged by the applicable
certificateholder, the trustee for such certificate must receive, at least 30
(or such shorter period acceptable to the trustee) but not more than 45 days
prior to an Optional Exchange Date (i) such certificate with the form entitled
"Option to Elect Exchange" on the reverse thereof duly completed, or (ii) in the
case of registered certificates, a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc., the Depositary (in accordance with its
normal procedures) or a commercial bank or trust company in the United States
setting forth the name of the holder of such registered certificate, the
Certificate Principal Balance or Notional Amount of the registered certificate
to be exchanged, the certificate number or a description of the tenor and terms
of the 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, until definitive certificates are issued each certificate will be
represented by a global security, the Depositary's nominee will be the
certificateholder of such certificate and therefore will be the only entity that
can exercise a right of exchange. In order to ensure that the Depositary's
nominee will timely exercise a right of exchange with respect to a particular
certificate, the beneficial owner of such certificate must instruct the broker
or other direct or indirect participant through which it holds an interest in
such certificate to notify the Depositary of its desire to exercise a right of
exchange. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an interest in a certificate in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the Depositary.
Unless otherwise provided in the applicable prospectus
supplement, upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related Deposited Assets, as described in such
prospectus supplement, the applicable certificateholder will be entitled to
receive a distribution of a pro rata share of the Deposited Assets related to
the Exchangeable Series (and class within such Exchangeable Series) of the
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certificate being exchanged, in the manner and to the extent described in such
prospectus supplement. Alternatively, to the extent so specified in the
applicable prospectus supplement, the applicable certificateholder, upon
satisfaction of such conditions, may direct the related Trustee to sell, on
behalf of the certificateholder, such pro rata share of the Deposited Assets. In
such event the certificateholder will be entitled to receive the net proceeds of
such sale, less any costs and expenses incurred by the trustee in facilitating
the 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. The global securities will be deposited with,
or on behalf of, The Depository Trust Company, New York, New York (for
registered certificates denominated and payable in U.S. dollars), or such other
depositary identified in the related prospectus supplement (the "Depositary"),
and registered in the name of a nominee of the Depositary. Global securities may
be issued in either registered or bearer form and in either temporary or
permanent form. See "Limitations on Issuance of Bearer Certificates" for
provisions applicable to certificates issued in bearer form. Unless and until it
is exchanged in whole or in part for the individual certificates represented
thereby (each a "definitive certificate"), a global security may not be
transferred except as a whole by the Depositary for such global security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor (Sections 5.02
and 5.04).
The Depository Trust Company has advised Lehman ABS 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 participating organizations and to facilitate
the clearance and settlement of securities transactions among the institutions
that have accounts with the Depositary ("participants") in such securities
through electronic book-entry changes in the accounts of the Depositary
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (including Lehman Brothers), banks, trust companies, clearing
corporations, and certain other organizations, some of whom (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The Depository Trust Company has
confirmed to Lehman ABS that it intends to follow such procedures.
Upon the issuance of a global security, the Depositary for the
global security will credit, on its book-entry registration and transfer system,
the respective principal amounts or notional amounts, if applicable, 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 Lehman ABS or such agent or agents.
Ownership of beneficial interests in a Global Security will be limited to
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participants or persons that may hold beneficial interests through participants.
Ownership of beneficial interests in a global security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary for such global security or by participants or persons that hold
through participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities. Such limits and such laws
may limit the market for beneficial interests in a global security.
So long as the Depositary for a global security, or its
nominee, is the owner of the global security, the Depositary or the 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 the 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 the global security registered in
their names, will not receive or be entitled to receive physical delivery of any
certificates and will not be considered the certificateholder thereof under the
trust agreement governing the certificates. Because the Depositary can only act
on behalf of its participants, the ability of a holder of any certificate to
pledge that certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to the certificate, may be
limited due to the lack of a physical certificate for the certificate.
Subject to the restrictions discussed under "Limitations on
Issuance of Bearer Certificates" below, distributions of principal of (and
premium, if any) and any interest on individual certificates represented by a
global security will be made to the Depositary or its nominee, as the case may
be, as the certificateholder of the global security. None of Lehman ABS, the
administrative agent, if any, the trustee for the certificates, any paying agent
or the certificate registrar for the certificates will have responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in a global security or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
Lehman ABS expects that the Depositary for certificates of a
given class and series, upon receipt of any distribution of principal, premium
or interest in respect of a definitive global security representing any
certificates, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the global security as shown on the records of such Depositary. Lehman
ABS also expects that payments by participants to owners of beneficial interests
in a global security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. Receipt by owners of beneficial
interests in a temporary global security of payments of principal, premium or
interest in respect thereof will be subject to the restrictions discussed below
under "Limitations on Issuance of Bearer Certificates" below.
If the Depositary for certificates of a given class of any
series is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by Lehman ABS within ninety days, Lehman
ABS will issue individual definitive certificates in exchange for the global
security or securities representing such certificates. In addition, Lehman ABS
may at any time and in its sole discretion determine not to have any
certificates of a given class represented by one or more global securities and,
in such event, will issue individual definitive certificates of such class in
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exchange for the global security or securities representing such certificates.
Further, if Lehman ABS 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 Lehman ABS and the
Depositary of the 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 the global
security equal in principal amount or notional amount, if applicable, to such
beneficial interest and to have 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:
o as registered certificates in denominations, unless otherwise
specified by Lehman ABS or in the related prospectus
supplement, of $1,000 and integral multiples thereof if the
certificates of such class are issuable as registered
certificates,
o as bearer certificates in the denomination or denominations
specified by Lehman ABS or as specified in the related
prospectus supplement if the certificates of such class are
issuable as bearer certificates, or
o 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.
