FILED PURSUANT TO RULE 424(b)(5)
FILE NO. 333-64512
The information in this prospectus is not complete and may be changed. This
prospectus supplement and the accompanying prospectus are not an offer to sell
these securities and they are not soliciting an offer to purchase these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated February 8, 2002
Prospectus Supplement
(To Prospectus Dated November 7, 2001)
- --------------------------------------------------------------------------------
Trust Certificates
Series 2002-1
(Underlying Securities will be 8.197% Capital Securities issued by W.R.
Berkley Capital Trust)
- ---------------------------------------------------------------------------------------
NUMBER OF PRICE TO PRINCIPAL INTEREST UNDERWRITING
CERTIFICATES PUBLIC BALANCE RATE DISCOUNT
Trust Certificates $ $ % $
______________________
The trust
. will be formed pursuant to a trust agreement between
DB Depositor Inc. and The Bank of New York for the
sole purpose of issuing the certificates.
. will issue and offer only one class of certificates.
The certificates
. are callable in whole at par commencing December 15,
2006 if the call warrants on the certificates are
exercised.
. represent an undivided beneficial interest in the
assets of the trust, which consist solely of the
underlying securities described in this prospectus
supplement.
. currently have no trading market.
. are not insured or guaranteed by any governmental
agency.
The certificates represent non-recourse obligations of the trust only and do not
represent an interest in or obligation of Deutsche Bank AG, Deutsche Banc Alex.
Brown Inc., DB Depositor Inc., the trustee, or any of their affiliates.
You should review the information in the section headed "Risk Factors" beginning
on page S-12 of this prospectus supplement and on page 3 of the accompanying
prospectus.
______________________
For complete information about the offered certificates, you should read both
this prospectus supplement and the accompanying 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 underwriter named below
will purchase the offered certificates from DB Depositor Inc. See "Method of
Distribution" in this prospectus supplement. The offered certificates will be
issued in book-entry form only on or about , 2002.
______________________
Deutsche Banc Alex. Brown
The date of this Prospectus Supplement is , 2002.
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 may 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 differ between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
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 pages on which these captions are located.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF PRINCIPAL TERMS ............................................... S-4
SUMMARY OF PROSPECTUS SUPPLEMENT ......................................... S-8
FORMATION OF THE TRUST ................................................... S-12
RISK FACTORS ............................................................. S-12
DESCRIPTION OF THE DEPOSITED ASSETS ...................................... S-16
DESCRIPTION OF THE CERTIFICATES .......................................... S-23
DESCRIPTION OF THE TRUST AGREEMENT ....................................... S-28
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ................................. S-31
ERISA CONSIDERATIONS ..................................................... S-37
UNDERWRITING ............................................................. S-39
LISTING .................................................................. S-40
RATINGS .................................................................. S-40
LEGAL MATTERS ............................................................ S-40
PROSPECTUS
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT ............................... 1
WHERE YOU CAN FIND MORE INFORMATION ...................................... 2
INCORPORATION OF CETAIN DOCUMENTS BY REFERENCE ........................... 2
REPORT TO CERTIFICATEHOLDERS ............................................. 3
RISK FACTORS ............................................................. 3
THE DEPOSITOR ............................................................ 8
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 ....................... 26
DESCRIPTION OF THE TRUST AGREEMENT ....................................... 38
CURRENCY RISKS ........................................................... 48
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ............................ 51
ERISA CONSIDERATIONS ..................................................... 58
UNDERWRITING ............................................................. 61
LEGAL MATTERS ............................................................ 62
S-2
The underwriter 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" in this prospectus
supplement.
______________
For 90 days following the date of this prospectus supplement, all dealers
selling the offered certificates will deliver a prospectus supplement and
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriter of the offered certificates and with
respect to its 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 TERMS
This summary highlights the principal terms of the certificates being
issued by the trust and of the underlying securities. It does not contain all of
the information that you need to consider in making your investment decision. To
understand all of the terms of the offering of the certificates, you should read
carefully this prospectus supplement and the accompanying prospectus in full.
The Certificates
The Trust ............................... DB Depositor Inc. and the trustee
will form the Series 2002-1 Trust.
Securities Offered ...................... Trust Certificates, Series 2002-1,
backed by W.R. Berkley Capital Trust
Securities, referred to herein as the
"certificates."
Initial Number of Certificates .......... .
Final Scheduled Distribution Date ....... December 15, 2045.
Interest Rate ........................... The certificates will bear interest
at a fixed interest rate of % per
annum.
Deposited Assets ........................ The deposited assets will consist of
the underlying securities. See "--The
Underlying Securities" and
"Description of the Deposited Assets"
below.
Original Issue Date ..................... , 2002.
Distribution Dates ...................... June 15th and December 15th, or if
any such date is not a Business Day,
then the next succeeding Business
Day, commencing June 15, 2002.
Record Date ............................. The day immediately preceding each
distribution date.
Deferral of Distributions ............... If and for so long as distributions
on the underlying securities are
deferred pursuant to an Extension
Period (as defined herein),
distributions on the certificates
will also be deferred. See "--The
Underlying Securities" and
"Description of the Deposited Assets"
below.
S-4
Optional Call ........................... On any date on or after December 15,
2006 (or after the announcement of
any redemption or other unscheduled
payment of the underlying securities)
that any call warrant holder
designates as a call date, the
certificates may be called in whole
and not in part at a call price equal
to 100% of the outstanding principal
amount thereof, plus any accrued and
unpaid interest to the call date.
Mandatory Redemption .................... On any date the underlying securities
are redeemed, including as a result
of a Tax Event or Investment Company
Event, the certificates shall be
redeemed and the proceeds of such
redemption shall be distributed in
the manner set forth under
"Description of the
Certificates--Collections and
Distributions" in this prospectus
supplement.
Denominations; Specified Currency ....... The certificates will be denominated
and payable in U.S. dollars (the
"specified currency"), and will each
have an initial principal amount of
$25.
Interest Accrual Periods ................ Semi-annually or, in the case of the
first Interest Accrual Period, from
and including the original issue date
to but excluding the first
distribution date.
Form of Security ........................ Book-entry certificates with The
Depository Trust Company ("DTC"). See
"Description of the Certificates--
Definitive Certificates" in this
prospectus supplement. Distributions
will be settled in immediately
available (same-day) funds.
Trustee ................................. The Bank of New York.
Ratings ................................. The certificates are expected to be
rated "BBB-" by Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc. and
"Baa3" by Moody's Investors Service,
Inc. A rating of the certificates is
not a recommendation to purchase,
hold or sell such certificates, and
there can be no assurance that a
rating will remain for any given
period of time or that a rating will
not be revised or withdrawn entirely
by a rating agency if in its
judgement circumstances in the future
so warrant.
S-5
The Underlying Securities
Underlying Securities ................... $ aggregate liquidation
amount of 8.197% capital securities
issued by the underlying securities
issuer.
Underlying Securities Issuer ............ W.R. Berkley Capital Trust.
Underlying Securities Guarantor ......... W.R. Berkley Corporation ("W.R.
Berkley").
Underlying Securities Property Trustee .. The Bank of New York.
Underlying Securities Delaware Trustee .. The Bank of New York (Delaware). The
underlying securities have been
issued pursuant to an amended and
restated trust agreement among W.R.
Berkley, the Underlying Securities
Property Trustee, the Underlying
Securities Delaware Trustee and
certain administrative trustees.
Debenture Trustee ....................... The Bank of New York
Underlying Securities
Final Scheduled Distribution Date ....... December 15, 2045, unless redeemed
earlier.
Denominations ........................... The underlying securities are
denominated and payable in U.S.
dollars and are available in minimum
denominations of $1,000 and integral
multiples of $1,000 thereof.
Underlying Securities
Payment Dates ........................... June 15/th/ and December 15/th/.
Underlying Securities Rate .............. 8.197% per annum.
Underlying Securities
Distribution Accrual Periods ............ Semi-annual periods.
Underlying Securities Extension Period .. W.R. Berkley has the right to defer
the payment of interest on the Junior
Subordinated Debentures (described
below) at any time and from time to
time (each, an "Extension Period"),
for a period not exceeding ten
consecutive semi-annual periods with
respect to each Extension Period.
Upon the termination of any such
Extension Period and the payment of
all amounts due, W.R. Berkley may
elect to begin a new Extension
Period. If and for so long as
interest payments on the Junior
Subordinated Debentures are so
deferred, distributions on the
underlying securities
S-6
will be deferred. See "Description
of the Deposited Assets -
Underlying Securities -Junior
Subordinated Debentures" in this
prospectus supplement.
Junior Subordinated Debentures due 2045 ... The assets of the underlying
securities issuer consist solely of
the 8.197% Junior Subordinated
Deferrable Interest Debentures (the
"Junior Subordinated Debentures")
issued by W.R. Berkley, which are
payable after the Senior
Indebtedness (as defined herein) of
W.R. Berkley. See "Description of
the Deposited Assets - Underlying
Securities - Junior Subordinated
Debentures" in this prospectus
supplement.
Guarantee ................................. Payments of distributions and
payments on liquidation and
redemption of the underlying
securities are guaranteed by W.R.
Berkley, but only to the limited
extent the underlying securities
issuer holds funds on hand legally
available therefor and has failed
to make such payments.
Redemption ................................ The underlying securities are
subject to mandatory redemption (i)
in whole but not in part, on the
stated maturity date upon repayment
of the Junior Subordinated
Debentures, (ii) in whole but not
in part, at any time
contemporaneously with the optional
prepayment of the Junior
Subordinated Debentures by W.R.
Berkley upon the occurrence and
continuation of a Special Event and
(iii) in whole or in part, at any
time on or after December 15, 2006
contemporaneously with the optional
prepayment by W.R. Berkley of the
Junior Subordinated Debentures, in
each case at the applicable
redemption price.
Ratings ................................... The underlying securities have been
rated "BBB-" by Standard & Poor's
Ratings Services and "Baa3" by
Moody's Investors Service, Inc. 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 judgement
circumstances in the future so
warrant.
S-7
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 in this prospectus supplement and in the accompanying prospectus.
Depositor ............................... DB Depositor Inc., an indirect
wholly-owned subsidiary of Deutsche
Bank AG. See "DB Depositor Inc." in
the accompanying prospectus.
Certificates ............................ The certificates being offered
hereby will be issued by the Series
2002-1 trust.
The $25 principal amount of each
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 ............... Distributions on the underlying
securities accrue at the Underlying
Securities Rate for each Underlying
Securities Distribution Accrual
Period and is payable on each
Underlying Securities Payment Date.
The entire liquidation amount of
the underlying securities will be
payable on the underlying
securities final scheduled payment
date, unless earlier redeemed. The
underlying securities have a
remaining term to maturity of
approximately 44 years. See
"Description of the Deposited
Assets" in this prospectus
supplement.
Distributions ........................... Holders of the certificates will be
entitled to receive on each
distribution date, to the extent of
Available Funds (as defined in this
prospectus supplement), after
reimbursement of the trustee for
any extraordinary expenses incurred
pursuant to the instructions of all
the certificateholders,
. distributions on the underlying
securities to the extent
necessary to pay interest at
the rate of % per annum on
the outstanding principal
amount of the certificates, and
. distributions of liquidation
amount on the underlying
securities to the extent
S-8
necessary to pay the
outstanding principal amount of
the certificates.
Notwithstanding the foregoing, in
the event that the underlying
securities are redeemed, prepaid or
liquidated in whole or in part for
any reason, the cessation of the
W.R. Berkley to file periodic
reports required under the
Securities and Exchange Act of
1934, as amended (the "Exchange
Act"), or at their maturity,
Available Funds will be allocated,
after payment of certain
extraordinary expenses of the
trustee and its respective agents,
to the certificates as set forth
under "Description of the
Certificates--Collections and
Distributions" in this prospectus
supplement.
Distributions will be made to
certificateholders only if, and to
the extent that, payments are made
with respect to the underlying
securities or are otherwise covered
by the underlying securities
Guarantee (as defined herein). See
"Description of the
Certificates--Collections and
Distributions" in this prospectus
supplement.
