0000950110-01-500449.txt : 20011008
0000950110-01-500449.hdr.sgml : 20011008
ACCESSION NUMBER: 0000950110-01-500449
CONFORMED SUBMISSION TYPE: 424B2
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20010919
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LEHMAN ABS CORP
CENTRAL INDEX KEY: 0000829281
STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189]
IRS NUMBER: 133447441
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-58390
FILM NUMBER: 1740306
BUSINESS ADDRESS:
STREET 1: THREE WORLD FINANCIAL CTR
STREET 2: 200 VESEY ST
CITY: NEW YORK
STATE: NY
ZIP: 10022
BUSINESS PHONE: 2125267000
MAIL ADDRESS:
STREET 1: 3 WORLD FINANCIAL CENTER
STREET 2: 24TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10022
FORMER COMPANY:
FORMER CONFORMED NAME: SHEARSON LEHMAN HUTTON ABS CORP
DATE OF NAME CHANGE: 19901119
424B2
1
e86458_424b.txt
PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 7, 2001)
1,825,250
CORPORATE BACKED TRUST CERTIFICATES,
Goodyear Tire & Rubber Note-Backed Series 2001-34, Class A-1
(Underlying Securities will be 7% Notes due 2028
issued by Goodyear Tire & Rubber Company)
NUMBER OF INTEREST PRICE TO UNDERWRITING
CERTIFICATES RATE PUBLIC DISCOUNT
------------ ---- ------ --------
Class A-1 Certificates 1,825,250 8.00% $10 $0.3150
--------------------------------------------
The Trust
o was formed pursuant to a Trust Agreement between
Lehman ABS Corporation and U.S. Bank Trust National
-------------------- Association for the sole purpose of issuing the
Certificates.
THE CERTIFICATES
REPRESENT o was formed to issue two classes of certificates, the
NON-RECOURSE Class A-1 Certificates and the Class A-2
OBLIGATIONS OF THE Certificates, of which only the Class A-1
TRUST ONLY AND DO Certificates are offered hereby.
NOT REPRESENT AN
INTEREST IN OR The Certificates
OBLIGATION OF
LEHMAN ABS, THE o represent an undivided beneficial interest in the
TRUSTEE OR ANY OF assets of the Trust, which consist solely of the
THEIR AFFILIATES. Underlying Securities described herein.
-------------------- o currently have no trading market.
o are not insured or guaranteed by any governmental
agency.
YOU SHOULD REVIEW THE INFORMATION IN "RISK FACTORS" BEGINNING ON PAGE S-10 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 September 19, 2001.
---------------------
LEHMAN BROTHERS FIRST UNION SECURITIES, INC.
SEPTEMBER 19, 2001
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. Unless otherwise stated, cross-references in this prospectus
supplement are to captions in this prospectus supplement. The following table of
contents provides the pages on which these captions are located.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary of Principal Economic Terms.....................................S-4
Summary of Prospectus Supplement........................................S-7
Formation of the Trust.................................................S-10
Risk Factors...........................................................S-10
Description of the Deposited Assets....................................S-12
Description of the Certificates........................................S-14
Description of the Trust Agreement.....................................S-17
Material Federal Income Tax Consequences...............................S-19
ERISA Considerations...................................................S-23
Method of Distribution.................................................S-24
Listing................................................................S-24
Ratings................................................................S-24
Legal Opinions.........................................................S-25
Index of Terms for Prospectus Supplement...............................S-26
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...........................55
Currency Risks...........................................................56
Plan of Distribution.....................................................58
Legal Opinions...........................................................60
S-2
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-26 of
this document.
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."
------------------------
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 underwriters 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 the
accompanying prospectus is accurate as of any date other than the dates stated
on the respective covers.
S-3
SUMMARY OF PRINCIPAL ECONOMIC TERMS
This summary highlights the principal economic terms of the Class A-1
Certificates being issued by the Trust and offered by this prospectus supplement
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 Class A-1 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 for Prospectus Supplement."
THE CERTIFICATES
The Trust.............................. Lehman ABS and the Trustee formed
the Corporate Backed Trust
Certificates, Goodyear Tire & Rubber
Note-Backed Series 2001-34 Trust
(the "Trust") on September 6, 2001.
On such date, the Trust issued
2,187,500 Class A-1 Corporate Backed
Trust Certificates, Goodyear Tire &
Rubber Note Backed Series 2001-34
(the "Original Class A-1
Certificates").
Securities Offered..................... 1,825,250 Class A-1 Corporate Backed
Trust Certificates, Goodyear Tire &
Rubber Note Backed Series 2001-34
(the "Offered Certificates" and
together with the Original Class A-1
Certificates, the "Class A-1
Certificates"). The Offered
Certificates have terms identical to
those of the Original Class A-1
Certificates. On September 6, 2001,
the Trust also issued Class A-2
Certificates. The Trust will also
issue additional Class A-2
Certificates (the "Class A-2
Certificates") on September 19,
2001, which are not offered hereby.
Final Scheduled Distribution Date...... March 15, 2028.
Interest Rate.......................... 8.00% per annum.
Deposited Assets....................... The Deposited Assets will consist of
the Underlying Securities. See
"--The Underlying Securities" and
"Description of the Deposited
Assets."
Original Issue Date.................... The Original Class A-1 Certificates
were issued on September 6, 2001 and
the Offered Certificates will be
issued on September 19, 2001.
Distribution Dates..................... March 15th and September 15th, or if
any such date is not a Business Day,
then the next succeeding Business
Day, commencing, for the Original
Class A-1 Certificates, on September
15, 2001 and, for the Offered
Certificates on March 15, 2002.
Record Date............................ The day immediately preceding each
Distribution Date.
Optional Call.......................... On any date on or after September 6,
2006 (or after the announcement of
any unscheduled payment of the
Underlying Securities) that any Call
Warrant holder designates as a Call
Date, the Class A-1 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.
Denominations; Specified Currency...... The Offered Certificates will be
denominated and payable in U.S.
dollars (the "Specified Currency")
and will each have an initial
principal amount of $10.
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).
S-4
Form of Security....................... Book-entry certificates with The
Depository Trust Company ("DTC"). See
"Description of the Certificates--
General." Distributions will be
settled in immediately available
(same-day) funds.
Trustee................................ U.S. Bank Trust National Association.
Ratings................................ "BBB" by Standard & Poor's Ratings
Services, a division of The
McGraw-Hill Companies, Inc. and
"Baa3" by Moody's Investors Service,
Inc. See "Ratings."
THE UNDERLYING SECURITIES
Underlying Securities.................. $45,860,000 aggregate principal
amount of 7% Notes issued by the
Underlying Securities Issuer.
Underlying Securities Issuer........... Goodyear Tire & Rubber Company.
Underlying Securities Trustee.......... The Chase Manhattan Bank.
Underlying Securities Original
Issue Date ............................ March 16, 1998.
Underlying Securities Final
Payment Date........................... March 15, 2028.
Denominations.......................... The Underlying Securities are
denominated and payable in U.S.
dollars and are available in minimum
denominations of $1,000 and integral
multiples thereof.
Underlying Securities Payment Dates.... March 15th and September 15th.
Underlying Securities Rate............. 7% per annum.
Underlying Securities Interest
Accrual Periods........................ Semi-annual periods.
Form of Security....................... Book-entry debt securities with DTC.
Optional Redemption.................... The Underlying Securities will be
redeemable, at the option of the
Underlying Securities Issuer, in
whole at any time or in part from
time to time, at a redemption price
equal to the greater of (i) 100% of
their principal amount, and (ii) the
sum of the present values of the
remaining scheduled payments of
principal and interest thereon
discounted to the date of redemption,
on a semiannual basis, at the
Treasury Rate (as defined herein)
plus 15 basis points, plus in each
case accrued interest thereon to the
date of redemption. See "Description
of the Deposited Assets--Optional
Redemption."
Defeasance............................. The Underlying Securities Issuer has
the right, subject to restrictions,
to defease the Underlying Securities.
See "Description of the Deposited
Assets--Defeasance of the Underlying
Securities."