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, security or a pool of
securities (the "Underlying Securities"), purchased by Lehman ABS (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 one or more of the following:
o debt obligations or investment grade term preferred stock of
one or more corporations, limited liability companies, banking
organizations or insurance companies organized under the laws
of the United States or any state, the District of Columbia or
the Commonwealth of Puerto Rico, which in each case are
subject to the informational requirements of the Exchange Act
and which, in accordance therewith, file reports and other
information with the SEC or (for certain depository
institutions) with a federal bank or thrift regulatory agency
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("Domestic Corporate Securities") and which, if such security
or securities are Concentrated Underlying Securities (as
defined below), the depositor reasonably believes (based on
publicly available information) meet the market capitalization
and other requirements for a primary issuance of common stock
on Form S-3 at the time of offering of the trust certificates;
o publicly issued debt securities of one or more foreign private
issuers (as such term is defined in rule 405 under the
Securities Act) subject to the informational requirements of
the Exchange Act and which in accordance therewith file
reports and other information with the SEC ("Foreign Private
Securities" and together with Domestic Corporate Securities,
the "Corporate Securities") and which, if such securities are
Concentrated Underlying Securities, the depositor reasonably
believes (based on publicly available information) are
eligible for a primary offering of common stock on Form F-3 at
the time of offering of the trust certificates;
o preferred securities of one or more trusts or other special
purpose legal entities that hold obligations of issuers that
are subject, or are wholly-owned subsidiaries of companies
that are subject (in which case such parent companies have
fully and unconditionally guaranteed such obligations on a
subordinate or non-subordinate basis), to the informational
requirements of the Exchange Act and which, in accordance
therewith, file reports and other information with the SEC
("Trust Preferred Securities") and, if such Trust Preferred
Securities are Concentrated Underlying Securities, that the
depositor reasonably believes (based on publicly available
information) are eligible for a primary offering of common
stock on Form S-3 or Form F-3 at the time of offering of the
trust certificates;
o asset-backed securities of one or more trusts or other special
purpose legal entities (having outstanding at least
$75,000,000 in securities held by non-affiliates) which
(unless the depositor is a GSE described below) are subject at
the time of issuance of the asset-backed securities to the
informational requirements of the Exchange Act and which in
accordance therewith, file reports and other information with
the SEC, ("Asset-Backed Securities" and together with
Corporate Securities and Trust Preferred Securities, the
"Private Sector Securities");
o an obligation issued or guaranteed by the United States of
America or any agency thereof for the payment of which the
full faith and credit of the United States of America is
pledged ("Treasury Securities");
o an obligation of one or more U.S. government sponsored
entities ("GSEs") described below (see "Underlying
Securities-Domestic Government Securities");
o Government Trust Certificates ("GTCs") described below; or
o an obligation issued by a Multilateral Bank Issuer (as defined
below).
Notwithstanding any requirement stated or incorporated herein
relating to reporting under the Exchange Act, it should be noted that the
issuers of the Underlying Securities are not participating in any offering of
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trust certificates and that the depositor and Lehman Brothers Inc. will not
perform the analysis and review of such issuers that an underwriter of the
Underlying Securities would perform. The reasonableness of the Depositor's
belief as to an Underlying Security issuer's eligibility to issue common stock
on Form S-3 should be evaluated in light of these limitations.
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 Lehman ABS is permitted to deposit
in a trust and is not a complete description of any prospectus relating to any
Underlying Security, and, if applicable, Underlying Securities Indenture (as
defined below) and as qualified by the applicable prospectus supplement,
prospectus relating to any Underlying Security, if any, and to the extent
applicable, the statement of terms or similar document with respect to any
Underlying Security, and if applicable, the Underlying Securities Indenture.
UNDERLYING SECURITIES
PRIVATE SECTOR SECURITIES
Private Sector Securities will be either:
o Corporate Securities,
o Trust Preferred Securities, or
o Asset-Backed Securities.
Corporate Securities. Corporate Securities may consist of senior or
subordinated debt obligations, or investment grade term preferred stock issued
by domestic or foreign issuers, as described above.
Debt obligations may be issued with a wide variety of terms
and conditions. Set forth below is a description of certain features that may be
associated with one or more Underlying Securities consisting of debt
obligations.
Indentures. With respect to senior or subordinated debt
obligations, the related prospectus supplement will specify whether each
Underlying Security will have been issued pursuant to an agreement (each, an
"Underlying Securities Indenture") between the issuer of the Underlying
Securities and a trustee (the "Underlying Securities Trustee"). If so specified
in the related prospectus supplement, the Underlying Securities Indenture, if
any, and the Underlying Securities Trustee, if any, 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. If specified in the related prospectus
supplement, the Underlying Securities that consist of senior or subordinated
debt obligations will be issued pursuant to an Underlying Securities Indenture.
Indentures generally contain covenants intended to protect security holders
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against the occurrence or effects of certain specified events, including
restrictions limiting the issuer's, and in some cases any of its subsidiary's,
ability to:
o consolidate, merge, or transfer or lease assets;
o incur or suffer to exist any lien, charge, or
encumbrance upon any of its property or assets;
o 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; or
o 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 specified 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 Underlying
Securities (including a Foreign Government Security) that represents ten percent
or more of the total Underlying Securities with respect to any series of
certificates (a "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:
o failure by the issuer to pay an installment of interest or
principal on the securities at the time required (subject to
any specified grace period) or to redeem any of the securities
when required (subject to any specified grace period);
o failure by the issuer to observe or perform any covenant,
agreement or condition contained in the securities or the
indenture, as the case may be, which failure is materially
adverse to security holders and continues for a specified
period after notice thereof is given to the issuer by the
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indenture trustee or the holders of not less than a specified
percentage of the outstanding securities; or
o 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.
Remedies. Indentures for Corporate Securities 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 indenture trustee thereunder to be indemnified by the
security holders prior to proceeding to exercise any right or power under such
indenture with respect to such securities at the request of such security
holders. An indenture is also likely to limit a security holder's right to
institute certain actions or proceedings to pursue any remedy under the
indenture unless certain conditions are satisfied, including consent of the
indenture trustee, that the proceeding be brought for the ratable benefit of all
holders of the security, and/or the indenture trustee, after being requested to
institute a proceeding by the owners of at least a specified minimum percentage
of the securities, shall have refused or neglected to comply with such request
within a reasonable time.