Special Distribution Dates .............. If a payment with respect to the
underlying securities is made to
the trustee after the Distribution
Date on which payment was due, then
the trustee will distribute any
such amounts received on the next
occurring Business Day (a "Special
Distribution Date") as if the funds
had constituted available funds on
the distribution date immediately
preceding such Special Distribution
Date; provided, however, that the
-------- -------
Record Date for such Special
Distribution Date shall be five
Business Days (as defined herein)
prior to the day on which the
related payment was received from
the Underlying Securities Property
Trustee.
Additional Issuance ..................... The depositor may deposit
additional underlying securities
and the trust may issue additional
certificates in minimum amounts of
$250,000, with respect to any
certificates issued, at any time.
S-9
The Call Warrants ....................... The call warrants represent the
rights to purchase the certificates
in whole and not in part 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
by this prospectus supplement.
Optional Call:
Call Date ............................... Any Business Day on or after
December 15, 2006 (or after the
announcement of any redemption or
other unscheduled payment of the
underlying securities) that any
call warrant holder so designates.
Call Price............................... The certificates may be called in
whole but not in part at a call
price equal to 100% of the
outstanding principal amount
thereof, plus any accrued and
unpaid interest to the date
designated by the call warrant
holder as the call date.
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 trust intends to
take the position that, although it
can provide no assurance, the trust
is 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. See "Material Federal
Income Tax Consequences" in this
prospectus supplement.
Ratings ................................. It is a condition to the issuance
of the certificates that the
certificates and the underlying
securities each be rated not lower
than "Baa3" by Moody's and "BBB-"
by S&P as specified above under
"Summary of Principal 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
S-10
underlying securities, or the
corresponding effect on yield to
investors.
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" in this prospectus
supplement.
Listing ................................. The certificates are expected to be
listed on the New York Stock
Exchange. However, it is unlikely
that trading of the certificates
will be active. See "Listing" in
this prospectus supplement.
This prospectus supplement does not provide information with respect to the
underlying securities issuer or W.R. Berkley. No investigation of the underlying
securities issuer or W.R. Berkley (including, without limitation, any
investigation as to their 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 W.R. Berkley and the underlying
securities issuer as he or she would obtain and evaluate if he or she were
investing directly in the underlying securities or in other securities issued by
the underlying securities issuer and guaranteed by W.R. Berkley. None of the
depositor, the trustee, the underwriter or any of their respective affiliates
assumes any responsibility for the accuracy or completeness of any publicly
available information of W.R. Berkley or the underlying securities issuer filed
with the Securities and Exchange Commission or otherwise made publicly available
or considered by a purchaser of the certificates in making its investment
decision in connection therewith.
S-11
Formation of the Trust
The trust will be formed pursuant to a trust agreement (including the
Series 2002-1 supplement) between DB Depositor Inc. and the trustee. At the time
of the execution and delivery of the Series 2002-1 supplement, DB Depositor Inc.
will deposit the underlying securities in the aggregate liquidation amount of $
in the trust. The trustee, on behalf of the trust, will accept such underlying
securities and will deliver the certificates in accordance with the instructions
of DB Depositor Inc.
The underlying securities will be purchased by Deutsche Banc Alex. Brown
Inc. or an affiliate thereof in the secondary market, either directly or through
an affiliate of Deutsche Banc Alex. Brown Inc. The 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 and W.R. Berkley are not participating in this offering and
will not receive any of the proceeds of the sale of the underlying securities to
Deutsche Banc Alex. Brown Inc. or the issuance of the certificates. Neither
Deutsche Banc Alex. Brown Inc. nor any of its affiliates participated in the
initial public offering of the underlying securities.
Risk Factors
No due diligence investigation of the underlying securities, the underlying
securities issuer or W.R. Berkley has been made by the depositor, the
underwriter or the trustee.
In connection with the present offering, none of the depositor, the
underwriter or the trustee (a) has made, or will make, any due diligence
investigation of the business condition, financial or otherwise, of the
underlying securities issuer or W.R. Berkley or (b) has verified, or will
verify, any reports or information filed by the underlying securities issuer or
W.R. Berkley with the Securities and Exchange Commission or otherwise made
available to the public. It is strongly recommended that prospective investors
in the certificates consider publicly available financial and other information
regarding the underlying securities issuer and W.R. Berkley. The issuance of the
certificates should not be construed as an endorsement by the depositor, the
underwriter or the trustee of the financial condition or business prospects of
the underlying securities issuer or W.R. Berkley. See "Description of the
Deposited Assets - Underlying Securities" in this prospectus supplement.
W.R. Berkley is the only payment source on the underlying securities and,
consequently on the certificates.
The payments made by the underlying securities issuer on the underlying
securities are the only source of payment for your certificates. The payments
made by W.R. Berkley on the Junior Subordinated Debentures and under the
underlying securities Guarantee are the only source of payment for the
underlying securities. W.R. Berkley is a holding company; therefore, its ability
to service its indebtedness, including, without limitation, the payments of
interest and principal on the Junior Subordinated Debentures, and to perform
under the underlying securities Guarantee will be dependent on the ability of
W.R. Berkley's subsidiaries to make payments to W.R. Berkley in the form of
dividends and other distributions. The payment of dividends or other
distributions by W.R. Berkley's subsidiaries is dependent upon the earnings of
those subsidiaries. Earnings of W.R. Berkley's subsidiaries are subject to
various business and regulatory considerations. In addition, since many of W.R.
Berkley's subsidiaries are insurance companies subject to regulatory control by
various state insurance departments, the ability of such subsidiaries to pay
dividends to W.R. Berkley without prior regulatory approval is limited by
applicable laws and regulations. Financial difficulties experienced by W.R.
Berkley or its subsidiaries could result in delays in payment, partial payment
or nonpayment of the Junior Subordinated Debentures, and in turn, the underlying
securities and your certificates. In the event of nonpayment on the Junior
Subordinated Debentures
S-12
or the underlying securities Guarantee by W.R. Berkley, and in turn on the
underlying securities by the underlying securities issuer, you will bear the
loss resulting from such nonpayment. See "Description of the Certificates" in
this prospectus supplement.
The Junior Subordinated Debentures are subordinated to other obligations of W.R.
Berkley, and W.R. Berkley's guarantee of payments due on the underlying
securities is subordinated to other obligations of W.R. Berkley.
The obligations of W.R. Berkley under the underlying securities Guarantee
issued for the benefit of the holders of the underlying securities, as well as
under the Junior Subordinated Debentures, will be unsecured and rank subordinate
and junior in right of payment to all Senior Indebtedness. In addition, in the
case of a bankruptcy or insolvency proceeding, W.R. Berkley's obligations under
the underlying securities Guarantee will also rank subordinate and junior in
right of payment to all liabilities of W.R. Berkley.
Because W.R. Berkley is a holding company, the right of W.R. Berkley to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the underlying securities to benefit indirectly from such
distribution) is subject to the prior claims of creditors of that subsidiary,
except to the extent that W.R. Berkley may itself be recognized as a creditor of
that subsidiary. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of W.R.
Berkley's subsidiaries, and holders of Junior Subordinated Debentures should
look only to the assets of W.R. Berkley for payments on the Junior Subordinated
Debentures. In addition, since many of W.R. Berkley's subsidiaries are insurance
companies subject to regulatory control by various state insurance departments,
the ability of such subsidiaries to pay dividends to W.R. Berkley without prior
regulatory approval is limited by applicable laws and regulations. None of the
Indenture, the underlying securities Guarantee or the Underlying Securities
Trust Agreement (as defined below) places any limitation on the amount of
secured or unsecured debt, including Senior Indebtedness, that may be incurred
by W.R. Berkley.
The underlying securities Guarantee provides a guarantee of amounts due on
the underlying securities, but only to the limited extent payments have been
made on the Junior Subordinated Debentures. If W.R. Berkley does not make
payments on the Junior Subordinated Debentures, it will not be liable on the
underlying securities Guarantee, and the Underlying Securities Property Trustee
will not make distributions on the underlying securities. Consequently, no
distributions would be made on the certificates. See "Description of the
Deposited Assets--Underlying Securities - Underlying Securities Guarantee" in
this prospectus supplement.
If, on or before June 15, 2002 an event of default with respect to the
underlying securities occurs, the depositor will share pro rata with
certificateholders in proceeds of the underlying securities to the extent of its
claim for accrued distributions.
On June 15, 2002, the trustee will pay DB Depositor Inc. an amount equal to
distributions accrued on the underlying securities from December 15, 2001 to,
but excluding the original issue date of the certificates. If the depositor is
not paid such amount on such date, it will have a claim for such amount. In
satisfaction of that claim, the depositor will receive its pro rata share, based
on the ratio the amount owed the depositor bears to all amounts owed on the
certificates in respect of accrued distributions, of any proceeds from the
recovery on the underlying securities. See "Description of the Trust Agreement"
in this prospectus supplement.
Interest distributions on the Junior Subordinated Debentures, and consequently
distributions on the underlying securities and interest on the certificates, may
be deferred.
So long as no event of default with respect to the underlying securities
shall have occurred and be continuing, W.R. Berkley will have the right under
the Indenture to defer payments of
S-13
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi- annual periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
stated maturity date of the Junior Subordinated Debentures. As a consequence of
any such deferral, semi-annual distributions on the underlying securities by the
underlying securities issuer and semi-annual distributions on the certificates
will be deferred (and the amount of distributions to which holders of the
underlying securities and the certificates are entitled will accumulate
additional distributions thereon at the rate of 8.197% per annum, compounded
semi-annually, but not exceeding the interest rate then accruing on the Junior
Subordinated Debentures) from the relevant payment date for such distributions
during any such Extension Period. Prior to the termination of any such Extension
Period, W.R. Berkley may further extend such Extension Period, provided that
such extension does not cause such Extension Period to exceed 10 consecutive
semi-annual periods or to extend beyond the stated maturity date. Upon the
termination of any Extension Period and the payment of all interest then accrued
and unpaid on the Junior Subordinated Debentures (together with interest thereon
at the annual rate of 8.197%, compounded semi-annually, to the extent permitted
by applicable law), W.R. Berkley may elect to begin a new Extension Period,
subject to the above requirements. There is no limitation on the number of times
that W.R. Berkley may elect to begin an Extension Period.
Distributions on the underlying securities, and consequently interest on
the certificates, may be deferred if W.R. Berkley defers payments of interest on
the Junior Subordinated Debentures. Such deferral may be for up to ten (10)
consecutive semi-annual interest distribution dates, provided that such
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extension period may not extend beyond the stated maturity date of the Junior
Subordinated Debentures. During any extension period, interest on the Junior
Subordinated Debentures, and consequently the underlying securities and the
certificates, will continue to accrue (and the amount of distributions to which
holders of such debentures, and consequently the trust and the
certificateholders, will continue to accumulate) at the otherwise applicable
interest rate, compounded semi-annually. Interest on deferred and compounded
interest on the certificates will be owing only to the extent that such interest
is actually received on the underlying securities. Any interest that accrues on
the Junior Subordinated Debentures during an extension period will be
distributed to the certificateholders pro rata when it is received by the trust.
See "Description of the Certificates--Collections and Distributions" in this
prospectus supplement.
There are possible tax and market price consequences of a deferral of
distributions.
Should W.R. Berkley exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of the underlying securities, and
thus each holder of the certificates, will be required to accrue income (as
original issue discount) in respect of the deferred interest allocable to its
underlying securities or certificates, as the case may be, for United States
federal income tax purposes, which will be allocated but not distributed to it.
As a result, each such holder of a certificate will recognize income for United
States federal income tax purposes in advance of the receipt of cash and will
not receive the cash related to such income from the underlying securities
issuer if the holder disposes of its certificates prior to the record date for
the payment of distributions thereafter. See "Material Federal Income Tax
Consequences" in this prospectus supplement.
Should W.R. Berkley elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the underlying securities, and consequently the certificates, is likely to be
adversely affected. A holder that disposes of its certificates during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its certificates. In addition, merely as a
result of the existence of W.R. Berkley's right to defer payments of interest on
the Junior Subordinated Debentures, the market price of the underlying
securities, and consequently the certificates, may be more volatile than the
market prices of other securities that are not subject to such deferrals
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If the underlying securities are redeemed by the underlying securities issuer
upon a Tax Event or an Investment Company Event, then the certificates will also
be redeemed.