S-5
Ratings................................ The Underlying Securities have been
rated "BBB" by S&P and "Baa3" by
Moody's. A rating of the Underlying
Securities is not a recommendation to
purchase, hold or sell such
Underlying Securities, and there can
be no assurance that a rating will
remain for any given period of time
or that a rating will not be revised
or withdrawn entirely by a rating
agency if in its judgment
circumstances in the future so
warrant.
This prospectus supplement does not provide information with respect to the
Underlying Securities Issuer. No investigation of the Underlying Securities
Issuer (including, without limitation, any investigation as to its financial
condition or creditworthiness) or of the Underlying Securities (including,
without limitation, any investigation as to their ratings) has been made.
Potential certificateholders should obtain and evaluate the same information
concerning the Underlying Securities Issuer as it would obtain and evaluate if
it were investing directly in the Underlying Securities or in other securities
issued by the Underlying Securities Issuer. None of the Depositor, the Trustee,
the Underwriters or any of their respective affiliates assumes any
responsibility for the accuracy or completeness of any publicly available
information of 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-6
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 Offered Certificates are being
offered hereby and will be issued
pursuant to the same Trust Agreement
under which the Original Class A-1
Certificates were issued. All of the
Original Class A-1 Certificates and the
Offered Certificates will have
identical terms. The Trust will also
issue additional Class A-2 Certificates
in the initial principal amount of
$2,607,500 which are not being offered
hereby. The Class A-2 Certificates will
be principal-only certificates, and
will not entitle holders thereof to
distributions of interest.
The $10 initial principal amount of
each Class A-1 Certificate represents
the amount that the certificateholder
is entitled to receive as distributions
allocable to principal. Such amount due
to a certificateholder 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 27 years.
Distributions....................... Holders of the Class A-1 Certificates
will be entitled to receive on each
Distribution Date, to the extent of
Available Funds, after reimbursement of
the Trustee for any extraordinary
expenses incurred pursuant to the
instructions of all the
certificateholders,
o distributions of interest on the
Underlying Securities to the extent
necessary to pay interest at the rate
of 8.00% per annum on the outstanding
principal amount of the Class A-1
Certificates, and
o distributions of principal on the
Underlying Securities to the extent
necessary to pay the outstanding
principal amount of the Class A-1
Certificates.
Notwithstanding the foregoing, in the
event that the Underlying Securities
are prepaid or liquidated in whole or
in part for any reason other than if
the Underlying Securities Issuer stops
filing the periodic reports required
under the Exchange Act, the occurrence
of an Underlying Securities Event of
Default, or at their maturity,
Available Funds will be allocated,
after reimbursement of the Trustee for
any extraordinary expenses incurred
pursuant to the instructions of all the
certificateholders, first, to the Class
A-1 Certificates, in the amount of any
accrued but unpaid interest thereon and
then pro rata to the Class A-1
Certificates and the Class A-2
Certificates. See "Description of the
Certificates--Collections and
Distributions."
S-7
Distributions will be made to
certificateholders only if, and to the
extent that, payments are made with
respect to the Underlying Securities.
In the event that principal
distributions with respect to the
Underlying Securities are insufficient
to pay the outstanding principal
amounts of the Class A-1 Certificates
and the Class A-2 Certificates, the
holders will share in the distributions
on a pro rata basis in proportion to
their entitlements to principal. See
"Description of the Certificates--
Collections and Distributions."
Special Distribution Dates.......... If a payment with respect to the
Underlying Securities is made to the
Trustee after the Distribution Date on
which such payment was scheduled to be
distributed to certificateholders, 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 the Business
Day prior to the day on which the
related payment was received from the
Underlying Securities Trustee.
Optional Call....................... On any Business Day on or after
September 6, 2006 (or after the
announcement of any unscheduled payment
on the Underlying Securities) that the
holder of the Call Warrants designates
as a Call Date, the Class A-1
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 also subject
to a call. See "Description of the
Trust Agreement--Termination" herein
and "Description of the Trust
Agreement--Termination" in the
prospectus.
The Call Warrants................... The Call Warrants represent the rights
to call the Certificates at the Call
Price in connection with an Optional
Call. The initial Call Warrants holder
will be the Depositor or an affiliate
thereof. The Call Warrants are not
offered hereby.
Material Federal Income Tax
Consequences........................ In the opinion of tax counsel to the
Trust, the Trust will not be classified
as an association or publicly traded
partnership taxable as a corporation
for federal income tax purposes. The
parties will, although not free from
doubt, treat the Trust as a grantor
trust for federal income tax purposes
and, consequently, each holder of a
Certificate 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
Warrants. See "Material Federal Income
Tax Consequences."
S-8
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."
Listing............................. The Class A-1 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 Class A-1
Certificates on the New York Stock
Exchange will be active. See "Listing."
S-9
FORMATION OF THE TRUST
The Trust was formed pursuant to the trust agreement (the "Trust
Agreement") (including the Goodyear Tire & Rubber Note-Backed Series 2001-34
supplement) between Lehman ABS and the Trustee. At the time of the execution and
delivery of the Goodyear Tire & Rubber Note-Backed Series 2001-34 supplement,
Lehman ABS deposited the Underlying Securities in an aggregate principal amount
of $25,000,000 (the "Original Underlying Securities") in the Trust and the Trust
issued 2,187,500 Original Class A-1 Certificates. On September 19, 2001, Lehman
ABS will deposit additional Underlying Securities in an aggregate principal
amount of $20,860,000 (the "Additional Underlying Securities" and together with
the Original Underlying Securities, the "Underlying Securities") in the Trust
and the Trust will issue the 1,825,250 Class A-1 Certificates offered hereby.
The Trustee, on behalf of the Trust, will accept such Additional Underlying
Securities and will deliver the Offered Certificates in accordance with the
instructions of Lehman ABS.
The Additional Underlying Securities will be purchased by Lehman ABS in the
secondary market (either directly or through an affiliate of Lehman ABS). The
Additional Underlying Securities will not be acquired from the Underlying
Securities Issuer as part of any distribution by or pursuant to any agreement
with such issuer. The Underlying Securities Issuer is not participating in this
offering and will not receive any of the proceeds of the sale of the Additional
Underlying Securities to Lehman ABS or the issuance of the Certificates. Lehman
Brothers Inc., an underwriter of the Class A-1 Certificates and an affiliate of
the Depositor, did not participate in the initial public offering of the
Underlying Securities.
RISK FACTORS
NO DUE DILIGENCE INVESTIGATION In connection with the present offering,
OF THE UNDERLYING SECURITIES none of the Depositor, the underwriters (the
OR THE UNDERLYING SECURITIES "Underwriters") or the Trustee (a) has made,
ISSUER HAS BEEN MADE BY THE or will make, any due diligence
DEPOSITOR, THE UNDERWRITERS OR investigation of the business condition,
THE TRUSTEE. financial or otherwise, of the Underlying
Securities or the Underlying Securities
Issuer or (b) has verified, or will verify,
any reports or information filed by the
Underlying Securities Issuer 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. 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 the
Underlying Securities Issuer. See
"Description of the Deposited Assets."
THE UNDERLYING SECURITIES The payments made by the Underlying
ISSUER IS THE ONLY PAYMENT Securities Issuer on the Underlying
SOURCE. Securities are the only source of payment
for your Class A-1 Certificates. Financial
difficulties experienced by the Underlying
Securities Issuer could result in delays in
payment, partial payment or nonpayment of
the Underlying Securities and your Class A-1
Certificates. In the event of nonpayment on
the Underlying Securities by the Underlying
Securities Issuer, you will bear the loss
resulting from such nonpayment. See
"Description of the Certificates."
THE UNDERLYING SECURITIES ARE The Underlying Securities are unsecured
UNSECURED OBLIGATIONS AND RANK obligations of the Underlying Securities
PARI PASSU WITH EACH OTHER Issuer and will rank pari passu with each
UNSECURED AND UNSUBORDINATED other and with all other unsecured and
INDEBTEDNESS OF THE UNDERLYING unsubordinated indebtedness of the
SECURITIES ISSUER. Underlying Securities Issuer. The Underlying
Securities do not have the benefit of any
"sinking fund" or similar arrangement. In
the event of the insolvency of the
Underlying Securities Issuer, secured
creditors will have a preferred claim over
the assets of the Underlying Securities
Issuer that ranks prior to that represented
by the Underlying Securities and other debt
obligations of the Underlying Securities
Issuer, thereby reducing your chances of
receiving payment on the Certificates.