Each Underlying Securities Indenture or Underlying Security
may include some, all or none of the foregoing provisions or variations thereof
or additional events of default not discussed herein. The prospectus supplement
with respect to any series of certificates will describe the events of default
under the Underlying Securities with respect to any Concentrated Underlying
Security ("Underlying Security Events of Default") and applicable remedies with
respect thereto. With respect to any trust comprised of a pool of securities,
the applicable prospectus supplement will describe certain common Underlying
Security Events of Default with respect to such pool. There can be no assurance
that any such provision will protect the trust, as a holder of the Underlying
Securities, against losses. If an Underlying Security Event of Default occurs
and the indenture trustee as a holder of the Underlying Securities is entitled
to vote or take such other action to declare the principal amount of an
Underlying Security and any accrued and unpaid interest thereon to be due and
payable, the certificateholders' objectives may differ from those of holders of
other securities of the same series and class as any Underlying Security
("Outstanding Debt Securities") in determining whether to declare the
acceleration of the Underlying Securities.
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
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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 issuer of the
Underlying Securities. There can be no assurance, however, that in the event of
a bankruptcy or similar proceeding the trust as a holder of Senior Underlying
Securities would receive all payments in respect of such securities even if
holders of subordinated securities receive amounts in respect of such
securities. Reference is made to the prospectus supplement used to offer any
series of certificates for a description of any subordination provisions with
respect to any Concentrated Underlying Securities and the percentage of Senior
Underlying Securities and Subordinated Underlying Securities, if any, in a trust
comprised of a pool of securities.
Secured Obligations. Certain of the Underlying Securities with
respect to any trust may represent secured obligations of the issuer of the
Underlying Securities ("Secured Underlying Securities"). Generally, unless an
event of default shall have occurred and is continuing, 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 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 provisions for release, substitution or disposition of
collateral under specified 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 specified events of default with respect thereto. In the
event of a default in respect of any secured obligation, security holders may
experience a delay in payments on account of principal (and premium, if any) or
any interest on such securities pending the sale of any collateral and prior to
or during such period the related collateral may decline in value. If proceeds
of the sale of collateral following an indenture event of default are
insufficient to repay all amounts due in respect of any secured obligations, the
holders of such securities (to the extent not repaid from the proceeds of the
sale of the collateral) would have only an unsecured claim ranking pari passu
with the claims of all other general unsecured creditors.
The Underlying Securities Indenture with respect to any
Secured Underlying Security may include, some, all or none of the foregoing
provisions or variations thereof. The prospectus supplement used to offer any
series of certificates which includes Concentrated Underlying Securities which
are Secured Underlying Securities, will describe the security provisions of the
Underlying Securities and the related collateral. With respect to any trust
comprised of a pool of securities, a substantial portion of which are Secured
Underlying Securities, the applicable prospectus supplement will disclose
general information with respect to such security provisions and the collateral.
Trust Preferred Securities. As specified in the related prospectus
supplement, a trust may include one or more Trust Preferred Securities. Trust
Preferred Securities are preferred equity securities issued by a trust, such as
a Delaware statutory business trust, established for the purpose of issuing
common and preferred equity securities and investing the proceeds in certain
subordinated debt obligations. The subordinated debt obligations are issued by
the parent of the trust, i.e., the company to whom the trust issues its common
equity securities, or by an affiliate of such parent. Trust Preferred Securities
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generally have economic characteristics that mirror those of the subordinated
debt obligations that are the trusts' principal assets. Specifically, the Trust
Preferred Securities generally have a liquidation preference equal to the
principal balance of the subordinated debt obligations and are subject to
mandatory redemption on the maturity date of the subordinated debt obligations,
or such earlier date as the issuer optionally prepays the subordinated debt. The
Trust Preferred Securities generally pay dividends at a rate approximately equal
to the interest rate on the subordinated debt obligations, and such dividends
and interest payments generally are due on or about the same date.
The trusts that issue Trust Preferred Securities generally
have no assets other than the subordinated debt obligations issued by such
trusts' affiliates. Such subordinated debt obligations are subordinated to all
other unsubordinated debt of such affiliates, including such debt issued
subsequent to issuance of such subordinated debt obligations.
In view of the relationship of the trusts that issue Trust
Preferred Securities to their parent companies and in view of certain
undertakings by such parents, such trusts in each case will not file reports
under the Exchange Act so long as their parent companies file reports under the
Exchange Act.
Asset-Backed Securities. As specified in the related prospectus
supplement, a trust may include one or more Asset-Backed Securities.
Asset-Backed Securities may be asset-backed notes or pass-through certificates,
in each case issued by a trust or other special-purpose entity. Asset-backed
notes are secured by, and pass-through certificates represent an interest in, a
fixed or revolving pool of financial assets. Such financial assets may consist
of secured or unsecured consumer or other receivables, such as automobile loans
or contracts, automobile leases, credit card receivables, home equity or other
mortgage loans, trade receivables, floor plan (inventory) loans, automobile
leases, equipment leases, and other assets that produce streams of payments.
Asset-backed notes generally are issued pursuant to indentures and pass-through
certificates generally are issued pursuant to pooling and servicing agreements.
A separate servicing agreement typically is executed in connection with
asset-backed notes (such servicing agreements, indentures and pooling and
servicing agreements, the "Asset-Backed Agreements").
The Asset-Backed Agreements provide for the appointment of a trustee
and the segregation of the transferred pool of assets from the other assets of
the transferor. Such segregation generally is only required to the extent
necessary to perfect the interest of the trustee in the assets against claims of
unsecured creditors of the transferor of the assets. Where so required by the
Uniform Commercial Code (the "UCC") (for instance, home equity loan notes)
certain of the documents evidencing the underlying receivables are delivered to
the possession of the trustee or other custodian for the holders of the
Asset-Backed Securities. In the case of most assets, either no documents
evidence the receivables (for instance, credit card receivables) or documents
exist, but the UCC does not require their possession to perfect a transfer (for
instance, automobile installment sales contracts). In these cases, the
transferor segregates the assets only on its own books and records, such as by
marking its computer files, and perfects the trustee's interest by filing a
financing statement under the UCC. This method of segregation and perfection
presents the risk that the trustee's interest in the assets could be lost as a
result of negligence or fraud, such that the trustee and the Asset-Backed
Security holders become unsecured creditors of the transferor of the assets.