If a Tax Event or an Investment Company Event occurs and is continuing,
then within 90 days following the occurrence of such Tax Event or Investment
Company Event, W.R. Berkley will have the right to prepay the Junior
Subordinated Debentures in whole but not in part and therefore cause a mandatory
redemption of the underlying securities, and consequently the certificates, at
the applicable redemption price. See "Description of the
Certificates--Redemption of Certificates upon Redemption of Underlying
Securities" in this prospectus supplement.
Certificateholders are not likely to receive any redemption premiums or market
value appreciation.
In certain circumstances, redemption of the underlying securities by the
underlying securities issuer requires payment of a redemption premium. In
addition, the market value of the underlying securities may increase to a value
in excess of their face amounts. However, in such circumstances it is likely
that the call warrant holder (initially, the depositor) would exercise its right
to call the certificates pursuant to an optional call. The call price of the
certificates equals the outstanding principal amount of the certificates, plus
accrued interest. If the call warrant holder does exercise its right, a
certificateholder will receive less than if the certificateholder directly owned
the underlying securities and will not receive any premium in excess of the
underlying securities' market value over their face amounts. See "Description of
the Certificates-- The Call Warrant; Optional Call" in this prospectus
supplement.
If, at any time, W.R. Berkley ceases to file periodic reports required under the
Exchange Act, the trust will sell the underlying securities and distribute the
proceeds to certificateholders.
If, at any time, W.R. Berkley ceases to file periodic reports required
under the Exchange Act, the depositor will instruct the trust to sell the
underlying securities and the proceeds, less expenses incurred by the trust,
will be allocated to the certificateholders. Certificateholders may not be able
to reinvest the proceeds at the same or a higher rate of return. Also, at the
time the underlying securities are sold they may be trading at a discount to the
price certificateholders paid to purchase the certificates. See "Description of
the Certificates -- Failure by W.R. Berkley to File Periodic Reports" in this
prospectus supplement.
A change or withdrawal by the rating agencies of their initial ratings may
reduce the market value of the certificates.
At the time of issuance, the certificates will have ratings assigned by
Moody's and S&P equivalent to the ratings of the underlying securities, which,
as of the date of this prospectus supplement were "Baa3" by Moody's and "BBB-"
by S&P. It is expected that the ratings of the certificates will change if the
ratings of the underlying securities change.
Any rating issued with respect to the certificates is not a recommendation
to purchase, sell or hold a security inasmuch as such ratings do not comment on
the market price of the certificates or their suitability for a particular
investor. There can be no assurance that the ratings will remain for any given
period of time or that the ratings will not be revised or withdrawn entirely by
the related rating agency if, in its judgment, circumstances (including, without
limitation, the rating of the underlying securities) so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
certificates.
See "Risk Factors" and "Maturity and Yield Considerations" in the
accompanying prospectus.
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DESCRIPTION OF THE DEPOSITED ASSETS
General
This prospectus supplement sets forth certain relevant terms with respect
to the underlying securities, but does not provide detailed information with
respect to the underlying securities or the underlying securities issuer. This
prospectus supplement relates only to the certificates 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 exchange offering of $210,000,000 of such securities pursuant to a
registration statement (file no. 333-20871), filed by the underlying securities
issuer with the Securities and Exchange Commission under the Securities Act of
1933, as amended.
No investigation has been made of the financial condition or
creditworthiness of the underlying securities issuer or W.R. Berkley in
connection with the issuance of the certificates. W.R. Berkley is subject to the
information reporting requirements of the Exchange Act. None of DB Depositor
Inc., the underwriter or the trustee has participated in the preparation of such
reporting documents, or made any due diligence inquiry with respect to the
information provided therein. None of the depositor, the underwriter or the
trustee have verified the accuracy or completeness of such documents or reports.
There can be no assurance that events affecting the underlying securities, W.R.
Berkley 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. The underlying securities issuer, in turn, will have no
significant assets from which to make distributions of amounts due in respect of
the underlying securities other than the Junior Subordinated Debentures issued
by W.R. Berkley. 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 and on the underlying
securities issuer's receipt of payments on the Junior Subordinated Debentures.
Prospective purchasers of the certificates should consider carefully the
financial condition of W.R. Berkley and the underlying securities issuer and
their respective abilities to make payments in respect of such underlying
securities and Junior Subordinated Debentures. This prospectus supplement
relates only to the certificates and does not relate to W.R. Berkley, the
underlying securities or the underlying securities issuer's receipt of payments
on the Junior Subordinated Debentures. All information contained in this
prospectus supplement regarding W.R. Berkley, the underlying securities issuer
and the underlying securities is derived solely from publicly available
documents.
Underlying Securities
The underlying securities consist of $ aggregate liquidation
amount of 8.197% Capital Securities, issued by W.R. Berkley Capital Trust.
Distributions on the underlying securities will be at the annual rate of 8.197%
of the liquidation amount and will be payable semi-annually. The underlying
securities final scheduled payment date will occur on December 15, 2045 unless
earlier redeemed.
The underlying securities have been issued pursuant to agreements among
W.R. Berkley, the underlying securities issuer, the Underlying Securities
Property Trustee, the Underlying Securities Delaware Trustee and certain
administrative trustees. The Junior Subordinated Debentures have been issued
pursuant to the Indenture (the "Indenture") , dated as of December 20, 1996,
among W.R. Berkley and The Bank of New York, as debenture trustee (the
"Debenture Trustee"). The
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following summary describes certain general terms of the Indenture and the
Amended and Restated Declaration of Trust dated as of December 20, 1996 (the
"Underlying Securities Trust Agreement") among W.R. Berkley, the Underlying
Securities Property Trustee, the Underlying Securities Delaware Trustee and the
administrative trustees named therein, but investors should refer to the
Indenture and the Underlying Securities Trust Agreement themselves for all the
terms governing the Junior Subordinated Debentures and the underlying
securities.
The underlying securities represent beneficial interests in the assets of
the underlying securities issuer. W.R. Berkley is the owner of all of the
beneficial interests represented by common securities of the underlying
securities issuer (the "Common Securities" and together with the underlying
securities, the "Underlying Trust Securities"). The underlying securities issuer
exists for the sole purpose of issuing the Underlying Trust Securities and
investing the proceeds thereof in the Junior Subordinated Debentures (as defined
herein). The Junior Subordinated Debentures will mature on December 15, 2045.
The Underlying Securities will have a preference over the Common Securities
under certain circumstances with respect to distributions and amounts payable on
redemption of the Underlying Trust Securities or liquidation of the underlying
securities issuer.
The occurrence of an event of default under the Indenture will constitute
an event of default with respect to the underlying securities. Set forth below
is a summary list of the events of default under the Indenture:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any other junior subordinated debentures issued by
W.R. Berkley when due (subject to the deferral of any due date in
the case of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
or any other junior subordinated debentures issued by W.R. Berkley
when due whether at maturity, upon redemption, by declaration of
acceleration of maturity or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written
notice to W.R. Berkley from the Debenture Trustee or the holders of
at least 25% in aggregate outstanding principal amount of Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of W.R.
Berkley.
Within five Business Days after the occurrence of any event of default with
respect to the underlying securities actually known to the Underlying Securities
Property Trustee, the Underlying Securities Property Trustee shall transmit
notice of such event to the holders of the underlying securities, the
administrative trustees of the underlying securities issuer and W.R. Berkley,
unless such event of default with respect to the underlying securities has been
cured or waived. W.R. Berkley and the administrative trustees are required to
file annually with the Underlying Securities Property Trustee a certificate as
to whether or not they are in compliance with all the conditions and covenants
applicable to them under the Underlying Securities Trust Agreement, as
applicable.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon an event of default with respect
to the underlying securities. The holders of a majority in aggregate outstanding
principal amount of the Junior Subordinated Debentures may annul such
declaration and waive the default if the default (other than the non-payment of
the principal of the Junior Subordinated Debentures which has become due solely
by such acceleration) has been cured and a sum sufficient to pay all
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matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
If an event of default with respect to the underlying securities shall have
occurred and be continuing and shall be attributable to the failure of W.R.
Berkley to pay principal of or interest on the Junior Subordinated Debentures on
the due date, a holder of the underlying securities may institute a legal
proceeding directly against W.R. Berkley for enforcement of payment to such
holder of the principal of (or premium, if any) or interest on such Junior
Subordinated Debentures having a principal amount equal to the liquidation
amount of the underlying securities of such holder (a "Direct Action").
Notwithstanding any payments made to a holder of underlying securities by W.R.
Berkley in connection with a Direct Action, W.R. Berkley shall remain obligated
to pay the principal of or interest on the Junior Subordinated Debentures, and
W.R. Berkley shall be subrogated to the rights of the holder of such underlying
securities with respect to payments on the underlying securities to the extent
of any payments made by W.R. Berkley to such holder in any Direct Action.
Redemption and Advancement of Maturity of the Underlying Securities
W.R. Berkley has the right to prepay the Junior Subordinated Debentures,
(i) in whole or in part, on or after December 15, 2006, at a prepayment price
(the "Optional Prepayment Price") equal to the outstanding principal amount of
the Junior Subordinated Debentures to be redeemed, plus accrued interest thereon
to the date of prepayment and (ii) in whole but not in part, at any time, upon
the occurrence of a Special Event, at the Special Event Prepayment Price (as
such terms are defined herein).
W.R. Berkley has the right to terminate the underlying securities issuer at
any time and, after satisfaction of liabilities to creditors as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the underlying securities in liquidation of the underlying
securities issuer. The exercise of such right is subject to W.R. Berkley having
received an opinion of counsel to the effect that such distribution will not be
a taxable event to holders of underlying securities for United States federal
income tax purposes. In the event that Junior Subordinated Debentures are
distributed to the trust in exchange for the underlying securities, such
distribution will not cause the certificates to be redeemed. The underlying
securities issuer will hold the Junior Subordinated Debentures for the benefit
of the holders of the underlying securities in accordance with the terms of the
Underlying Securities Trust Agreement.
If a Tax Event (as defined herein) occurs, then W.R. Berkley will have the
right (i) prior to the termination of the Underlying Securities Issuer, to
advance the stated maturity date of the Junior Subordinated Debentures to the
minimum extent required, but not less than 30 years from the date of original
issuance thereof, or (ii) to terminate the underlying securities issuer (if not
previously terminated) and advance the stated maturity date of the Junior
Subordinated Debentures to the minimum extent required, but not less than 40
years from the date of original issuance thereof, in each case such that in the
opinion of counsel to W.R. Berkley experienced in such matters, after advancing
the maturity date, interest paid on the Junior Subordinated Debentures will be
deductible for federal income tax purposes (the action referred to in either
clause (i) or (ii) above being referred to as a "Tax Event Maturity
Advancement").
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If a Tax Event occurs and in the opinion of counsel to W.R. Berkley
experienced in such matters, there would be in all cases, after effecting a Tax
Event Maturity Advancement, be more than an insubstantial risk that an Adverse
Tax Consequence (as defined herein) would continue to exist, or, if an
Investment Company Event (as defined herein) occurs, then W.R. Berkley shall
have the right, within 90 days following the occurrence of such Tax Event or
Investment Company Event, as the case may be, to redeem the Junior Subordinated
Debentures in whole (but not in part) at a prepayment price (the "Special Event
Prepayment Price") equal to the greater of (i) 100% of the principal amount of
such Junior Subordinated Debentures or (ii) the sum, as determined by a
quotation agent, of the present values of the remaining scheduled payments of
principal and interest thereon to December 15, 2006, the first date on which the
Junior Subordinated Debentures are subject to optional prepayment, discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case,
accrued interest thereon to the date of prepayment and therefore to cause a
mandatory redemption of the underlying securities prior to their stated maturity
date (the circumstances under which W.R. Berkley has the right to so redeem the
Junior Subordinated Debentures in connection with a Tax Event being referred to
herein as a "Conditional Tax Redemption Event").
A "Tax Event" means the receipt by W.R. Berkley and the underlying
securities issuer of an opinion of counsel to W.R. Berkley experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is announced
on or after the date of issuance of the underlying securities under the
Underlying Securities Trust Agreement, or as a result of a final determination,
as evidenced by the execution of a Form 870 AD, arising from an audit or
examination by the Internal Revenue Service, there is more than an insubstantial
risk that (i) the underlying securities issuer is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by W.R. Berkley on the Junior Subordinated Debentures is
not, or within 90 days of such opinion, will not be, deductible by W.R. Berkley,
in whole or in part, for United States federal income tax purposes or (iii) the
underlying securities issuer is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges (each of the circumstances referred to in clauses
(i), (ii) and (iii) being referred to herein as an "Adverse Tax Consequence").