S-10
CERTIFICATEHOLDERS ARE NOT The market value of the Underlying
LIKELY TO RECEIVE ANY MARKET Securities may increase to a value in excess
VALUE APPRECIATION. of their face amounts. However, in such
circumstance it is likely that the Call
Warrant holder (initially, the Depositor)
would exercise its right to call the
Certificates pursuant to an Optional Call.
The Call Price of the Class A-1 Certificates
equals the outstanding principal amount of
the Certificates, plus accrued interest. If
the Call Warrant holder does exercise its
right, a certificateholder will not receive
the excess of the Underlying Securities'
market value over their face amount. See
"Description of the Certificates--The Call
Warrant; Optional Call."
A CHANGE OR WITHDRAWAL BY THE At the time of issuance, the Offered
RATING AGENCIES OF THEIR Certificates will have ratings assigned by
INITIAL RATINGS MAY REDUCE S&P and Moody's equivalent to the ratings of
THE MARKET VALUE OF THE CLASS the Underlying Securities, which, as of the
A-1 CERTIFICATES. date of this prospectus supplement were
"BBB" by S&P and "Baa3" by Moody's. It is
expected that the ratings of the Class A-1
Certificates will change if the ratings of
the Underlying Securities change.
Any rating issued with respect to the Class
A-1 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 Class A-1 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
Class A-1 Certificates.
See "Risk Factors" and "Maturity and Yield Considerations" in the prospectus.
S-11
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 Offered Certificates 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 offering of $150,000,000 of such securities
pursuant to registration statement no. 333-01955, 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 in connection with the
issuance of the Offered Certificates. The Underlying Securities Issuer is
subject to the information reporting requirements of the Exchange Act. NONE OF
LEHMAN ABS, THE UNDERWRITERS OR THE TRUSTEE HAS PARTICIPATED IN THE PREPARATION
OF SUCH REPORTING DOCUMENTS, OR MADE ANY DUE DILIGENCE INQUIRY IN CONNECTION
WITH THIS OFFERING. None of the Depositor, the Underwriters or the Trustee has
verified the accuracy or completeness of such documents or reports. There can be
no assurance that events affecting the Underlying Securities or the Underlying
Securities Issuer have not occurred or have not yet been publicly disclosed
which would affect the accuracy or completeness of the publicly available
documents described above.
The Trust will have no 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
Offered Certificates should consider carefully the financial condition of the
Underlying Securities Issuer and its ability to make payments in respect of such
Underlying Securities. This prospectus supplement relates only to the Offered
Certificates and does not relate to the Underlying Securities Issuer or the
Underlying Securities. All information contained in this prospectus supplement
regarding the Underlying Securities Issuer and the Underlying Securities is
derived solely from publicly available documents.
UNDERLYING SECURITIES
The Underlying Securities consist of $45,860,000 aggregate principal amount
of 7% Notes issued by Goodyear Tire & Rubber Company on March 16, 1998. The
interest rate on the Underlying Securities is 7% per annum; interest is payable
semi-annually. The Final Payment Date on the Underlying Securities will occur on
March 15, 2028.
The Underlying Securities have been issued pursuant to agreements between
the Underlying Securities Issuer and the Underlying Securities Trustee. The
following summary describes certain general terms of the Indenture dated March
15, 1996 (the "Indenture"), but investors should refer to the Indenture
themselves for all the terms governing the Underlying Securities.
The following is a summary of the events of default with respect to the
Underlying Securities (each, an "Underlying Securities Event of Default").
(a) default for 30 days in payment of any interest on the Underlying
Securities;
(b) default in payment of principal of (or premium, if any, on) the
Underlying Securities at maturity;
(c) failure by the Underlying Securities Issuer for 60 days after due
notice in performance of any other of the covenants or warranties in
the Indenture; or
(d) certain events of bankruptcy, insolvency and reorganization of the
Underlying Securities Issuer.
If any Underlying Securities Event of Default occurs and is continuing,
either the Underlying Securities Trustee or the holders of not less than 25% in
principal amount of the outstanding Underlying Securities may declare the
principal amount of all of the Underlying Securities to be due and payable
immediately, but in certain conditions such declaration may be annulled and past
defaults (except, unless theretofore cured, a default in payment of principal of
(as premium, if any) or interest on the Underlying Securities and certain other
specified defaults) may be waived by the holders of a majority in principal
amount of the Underlying Securities on behalf of the holders of all of the
Underlying Securities.
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The Indenture provides that the Underlying Securities Trustee will, within
90 days after the occurrence of a default with respect to the Underlying
Securities, give to the holders of the outstanding Underlying Securities notice
of such default known to it if uncured and not waived, provided that, except in
the case of default in the payment of principal of (or premium, if any) or
interest on the Underlying Security, the Underlying Securities Trustee will be
protected in withholding such notice if the Underlying Securities Trustee in
good faith determines that the withholding of such notice is in the interest of
the holders of the outstanding Underlying Securities; and, provided further,
that in the case of any default of the character specified in clause (c) under
"Underlying Securities Event of Default," such notice shall not be given until
at least 30 days after the occurrence thereof. The term "default" with respect
to the Underlying Securities for the purpose only of this provision means any
event which is, or after notice or lapse of time or both would become, an
Underlying Securities Event of Default.
The Indenture contains a provision entitling the Underlying Securities
Trustee, subject to the duty of the Underlying Securities Trustee during default
to act with the required standard of care, to be indemnified by the holders of
Underlying Securities before proceeding to exercise any right or power under the
Indenture at the request of the holders of such Underlying Securities. Subject
to such provisions for indemnification of the Underlying Securities Trustee, the
Indenture provides that the holders of a majority in principal amount of
outstanding Underlying Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Underlying Securities
Trustee, or exercising any trust or power conferred on the Underlying Securities
Trustee, with respect to the Underlying Securities, provided that the Underlying
Securities Trustee may decline to act if such direction is contrary to law or
the Indenture.
No holder of Underlying Securities will have any right to institute any
proceeding with respect to the Indenture, or for any remedy thereunder, unless
(i) such holder has previously given to the Underlying Securities Trustee
written notice of a continuing Underlying Securities Event of Default, (ii) the
holders of at least 25% in aggregate principal amount of the Underlying
Securities shall have made written request, and offered reasonable indemnity, to
the Underlying Securities Trustee to institute such proceeding as trustee, (iii)
the Underlying Securities Trustee has failed to institute such proceeding within
60 days, and (iv) the Underlying Securities Trustee shall not have received from
the holders of a majority in principal amount of the Underlying Securities a
direction inconsistent with such request, during such 60-day period. However,
the holder of any Underlying Security will have an absolute right to receive
payment of the principal of (and premium, if any) and any interest on the
Underlying Securities on or after the due date thereof and to institute suit for
the enforcement of such payment.
The Indenture includes a covenant that the Underlying Securities Issuer
will file annually with the Underlying Securities Trustee a certificate of no
default as to certain provisions of the Indenture, or specifying any default
that exists.
OPTIONAL REDEMPTION
The Underlying Securities will be redeemable, at the option of the Issuer,
in whole at any time or in part from time to time, on at least 30 but not more
than 60 days prior notice mailed to DTC, at a redemption price equal to the
greater of (i) 100% of their principal amount and (ii) the sum of the present
values of the remaining scheduled payments thereon discounted to the date of
redemption, on a semiannual basis, at the Treasury Rate (as defined herein) plus
15 basis points, plus in each case accrued interest thereon to the date of
redemption. Interest shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
If money sufficient to pay the redemption price of and accrued interest on
all Underlying Securities (or portions thereof) to be redeemed on the redemption
date is deposited with the Underlying Securities Trustee on or before the
redemption date and certain other conditions are satisfied on and after such
date, interest will cease to accrue on such Underlying Securities (or such
portions thereof) called for redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by an independent investment banker as having a maturity comparable to
the remaining term of the Underlying Securities to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Underlying Securities.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Underlying Securities Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each reference treasury
dealer and any redemption date, the average, as determined by the Underlying
Securities Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such reference treasury dealer at 5:00 p.m. on the
third business day preceding such redemption date.