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DOMESTIC GOVERNMENT SECURITIES
Domestic Government Securities will be either:
o Treasury Securities,
o GSEs, or
o GTCs
GSEs. As specified in the applicable prospectus supplement, the
obligations of one or more of the following GSEs may be included in a trust:
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation,
Student Loan Marketing Association, Resolution Funding Corporation, Federal Home
Loan Banks (to the extent such obligations represent the joint and several
obligations of the twelve Federal Home Loan Banks), Tennessee Valley Authority
and Federal Farm Credit Banks. GSE debt securities generally are exempt from
registration under the Securities Act pursuant to Section 3(a)(2) of the
Securities Act (or are deemed by statute to be so exempt) and are not required
to be registered under the Exchange Act. The securities of any GSE will be
included in a trust only to the extent (A) its obligations are supported by the
full faith and credit of the U.S. government or (B) the organization makes
publicly available its annual report, which shall include financial statements
or similar financial information with respect to the organization. Based on
information contained in the offering document pursuant to which any GSE
issuer's securities were originally offered, the applicable prospectus
supplement will set forth information with respect to the public availability of
information with respect to any GSE issuer the debt securities of which
constitute more than ten percent of the Underlying Securities for any series of
certificates as of the date of the prospectus supplement. The specific terms and
conditions of the Underlying Securities will be set forth in the related
prospectus supplement.
In the case of a GSE issuer there will generally be a fiscal
agent with respect to any related Underlying Security whose actions will be
governed by a fiscal agency agreement. A fiscal agent is not a trustee for the
holders of the Underlying Securities and does not have the same responsibilities
or duties to act for the holders of a GSE's securities as would a trustee.
Unless otherwise specified in the related prospectus supplement, the Underlying
Securities with respect to any GSE issuer will not be guaranteed by the United
States and do not constitute a debt or obligation of the United States or of any
agency or instrumentality thereof other than the related GSE.
Contractual and Statutory Restrictions. A GSE issuer and the
related Underlying Securities may be subject to contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of specified events. Unless otherwise specified in the
related prospectus supplement, each GSE is limited to the activities as will
promote its statutory purposes as set forth in the publicly available
information with respect to the issuer. See "Description of the Deposited
Assets--Publicly Available Information" in the related prospectus supplement. A
GSE's promotion of its statutory purposes, as well as its statutory, structural
and regulatory relationships with the federal government may cause or require
the GSE to conduct its business in a manner that differs from that an enterprise
which is not a GSE might employ.
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Neither the United States nor any agency thereof is obligated
to finance any GSE issuer's operations or to assist a GSE issuer in any manner.
Prospective purchasers should consult the publicly available information with
respect to each GSE issuer for a more detailed description of the regulatory and
statutory restrictions on the related GSE's activities.
Events of Default. Underlying Securities issued by a GSE
Issuer may provide that any one of a number of specified events will constitute
an event of default with respect to the securities issued thereunder. Events of
default typically include the following or variations thereof:
o failure by the issuer to pay an installment of interest or
principal on the securities at the time required (subject to
any specified grace period) or to redeem any of the securities
when required (subject to any specified grace period);
o failure by the issuer to observe or perform any covenant,
agreement or condition contained in the securities or the
indenture or authorizing legislation or regulation, as the
case may be, which failure is materially adverse to security
holders and continues for a specified period after notice
thereof is given to the issuer by the fiscal agent or the
holders of not less than a specified percentage of the
outstanding securities; and
o 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.
GTCS. As specified in the related prospectus supplement, a trust may
include one or more GTCs. GTCs are certificates evidencing undivided fractional
interests in a trust, the assets of which consist of promissory notes (the "GTC
Notes"), payable in U.S. Dollars, of a certain foreign government, backed a full
faith and credit guaranty issued by the United States of America, acting through
the Defense Security Assistance Agency of the Department of Defense, of the due
and punctual payment of 90% of all payments of principal and interest due on the
GTC Notes and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government thereof,
sufficient to pay the remaining 10% of all payments of principal and interest
due on the GTC Notes.
MULTILATERAL BANK ISSUERS.
As specified in the related prospectus supplement, a trust may include
obligations of one or more Multilateral Bank Issuers. A "Multilateral Bank
Issuer" means the International Bank for Reconstruction and Development, the
Inter-American Development Bank, the Asian Development Bank, the African
Development Bank, the International Finance Corporation, the European Bank for
Reconstruction and Development, or another multilateral development bank that
has a comparable volume of outstanding securities and files with the SEC
comparable publicly available information, and the securities of which are
exempted from registration under the Securities Act.
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PRINCIPAL ECONOMIC TERMS OF UNDERLYING SECURITIES
Reference is made to the applicable prospectus supplement to
this Prospectus with respect to each series of certificates for a description of
the following terms, as applicable, of any Concentrated Underlying Security: (i)
the title and series of such Underlying Securities, the aggregate principal
amount, denomination and form thereof; (ii) whether such securities are senior
or subordinated to any other obligations of the issuer of the Underlying
Securities; (iii) whether any of the obligations are secured or unsecured and
the nature of any collateral; (iv) the limit, if any, upon the aggregate
principal amount of such debt securities; (v) the dates on which, or the range
of dates within which, the principal of (and premium, if any, on) such debt
securities will be payable; (vi) the rate or rates or the method of
determination thereof, at which such Underlying Securities will bear interest,
if any ("Underlying Securities Rate"); the date or dates from which such
interest will accrue ("Underlying Securities Interest Accrual Periods"); and the
dates on which such interest will be payable ("Underlying Securities Payment
Dates"); (vii) the obligation, if any, of the issuer of the Underlying
Securities 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 issuer of the Underlying Securities; (ix) whether the
Underlying Securities were issued at a price lower than the principal amount
thereof; (x) if other than United States dollars, the foreign or composite
currency in which such debt securities are denominated, or in which payment of
the principal of (and premium, if any) or any interest on such Underlying
Securities will be made (the "Underlying Securities Currency"), and the
circumstances, if any, when such currency of payment may be changed; (xi)
material events of default or restrictive covenants provided for with respect to
such Underlying Securities; (xii) the rating thereof, if any, and (xiii) any
other material terms of such Underlying Securities.