A "Special Event" means a Conditional Tax Redemption Event, or an
Investment Company Event, as the case may be.
An "Investment Company Event" means that W.R. Berkley shall have received
an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), to
the effect that, as a result of the occurrence of a change in law or regulation
or a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, there is
more than insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, which change in law becomes effective on or after December 20,
1996.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual 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 prepayment date plus 0.50%.
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"Additional Sums" means the additional amounts as may be necessary in order
that the amount of distributions then due and payable by the underlying
securities issuer on the outstanding underlying securities and Common Securities
shall not be reduced as a result of any additional taxes, duties and other
governmental charges to which the underlying securities issuer has become
subject as a result of a Tax Event.
If the underlying securities issuer is required to pay any additional
taxes, duties or other governmental charges as a result of a Tax Event, W.R.
Berkley will pay as additional amounts on the Junior Subordinated Debentures,
the Additional Sums.
Underlying Securities Guarantee
Under a guarantee (the "underlying securities Guarantee"), W.R. Berkley has
agreed to pay in full on a subordinated basis, to the holders of the underlying
securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the underlying securities issuer may have or assert other than
the defense of payment. The following payments with respect to the underlying
securities, to the extent not paid by or on behalf of the underlying securities
issuer (the "Guarantee Payments"), will be subject to the underlying securities
Guarantee: (i) any accumulated and unpaid distributions required to be paid on
the underlying securities, to the extent that the underlying securities issuer
has funds on hand legally available therefor at such time, (ii) the applicable
redemption price with respect to underlying securities called for redemption, to
the extent that the underlying securities issuer has funds on hand legally
available therefor at such time, or (iii) upon a voluntary or involuntary
termination and liquidation of the underlying securities issuer, the lesser of
(a) the aggregate of the liquidation amount plus accumulated and unpaid
distributions on the underlying securities and (b) the amount of assets of the
underlying securities issuer remaining available for distribution to holders of
underlying securities. W.R. Berkley's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by W.R. Berkley to the
holders of the underlying securities or by causing the underlying securities
issuer to pay such amounts to such holders.
The underlying securities Guarantee will rank subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided therein.
Because W.R. Berkley is a holding company, the right of W.R. Berkley to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent W.R. Berkley may
itself be recognized as a creditor of that subsidiary. Accordingly, W.R.
Berkley's obligations under the underlying securities Guarantee will be
effectively subordinated to all existing and future liabilities of W.R.
Berkley's subsidiaries, and claimants should look only to the assets of W.R.
Berkley for payments thereunder. The underlying securities Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of W.R.
Berkley, including Senior Indebtedness, whether under the Indenture, any other
indenture that W.R. Berkley may enter into in the future or otherwise.
W.R. Berkley will, through the underlying securities Guarantee, the
Underlying Securities Trust Agreement, the Junior Subordinated Debentures and
the Indenture, taken together, fully, irrevocably and unconditionally guarantee
all of the underlying securities issuer's obligations under the underlying
securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the underlying securities issuer's
obligations under the underlying securities.
Junior Subordinated Debentures
The assets of the underlying securities issuer consist of the aggregate
principal amount of the Junior Subordinated Debentures issued by W.R. Berkley.
The Junior Subordinated Debentures
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bear interest at the annual rate of 8.197% of the principal amount thereof,
payable semi-annually in arrears on June 15th and December 15th of each year
(each, an "Interest Payment Date"). Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of 8.197%
thereof, compounded semi-annually. The term "interest," as used herein, shall
include semi-annual interest payments, interest on semi-annual interest payments
not paid on the applicable Interest Payment Date. The Junior Subordinated
Debentures will mature on December 15, 2045.
The Junior Subordinated Debentures are unsecured, subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of W.R. Berkley, the holders of Senior Indebtedness will
first be entitled to receive payment in full before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or interest in respect of the Junior
Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Indebtedness, or an
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Senior Indebtedness" shall mean all any obligation of, or any obligation
guaranteed by, W.R. Berkley, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, unless the terms thereof
specifically provide that it is not superior in right of payment to the Junior
Subordinated Debentures, and any deferrals, renewals or extensions of such
Senior Indebtedness.
By reason of such subordination, in the event of an insolvency, creditors
of W.R. Berkley who are holders of Senior Indebtedness, as well as certain
general creditors of W.R. Berkley, may recover more, ratably, than the holders
of the Junior Subordinated Debentures. Additionally, the holders of Junior
Subordinated Debentures will be structurally subordinated to the creditors of
W.R. Berkley's subsidiaries. The Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by W.R. Berkley.
Extension Periods
So long as no event of default with respect to the underlying securities
has occurred and is continuing, W.R. Berkley will have the right under the
Indenture at any time during the term of the Junior Subordinated Debentures to
defer the payment of interest at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the stated maturity date of the Junior Subordinated Debentures. At
the end of such Extension Period, W.R. Berkley must pay all interest then
accrued and unpaid (together with interest thereon at the annual rate of 8.197%,
compounded semi-annually, to the extent permitted by applicable law). During an
Extension Period, interest will continue to accrue and holders of Junior
Subordinated Debentures (and holders of the underlying securities while the
underlying securities are outstanding) will be
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required to accrue interest income for United States federal income tax purposes
prior to the receipt of cash attributable to such income.
Prior to the termination of any such Extension Period, W.R. Berkley may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the stated maturity date of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all amounts
then due on any interest payment date, W.R. Berkley may elect to begin a new
Extension Period, subject to the above requirements. No interest shall be due
and payable during an Extension Period, except at the end thereof. W.R. Berkley
must give the Underlying Securities Property Trustee, the administrative
trustees and the Debenture Trustee notice of its election of any Extension
Period (or an extension thereof) at least five Business Days prior to the
earlier of (i) the date the distributions on the underlying securities would
have been payable except for the election to begin or extend such Extension
Period or (ii) the date the administrative trustees are required to give notice
to any securities exchange or to holders of the underlying securities of the
record date or the date such distributions are payable, but in any event not
less than five Business Days prior to such record date. The Debenture Trustee
shall give notice of W.R. Berkley's election to begin or extend a new Extension
Period to the holders of the underlying securities. There is no limitation on
the number of times that W.R. Berkley may elect to begin an Extension Period.
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DESCRIPTION OF THE CERTIFICATES
General
The certificates will be denominated and distributions on them will be
payable in U.S. dollars. The certificates 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 of the certificates. The property of the trust will be held for the benefit
of the holders of the certificates by the trustee.
The certificates will be issued, maintained and transferred on the
book-entry records of DTC and its participants in denominations of $25.
The certificates will each initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by DB Depositor Inc., the "Clearing Agency"),
except as provided below. DB Depositor Inc. has been informed by DTC that DTC's
nominee will be CEDE & Co. No holder of any such certificate will be entitled to
receive a certificate representing such person's interest, except as set forth
below under "--Definitive Certificates." Unless and until definitive
certificates are issued under the limited circumstances described herein, all
references to actions by certificateholders with respect to any such
certificates shall refer to actions taken by DTC upon instructions from its
participants. See "--Definitive Certificates" below and "Description of 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 certificates are credited. Additionally,
DTC will take such actions with respect to specified Voting Rights only at the
direction and on behalf of participants whose holdings of such certificates
evidence such specified Voting Rights. DTC may take conflicting actions with
respect to Voting Rights, to the extent that participants whose holdings of
certificates evidence such Voting Rights, authorize divergent action.
Definitive Certificates
Definitive certificates will be issued to certificate owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) DB
Depositor Inc. advises the trustee in writing that DTC is no longer willing or
able to discharge properly its responsibilities as Clearing Agency with respect
to the certificates and DB Depositor Inc. is unable to locate a qualified
successor or (ii) DB Depositor Inc., 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
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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:
. 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 certificates interest accrued
and unpaid.
. The principal amount 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 of the certificateholders; and
(b) second, to the holders of the certificates, the outstanding
principal amount of the certificates.
Notwithstanding the foregoing, in the event that the underlying securities
are redeemed, prepaid or liquidated in whole or in part for any reason, or at
their maturity, Available Funds will be allocated in the following order of
priority: (1) to the trustee, reimbursement for any extraordinary expenses
incurred by the trustee in accordance with the trust agreement pursuant to
instructions of not less than 100% of the certificateholders, (2) to the holders
of the certificates, an amount equal to the outstanding principal amount thereof
plus accrued and unpaid interest thereon. Upon the cessation of W.R. Berkley to
file periodic reports required under the Exchange Act, any funds received in
connection with a sale of underlying securities will be allocated in the manner
described below (see "--Failure by W.R. Berkley to File Periodic Reports" in
this prospectus supplement).
"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 distribution 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 distribution 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" in this prospectus supplement) of the trustee may be
reimbursed out of Available Funds before any distributions to certificateholders
are made.
All amounts received on or with respect to the underlying securities that
are not distributed to certificateholders on the date of receipt shall be
invested by the trustee in Eligible Investments. Income on Eligible Investments
will constitute property of the trust and will be included in Available Funds.
"Eligible Investments" means investments which are consistent with the trust's
status as a grantor trust for federal income tax purposes and acceptable to the
rating agencies as being consistent with the ratings of such certificates, as
specified in the trust agreement.Generally, Eligible Investments must be limited
to obligations or securities that mature not later than the Business Day prior
to the next succeeding distribution date.
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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) a semi-annual distribution of interest on June
15th and December 15th of each year, commencing June 15, 2002, and (ii) a
distribution of principal on December 15, 2045, or if any such day is not a
Business Day, the next succeeding Business Day, or upon early redemption. 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.
Deferral of Interest
Distributions of interest on the certificates may be deferred as a result
of the deferral of payments on the Junior Subordinated Debentures held by the
underlying securities issuer. Distributions on the Junior Subordinated
Debentures may be deferred by W.R. Berkley for up to ten consecutive semiannual
interest periods (such deferral period, the "Extension Period") provided that no
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Extension Period extends beyond December 15, 2045. During any Extension Period,
interest on the Junior Subordinated Debentures, and consequently distributions
on the underlying securities and interest on the certificates, will continue to
accrue (and the amount of distributions to which holders of the Junior
Subordinated Debentures and the underlying securities, and consequently the
certificateholders, will continue to accumulate) at the applicable rate,
compounded semi-annually.
Additional Underlying Securities and Certificates
From time to time hereafter, additional underlying securities may be sold
to the trust, in which case additional certificates will be issued. Any such
additional certificates will rank pari passu with the certificates described
herein.
Redemption of Certificates upon Redemption of Underlying Securities
Upon receipt by the trustee of a notice that all or a portion of the
underlying securities are to be redeemed, the trustee will select by lot an
equal amount of certificates for redemption and establish the date such
certificates are to be redeemed. Notice of such redemption will be given by the
trustee to the registered certificateholders at least 15 days before the
redemption date by mail to each registered certificateholder at such registered
holder's last address on the register maintained by the trustee; provided,
--------
however, that the trustee will not be required to give any notice of redemption
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prior to the third Business Day after the date it receives notice of such
redemption.
The holder of a certificate which is redeemed will receive, on the
redemption date, a payment equal to its pro rata share of the distributions made
on the underlying securities pursuant to a Special Event Redemption as set forth
herein.
The Call Warrant; Optional Call
The certificates are subject to call warrants and may be purchased from
certificateholders in the future by the call warrant holder at a call price
equal to 100% of the outstanding principal amount of the certificates. The call
warrants represent the rights held by the call warrant holder to purchase from
certificateholders the certificates in the future. On any business day on or
after
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December 15, 2006 (or after the announcement of any redemption or other
unscheduled payment or sale of the underlying securities) that the call warrant
holder designates as a call date, the call warrant holder may exercise its
option to purchase from certificateholders, in whole but not in part, the
certificates at par value plus any accrued and unpaid interest to the call date;
provided that the call warrant holder pays the purchase price on or prior to the
- -------- ----
call date. The call warrant holder has the option of paying the purchase price
on or prior to the designated call date. If the call warrant holder does not pay
the purchase price on or prior to the call date, the certificates will not be
purchased from certificateholders at that time. If the call warrant holder
exercises its option to purchase the certificates and elects to pay the purchase
price on or prior to the designated call date, the call warrant holder will
become the holder of the certificates. The call warrants are not being offered
by this prospectus supplement. DB Depositor Inc., or an affiliate, will be the
initial call warrant holder, but the call warrants are transferable. Unlike a
redemption right, the issuer of the certificates is not repurchasing the
certificates pursuant to the call warrants.