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"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
DEFEASANCE OF THE UNDERLYING SECURITIES
The Indenture provides that the Underlying Securities Issuer will be
discharged from any and all obligations in respect of the Underlying Securities
(except for certain obligations to register the transfer or exchange of
Underlying Securities, to replace stolen, lost or mutilated Underlying
Securities, to maintain paying agencies and to hold monies for payment in trust)
upon the deposit with the Underlying Securities Trustee, in trust, of money or
U.S. government obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and each
installment of interest on the Underlying Securities on the stated maturity of
such payments, in accordance with the terms of the Indenture and the Underlying
Securities. Such a trust may only be established if, among other things, the
Underlying Securities Issuer has delivered to the Underlying Securities Trustee
an opinion of counsel (who may be an employee of, or counsel for, the Underlying
Securities Issuer) to the effect that (1) that holders of the Underlying
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times, as would have been the case if such deposit, defeasance and
discharge had not occurred, or, in lieu of such opinion, the Underlying
Securities Issuer delivers to the Underlying Securities Trustee a ruling of the
Internal Revenue Service to the same effect, and (2) the Underlying Securities,
if then listed on a national securities exchange under the Exchange Act, would
not be delisted as a result of such defeasance.
The Indenture also provides the Underlying Securities Issuer with the
ability to defease certain covenants. Specifically, the Indenture provides that
the Underlying Securities Issuer may omit to comply with certain restrictive
covenants, and the occurrence and continuance of an Underlying Securities Event
of Default of the type described in clause (c) under "Underlying Securities
Events of Default" shall not be deemed to be an Underlying Securities Event of
Default under the Indenture and the Underlying Securities, upon the deposit with
the Underlying Securities Trustee, in trust, of money or U.S. Government
Obligations which through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and each installment of
interest on the Underlying Securities on the stated maturity of such payments,
in accordance with the terms of the Indenture and the Underlying Securities. The
obligations of the Underlying Securities Issuer under the Indenture and the
Underlying Securities other than the covenants referred to above and the
Underlying Securities Events of Default other than the Underlying Securities
Events of Default referred to above shall remain in full force and effect. Such
a trust may only be established if, among other things, the Underlying
Securities Issuer has delivered to the Underlying Securities Trustee an opinion
of counsel (who may be an employee of or counsel for the Underlying Securities
Issuer) to the effect that (1) the holders of the Underlying Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Underlying Securities
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times, as would have been the case if
such deposit and defeasance had not occurred and (2) the Underlying Securities,
if then listed on a national securities exchange under the Exchange Act, would
not be delisted as a result of such defeasance.
In the event the Underlying Securities Issuer exercises its option not to
comply with certain covenants of the Indenture with respect to the Underlying
Securities as described above and the Underlying Securities are declared due and
payable because of the occurrence of any Underlying Securities Event of Default
other than an Underlying Securities Event of Default described in clause (c)
under "Underlying Securities Events of Default," the amount of money and U.S.
government obligations on deposit with the Underlying Securities Trustee will be
sufficient to pay amounts due on the Underlying Securities at the time of their
stated maturity, but may not be sufficient to pay amounts due on the Underlying
Securities at the time of the acceleration resulting from such Underlying
Securities Event of Default. However, the Underlying Securities Issuer shall
remain liable for such payments.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Offered Certificates will be denominated and distributions on them will
be payable in U.S. dollars. The Offered Certificates together with the Original
Class A-1 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 Original Issue
Date. The property of the Trust is held for the benefit of the holders of the
Certificates by the Trustee.
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The Offered Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in denominations of $10.
The Offered Certificates together with the Original Class A-1 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 Class A-1 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 Class A-1 Certificates shall refer
to actions taken by DTC upon instructions from its Participants. See
"--Definitive Certificates" below and "Description of the 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 Class A-1 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 Class
A-1 Certificates evidence such specified Voting Rights. DTC may take conflicting
actions with respect to Voting Rights, to the extent that Participants whose
holdings of Class A-1 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) first, to the Trustee, reimbursement for any extraordinary
expenses incurred by the Trustee pursuant to the instructions of
all of the certificateholders; and
(b) second, to the holders of the Class A-1 Certificates, unpaid
interest at the rate of 8.00% accrued thereon.
The Class A-2 Certificates are not entitled to distributions of
interest.
o The principal portion of Available Funds will be paid in the following
order of priority:
(a) first, to the Trustee, reimbursement for any remaining
extraordinary expenses incurred by the Trustee pursuant to the
instructions of all the certificateholders; and
(b) second, to the holders of the Class A-1 Certificates and the
Class A-2 Certificates, the remaining principal portion of
Available Funds pro rata in the proportion that the outstanding
principal amount of the Class A-1 Certificates bears to the
outstanding principal amount of the Class A-2 Certificates.
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Notwithstanding the foregoing, in the event that the Underlying Securities
are redeemed, prepaid or liquidated in whole or in part for any reason other
than at their maturity, Available Funds will be allocated in the following order
of priority: (1) to the Trustee, reimbursement for any remaining extraordinary
expenses incurred by the Trustee pursuant to the instructions of all the
certificateholders; (2) to the holders of the Class A-1 Certificates, an amount
equal to any accrued and unpaid interest thereon; and (3) to the holders of the
Class A-1 Certificates and the Class A-2 Certificates, pro rata in the
proportion that the outstanding principal amount of the Class A-1 Certificates
bears to the outstanding principal amount of the Class A-2 Certificates. In
addition, if the Underlying Securities Issuer stops filing periodic reports
required under the Exchange Act, any funds received in connection with a sale of
the Underlying Securities will be allocated in the manner described below (see
"--Failure by the Underlying Securities Issuer to File Periodic Reports").
"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 certificateholders 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
certificateholders 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 Securities Issuer. In the event of a default on the Underlying
Securities, approved extraordinary expenses (see "Description of the Trust
Agreement--The Trustee") of the Trustee may be reimbursed out of Available Funds
before any distributions to certificateholders are made.
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 certificateholders, 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, (i) in the case of the Class A-1 Certificates, a
semi-annual distribution of interest on March 15th and September 15th of each
year, commencing, for the Original Class A-1 Certificates on September 15, 2001
and, for the Offered Certificates, on March 15, 2002, and (ii) a distribution of
principal on March 15, 2028, or if any such day is not a Business Day, the next
succeeding Business Day. With respect to any Distribution Date, the record date
is the day immediately prior to such Distribution Date. 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.
ADDITIONAL UNDERLYING SECURITIES AND CERTIFICATES
From time to time hereafter, additional underlying securities may be sold
to the Trust, in which case additional Class A-1 Certificates and related Class
A-2 Certificates will be issued in the same proportions as the certificates of
such classes described herein. Any such additional certificates will rank pari
passu with the Certificates described herein.
THE CALL WARRANT; OPTIONAL CALL
On any Business Day on or after September 6, 2006 (or after the
announcement of any unscheduled payment on the Underlying Securities) that the
Call Warrant holder designates as a call date (a "Call Date"), the Call Warrant
holder may exercise its option to call, in whole or in part, the Class A-1
Certificates at par value plus any accrued and unpaid interest to the Call Date
(the "Call Warrant"), provided that the Call Warrant holder pays the Call Price
on or prior to such Call Date (an "Optional Call"). The Call Warrants are not
being offered by this prospectus supplement. Lehman ABS, or an affiliate
thereof, will be the initial Call Warrant holder, but the Call Warrants are
transferable. The Class A-2 Certificates are also subject to a call.
DEFAULT ON UNDERLYING SECURITIES
If an Underlying Securities Event of Default actually known to the Trustee
occurs, 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 Underlying Securities Event of Default, (iii) the amount of interest or
principal in default, (iv) the Certificates affected by the Underlying
Securities Event of Default, and (v) any other information which the Trustee may
deem appropriate.
S-16
Unless otherwise instructed by holders of Certificates representing a
majority of the Voting Rights, 30 days after giving notice of an Underlying
Securities Event of Default, the Trustee will sell the Underlying Securities and
distribute the proceeds as described below.