With respect to a trust comprised of a pool of Underlying
Securities, the related prospectus supplement will describe the composition of
the Underlying Securities pool as of the Cut-off Date, certain material events
of default or restrictive covenants common to the Underlying Securities, and, on
an aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (ii), (iii),
(v), (vi), (vii), (viii) and (ix) of the preceding paragraph and any other
material terms regarding such pool of securities.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, with respect to each
Concentrated Underlying Security the applicable prospectus supplement will
disclose the identity of the applicable obligor and the Underlying Securities
Trustee, if applicable, 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 publicly available
information with respect to each obligor. Publicly available information will
typically consist of the quarterly and annual reports filed under the Exchange
Act by the issuer with, and which are available from, the SEC. Such information
will typically consist of the obligor's annual report, which contains financial
statements or similar financial information, and can be obtained from the SEC,
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if so specified in the applicable prospectus supplement, or from the office of
the obligor identified in the related prospectus supplement. However, the
precise nature of such publicly available information and where and how it may
be obtained with respect to any given GSE issuer will vary, and, as described
above, will be set forth in the applicable prospectus supplement.
If an issuer of Concentrated Underlying Securities ceases to
file periodic reports under the Exchange Act, Lehman ABS, 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.
In the event that an issuer of a Concentrated Underlying
Security (or the issuers of Underlying Securities the combined principal
balances of which exceed ten percent of the aggregate principal balance of the
Underlying Securities) underlying a series of trust certificates ceases to file
periodic reports required under the Exchange Act, Lehman ABS shall within a
reasonable period of time either (i) file periodic reports containing the
information that such issuer(s) would otherwise file or (ii) instruct the
trustee to distribute within a reasonable period of time such Underlying
Security or Securities to the certificateholders pursuant to the procedures set
forth in the trust agreement.
OTHER DEPOSITED ASSETS
In addition to the Underlying Securities, Lehman ABS 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),
credit derivatives 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.
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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. Credit support may be provided by
any combination of the following means described below or any other means
described in the applicable prospectus supplement. The applicable prospectus
supplement will set forth whether the trust for any class or group of classes of
certificates contains, or the certificateholders of such certificates have the
benefit of, credit support and, if so, the amount, type and other relevant terms
of each element of credit support with respect to any such class or classes and
certain information with respect to the obligors of each such element, including
financial information with respect to any obligor providing credit support for
20% or more of the aggregate principal amount of such class or classes unless
such obligor is subject to the informational requirements of the Exchange Act.
Subordination. As discussed below under "--Collections," the
rights of the certificateholders of any given class within a series of
certificates to receive collections from the trust for such series and any
credit support obtained for the benefit of the certificateholders of such series
(or classes within such series) may be subordinated to the rights of the
certificateholders of one or more other classes of such series to the extent
described in the related prospectus supplement. Such subordination accordingly
provides some additional credit support to those certificateholders of those
other classes. For example, if losses are realized during a given period on the
Deposited Assets relating to a series of certificates such that the collections
received thereon are insufficient to make all distributions on the certificates
of such series, those realized losses would be allocated to the
certificateholders of any class of any such series that is subordinated to
another class, to the extent and in the manner provided in the related
prospectus supplement. In addition, if so provided in the applicable prospectus
supplement, certain amounts otherwise payable to certificateholders of any class
that is subordinated to another class may be required to be deposited into a
reserve account. Amounts held in any reserve account may be applied as described
below under "--Reserve Accounts" and in the related prospectus supplement.
If so provided in the related prospectus supplement, the
credit support for any series or class of certificates may include, in addition
to the subordination of certain classes of such series and the establishment of
a reserve account, any of the other forms of credit support described below. Any
such other forms of credit support that are solely for the benefit of a given
class will be limited to the extent necessary to make required distributions to
the certificateholders of such class or as otherwise specified in the related
prospectus supplement. In addition, if so provided in the applicable 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 issued by a bank or a surety bond or bonds issued by a
surety company. 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
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be kept in full force and effect (unless coverage thereunder has been exhausted
through payment of claims) and to pay timely the fees or premiums therefor
unless, as described in the related prospectus supplement, the payment of such
fees or premiums is otherwise provided for. The trustee or such other person
specified in the applicable prospectus supplement will make or cause to be made
draws under the letter of credit or the surety bond, as the case may be, under
the circumstances and to cover the amounts specified in the applicable
prospectus supplement. Any amounts otherwise available under the letter of
credit or the surety bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable prospectus supplement will provide
the manner, priority and source of funds by which any such draws are to be
repaid.
Unless otherwise specified in the applicable prospectus
supplement, in the event that the letter of credit bank or the surety, as
applicable, ceases to satisfy any credit rating or other applicable requirements
specified in the related prospectus supplement, the trustee or such other person
specified in the applicable prospectus supplement will use its reasonable
efforts to obtain or cause to be obtained a substitute letter of credit or
surety bond, as applicable, or other form of credit enhancement providing
similar protection, that meets such requirements and provides the same coverage
to the extent available for the same cost. There can be no assurance that any
letter of credit bank or any surety, as applicable, will continue to satisfy
such requirements or that any such substitute letter of credit, surety bond or
similar credit enhancement will be available providing equivalent coverage for
the same cost. To the extent not so available, the credit support otherwise
provided by the letter of credit or the surety bond (or similar credit
enhancement) may be reduced to the level otherwise available for the same cost
as the original letter of credit or surety bond.
Reserve Accounts. If so provided in the related prospectus
supplement, the trustee or such other person specified in the prospectus
supplement will deposit or cause to be deposited into an account maintained with
an eligible institution (which may be the trustee) (a "reserve account") any
combination of cash or permitted investments in specified amounts, which will be
applied and maintained in the manner and under the conditions specified in such
prospectus supplement. In the alternative or in addition to such deposit, a
reserve account may be funded through application of a portion of collections
received on the Deposited Assets for a given series of certificates, in the
manner and priority specified in the applicable prospectus supplement. Amounts
deposited in such reserve account 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, Lehman ABS 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
to administer the related Deposited Assets. This will include making collections
of all payments made on the Deposited Assets and depositing the collections from
time to time prior to any applicable Distribution Date into a segregated account
maintained or controlled by the trustee for the benefit of such series (each a
"certificate account"). An administrative agent, if any is appointed pursuant to
the applicable prospectus supplement, will direct the trustee, and otherwise the
trustee will make all determinations, as to the appropriate application of such
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collections and other amounts available for distribution to the payment of any
administrative or collection expenses (such as the administrative fee) and
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. 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 may not 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 Losses will be allocated among the
classes of any series of certificates, if applicable.