Default on Underlying Securities
If an event of default with respect to the underlying securities 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 event of default with respect to the underlying securities,
(iii) the amount of distributions or the liquidation amount in default, (iv) the
certificates affected by the event of default with respect to the underlying
securities, and (v) any other information which the trustee may deem
appropriate.
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
interest payment date) as a result of an event of default with respect to the
underlying securities (including from the sale thereof), the trustee will
promptly give notice as provided in the trust agreement to DTC, or for any
certificates which are not then held by DTC or any other depository, directly to
the registered holders of the certificates then outstanding and unpaid. Such
notice will state that 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).
Distributions and liquidation amount payments on the underlying securities
are payable solely by the underlying securities issuer. W.R. Berkley is subject
to laws permitting bankruptcy, liquidation, moratorium, reorganization or other
actions which, in the event of financial difficulties of W.R. Berkley, could
result in delays in payment, partial payment or non-payment of the certificates
relating to the underlying securities.
Liquidation of Underlying Securities Issuer
W.R. Berkley has the right to liquidate the underlying securities Issuer at
any time and, after satisfaction of liabilities to creditors as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the underlying securities in exchange for a like amount of the
underlying securities. The exercise of this right is subject to the receipt by
W.R. Berkley of an opinion of counsel to the effect that such distribution will
not be a taxable event to holders of the underlying securities for United States
federal income tax purposes.
In the event the Junior Subordinated Debentures are distributed to the
trust as a result of the liquidation of the underlying securities issuer, such
distribution will not cause the certificates to be redeemed. Instead, the trust
will hold the Junior Subordinated Debentures for the benefit of the holders of
the certificates in accordance with the terms of the trust agreement.
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Failure by W.R. Berkley to File Periodic Reports
If W.R. Berkley ceases to file the periodic reports required under the
Exchange Act, DB Depositor Inc. 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 extraordinary expenses incurred by the trustee in
accordance with the trust agreement pursuant to instructions of not less than
100% of the certificateholders and (2) to the holders of the certificates.
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DESCRIPTION OF THE TRUST AGREEMENT
General
The certificates will be issued pursuant to the trust agreement, a form of
which is filed as an exhibit to the registration statement. A Current Report on
Form 8-K relating to the certificates containing a copy of the trust agreement
as executed will be filed by DB Depositor Inc. with the Securities and Exchange
Commission following the issuance and sale of the certificates. The assets of
the trust created under the trust agreement, including the Series 2002-1
supplement, will consist of:
. the deposited assets; and
. all payments on or collections in respect of the deposited assets due
after the date of issuance of the certificates.
On June 15, 2002, the trustee will pay DB Depositor Inc. an amount equal to
distributions accrued on the underlying securities from December 15, 2001 to,
but excluding, the original issue date of the certificates. If the depositor is
not paid such amount on such date, it will have a claim for such amount. In
satisfaction of that claim, the depositor will receive its pro rata share, based
on the ratio the amount owed the depositor bears to all amounts owed on the
certificates in respect of accrued interest, of any proceeds from the recovery
on the underlying securities.
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
The Bank of New York, a New York corporation, (or any successor trustee
appointed by an officer of DB Depositor Inc.) will act as trustee for the
certificates and the trust pursuant to the trust agreement. The trustee's
offices are located at 5 Penn Plaza, 13/th/ Floor, New York City, New York 10001
and its telephone number is 212-896-7126.
Pursuant to the trust agreement, the trustee shall be entitled compensation
for its services. The trustee will be entitled to payment of its fees by the
depositor and not from trust property.
The trust agreement will provide that the trustee and any director,
officer, employee or agent of the trustee will be indemnified by the trust and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the trust agreement or the
certificates or the performance of the trustee's duties under the trust
agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the trustee under the trust agreement or (ii) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
trustee's duties under the trust agreement or as a result of a breach, or by
reason of reckless disregard, of the trustee's obligations and duties under the
trust agreement.
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Events of Default
An event of default with respect to the certificates under the trust
agreement will consist of:
. a default in the payment of any distribution on any underlying security
after the same becomes due and payable (subject to any applicable grace
period); and
. a default in the payment of the liquidation amount of or any installment
of the liquidation amount of any underlying security when the same
becomes due and payable.
The trust agreement will provide that, within 30 days after the occurrence
of an event of default in respect of the certificates, the trustee will give to
the holders of the 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 liquidation amount of or premium, if
any, or distribution on any of the underlying securities, the trustee will be
protected in withholding the 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 to the trustee written notice of a continuing breach, (ii) the holders
of certificates of that series evidencing not less than the "Required
Percentage--Remedies" specified in the applicable series supplement of the
aggregate voting rights of such series have requested in writing that the
trustee institute such proceeding in its own name as trustee, (iii) the holder
or holders have offered the trustee reasonable indemnity, (iv) the trustee has
for 15 days failed to institute such proceeding and (v) no direction
inconsistent with that written request has been given to the trustee during such
15-day period by the holders of certificates of that series evidencing not less
than the Required Percentage. "Required Percentage--Remedies" shall mean 66-2/3%
of the voting rights.
Voting Rights of the Certificates
The holders of the certificates will have 100% of all Voting Rights. The
Voting Rights will be allocated in proportion to the respective principal
balances of the then outstanding 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 the 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
Delaware Trustee or the underlying securities issuer for its consent to any
amendment, modification or waiver of the underlying securities, or any other
document thereunder or relating thereto, or receives any other solicitation for
any action with respect to the underlying securities, the trustee shall mail a
notice of such proposed amendment, modification, waiver or solicitation to each
certificateholder of record as of such date. The trustee shall request
instructions from the certificateholders as to whether or not to consent to or
vote to accept such amendment, modification, waiver or solicitation. The trustee
shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative certificate principal amounts) as the
certificates 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,
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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
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demand to accelerate the underlying securities, except in the event of an event
of default with respect to the underlying securities or an event which with the
passage of time would become an event of default with respect to the underlying
securities and with the unanimous consent of all holders of outstanding
certificates 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 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
liquidation 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, either of the Underlying Securities Property Trustee to
declare the unpaid liquidation amount of the underlying securities and any
accrued and unpaid distributions 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 accompanying 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.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the material federal income
tax consequences of the ownership and disposition of the certificates and is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated and proposed thereunder (the "Regulations"),
judicial decisions and published administrative rulings and pronouncements of
the Internal Revenue Service (the "Service"), all as in effect on the date
hereof. Legislative, judicial or administrative changes or interpretations
hereafter enacted or promulgated could alter or modify the analysis and
conclusions set forth below, possibly on a retroactive basis. This 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 certificates
as part of a straddle, hedging or conversion transaction) or to a person or
entity holding an interest in a holder (e.g., as a stockholder, partner, or
holder of an interest as a beneficiary). This summary assumes that the
certificates will be held by the holders thereof as capital assets as defined in
the Code and, except as discussed in "--Possible Alternative Treatment of the
Underlying Securities and Certificate Owners" in this prospectus supplement,
describes the consequences of certificates that represent an interest in
securities that are properly characterized as debt for federal income tax
purposes. The discussion is generally limited to initial purchasers of the
certificates. No information is provided herein with respect to any foreign,
state or local tax consequences of the ownership and disposition of the
certificates or any federal alternative minimum tax or estate and gift tax
considerations. Except 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 (as defined below).
Prospective investors are therefore urged to consult their own tax advisors
with regard to the federal tax consequences of purchasing, holding and disposing
of the certificates in their own particular circumstances, as well as the tax
consequences arising under the federal alternative minimum tax and estate and
gift tax laws and the laws of any state, foreign country or other jurisdiction
to which they may be subject.
For purposes of this discussion, "U.S. Holder" means a holder that is a
citizen or resident of the United States, a corporation (or other entity treated
as a corporation 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, a trust with respect to which a court in the
U.S. is able to exercise primary authority over its administration and one or
more U.S. persons have the authority to control all of its substantial
decisions, or a partnership to the extent the interests therein are beneficially
owned by any of the persons described above. 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
trustee intends to take the position on behalf of the trust that, although it
can provide no assurance, the trust will constitute 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
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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 certificateholders as the partners in
such a tax partnership according to their respective interests therein. The
amount of income reportable by the certificate owners as partners in such a tax
partnership could differ from that reportable by the certificate owners 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
certificate owner 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
certificate owners. Certificate owners should consult their own tax advisors
regarding the effect upon them any re-characterization may have.
Because the trustee will treat the trust as a grantor trust for federal
income tax purposes, it 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 certificates
represent interests in, a grantor trust for federal income tax purposes.
Income of U.S. Certificate Owners
The purchase of a certificate, for federal income tax purposes, represents
the purchase of an undivided interest in the underlying securities. The purchase
price allocable to the interest in the underlying securities should equal such
interest's fair market value (the "Allocated Purchase Price"). To the extent
that the portion of the purchase price of a 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 liquidation amount balance of the underlying
security allocable to the certificate, such interest in the underlying security
will have been acquired at a premium or discount, as the case may be. To the
extent that the Allocated Purchase Price is less than the liquidation amount
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 liquidation amount 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." The
remainder of this discussion assumes that the purchase price of the 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 certificates is unclear. The certificates represent an interest
in 100% of the liquidation amount of the underlying securities and a pro rata
portion of the distribution payable on the underlying securities. In effect, a
portion of the distributions 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 certificate owner such holder's share of
trust income. Assuming the certificates are purchased at par and subject to the
discussion in the paragraph below, the trust intends to take the position that
the 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 distribution income earned by the trust with
respect to the underlying
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securities. If, however, the Service successfully challenges this position, the
certificates would represent an interest in securities having original issue
discount and the holders would be required to accrue income based upon a
constant yield method without respect to the receipt of cash regardless of their
normal method of tax accounting. Holders of certificates other than a holder who
purchased the certificates upon original issuance may be considered to have
acquired their undivided interests in the underlying securities with original
issue discount or bond premium. Such holders are advised to consult their own
tax advisors as to the tax consequences of the acquisition, ownership and
disposition of the certificates.
Payment of distributions on the underlying securities may be deferred if
W.R. Berkley defers the payment of interest on the Junior Subordinated
Debentures. W.R. Berkley, in the offering materials pursuant to which the
underlying securities were issued, expressed the view that the underlying
securities were not issued with original issue discount because the likelihood
of its exercising the right to defer interest on the Junior Subordinated
Debentures was remote. It is unclear whether the remoteness of the exercise by
W.R. Berkley of its right to defer interest on the Junior Subordinated
Debentures must be retested at the time the certificates are issued. The trust
intends to treat the certificates as representing an interest in debt securities
which were not issued with original issue discount based upon the assumption
that the likelihood that W.R. Berkley will exercise its rights to defer
interest, if subject to retesting at the time the certificates are issued, is
still remote. If the Service were to successfully challenge this treatment (or
the trust's initial assertion that the exercise of the deferral right was
remote) the certificates would be subject to the original issue discount rules.
Similarly, if W.R. Berkley does exercise its right to defer interest payments on
the Junior Subordinated Debentures, the certificates will represent an interest
in debt securities with original issue discount at all times after the beginning
of the first Extension Period. If the original issue discount rules apply to the
certificates, in such case, all the interest payments thereafter payable will be
treated as original issue discount. If the payments were treated as original
issue discount (either because W.R. Berkley exercises the right to defer
interest payments or because the exercise of such right was not remote at the
time of issuance), holders must include that discount in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting, and any holders who dispose of
certificates prior to the record date for payment of distributions thereon
following such deferral period will include original issue discount in gross
income but will not receive any cash related thereto from the trust. The amount
of original issue discount that accrues in any semi-annual period will
approximately equal the amount of the interest that accrues in that semi-annual
period at the stated interest rate. In the event that the interest payment
period is extended, holders will accrue original issue discount approximately
equal to the amount of the interest payment due at the end of the extended
interest payment period on an economic accrual basis over the length of the
extended interest period. A holder's tax basis for the certificates will be
increased by original issue discount accrued into income, and decreased by cash
distributions of interest.