If the Trustee receives money or other property in respect of the
Underlying Securities (other than a scheduled payment on or with respect to an
Underlying Securities Payment Date) as a result of an Underlying Securities
Event of Default (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 the Trustee will distribute such money or other property, in the
case of money, not later than two Business Days after its receipt and, in the
case of other property, not later than 30 days after its receipt, in each case
as described under "--Collections and Distributions" above (after deducting the
costs incurred in connection therewith).
Interest and principal payments on the Underlying Securities are payable
solely by the Underlying Securities Issuer. The Underlying Securities Issuer is
subject to laws permitting bankruptcy, liquidation, moratorium, reorganization
or other actions which, in the event of financial difficulties of the Underlying
Securities Issuer, could result in delays in payment, partial payment or
non-payment of the Certificates relating to the Underlying Securities.
FAILURE BY THE UNDERLYING SECURITIES ISSUER TO FILE PERIODIC REPORTS
If the Underlying Securities Issuer stops filing the periodic reports
required under the Exchange Act, Lehman ABS shall within a reasonable period of
time instruct the Trustee to sell the Underlying Securities and allocate the
proceeds of such sale in the following order of priority: (1) to the Trustee,
reimbursement for any remaining extraordinary expenses incurred by the Trustee
pursuant to the instructions of all the certificateholders and (2) to the
holders of the Class A-1 Certificates and the Class A-2 Certificates in
accordance with the ratio of the Class A-1 Allocation to the Class A-2
Allocation (each as defined below).
"Class A-1 Allocation" means the sum of the present values (discounted at
the rate of 8.00% per annum) of (i) any unpaid interest due or to become due on
the Class A-1 Certificates and (ii) the outstanding principal amount of the
Certificates (in each case assuming that the Class A-1 Certificates were paid
when due and were not redeemed prior to their stated maturity).
"Class A-2 Allocation" means the present value (discounted at the rate of
8.00% per annum) of any unpaid principal amounts due or to become due on the
Class A-2 Certificates (assuming that the Class A-2 Certificates were paid when
due and were not redeemed prior to their stated maturity).
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The Offered Certificates will be, and the Original Class A-1
Certificates were, 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 was filed by Lehman ABS with the SEC following the issuance and sale of
the Original Class A-1 Certificates. After giving effect to the issuance of the
Offered Certificates, the assets of the Trust created under the Trust Agreement
(including the Goodyear Tire & Rubber Note-Backed Series 2001-34 supplement)
will consist of:
o the Underlying Securities; and
o all collections or payments received in respect of the Underlying
Securities due after the Distribution Date occurring in September,
2001.
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.
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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, and 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 Depositor
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Trust Agreement or as a result of a breach, or by
reason of reckless disregard, of the Trustee's obligations and duties under the
Trust Agreement.
EVENTS OF DEFAULT
An event of default with respect to the Certificates under the Trust
Agreement will consist of:
o a default in the payment of any interest on the Underlying Securities
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 the Underlying Securities when the same becomes due and
payable; and
o any other event specified as an "Event of Default" in the Indenture.
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.
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 the Trustee written notice of a continuing breach, (ii) the holders of
Certificates of such series evidencing not less than the Required
Percentage--Remedies 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 has offered the Trustee reasonable indemnity, (iv)
the Trustee has for 15 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the Trustee
during such 15-day period by the holders of Certificates of such series
evidencing not less than the Required Percentage--Remedies. "Required
Percentage--Remedies" shall mean 66 2/3% of the Voting Rights.
VOTING RIGHTS
Voting Rights will be allocated in proportion to the respective principal
balances of the then outstanding Class A-1 Certificates and Class A-2
Certificates held on any date of determination.
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 Class A-1 Certificates and Class
A-2 Certificates of the Trust were actually voted or not voted by the
certificateholders thereof as of a date determined by the Trustee prior to the
date on which such consent or vote is required; provided, however, that,
notwithstanding anything to the contrary, the Trustee shall at no time vote or
consent to any matter (i) unless such vote or consent would not (based on an
opinion of counsel) alter the status of the Trust as a grantor trust for federal
income tax purposes, (ii) which would alter the timing or amount of any payment
on the Underlying Securities, including, without limitation, any demand to
accelerate the Underlying Securities, except in the event of an event of default
with respect to the Underlying Securities or an event which with the passage of
time would become an event of default with respect to
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the Underlying Securities and with the unanimous consent of all holders of
outstanding Class A-1 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. 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 and the Trustee is directed by the
affirmative vote of all of the certificateholders (including the Class A-2
Certificateholders) to accept such offer and the Trustee has received the tax
opinion described above.
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, the Trustee will vote Underlying Securities in an outstanding
principal amount equal to the outstanding certificate principal amount of the
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 the 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 the Trust
Agreement--Termination" in the prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the material federal income
tax consequences of the ownership and disposition of the Class A-1 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 discussion
represents the opinion of tax counsel to the Trust, subject to the
qualifications set forth in this prospectus supplement. 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 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 Class A-1
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 Class A-1 Certificates will be held by the holders thereof as capital assets
as defined in the Code and describes the consequences of Class A-1 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 Class A-1 Certificates. No information is provided
herein with respect to any foreign, state or local tax consequences of the
ownership and disposition of the Class A-1 Certificates or any federal
alternative minimum tax or estate and gift tax considerations. Except as
discussed in "--Non-U.S. Certificate Owners" and "--Information Reporting and
Backup Withholding" below, the following discussion applies only to a U.S.
Holder (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 Class A-1 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. Holder" means a holder that is a
citizen or resident of the United States, a corporation or partnership (or other
entity treated like a corporation or partnership for federal income tax
purposes) organized in or under the laws of the United States, any state thereof
or 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
S-19
substantial decisions. A "Non-U.S. Certificate Owner" means a person other than
a U.S. Holder and holders subject to rules applicable to former citizens and
residents of the United States.
TAX STATUS OF TRUST
In the opinion of Sidley Austin Brown & Wood LLP ("Federal Tax Counsel"),
the Trust will not be classified as an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. The
parties will, although not free from doubt, treat the Trust as a grantor trust
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. No assurance can be given that the Service will agree with the foregoing
characterization of the Trust or that if challenged such a characterization will
prevail.
If the Trust were to be classified as a tax partnership, the Trust would
not be subject to federal income tax, but each item of income, gain, loss and
deduction generated as a result of the ownership of the Underlying Securities by
the Trust would be passed through to the Class A-1 Certificateholders and Class
A-2 Certificateholders as the partners in such a tax partnership according to
their respective interests therein. The amount of income reportable by the
certificateholders as partners in such a tax partnership could differ from that
reportable by the certificateholders as holders of an interest in a grantor
trust. A cash basis holder treated as a partner, for example, might be required
to report income when it accrues to the Trust rather than when it is received by
the certificateholder. As a result, the certificateholder might be taxed on an
amount of income greater than the amount of interest received on the
Certificate. In addition, partnership characterization may have adverse state or
local tax consequences for certificateholders. Certificateholders should consult
their own tax advisors regarding the effect upon them any re-characterization
may have.
Because the Trust will treat itself as a grantor trust for federal income
tax purposes, the Trust will not comply with the tax reporting requirements
applicable to the possible alternative characterization of the Trust discussed
above.
The following discussion assumes that the Trust is, and the Class A-1
Certificates represent interests in, a grantor trust for federal income tax
purposes.
INCOME OF U.S. CERTIFICATEHOLDERS
The purchase of a Class A-1 Certificate, for federal income tax purposes,
represents the purchase of an undivided interest in the Underlying Securities
and the grant of a call option with respect to such Class A-1 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 Class
A-1 Certificates represents an option premium deemed paid by the Call Warrant
holder for the Call Warrant. To the extent that the portion of the purchase
price of a Class A-1 Certificate allocated to a holder's undivided interest in
an Underlying Security as so determined is greater than or less than the portion
of the principal balance of the Underlying Security allocable to the Class A-1
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 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 Warrant is worthless and the
Allocated Purchase Price equals the purchase price of the Class A-1
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. The remainder of this
discussion assumes that the purchase price of the Class A-1 Certificates is
equal to the Allocated Purchase Price. Potential investors are urged to consult
with their tax advisors regarding the foregoing.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. The proper federal income
tax treatment of the Class A-1 Certificates is unclear. The Class A-1
Certificates represent an interest in 100% of the interest amount of the
Underlying Securities and a pro rata portion of the principal 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 for purposes of reporting to a
certificateholder such holder's share of Trust income. Assuming the Class A-1
Certificates are purchased at par and subject to the discussion in the paragraph
below, the Trust intends to take the position that the Class A-1 Certificates do
not represent an interest in securities having original issue discount. Based
upon the foregoing, it is reasonable for each holder 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
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challenges this position, the Class A-1 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
Class A-1 Certificates other than a holder who purchased the Class A-1
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 Class
A-1 Certificates.