The relative priorities of distributions with respect to
collections from the assets of the trust assigned to classes of a given series
of certificates may permanently or temporarily change over time upon the
occurrence of certain circumstances specified in the applicable prospectus
supplement. Moreover, the applicable prospectus supplement may specify that the
relative distribution priority assigned to each class of a given series for
purposes of payments of certain amounts, such as principal, may be different
from the relative distribution priority assigned to each such class for payments
of other amounts, such as interest or premium.
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The following summary of certain provisions of the trust
agreement and the certificates is not complete and 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, Lehman
ABS 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 Lehman ABS 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
Lehman ABS in exchange for certain assets to be deposited in the trust (Section
2.05). Each Deposited Asset will be identified in a schedule appearing as an
exhibit to the trust agreement. The schedule will include certain statistical
information with respect to each Underlying Security and each other Deposited
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Asset as of the Cut-off Date, and in the event any Underlying Security is a
Concentrated Underlying Security, the 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.
In addition, Lehman ABS 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 the
documents within such period as is permitted in the prospectus supplement, and
the trustee (or such custodian) will hold the documents in trust for the benefit
of the certificateholders (Sections 2.01 and 2.02).
With respect to the types of Deposited Assets specified in the
applicable prospectus supplement if and to the extent provided therein, if any
document is found to be missing or defective in any material respect, the
trustee (or such custodian) will immediately notify the administrative agent, if
any, and Lehman ABS, and the administrative agent, if any, and the trustee will
immediately notify the relevant person who sold the applicable Deposited Asset
to Lehman ABS (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 notice, the
Deposited Asset Provider will be obligated, within 90 days of receipt of notice,
to repurchase the related Deposited Asset from the trustee at the Purchase Price
(as defined below) or provide a substitute for the 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 this obligation,
neither such administrative agent nor Lehman ABS 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 3.07).
Each of Lehman ABS and the administrative agent, if any, will
make certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the trust agreement.
Upon a breach of any such representation of Lehman ABS or any such
administrative agent, as the case may be, which materially and adversely affects
the interests of the certificateholders, Lehman ABS or any such administrative
agent, respectively, will be obligated to cure the breach in all material
respects (Section 2.04).
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. The trustee will follow the
collection procedures, 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
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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"). However, 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.
The agreement between any administrative agent or trustee and
a sub-administrative agent will be consistent with the terms of the trust
agreement and the 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. 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 the administrative
agent for the 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 the sub-administration
agreement.
The administrative agent or trustee 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 may require any
sub-administrative agent to agree to indemnify the administrative agent or
trustee, as applicable, for any liability or obligation sustained 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, 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 reasonable steps as are necessary to receive payment or to permit
recovery 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.
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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 normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted Deposited Asset (Section 3.07). However,
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 but unpaid
thereon at the applicable interest rate and (iii) the aggregate amount of
expenses incurred by the administrative agent and the trustee 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 3.07). Only if and to the extent provided in the applicable
prospectus supplement, the administrative agent or trustee, as so provided, will
be entitled to withdraw or cause to be withdrawn from the related Certificate
Account out of the net proceeds recovered on any defaulted Deposited Asset,
prior to the distribution of such proceeds to certificateholders, amounts
representing its normal administrative compensation on the Deposited Asset,
unreimbursed administrative expenses incurred with respect to the Deposited
Asset and any unreimbursed advances of delinquent payments made with respect to
the Deposited Asset.
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. A 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 3.11).
ADVANCES IN RESPECT OF DELINQUENCIES
Unless otherwise specified in the applicable prospectus
supplement, the administrative agent or the trustee will have no obligation to
make any advances with respect to collections on the Deposited Assets or in
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favor of the certificateholders of the related series of certificates. However,
to the extent provided in the applicable prospectus supplement, the
administrative agent or the trustee 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.
The amount of funds advanced will equal to the aggregate of payments of
principal, premium (if any) and interest (net of related administration fees and
any Retained Interest) with respect to the Deposited Assets that were due during
the related Collection Period (as defined in the related prospectus supplement)
and were delinquent on the related Determination Date, subject to (i) any such
administrative agent's or trustee'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 or trustee's funds 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 advance will be reimbursable from any amounts in the
certificate account for the series to the extent that the administrative agent
or trustee shall determine, in its sole judgment, that the advance (a
"Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds.
If advances have been made by the administrative agent or trustee from excess
funds in the certificate account for any series, the administrative agent or
trustee will replace the funds in such certificate account on any future
Distribution Date to the extent that funds in the certificate account on the
Distribution Date are less than payments required to be made to
certificateholders on such date (Section 4.04). If so specified in the related
prospectus supplement, the obligations, if any, of an administrative agent or
trustee 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 LEHMAN ABS
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, Lehman ABS, an affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business relationships
with the trustee, Lehman ABS, their affiliates or the Deposited Asset Provider.
The "Deposited Asset Provider" is the relevant person who sold the applicable
Deposited Asset to Lehman ABS.
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 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.
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The trust agreement will further provide that neither an
administrative agent, Lehman ABS nor any director, officer, employee, or agent
of the administrative agent or Lehman ABS 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, Lehman
ABS 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, an administrative agent, Lehman ABS and any director, officer, employee
or agent of the administrative agent or Lehman ABS 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 an administrative agent nor Lehman ABS will be under any obligation
to appear in, prosecute or defend any legal action which is not incidental to
their respective responsibilities under the trust agreement or which in its
opinion may cause it to incur any expense or liability. Each of the
administrative agent or Lehman ABS may, however, in its discretion undertake any
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 6.02). The applicable prospectus
supplement will describe how the 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.
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON ADMINISTRATIVE AGENT
TERMINATION EVENT
Unless otherwise provided in the related prospectus
supplement, "Administrative Agent Termination Events under the trust agreement
with respect to any given series of certificates will consist of the following:
o 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 Lehman ABS, or to the administrative
agent, Lehman ABS and the trustee by the holders of
such certificates evidencing not less than 25% of the
Voting Rights (as defined below);
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o 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 Lehman ABS, or to the
administrative agent, Lehman ABS and the trustee by
the holders of such certificates evidencing not less
than 25% of the Voting Rights; and
o specified 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.