Bond Premium. To the extent a holder is deemed to have purchased its pro
------------
rata undivided interest in the underlying securities at a premium (i.e., the
----
purchase price of a certificate allocable to the underlying security exceeds the
total amount payable on the underlying security to the 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
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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 such
holder's share of fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
Sale or Exchange by Holders
If a certificate is sold, exchanged or redeemed, 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,
exchange, or redemption and its adjusted basis in its certificate. A holder's
adjusted basis in a certificate will equal its cost, increased by any unpaid
original issue discount includible in income with respect to the certificate
prior to its sale, and reduced by any principal payments previously received
with respect to the certificate and any bond premium amortization previously
applied to offset interest income. The gain or loss recognized on the sale,
exchange or redemption of a certificate will generally be capital gain or loss
if the certificate was held as a capital asset.
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
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 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:
. is signed under penalties of perjury by the beneficial owner of the
certificate,
. certifies that such owner is not a U.S. Holder, and
. 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
beneficial owner must inform the Withholding Agent within 30 days of such change
and furnish a new W-8BEN. A Non-U.S. certificate owner who is not an individual
or corporation (or an entity treated as a corporation for federal income tax
purposes) holding the certificates on its own behalf may have substantially
increased reporting requirements. In particular, in the case of 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 certificate is effectively connected with the conduct of a U.S. trade or
business would generally be taxed as if
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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 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 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 W.R. Berkley or, (b) at the time of such individual's
death, payments in respect of the 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 certificate to a registered owner who is not an "exempt recipient"
and who fails to provide certain identifying information (such as the registered
owner's taxpayer identification number) in the manner required. Generally,
individuals are not exempt recipients whereas corporations and certain other
entities are exempt recipients. Payments made in respect of a holder must be
reported to the Service, unless the holder is an exempt recipient or otherwise
establishes an exemption. Compliance with the identification procedures
(described in the preceding section) would establish an exemption from backup
withholding for a Non-U.S. certificate owner who is not an exempt recipient.
In addition, upon the sale of a certificate to (or through) a "broker," the
broker must 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 certificates.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, potential holders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the certificates.
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Possible Alternative Treatment of the Underlying Securities and Certificate
Owners
If the Service successfully asserts that the underlying securities do not
represent debt instruments for federal income tax purposes, then a certificate
owner's interest in the underlying securities may be treated as representing an
interest in the underlying securities issuer's stock. Treatment of the
underlying securities as stock could have adverse tax consequences to certain
holders. For example, a Non-U.S. certificate owner might lose the benefit of
treating the income on the certificate as interest not subject to federal
withholding tax.
The underlying securities issuer received an opinion of counsel that the
underlying securities should constitute indebtedness for federal income tax
purposes and, if correct, an exercise by the trust of its right to shorten the
maturity of the certificates would not be a taxable event to the certificate
owners. Certificate owners should be aware, however, that the exercise by the
trust of its right to shorten the maturity of the certificates would be a
taxable event to certificate owners for federal income tax purposes if the
underlying securities are treated as equity for such purposes prior to their
maturity being shortened, assuming that the underlying securities of shortened
maturity are treated as debt for such purposes.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on (a) an employee benefit plan (as
defined in Section 3(3) of ERISA, (b) a plan described in Section 4975(e)(1) of
the Code or (c) any entity whose underlying assets are treated as assets of any
such plan by reason of such plan's investment in the entity (each, a "Plan").
In accordance with ERISA's fiduciary standards, before investing in a
certificate, a Plan fiduciary should determine whether such an investment is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its investment policy and the composition of its portfolio. Other
provisions of ERISA and the Code prohibit certain transactions (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 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 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 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 certificates will meet the
criteria of the "publicly offered securities" exemption. There are no
restrictions imposed on the transfer of certificates; the 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 underwriter
has undertaken to sell the certificates to a minimum of 400 beneficial owners.
See "Listing" in this prospectus supplement.
If the 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 underwriter, the trustee, the
Underlying Securities Delaware Trustee and the underlying securities issuer
might constitute non-exempt prohibited transactions with respect to a Plan
holding a 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
S-37
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-38
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
between DB Depositor Inc. and Deutsche Banc Alex. Brown Inc. (an affiliate of DB
Depositor Inc.), DB Depositor Inc. has agreed to sell and Deutsche Banc Alex.
Brown Inc., has agreed to purchase, the certificates.
DB Depositor Inc. has been advised by the underwriter that it proposes to
offer the certificates from time to time in negotiated transactions or otherwise
at varying prices to be determined at the time of sale. The underwriter may
effect such transactions by selling certificates to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the underwriter and any purchasers of
certificates for whom they may act as agents. The underwriter and any dealers
that participate with the underwriter in the distribution of certificates may be
deemed to be underwriters, and any profit on the resale of certificates by them
may be deemed to be underwriting discounts, or commissions under the Securities
Act.
The underwriting agreement provides that DB Depositor Inc. will indemnify
the underwriter against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the underwriter may be
required to make in respect thereof.
In connection with the sale of the certificates, the Securities and
Exchange Commission rules permit the underwriter to engage in transactions that
stabilize the price of the certificates. These transactions may include
purchases for the purpose of fixing or maintaining the price of the
certificates. The underwriter may create a short position in the certificates in
connection with the offering. That means they sell a larger number of the
certificates than is shown on the cover page of this prospectus supplement. If
it creates a short position, the underwriter may purchase certificates in the
open market to reduce the short position. If the underwriter purchases the
certificates to stabilize the price or to reduce their short position, the price
of the certificates could be higher than it might be if they had not made such
purchases. The underwriter makes no representation or prediction about any
effect that these purchases may have on the price of the certificates. The
underwriter may suspend any of these activities at any time.
In addition to stabilization transactions, the underwriter may exchange a
certain percentage of the certificates constituting an unsold allotment of the
certificates for a like percentage of the deposited assets in accordance with
the Series 2002-1 supplement to the trust agreement.
The underwriter may also impose a penalty bid on certain dealers and
selling group members. This means that if the underwriter purchases certificates
in the open market to reduce the underwriter's short position or to stabilize
the price of the certificates, they may reclaim the amount of the selling
concession from the underwriter or selling group members who sole those
certificates as part of this offering.
S-39
LISTING
The certificates are a new issue of securities with no established trading
market. It is expected that the certificates will be approved for listing,
subject to official notice of issuance, on the New York Stock Exchange ("NYSE").
The certificates will be eligible for trading on the NYSE within the 30-day
period after the initial delivery thereof but it is not likely that substantial
amounts of the certificates will be traded on the NYSE. In order to meet one of
the requirements for listing the certificates on the NYSE, the underwriter has
undertaken to sell the certificates to a minimum of 400 beneficial owners. The
underwriter has told the depositor that it presently intends to make a market in
the certificates prior to commencement of trading on the NYSE, as permitted by
applicable laws and regulations. The underwriter is not obligated, however, to
make a market in the certificates. Any market making by the underwriter may be
discontinued at any time at the sole discretion of the underwriter. No assurance
can be given as to whether a trading market for the certificates will develop or
as to the liquidity of any trading market.
RATINGS
It is a condition to the issuance of the certificates that the certificates
be rated not lower than "BBB-" by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") and "Baa3" by Moody's
Investors Service, Inc. ("Moody's"). The ratings address the likelihood of the
receipt by the certificateholders of payments required under the trust
agreement, and are based primarily on the credit quality of the underlying
securities, as well as on the relative priorities of the certificateholders of
the certificates with respect to collections and losses with respect to the
deposited assets. The rating on the certificates does not, however, constitute a
statement regarding the occurrence or frequency of redemptions or prepayments
on, or extensions of the maturity of, the deposited assets, the corresponding
effect on yield to investors, or whether investors in the 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.
DB Depositor Inc. has not requested a rating on the certificates by any
rating agency other than Standard & Poor's and Moody's. However, there can be no
assurance as to whether any other rating agency will rate the certificates, or,
if it does, what rating would be assigned by any such other rating agency. A
rating on the certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the certificates by Standard & Poor's or
Moody's.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon
for DB Depositor Inc. and the underwriter by Sidley Austin Brown & Wood LLP, New
York, New York.
S-40
Prospectus
Dated November 7, 2001
- --------------------------------------------------------------------------------
Trust Certificates
(Issuable in Series)
DB Depositor Inc.
Depositor
- --------------------------------------------------------------------------------
The trust -
. May periodically issue asset-backed certificates in one or more series
with one or more classes; and
. will own -
. a publicly issued security or a pool of securities;
. payments due on those securities; and/or
. other assets described in this prospectus and in the accompanying
prospectus supplement.
The certificates -
. will represent interests in the trust and will be paid only from the
trust assets;
. will be denominated and sold for U.S. dollars or for one or more foreign
or composite currencies and any payments to certificateholders may be
payable in U.S. dollars or in one or more foreign or composite
currencies; and
. will be issued as part of a designated series which may include one or
more classes of certificates and enhancement.
The certificateholders -
. will receive interest and principal payments from the assets deposited
with the trust.
The date of this prospectus is November 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:
. the currency or currencies in which the principal, premium, if any, and
any interest are distributable;
. 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;
. 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;
. the relative rights and priorities of each 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;
. the name of the trustee and the administrative agent, if any, for the
series;
. the Certificate Rate or the terms relating to the applicable method of
calculation thereof;
. the time and place of distribution (a "distribution date") of interest,
premium, if any, and/or principal, if any;
. the date of issue;
. the Final Scheduled Distribution Date, (defined in the prospectus
supplement), if applicable;
. the offering price;
. any exchange, redemption, call, or repurchase terms, whether mandatory
or optional, and any other specific terms of certificates of each series
or class.
See "Description of the Certificates--General" for a listing of other items
that may be specified in the applicable prospectus supplement.
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.
TABLE OF CONTENTS
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement ............................... 1
Where You Can Find More Information ...................................... 2
Incorporation of Certain Documents By Reference .......................... 2
Reports to Certificateholders ............................................ 3
Risk Factors ............................................................. 3
The Depositor ............................................................ 8
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 ....................... 26
Description of the Trust Agreement ....................................... 38
Currency Risks ........................................................... 48
United States Federal Income Tax Consequences ............................ 51
ERISA Considerations ..................................................... 58
Underwriting ............................................................. 61
Legal Matters ............................................................ 62
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
Securities and Exchange Commission or 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.
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 DB Depositor Inc., 31 West 52nd Street, New York,
New York 10019, (212) 250-1869.
2
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable prospectus supplement,
unless and until definitive certificates are issued, unaudited reports
containing information concerning the related trust will be prepared annually by
the related trustee and sent on behalf of the related trust only to Cede & Co.,
as nominee of DTC and registered holder of the certificates. If definitive
certificates are issued, the reports will be prepared by the related trustee and
sent on behalf of the related trust directly to the certificateholders in
accordance with the trust agreement. See "Description of the
Certificates--Global Securities" and "Description of the Trust
Agreement--Reports to Certificateholders; Notices." The reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The depositor, on behalf of each trust, will cause to be
filed with the SEC such periodic reports as are required under the Exchange Act.
The depositor does not intend to send any financial reports to
certificateholders.
References to "U.S. dollars," US$," "dollar" or "$" are to the lawful
currency of the United States.
RISK FACTORS
In connection with an investment in the certificates of any series,
prospective purchasers should consider, among other things, (1) the risk factors
set forth below and (2) any additional risk factors set forth in the applicable
prospectus supplement.
The trust consists of limited assets and payments on the certificates will be
made solely from deposited assets.
The only material assets expected to be in a trust are underlying
securities and any other deposited assets corresponding to the related series
(or class within that series) of certificates being offered. The certificates do
not represent obligations of the depositor, any administrative agent, Deutsche
Banc Alex. Brown Inc. ("DBAB") or any of their respective affiliates and, unless
otherwise specified in the applicable prospectus supplement, are not insured or
guaranteed by the depositor, any administrative agent or DBAB. Accordingly,
certificateholders' receipt of distributions in respect of the certificates will
depend entirely on the performance of and the trust's receipt of payments with
respect to the deposited assets.
The certificates are obligations of the issuing trust and there will be no
recourse to Deutsche Bank AG, the depositor or their affiliates.