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 Class A-1 Certificate allocable to the Underlying Security
exceeds the total amount payable on the Underlying Security to the U.S. Holder
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 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 U.S. Holder 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 Class A-1 Certificate is sold or exchanged, including pursuant to the
exercise of the Call Warrant, the selling U.S. Holder will recognize gain or
loss equal to the difference between the amount realized upon the sale or
exchange and its adjusted basis in its Class A-1 Certificate. A holder's
adjusted basis of a Class A-1 Certificate will equal its cost, increased by any
unpaid original issue discount includible in income with respect to the Class
A-1 Certificate prior to its sale, and reduced by any principal payments
previously received with respect to the Class A-1 Certificate and any bond
premium amortization previously applied to offset interest income. The gain or
loss recognized on the sale or exchange of a Class A-1 Certificate will
generally be capital gain or loss if the Class A-1 Certificate was held as a
capital asset. The purchase of a Class A-1 Certificate represents the purchase
of an interest in the Underlying Securities and the issuance of a call in the
form of the Call Warrant on the Class A-1 Certificates. Accordingly, under the
Code, the issuance of the Call Warrant 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 Class A-1 Certificate will be short-term
capital gain or loss regardless of how long the Class A-1 Certificate was held
by the U.S. Holder at the time of the disposition.
NON-U.S. CERTIFICATE OWNERS
A Non-U.S. Certificate Owner who is an individual or corporation (or an
entity treated as a corporation for federal income tax purposes) holding the
Class A-1 Certificates on its own behalf will not be subject to United States
federal income taxes on payments of principal, premium, interest or original
issue discount on a Class A-1 Certificate, unless such Non-U.S. Certificate
Owner is a direct or indirect 10% or greater shareholder of the Underlying
Securities Issuer, a controlled foreign corporation related to the Underlying
Securities Issuer or an individual who ceased being a U.S. citizen or long-term
resident for tax avoidance purposes. To qualify for the exemption from taxation,
the Withholding Agent, as defined below, must have received a statement from the
individual or corporation that:
o is signed under penalties of perjury by the beneficial owner of the
Class A-1 Certificate,
o certifies that such owner is not a U.S. Holder, and
o provides the beneficial owner's name and address.
A "Withholding Agent" is the last United States payor (or a Non-U.S. payor
who is a qualified intermediary, U.S. branch of a foreign person, or withholding
foreign partnership) in the chain of payment prior to payment to a Non-U.S.
Certificate Owner (which itself is not a Withholding Agent). Generally, this
statement is made on an IRS Form W-8BEN ("W-8BEN"), which is effective for the
remainder of the year of signature plus three full calendar years unless a
change in circumstances makes any information on the form incorrect.
Notwithstanding the preceding sentence, a W-8BEN with a U.S. taxpayer
identification number will remain effective until a change in circumstances
makes any information on the form incorrect, provided that the Withholding Agent
reports at least annually to the beneficial owner on IRS Form 1042-S. The
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beneficial owner must inform the Withholding Agent within 30 days of such change
and furnish a new W-8BEN. A Non-U.S. Holder who is not an individual or
corporation (or an entity treated as a corporation for federal income tax
purposes) holding the Class A-1 Certificates on its own behalf may have
substantially increased reporting requirements. In particular, in the case of
Class A-1 Certificates held by a foreign partnership (or foreign trust), the
partners (or beneficiaries) rather than the partnership (or trust) will be
required to provide the certification discussed above, and the partnership (or
trust) will be required to provide certain additional information.
A Non-U.S. Certificate Owner whose income with respect to its investment in
a Class A-1 Certificate is effectively connected with the conduct of a U.S.
trade or business would generally be taxed as if the holder was a U.S. person
provided the holder provides to the Withholding Agent an IRS Form W-8ECI.
Certain securities clearing organizations, and other entities who are not
beneficial owners, may be able to provide a signed statement to the Withholding
Agent. However, in such case, the signed statement may require a copy of the
beneficial owner's W-8BEN (or the substitute form).
Generally, a Non-U.S. Certificate Owner will not be subject to federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Class A-1 Certificate, unless such Non-U.S. Certificate Owner
is an individual who is present in the United States for 183 days or more in the
taxable year of the disposition and such gain is derived from sources within the
United States. Certain other exceptions may be applicable, and a Non-U.S.
Certificate Owner should consult its tax advisor in this regard.
The Class A-1 Certificates will not be includible in the estate of a
Non-U.S. Certificate Owner unless (a) the individual is a direct or indirect 10%
or greater shareholder of the Underlying Securities Issuer or, (b) at the time
of such individual's death, payments in respect of the Class A-1 Certificates
would have been effectively connected with the conduct by such individual of a
trade or business in the United States, or (c) the holder was an individual who
ceased being a U.S. citizen or long-term resident for tax avoidance purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax may apply to payments made in
respect of a Class A-1 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 Class A-1 Certificate to (or through) a
"broker," the broker must backup withhold on 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).
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.
STATE AND LOCAL TAX CONSIDERATIONS
Potential holders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Class A-1
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 Class A-1 Certificates.
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ERISA CONSIDERATIONS
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 Class
A-1 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 (including loans
or other extensions of credit) 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 Class A-1
Certificates should also consider whether such an investment might constitute or
give rise to a non-exempt prohibited transaction under ERISA or the Code. In
addition to the prohibited transaction issues discussed below that could arise
if the Trust assets are classified as Plan assets for ERISA purposes,
prospective purchasers of Class A-1 Certificates should consider the ERISA
implications of the grant of the call option to the holder of the Call Warrant
and the consequences of a subsequent sale of the Class A-1 Certificates by a
Plan to the holder of the Call Warrant. The initial holder of the Call Warrant
will be the Depositor or an affiliate thereof, but the Call Warrant is a
transferable contract right.
TRUST ASSETS AS "PLAN ASSETS"
Under a "look-through rule" set forth in Section 2510.3-101 of the United
States Department of Labor ("DOL") regulations, a Plan's assets may include an
interest in the underlying assets of an entity that is not an operating company
(such as a trust) for certain purposes under ERISA if the Plan acquires an
equity interest in such entity. Such regulations contain an exemption from such
Plan asset rules if the security acquired by the Plan is a "publicly offered
security." A "publicly offered security" is defined as a security that is (i)
freely transferable, (ii) part of a class of securities that is owned by 100 or
more investors independent of the issuer and of one another and (iii) sold to
the Plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and timely registered
under the Exchange Act. It is anticipated that the Offered Certificates will
meet the criteria of the "publicly offered securities" exemption. There are no
restrictions imposed on the transfer of Offered Certificates; the Offered
Certificates will be sold pursuant to an effective registration statement under
the Securities Act and then will be timely registered under the Exchange Act;
and the Underwriters have undertaken to sell the Class A-1 Certificates to a
minimum of 400 beneficial owners. See "Listing."
If the Offered Certificates fail to meet the criteria of the "publicly
offered security" exemption and the assets of the Trust were deemed to be Plan
assets, transactions involving the Depositor, the Underwriters, the Trustee, the
Underlying Securities Trustee and the Underlying Securities Issuer might
constitute non-exempt prohibited transactions with respect to a Plan holding an
Offered Certificate unless (i) one or more prohibited transaction class
exemptions ("PTCEs") discussed below applies or (ii) in the case of the
Underlying Securities Issuer, it is not a disqualified person or party in
interest with respect to such Plan.
PROHIBITED TRANSACTION EXEMPTIONS
Certain 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); PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts); and PTCE
96-23 (an exemption for certain transactions effected by in-house asset
managers). There is no assurance that these exemptions would apply with respect
to all transactions involving the Trust's assets.