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 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,
Lehman ABS or the trustee may, and at the direction of holders of such
certificates evidencing not less than the "Required Percentage--Administrative
Agent Termination" (as defined in the prospectus supplement, if applicable) of
the Voting Rights, the trustee will, terminate all the rights and obligations of
the 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). The trustee will then succeed to all the
responsibilities, duties and liabilities of the administrative agent under the
trust agreement with respect to such series (except that if the trustee is
prohibited by law from obligating itself to make advances regarding delinquent
Deposited Assets, then the trustee will not be so obligated) and will be
entitled to similar compensation arrangements. In the event that the trustee is
unwilling or unable to act, it may or, at the written request of the holders of
such certificates evidencing not less than the "Required
Percentage--Administrative Agent Termination" of the Voting Rights, it will
appoint, or petition a court of competent jurisdiction for the appointment of,
an administration agent acceptable to the rating agency with a net worth at the
time of such appointment of at least $15,000,000 to act as successor to such
administrative agent under the trust agreement with respect to such series.
Pending such appointment, the trustee is obligated to act in such capacity
(except that if the trustee is prohibited by law from obligating itself to make
advances regarding delinquent Deposited Assets, then the trustee will not be so
obligated). The trustee and any such successor may agree upon the compensation
be paid to such successor, which in no event may be greater than the
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compensation payable to such administrative agent under the trust agreement with
respect to such series.
No certificateholder will have the right under the trust
agreement to institute any proceeding with respect thereto unless the 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" (as defined in the prospectus supplement) 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 10.02). 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 the certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby (Section 10.02).
MODIFICATION AND WAIVER
Unless otherwise specified in the applicable prospectus
supplement, the trust agreement for each series of certificates may be amended
by Lehman ABS and the trustee with respect to such series, without notice to or
consent of the certificateholders, for specified purposes including:
o to cure any ambiguity,
o to correct or supplement any provision therein which
may be inconsistent with any other provision therein
or in the prospectus supplement,
o 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),
o to add to the covenants, restrictions or obligations
of Lehman ABS, the administrative agent, if any, or
the trustee for the benefit of the
certificateholders,
o 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 qualify, reduce or
withdraw the then current rating thereof, or
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o 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 Lehman ABS, and the trustee, with the consent of
the holders of certificates evidencing not less than the "Required
Percentage--Amendment" (as defined in the prospectus supplement) 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 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 amendment without the consent of the holders of
all certificates covered by the trust agreement then outstanding.
Unless otherwise specified in the applicable prospectus
supplement, holders of certificates evidencing not less than the "Required
Percentage--Waiver" (as defined in the prospectus supplement) 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 Lehman
ABS, 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 5.20).
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 Lehman ABS and to such other parties as may be specified
in the trust agreement, a statement setting forth:
o 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;
o in the case of certificates with a variable
Pass-Through Rate, the Pass-Through Rate applicable
to such Distribution Date, as calculated in
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accordance with the method specified herein and in
the related prospectus supplement;
o 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;
o 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;
o 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;
o 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
o 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 with respect to the
amounts of distributions or the amounts of compensation of the administrative
agent and the trustee, 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 above with respect to the amounts
of distributions or the amounts of compensation of the administrative agent and
the trustee, 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, will 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 4.03).
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.
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EVIDENCE AS TO COMPLIANCE
If so 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.
The trust agreement may also provide for delivery to Lehman
ABS, 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.
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
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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 purchase of Deposited Assets and property acquired in
respect of Deposited Assets evidenced by a series of certificates will be made
at a price approximately equal to the aggregate fair market value of all the
assets in the trust (as determined by the trustee, the administrative agent, if
any, and, if different than both such persons, the person entitled to effect
such termination), in each case taking into account accrued interest at the
applicable interest rate to the first day of the month following such purchase
or, to the extent specified in the applicable prospectus supplement, a specified
price as determined therein (such price, a "Purchase Price"). The exercise of
such right will effect early retirement of the certificates of that series, but
the right of the person entitled to effect such termination is subject to the
aggregate principal balance of the outstanding Deposited Assets for such series
at the time of purchase being less than the percentage of the aggregate
principal balance of the Deposited Assets at the Cut-off Date for that series
specified in the related prospectus supplement (Section 9.01).
DUTIES OF THE TRUSTEE
The trustee makes no representations as to the validity or
sufficiency of the trust agreement, the certificates of any series or any
Deposited Asset or related document. The trustee is not accountable for the use
or application by or on behalf of any administrative agent of any funds paid to
the 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 the administrative agent
(Section 7.04). 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 7.01).
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, Lehman ABS, any administrative agent and their respective affiliates.
LIMITATIONS ON ISSUANCE OF BEARER CERTIFICATES
In compliance with United States Federal income tax laws and
regulations, Lehman ABS 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
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deliver such bearer certificate, directly or indirectly, to a U.S. Person (as
defined below) 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
Clearstream Banking, S.A. ("Clearstream") 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
Clearstream 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
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Lehman ABS has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
certificate. Depreciation of the Specified Currency for a certificate against
the U.S. dollar would result in a decrease in the effective yield of such
certificate below its Pass-Through Rate and, in certain circumstances, could
result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the
future impose, exchange controls that could affect exchange rates as well as the
availability of a Specified Currency for making distributions in respect of
certificates denominated in such currency. At present, Lehman ABS has identified
the following currencies in which distributions of principal, premium and
interest on certificates may be made: Australian dollars, Canadian dollars,
Danish kroner, Italian lire, Japanese yen, New Zealand dollars, U.S. dollars and
ECU. However, certificates distributable with Specified Currencies other than
those listed may be issued at any time. There can be no assurance that exchange
controls will not restrict or prohibit distributions of principal, premium or
interest in any Specified Currency. Even if there are no actual exchange
controls, it is possible that, on a Distribution Date with respect to any
particular certificate, the currency in which amounts then due to be distributed
in respect of such certificate are distributable would not be available. In that
event, such payments will be made in the manner set forth above under
"Description of Certificates--General" or as otherwise specified in the
applicable prospectus supplement.