The certificates will not represent a recourse obligation of, or interest
in, the depositor, any administrative agent, DBAB, the issuer of the underlying
securities or any of their respective affiliates. The certificates will not be
insured or guaranteed by the depositor, DBAB, Deutsche Bank AG or any of their
respective affiliates. The obligations, if any, of the depositor with respect to
the certificates of any series will only be pursuant to certain limited
representations and warranties with respect to an underlying security or other
deposited assets, and recourse with respect to the satisfaction of the
obligations will be limited to any recourse for a breach of a corresponding
representation or warranty that the depositor may have against the seller of
that underlying security or other deposited assets to the depositor. The
depositor does not have, and is not expected in the future to have, any assets
with which to satisfy any claims arising from a breach of any representation or
warranty.
The certificates may not be a liquid investment.
There can be no assurance that an active public market for any series (or
class within such series) of certificates will develop or, if a public market
develops, as to the liquidity of the trading
3
market for such certificates. DBAB has advised the depositor that it intends to
make a market in the certificates, as permitted by applicable laws and
regulations, after their issuance. DBAB is not obligated, however, to make a
market in the certificates of any series or class within that series and
market-making activity may be discontinued at any time without notice at the
sole discretion of DBAB. If an active public market for the certificates does
not develop or continue, the market prices and liquidity of the certificates may
be adversely affected.
Early payments may leave an investor unable to reinvest in comparable
investments.
The timing of distributions of interest, premium, if any, and principal on
the certificates will be affected by any early redemption, amortization or
prepayment of the related underlying securities. The applicable prospectus
supplement will describe any puts, calls or other mandatory or optional
redemption or early amortization features, any extension of maturity provisions
applicable to those underlying securities.
The timing of distributions on the certificates will also be affected by
any exchange of the related underlying securities pursuant to a tender offer or
otherwise, the manner and priority in which collections from the underlying
securities and any other deposited assets are allocated to each class of that
series and the performance of the related deposited assets. Early payment or
amortization may adversely affect an investor by returning principal to the
investor when prevailing interest rates have declined and reinvestment of such
funds at the rate applicable to the certificates is not possible. These factors
may be influenced by a variety of accounting, tax, economic, social and other
factors. See "Maturity and Yield Considerations."
Extension of maturity may cause illiquidity and loss of more favorable
investment opportunities.
The timing of distributions of interest, premium, if any, and principal of
underlying securities will also be affected by any extension of maturity of the
related underlying securities, which may be caused by, the manner and priority
in which collections from the underlying securities and any other deposited
assets are allocated to each class of that series and the performance of the
related deposited assets. The applicable prospectus supplement will describe any
extension of maturity provisions applicable to the underlying securities.
Extension of maturity prevents an investor from obtaining principal funds at the
originally scheduled maturity date and may prevent an investor from obtaining
favorable reinvestment at a time when prevailing interest rates have risen.
These factors may be influenced by a variety of accounting, tax, economic,
social and other factors. See "Maturity and Yield Considerations."
A change in the characterization of the trust could result in adverse tax
consequences to the certificateholders.
Prospective investors should be aware that no rulings have been sought from
the Internal Revenue Service ("IRS"). If the trust is characterized or treated
as a corporation for federal income tax consequences, among other consequences,
the trust would be subject to federal income tax, and similar state income or
franchise taxes, on its income and distributions to certificateholders would be
impaired. See "United States Federal Income Tax Considerations" in this
prospectus and in the related prospectus supplement.
If the underlying securities represent the obligations of foreign issuers it may
be difficult or impossible to obtain or realize upon judgments against such
obligors and the value of the certificates could be adversely affected.
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
4
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, the certificates could be adversely affected by
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:
. future political and economic developments;
. moratorium on payment or rescheduling of external debts;
. confiscatory taxation;
. imposition of any withholding tax;
. exchange rate fluctuations;
. political or social instability or diplomatic developments; and
. the imposition of additional governmental laws or restrictions.
Risks with respect to currency exchange rates and exchange controls may exist.
The certificates of any given series (or class within such series) may be
denominated in a currency other than U.S. dollars. An investment in a
certificate denominated in a currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a U.S.
dollar-denominated security. These risks include, without limitation, the
possibility of significant changes in rates of exchange between the U.S. dollar
and the currency in which the certificate is denominated and the possibility of
the imposition or modification of foreign exchange controls with respect to that
currency. These risks generally depend on factors over which the depositor has
no control, such as economic and political events and the supply of and demand
for the relevant currencies. In recent years, rates of exchange between the U.S.
dollar and certain currencies have been highly volatile, and such volatility may
be expected in the future. Past fluctuations in any particular exchange rate do
not necessarily indicate, however, fluctuations in the rate that may occur
during the term of any certificate. Depreciation of the currency in which the
certificate is denominated against the U.S. dollar would decrease the effective
yield of the certificate below its applicable interest 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 and the availability of a
currency for making distributions in respect of certificates denominated in that
currency. There can be no assurance that exchange controls will not restrict or
prohibit distributions of principal, premium or interest in any currency in
which a certificate is denominated. 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 the certificate would not be available.
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.
5
The trust may include derivatives which could adversely affect the value of the
certificates.
A trust may include various derivative instruments, including interest
rate, currency and credit swaps, caps, floors, collars and options and
structured securities having embedded derivatives (such as structured notes).
Fluctuations in securities, currency and commodity rates, prices, yields and
returns may have a significant effect on the yield to maturity of derivatives or
the levels of support that derivatives can provide to a trust. In addition,
derivatives may be limited to covering only certain risks. Continued payments on
derivatives may be affected by the financial condition of the counterparties
(or, in some instances, the guarantor). There can be no assurance that
counterparties will be able to perform their obligations. Failure by a
counterparty (or the related guarantor, if any) to make required payments may
result in the delay or failure to make payments on the related securities and
risks. In addition, the notional amounts on which payments are made may vary
under certain circumstances and may not bear any correlation to principal
amounts of the related securities. The applicable prospectus supplement will
identify the material terms, the risks and the counterparty for any derivative
instrument in a trust and will describe the agreement with the counterparty.
There exists a risk of loss if public information not available with respect to
the underlying securities.
A prospective purchaser of certificates should obtain and evaluate the same
information concerning each issuer of underlying securities as it would obtain
and evaluate if it were investing directly in the underlying securities or in
other securities issued by that issuer. The publicly available information
concerning an issuer of underlying securities is important in considering
whether to invest in or sell certificates. To the extent such information ceases
to be available, an investor's ability to make an informed decision to purchase
or sell certificates could be impeded. See "Description of Deposited Assets and
Credit Support--Publicly Available Information."
A reduction or withdrawal of rating could occur which may adversely affect the
value of the certificates.
At the time of issuance, the certificates of a series, or each class of
that series, will be rated in one of the investment grade categories by one or
more nationally recognized rating agencies. The rating agencies may rate a
series or class of certificates on the basis of several factors, including the
related deposited assets, any credit support and the relative priorities of the
certificateholders of that series or class to receive collections from, and to
assert claims against, the trust with respect to those deposited assets and any
credit support. The rating agencies are solely responsible for selecting the
criteria for rating the certificates.
Any rating issued with respect to the certificates is not a recommendation
to purchase, sell or hold a security; the ratings do not comment on the market
price of the certificates or their suitability for a particular investor. There
can be no assurance that the ratings will remain for any given period of time or
that any rating 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
that rating may have an adverse effect on the market price of the certificates.
The trustees do not actively manage the trust for investors.
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. Except as indicated below, a certificateholder will not be able to
dispose of or take other actions with respect to any deposited assets. Under
certain circumstances described in the applicable prospectus supplement, the
trustee
6
will, or will at the direction of a specified percentage of certificateholders
of the relevant series, dispose of, or take certain other actions in respect of,
the deposited assets. In certain limited circumstances, such as a mandatory
redemption of underlying securities or the exercise by a third party of the
right to purchase underlying securities (as described below under "Description
of Deposited Assets and Credit Support--Principal Terms of Underlying
Securities"), the trustee may dispose of the deposited assets prior to maturity.
The applicable prospectus supplement will describe the particular circumstances,
if any, under which a deposited asset may be disposed of prior to maturity.
Optional Exchange for deposited assets will generally be unavailable.
Although the applicable prospectus supplement for a series of certificates
may designate that series as an Exchangeable Series and may state that a
certificateholder may exchange certificates of the Exchangeable Series for a pro
rata portion of deposited assets of the related trust, any such Optional
Exchange Right will be exercisable only if the exercise of that right (i) would
not affect the trust's ability to be exempt under Rule 3a-7 under the Investment
Company Act of 1940, as amended, and all applicable rules, regulations and
interpretations thereunder, and (ii) would not affect the characterization of
the trust as a "grantor trust" under the Code. See "Description of the
Certificates--Optional Exchange." Accordingly, the Optional Exchange Right
described in this prospectus under the heading "Description of the
Certificates--Optional Exchange" and further described in the applicable
prospectus supplement will be available only to DBAB and the call warrant
holder. Other certificateholders will not be able to exchange their certificates
of an Exchangeable Series for a pro rata portion of the deposited assets of the
related trust. The exercise of an Optional Exchange Right by DBAB in connection
with any unsold allotment will decrease the aggregate amount of certificates of
the applicable Exchangeable Series outstanding .
______________________
The accompanying prospectus supplement for each series of certificates will
specify information regarding additional risk factors, if any, applicable to
that series and each class within that series.
7
THE DEPOSITOR
DB Depositor Inc., a Delaware corporation, is an indirect, wholly owned,
limited purpose subsidiary of Deutsche Bank AG. The principal office of the
depositor is located at 31 West 52nd Street, New York, New York 10019. Its
telephone number is (212) 250-1869.
The Certificate of Incorporation of the depositor provides that the
depositor may conduct any lawful activities necessary or incidental to serving
as depositor of one or more trusts that may issue and sell certificates. The
Certificate of Incorporation of the depositor provides that any securities,
except for subordinated securities, issued by the depositor must be rated in one
of the four highest categories available by any rating agency rating the series.
Formation of a grantor trust will not relieve the depositor of its obligation to
issue only securities, except for subordinated securities, rated in one of the
four highest rating categories. Pursuant to the terms of the trust agreement,
the depositor may not issue any securities which would result in the lowering of
the then current ratings of the outstanding certificates of any series.
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 by this prospectus) will be used by the depositor to
purchase the related deposited assets and arrange credit support including, if
specified in the applicable prospectus supplement, making required deposits into
any reserve account or the applicable certificate account for the benefit of the
certificateholders of such series or class. Any remaining net proceeds, if any,
will be used by the depositor for general corporate purposes.
FORMATION OF THE TRUST
A separate trust will be created for each series of trust certificates. The
depositor will assign the deposited assets for each series of certificates to
the trustee named in the applicable prospectus supplement, in its capacity as
trustee, for the benefit of the certificateholders of that 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 those deposited assets.
Unless otherwise stated in the prospectus supplement, the depositor's
assignment of the deposited assets to the trustee will be without recourse to
the depositor (except as to certain limited representations and warranties, if
any).
To the extent described in the applicable prospectus supplement, the
obligations of an administrative agent will consist primarily of:
. its contractual administrative obligations, if any, under the trust
agreement;
. 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
. 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 these purposes. See "Description of the
Trust Agreement--Advances in Respect of Delinquencies."
Unless otherwise specified in the applicable prospectus supplement, each
trust will consist of:
. the deposited assets, or interests therein, exclusive of any interest in
those assets (the "Retained Interest") retained by the depositor or any
previous owner thereof, as from time to time are specified in the trust
agreement;
. the assets as from time to time are identified as deposited in the
related certificate account;
. property, if any, acquired on behalf of certificateholders by
foreclosure or repossession and any revenues received;
. those elements of credit support, if any, provided with respect to any
class within the series that are specified as being part of the related
trust in the applicable prospectus supplement, as described in that
prospectus supplement and under "Description of Deposited Assets and
Credit Support--Credit Support";
. the rights of the depositor relating to any breaches of representations
or warranties by the issuer of the deposited assets; and
. 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."
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 those 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 of the underlying securities)
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.