S-23
METHOD OF DISTRIBUTION
Pursuant to an underwriting agreement dated as of September 19, 2001 (the
"Underwriting Agreement"), Lehman ABS has agreed to sell and the Underwriters
named below have agreed to purchase, the Offered Certificates.
Number of Offered Certificates
------------------------------
Lehman Brothers Inc....................... 1,287,750
First Union Securities, Inc. ............. 537,500
---------
Total................................... 1,825,250
=========
The Underwriters have agreed, subject to certain terms and conditions set
forth in the Underwriting Agreement, to purchase all of the Offered Certificates
if any of the Offered Certificates are purchased.
Lehman ABS has been advised by the Underwriters that they propose initially
to offer the Offered 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 $0.20 per Offered Certificate. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $0.10. After the initial public offering, the public offering price and the
concessions may be changed.
The Underwriting Agreement provides that Lehman ABS will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Lehman Brothers Inc. is an affiliate of Lehman ABS, and the participation
by Lehman Brothers Inc. in the offering of the Class A-1 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 Offered Certificates, Securities and
Exchange Commission rules permit the Underwriters to engage in transactions that
stabilize the price of the Offered Certificates. These transactions may include
purchases for the purpose of fixing or maintaining the price of the Offered
Certificates. The Underwriters may create a short position in the Offered
Certificates in connection with the offering. That means they may sell a larger
number of the Offered Certificates than is shown on the cover page of this
prospectus supplement. If they create a short position, the Underwriters may
purchase Offered Certificates in the open market to reduce the short position.
If the Underwriters purchase the Offered Certificates to stabilize the price or
to reduce their short position, the price of the Offered 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 Offered 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 Underwriters purchase Offered
Certificates in the open market to reduce the Underwriters' short position or to
stabilize the price of the Offered Certificates, they may reclaim the amount of
the selling concession from the Underwriters or selling group members who sold
those Offered Certificates as part of this offering.
LISTING
The Class A-1 Certificates have no established trading market. The Class
A-1 Certificates are approved for listing, subject to official notice of
issuance, on the New York Stock Exchange ("NYSE"). The Class A-1 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
Class A-1 Certificates will be traded on the NYSE. In order to meet one of the
requirements for listing the Class A-1 Certificates on the NYSE, the
Underwriters have undertaken to sell the Class A-1 Certificates to a minimum of
400 beneficial owners. The Underwriters have told Lehman ABS that they presently
intend to make a market in the Offered 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 Offered
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 Class A-1 Certificates will develop or as to
the liquidity of any trading market.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
Offered Certificates and the Underlying Securities each be rated not lower than
"BBB" by S&P and "Baa3" by Moody's. The ratings address the likelihood of the
receipt by the
S-24
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 Offered
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 Offered 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 Offered 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 Offered Certificates, or, if
it does, what rating would be assigned by any such other rating agency. A rating
on the Offered Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Offered 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 Sidley Austin Brown & Wood LLP, New York, New
York.
S-25
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
Additional Underlying Securities............................................S-10
Allocated Purchase Price....................................................S-20
Available Funds.............................................................S-16
Business Day................................................................S-16
Call Date...................................................................S-16
Call Price...................................................................S-8
Call Warrant................................................................S-16
Class A-1 Allocation........................................................S-17
Class A-1 Certificates.......................................................S-4
Class A-2 Allocation........................................................S-17
Class A-2 Certificates.......................................................S-4
Clearing Agency.............................................................S-15
Code........................................................................S-19
DOL.........................................................................S-23
DTC..........................................................................S-5
ERISA........................................................................S-9
Federal Tax Counsel.........................................................S-20
Indenture...................................................................S-12
IRA..........................................................................S-9
Keogh........................................................................S-9
Non-U.S. Certificate Owner..................................................S-20
Offered Certificates.........................................................S-4
Optional Call...............................................................S-16
Original Class A-1 Certificates..............................................S-4
Original Underlying Securities..............................................S-10
Plan...................................................................S-9, S-23
PTCEs.......................................................................S-23
Regulations.................................................................S-19
Required Percentage--Remedies...............................................S-18
Service.....................................................................S-19
Special Distribution Date....................................................S-8
Specified Currency...........................................................S-4
Trust........................................................................S-4
Trust Agreement.............................................................S-10
U.S. Holder.................................................................S-19
Underlying Securities Event of Default......................................S-12
Underlying Securities Payment Dates..........................................S-5
Underlying Securities Rate...................................................S-5
Underwriters................................................................S-10
Underwriting Agreement......................................................S-24
S-26
PROSPECTUS
TRUST CERTIFICATES
(ISSUABLE IN SERIES)
LEHMAN ABS CORPORATION
DEPOSITOR
THE TRUST--
--------------------
CONSIDER CAREFULLY o may periodically issue asset backed certificates
THE RISK FACTORS in one or more series with one or more classes;
BEGINNING ON PAGE 5 and
IN THIS PROSPECTUS.
o will own--
Unless otherwise
specified in the o a publicly issued, fixed income debt security
applicable prospectus or a pool of such debt securities;
supplement, the
certificates are not o payments due on those securities; and/or
insured or guaranteed
by any government agency. o other assets described in this prospectus and
in the accompanying prospectus supplement.
The certificates
will represent THE CERTIFICATES--
interests in the
trust only and will o will represent interests in the trust and will
not represent be paid only from the trust assets;
interests in or
obligations of o will be denominated and sold for U.S. dollars or
Lehman ABS or of the for one or more foreign or composite currencies
administrative agent and any payments to certificateholders may be
of the trust or any payable in U.S. dollars or in one or more foreign
of their affiliates. or composite currencies; and
o will be issued as part of a designated series
This prospectus may which may include one or more classes of
be used to offer and certificates and enhancement.
sell any series of
certificates only if THE CERTIFICATEHOLDERS--
accompanied by the
prospectus o will receive interest and principal payments
supplement for that from the assets deposited with the trust.
series.
--------------------
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
June 7, 2001
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.
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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................................55
Currency Risks................................................................56
Plan of Distribution..........................................................58
Legal Opinions................................................................60
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
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) 526-5594.
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
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in accordance with its regular foreign exchange practice. All costs of exchange
will be borne by the purchaser.
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 Securities (including acceleration resulting
from any
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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,
6
certificateholders 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) 526-5594.
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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
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
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
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Underlying 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
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relative priorities to receive specified collections from, and a certain
percentage ownership interest of the assets deposited in, such trust, all as
identified and described in the applicable prospectus supplement. See
"Description of Deposited Assets and Credit Support--Collections."
Reference is made to the related prospectus supplement for a description of
the following terms of the series (and, if applicable, classes within such
series) of certificates in respect of which this prospectus and such prospectus
supplement are being delivered:
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
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inconsistent with Lehman ABS' 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
13
premium or any interest on such series or class are to be distributed
pursuant to such election;
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
14
5.04). Bearer certificates will be transferable by delivery. Provisions with
respect to the exchange of bearer certificates will be described in the
applicable prospectus supplement. Unless otherwise specified in the applicable
prospectus supplement, registered certificates may not be exchanged for bearer
certificates. 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.
15
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
16
certain cases, a nominal Certificate Principal Balance, such distributions of
interest will be in an amount (as to any Distribution Date, "Stripped Interest")
described in the related prospectus supplement. For purposes hereof, "Notional
Amount" means the notional principal amount specified in the applicable
prospectus supplement on which interest on Strip Certificates with no or, in
certain cases, a nominal Certificate Principal Balance will be made on each
Distribution Date. Reference to the Notional Amount of a class of Strip
Certificates herein or in a prospectus supplement does not indicate that such
certificates represent the right to receive any distribution in respect of
principal in such amount, but rather the term "Notional Amount" is used solely
as a basis for calculating the amount of required distributions and determining
certain relative voting rights, all as specified in the related prospectus
supplement.
FIXED RATE CERTIFICATES. Each series (or, if more than one class exists,
each class within such series) of certificates with a Fixed Pass-Through Rate
("Fixed Rate Certificates") will bear interest, on the outstanding Certificate
Principal Balance (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
17
applicable 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
18
applicable prospectus supplement; provided, however, that unless otherwise
specified in such prospectus supplement, the Pass-Through Rate in effect for the
ten days immediately prior to the 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.