As set forth in the applicable prospectus supplement, certain
of the Underlying Securities may be denominated in a currency other than the
Specified Currency. Although payments in respect of principal and interest on
the certificates will be made in the Specified Currency, such payments may be
based in whole or in part upon receipt by the related trust of payments in the
Underlying Securities Currency. An investment in certificates supported by
Underlying Securities denominated in a currency other than the Specified
Currency entails significant risks not associated with an investment in
securities supported by obligations denominated in the same currency as the
currency of payment on such securities. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the
Specified Currency and the Underlying Securities Currency and the possibility of
the imposition or modification of foreign exchange controls with respect to
either the Specified Currency or the Underlying Securities Currency.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND
LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE NOT AN
APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this prospectus is directed to
prospective purchasers of certificates who are United States residents. The
applicable prospectus supplement for certain issuances of certificates may set
forth certain information applicable to prospective purchasers who are residents
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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 Lehman ABS' control or is no longer used by the government
of the country issuing such currency or for the settlement of transactions by
public institutions of or within the international banking community, then all
distributions in respect of such certificate shall be made in U.S. dollars until
such currency is again available or so used. The amounts so payable on any date
in such currency shall be converted into U.S. dollars on the basis of the most
recently available Market Exchange Rate for such currency or as otherwise
indicated in the applicable prospectus supplement.
If distribution in respect of a certificate is required to be
made in ECU and ECU is no longer used in the European Monetary System, then all
distributions in respect of such certificate shall be made in U.S. dollars until
ECU is again so used. The amount of each distribution in U.S. dollars shall be
computed on the basis of the equivalent of the ECU in U.S. dollars, determined
as described below, as of the second Business Day prior to the date on which
such distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the
"Day of Valuation") shall be determined for the certificates of any series and
class by the applicable trustee on the following basis. The component currencies
of the ECU for this purpose (the "Components") shall be the currency amounts
that were components of the ECU as of the last date on which the ECU was used in
the European Monetary System. The equivalent of the ECU in U.S. dollars shall be
calculated by aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components shall be determined by such
trustee on the basis of the most recently available Market Exchange Rates for
such Components or as otherwise indicated in the applicable prospectus
supplement.
If the official unit of any component currency is altered by
way of combination or subdivision, the number of units of that currency as a
Component shall be divided or multiplied in the same proportion. If two or more
component currencies are consolidated into a single currency, the amounts of
those currencies as Components shall be replaced by an amount in such single
currency equal to the sum of the amounts of the consolidated component
currencies expressed in such single 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.
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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 the certificates and
the proceeds to Lehman ABS from the 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 the 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.
Certificates may be offered to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate. The
managing underwriters or underwriters in the United States will include Lehman
Brothers Inc., an affiliate of Lehman ABS. Unless otherwise set forth in the
applicable prospectus supplement, the obligations of the underwriters to
purchase the certificates will be subject to certain conditions precedent, and
the underwriters will be obligated to purchase all of the certificates if any
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
Lehman ABS from time to time. Any agent involved in the offer or sale of
certificates will be named, and any commissions payable by Lehman ABS to such
agent will be set forth, in the applicable prospectus supplement. Unless
otherwise indicated in the applicable prospectus supplement, any agent will act
on a best efforts basis for the period of its appointment.
If so indicated in the applicable prospectus supplement,
Lehman ABS will authorize agents, underwriters or dealers to solicit offers by
certain specified institutions to purchase certificates at the public offering
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price described in such prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in such
prospectus supplement. Such contracts will be subject only to those conditions
set forth in the applicable prospectus supplement and such prospectus supplement
will set forth the commissions payable for solicitation of such contracts.
Any underwriters, dealers or agents participating in the
distribution of certificates may be deemed to be underwriters and any discounts
or commissions received by them on the sale or resale of certificates may be
deemed to be underwriting discounts and commissions under the Securities Act.
Agents and underwriters may be entitled under agreements entered into with
Lehman ABS to indemnification by Lehman ABS 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, Lehman ABS or its affiliates in the ordinary
course of business.
Lehman Brothers Inc. is an affiliate of Lehman ABS. Lehman
Brothers Inc.'s participation in the offer and sale of certificates complies
with the requirements of Section 2720 of the Conduct Rules 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 Lehman ABS 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.
LEGAL OPINIONS
Certain legal matters with respect to the certificates will be
passed upon for Lehman ABS and the underwriters by Weil, Gotshal & Manges LLP,
New York, New York, or other counsel identified in the applicable prospectus
supplement.
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<S> <C>
No dealer, salesman or other person has been authorized to
give any information or to make any representation not
contained in this Prospectus Supplement or the Prospectus 1,800,000
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 CORPORATE BACKED
and the Prospectus do not constitute an offer of any CERTIFICATES,
securities other than those to which they relate or an SERIES 2001-1
offer to sell, or a solicitation of an offer to buy, to CLASS A-1
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.
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TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Principal Economic Terms..............S-4
Summary of Prospectus Supplement.................S-8
Formation of the Trust...........................S-11
Risk Factors.....................................S-11
Description of the Deposited Assets..............S-15 (UNDERLYING SECURITIES
Description of the Certificates..................S-19 WILL BE 7.54% CUMULATIVE CAPITAL
Description of the Trust Agreement...............S-23 SECURITIES DUE JANUARY 15, 2027
Certain Federal Income Tax Consequences..........S-25 ISSUED BY JPM CAPITAL TRUST I)
ERISA Considerations.............................S-30
Method of Distribution...........................S-32
Ratings..........................................S-33
Legal Opinions...................................S-33
Index of Terms for Prospectus Supplement.........S-34 LEHMAN ABS CORPORATION
Prospectus (DEPOSITOR)
Important Notice about Information Presented in this
Prospectus and the Accompanying Prospectus
Supplement.........2
Where you Can Find More Information..............3
Incorporation of Certain Documents by Reference..4
Reports to Certificateholders....................4
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Important Currency Information...................4 PROSPECTUS SUPPLEMENT
Risk Factors.....................................5 JANUARY 4, 2001
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Lehman ABS.......................................7
Use of Proceeds..................................8
Formation of the Trust...........................8
Maturity and Yield Considerations................9 LEHMAN BROTHERS
Description of Certificates......................11 PRUDENTIAL SECURITIES
Description of Deposited Assets and Credit UBS WARBURG LLC
Support..........................................30
Description of the Trust Agreement...............43
Limitations on Issuance of Bearer Certificates...54
Currency Risks...................................55
Plan of Distribution.............................58
Legal Opinions...................................59
</TABLE>