19
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
20
Quotations under the heading "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
21
(Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such 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,
22
"LIBOR" for such Interest Reset Period will be the arithmetic mean of rates
quoted by three major banks in The City of New York selected by the
Calculation Agent for such LIBOR Certificate at approximately 11:00 a.m.,
New York City time, on such LIBOR Determination Date for loans in U.S.
dollars to leading European banks, for the period of the specified Index
Maturity, commencing on such Interest Reset Date, and in a principal amount
equal to an amount of not less than $1,000,000 that is representative of a
single transaction in such market at such time; provided, however, that if
fewer than three banks selected as aforesaid by such Calculation Agent are
quoting rates as 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).
23
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.
24
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
25
"Reference 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
26
anticipated 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
certificate being
27
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
28
Global Security will be limited to participants or persons that may hold
beneficial interests through participants. Ownership of beneficial interests in
a global security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such global
security or by participants or persons that hold through participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities. Such limits and such laws may limit the market for
beneficial interests in a global security.
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
29
definitive certificates of such class in 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)
30
with a federal bank or thrift regulatory agency (unless in the case of
a security guaranteed by a parent company (i) the guarantor files such
reports and (ii) the issuer is exempt from such filing requirements
pursuant to Rule 3-10 of SEC Regulation S-X) ("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 (or in the case of a guaranteed security the depositor
reasonably believes the guarantor meets such requirements);
o 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 (unless in
the case of a security guaranteed by a parent company (i) the
guarantor files such reports and (ii) the issuer is exempt from such
filing requirements pursuant to Rule 3-10 of SEC Regulation S-X)
("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 (or in the case of a guaranteed security the
depositor reasonably believes the guarantor meets such requirements);
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");
31
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 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.
An Underlying Security that was originally issued in a private placement
will be considered "publicly issued" for purposes of this prospectus and the
related supplement if the Depositor and the trust could sell such Underlying
Security pursuant to Rule 144(k) under the Securities Act. Such securities may
be trust assets notwithstanding that they are not registered under the
Securities Act.
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 issued by domestic or foreign issuers, or
investment grade term preferred stock issued by domestic 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.
32
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 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.
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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 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
34
those of holders of other securities of the same series and class as any
Underlying Security ("Outstanding Debt Securities") in determining whether to
declare the acceleration of the Underlying Securities.
SUBORDINATION. As set forth in the applicable prospectus supplement,
certain of the Underlying Securities with respect to any trust may be either
senior ("Senior Underlying Securities") or subordinated ("Subordinated
Underlying Securities") in right to payment to other existing or future
indebtedness of the Underlying Securities Issuer. With respect to Subordinated
Underlying Securities, to the extent of the subordination provisions of such
securities, and after the occurrence of certain events, security holders and
direct creditors whose claims are senior to Subordinated Underlying Securities,
if any, may be entitled to receive payment of the full amount due thereon before
the holders of any subordinated debt securities are entitled to receive payment
on account of the principal (and premium, if any) or any interest on such
securities. Consequently, the trust as a holder of subordinated debt may suffer
a greater loss than if it held unsubordinated debt of the 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
35
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
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)
36
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.
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.
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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.
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.
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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.
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.
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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, 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 either (a)
distribute within a reasonable period of time such Underlying Security or
Securities to the certificateholders or (b) sell within a reasonable period of
time the Underlying Securities and distribute the proceeds to the
certificateholders, pursuant to the procedures set forth in the related
prospectus supplement applicable to defaults on the Underlying Securities.
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.
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Unless otherwise specified in the related prospectus supplement, the
Deposited Assets for a given series of certificates and the related trust will
not constitute Deposited Assets for any other series of certificates and the
related trust and the certificates of each class of a given series possess an
equal and ratable undivided ownership interest in such Deposited Assets. The
applicable prospectus supplement may, however, specify that certain assets
constituting a part of the Deposited Assets relating to any given series may be
beneficially owned solely by or deposited solely for the benefit of one class or
a group of classes within such series. In such event, the other classes of such
series will not possess any beneficial ownership interest in those specified
assets constituting a part of the Deposited Assets.
CREDIT SUPPORT
As specified in the applicable prospectus supplement for a given series of
certificates, the trust for any series of certificates may include, or the
certificateholders of such series (or any class or group of classes within such
series) may have the benefit of, credit support for any class or group of
classes within such series. 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
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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 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.
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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
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.
43
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
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
44
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 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."
45
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.
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.
46
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 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
47
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.
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.
48
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);
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
49
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
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
50
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
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).
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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 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
52
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.
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
53
certificates) or at the principal London office of the applicable trustee (in
the case of bearer certificates), or such other location as may be specified in
the applicable prospectus supplement, upon payment by the holder of such
expenses as may be incurred by the applicable trustee in connection therewith
and the furnishing of such evidence and indemnity as such trustee may require.
Mutilated certificates must be surrendered before new certificates will be
issued (Section 5.05).
TERMINATION
The obligations created by the trust agreement for each series of
certificates will terminate upon the payment to certificateholders of that
series of all amounts held in the related certificate account or by an
administrative agent, if any, and required to be paid to them pursuant to the
trust agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition of
all property acquired upon foreclosure or liquidation of any such Deposited
Asset and (ii) the purchase of all the assets of the trust by the party entitled
to effect such termination, under the circumstances and in the manner set forth
in the related prospectus supplement. In no event, however, will any trust
created by the trust agreement continue beyond the respective date specified in
the related prospectus supplement. Written notice of termination of the
obligations with respect to the related series of certificates under the trust
agreement will be provided as set forth above under "--Reports to
Certificateholders; Notices--Notices," and the final distribution will be made
only upon surrender and cancellation of the certificates at an office or agency
appointed by the trustee which will be specified in the notice of termination
(Section 9.01).
Any 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
54
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 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 Euroclear Bank S.A./N.V., as operator of the Euroclear System
("Euroclear"), and Clearstream Banking societe anonyme ("Clearstream
Luxembourg") 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
55
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 Luxembourg 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 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
56
Specified Currency and the Underlying Securities Currency and the possibility of
the imposition or modification of foreign exchange controls with respect to
either the Specified Currency or the Underlying Securities Currency.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES DENOMINATED
IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE NOT AN APPROPRIATE
INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
The information set forth in this prospectus is directed to prospective
purchasers of certificates who are United States residents. The applicable
prospectus supplement for certain issuances of certificates may set forth
certain information applicable to prospective purchasers who are residents of
countries other than the United States with respect to matters that may affect
the 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
57
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.
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
58
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 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.
59
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, Sidley Austin Brown & Wood LLP, or other counsel identified in the
applicable prospectus supplement
60
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 and, if given or made, such information or representation must not be
relied upon as having been authorized by the depositor or Lehman Brothers. This
Prospectus Supplement and the Prospectus do not constitute an offer of any
securities other than those to which they relate or an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to their respective dates.
--------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Summary of Principal Economic Terms..........................................S-4
Summary of Prospectus Supplement.............................................S-7
Formation of the Trust......................................................S-10
Risk Factors................................................................S-10
Description of the Deposited Assets.........................................S-12
Description of the Certificates.............................................S-14
Description of the Trust Agreement..........................................S-17
Material Federal Income Tax Consequences....................................S-19
ERISA Considerations........................................................S-23
Method of Distribution......................................................S-24
Listing.....................................................................S-24
Ratings.....................................................................S-24
Legal Opinions..............................................................S-25
Index of Terms for Prospectus Supplement....................................S-26
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................................55
Currency Risks................................................................56
Plan of Distribution..........................................................58
Legal Opinions................................................................60
1,825,250
CORPORATE BACKED TRUST
CERTIFICATES,
GOODYEAR TIRE & RUBBER NOTE-BACKED
SERIES 2001-34
CLASS A-1
(UNDERLYING SECURITIES WILL BE
7% NOTES
DUE 2008 ISSUED BY
GOODYEAR TIRE & RUBBER COMPANY)
LEHMAN ABS CORPORATION
(DEPOSITOR)
-----------------------------------------------
PROSPECTUS SUPPLEMENT
SEPTEMBER 19, 2001
-----------------------------------------------
LEHMAN BROTHERS
FIRST UNION SECURITIES, INC.