The effective yield to holders of the certificates of any series and class
within that 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 that series or
class therein 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
9
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 applicable prospectus supplement, each of
the underlying securities will be subject to acceleration upon the occurrence of
certain events of default under the terms of the underlying securities. 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 underlying
securities by or on behalf of the holders thereof. See "Description of Deposited
Assets and Credit Support--Underlying Securities--Indentures." If an issuer of
underlying securities becomes subject to a bankruptcy proceeding, the timing and
amount of payments with respect to the principal of, the premium on, if any, and
the interest to be distributed in respect of, the certificates may be materially
and adversely affected. Several factors influence the performance of issuers
that are corporations or other business entities; these factors 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 economic, geographic, legal and social 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 on the
deposited assets 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
Certificate Rate for such series or class is based on variable or adjustable
interest rates. With respect to any series of certificates representing an
interest in a pool of government, foreign government or corporate debt
securities, or other eligible securities, disproportionate principal payments
(whether resulting from differences in amortization schedules, payments due on
scheduled maturity or upon early redemption) on the related underlying
securities having interest rates higher or lower than the then applicable
Certificate Rates on 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 applicable 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.
The accompanying prospectus supplement for each series of certificates will
set forth additional information regarding yield and maturity considerations
applicable to that series, and each class within that series, and the related
deposited assets, including the applicable underlying securities.
10
DESCRIPTION OF THE CERTIFICATES
Each series (or, if more than one class exists, the classes within that
series) of certificates will be issued pursuant to the standard terms and the
series supplement, which together compose the trust agreement, among the
depositor, the trustee and the securities intermediary named in the applicable
prospectus supplement, a form of which trust agreement is attached as an exhibit
to the registration statement. The provisions of the trust agreement may vary
depending upon the terms of the certificates to be issued under the trust
agreement and the nature of the deposited assets, the credit support, if any,
and the related trust. The following summaries describe certain provisions of
the trust agreement that may be applicable to each series of certificates. The
applicable prospectus supplement for a series of certificates will describe any
material provision of the trust agreement that is not described in this
prospectus or the description of which is materially different from the
description in this prospectus. The following summaries do not purport to be
complete and are subject to the detailed provisions of the form of trust
agreement to which reference is made for a full description of such provisions,
including the definition of terms used, and for other information regarding the
certificates. Wherever particular defined terms of the trust agreement are
referred to, such defined terms are incorporated in this prospectus by reference
as part of the statement made, and the statement is qualified in its entirety by
that reference. As used in this prospectus with respect to any series, the term
"certificate" refers to all the certificates of that series and each class
within the series, whether or not offered by this prospectus and by the
applicable prospectus supplement, unless the context otherwise requires.
A copy of the series supplement relating to each series of certificates
issued from time to time will be filed by the depositor as an exhibit to a
Current Report on Form 8-K, which will be filed with the SEC following the
issuance of that 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. The series, or classes
within that series, of certificates to be issued under the trust agreement will
represent the entire beneficial ownership interest in the trust for that series
created pursuant to the trust agreement and each class will be allocated certain
relative priorities to receive specified collections from, and a certain
percentage ownership interest of the assets deposited in, such trust, all as
identified and described in the applicable prospectus supplement. See
"Description of Deposited Assets and Credit Support--Credit
Support--Collections."
Reference is made to the applicable prospectus supplement for a description
of the following terms of the series of certificates in respect of which this
prospectus and such prospectus supplement are being delivered:
(i) the title of the certificates;
(ii) the series of the certificates and, if applicable, the number and
designation of classes of the series;
(iii) material information concerning the type, characteristics and
specifications of the deposited assets being deposited into the
related trust by the depositor (including, with respect to any
underlying security which at the time of that deposit represents a
significant portion of all such deposited assets and any related
credit support, information concerning the material terms of each
underlying security, the identity of the issuer of the underlying
security and where publicly available information regarding the
issuer may be obtained);
11
(iv) the dates on which, or periods during which, the series of
certificates may be issued, each referred to as an "Original Issue
Date", and the offering price of the certificates;
(v) the limit, if any, upon the aggregate principal amount or Notional
Amount, as applicable, of each class of the certificates;
(vi) 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);
(vii) whether the certificates of that series are fixed rate certificates
or floating rate certificates and the applicable interest rate (the
"Certificate Rate"), or the method of calculation of the rate
applicable to that series, if variable (a "Floating Certificate
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 that series or class will
be distributable and the related Determination Dates, if any;
(viii) the circumstances and conditions under which any of DBAB or the
call warrant holder may exercise an Optional Exchange Right (to the
extent that the exercise of such right (a) would not affect the
trust's ability to be exempt under Rule 3a-7 under the Investment
Company Act of 1940, as amended, and all applicable rules,
regulations and interpretations thereunder and (b) would not affect
the treatment of the trust as a "grantor trust" under the Code) and
the periods within which or the dates on which, and the terms and
conditions upon which any such Optional Exchange may be exercised,
in whole but not in part;
(ix) the option, if any, of any specified third party (which may include
one or more of the depositor, DBAB or their respective affiliates)
to purchase certificates held by a certificateholder and the
periods within which or the dates on which, and the terms and
conditions upon which the option may be exercised, in whole but not
in part;
(x) the mandatory redemption or optional termination by the depositor,
if any;
(xi) the rating of each series or each class within that series
offered by this prospectus, provided, however, that one or more
classes within that series not offered by this prospectus may be
unrated or may be rated below investment grade;
(xii) if other than denominations of $1,000 and any integral multiple of
$1,000, the denominations in which that series or class within
that series will be issuable;
(xiii) 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;
(xiv) whether the certificates of that series or of any class within that
series are to be issued as registered certificates and whether
coupons will be attached;
(xv) the identity of the depositary, if other than DTC, for the
certificates;
(xvi) if other than U.S. dollars, the specified currency applicable to
the certificates of that series or class for purposes of
denominations and distributions on that series or each
12
class within that series and the circumstances and conditions, if
any, when the currency may be changed, at the election of the
depositor or a certificateholder, and the currency or currencies
in which any principal of or any premium or any interest on that
series or class are to be distributed pursuant to the election;
(xvii) any additional Administrative Agent Termination Events, if
applicable, provided for with respect to such class;
(xviii) all applicable Required Percentages and voting rights relating to
the manner and percentage of votes of certificateholders of that
series and each class within that series required with respect to
certain actions by the depositor or the trustee under the trust
agreement or with respect to the applicable trust;
(xix) remedies upon the occurrence of a payment default on the
underlying securities on an acceleration of the underlying
securities; and
(xx) all other material terms of that series or class within that
series of certificates.
Unless otherwise indicated in the applicable prospectus supplement,
certificates of each series, including any class of certificates not offered by
this prospectus, 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. The authorized denominations of registered certificates of a given
series or class within that series having a specified currency other than U.S.
dollars will be set forth in the applicable prospectus supplement.
The United States federal income tax consequences and ERISA consequences
relating to any series or any class within that series of certificates will be
described in the applicable prospectus supplement. In addition, the prospectus
supplement will describe the risks, specific terms and any other material
information relating to any certificates which will receive payments in a
specified currency other than U.S. dollars. 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 for such specified
currency on the applicable issue date. As specified in the applicable prospectus
supplement, such determination will be made by the depositor, the trustee, the
administrative agent, if any, or an agent thereof as exchange rate agent for
each series of certificates.
Unless specified 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 with the transfer or
exchange. The depositor may at any time purchase certificates at any price in
the open market or otherwise. Certificates so purchased by the depositor may, at
the discretion of the depositor, be held or resold or surrendered to the trustee
for cancellation of those certificates.
Distributions
Distributions allocable to principal, premium, if any, and interest on the
certificates of each series and class within that series will be made in the
currency other than U.S. dollars for those certificates by or on behalf of the
trustee on each distribution date as specified in the applicable prospectus
supplement and the amount of each distribution will be determined as of the
close of business on the date specified in the applicable prospectus supplement
(the "Determination Date").
13
If the specified currency for a given series or class within that 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
that 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 the 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
that specified currency by delivery of a written notice to the trustee and
administrative agent, if any, for the 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 that 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 that distribution date, of the aggregate amount payable in that
specified currency on that 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 those
distributions. If no bid quotations are available, such distributions will be
made in the specified currency other than U.S. dollars, unless that specified
currency is unavailable due to the imposition of exchange controls or to other
circumstances beyond the depositor's control, in which case distributions will
be made as described under "Currency Risks--Payment Currency" below.
Unless otherwise specified in the applicable prospectus supplement and
except as specified in the succeeding paragraph, distributions with respect to
registered certificates will be made at the corporate trust office or agency of
the trustee specified in the applicable prospectus supplement in The City of New
York or at the principal London office of the applicable trustee; provided,
however, that any the amounts distributable on the final distribution date of a
certificate will be distributed only upon surrender of that certificate at the
applicable location set forth above.
Unless otherwise specified in the applicable prospectus supplement,
distributions on registered certificates in U.S. dollars will be made, except as
described below, by check mailed to the registered certificateholders of those
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 Determination Date and the related
distribution dates, interest for the period beginning on the issue date for the
series or class and ending on the last day of the interest accrual period ending
immediately prior to or coincident with that 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 that series or class on the related Determination
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 the 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 described above), that certificateholder
14
shall provide appropriate wire transfer instructions to the trustee for that
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 that certificate is other than U.S.
dollars, the financial center of the country issuing that specified currency
(which, in the case of ECU, shall be Brussels, Belgium) and (ii) if the
Certificate Rate for that 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 Determination Date with respect
to any distribution date for a series or class of registered certificates shall
be specified 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 Certificate Rate, which may
be a Fixed or Floating Certificate Rate, as described below. In the case of
Strip Certificates with a nominal or no Certificate Principal Balance, those
distributions of interest will be in an amount described in the applicable
prospectus supplement. "Notional Amount" means the notional principal amount
specified in the applicable prospectus supplement on which interest on Strip
Certificates with a nominal or no Certificate Principal Balance will be made on
each distribution date. Reference to the Notional Amount of a class of Strip
Certificates in this prospectus or in a prospectus supplement does not indicate
that the 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 applicable
prospectus supplement. The Certificate Rate will be described in the applicable
prospectus supplement and will be based upon the rate of interest received on
the underlying securities, credit support, if any, and any payments payable in
respect of the Retained Interest, if any.
Fixed Rate Certificates. Each series (or, if more than one class exists,
-----------------------
each class within that series) of certificates with a fixed Certificate Rate
will bear interest, on the outstanding Certificate Principal Balance (or
Notional Amount, if applicable), from its Original Issue Date, or from the last
date to which interest has been paid, at the fixed Certificate Rate stated on
the face of the certificate and in the applicable prospectus supplement until
the principal amount of the certificate is distributed or made available for
repayment (or, in the case of fixed rate certificates with a nominal or no
principal amount, until the Notional Amount thereof is reduced to zero), except
that, if so specified in the applicable prospectus supplement, the Certificate
Rate for that 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
those certificates by one or more rating agencies, in accordance with a schedule
or otherwise, all as described in that 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 the prospectus supplement. Each 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 the series) of certificates with a variable Certificate Rate
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 for that series or class at the initial Certificate Rate set forth on the
face of the certificate and in the applicable prospectus supplement ("Initial
Certificate Rate"). Thereafter,
15
the Certificate Rate on that series or class for each Interest Reset Period 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 that series or class, and the "Spread
Multiplier" is the percentage that may be specified in the applicable prospectus
supplement as being applicable to that series or class, except that if so
specified in the applicable prospectus supplement, the Spread or Spread
Multiplier on that series or any 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 those certificates by one or more rating agencies, in
accordance with a schedule or otherwise, all as described in the prospectus
supplement. The applicable prospectus supplement, unless it specifies otherwise,
will designate one of the following Base Rates as applicable to a floating rate
certificate:
. LIBOR;
. the Commercial Paper Rate;
. the Treasury Rate;
. the Federal Funds Rate;
. the CD Rate; or
. 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 specified in
the prospectus supplement and in that 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 ( the "Maximum Certificate Rate") and (ii) a minimum limitation, or
floor, on the rate at which interest may accrue during any such interest accrual
period ("Minimum Certificate Rate"). In addition to any Maximum Certificate Rate
that may be applicable to any series or class of floating rate certificates, the
Certificate Rate applicable to any series or class of floating rate certificates
will in no event be higher than the maximum rate permitted by applicable law, as
the same may be modified by United States law of general application.
The depositor will appoint, and enter into agreements with, agents acting
as calculation agent, to calculate Certificate 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.
16
The Certificate 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 that series of floating rate certificates, will be
specified in the applicable prospectus supplement; provided, however, that
-------- -------
unless otherwise specified in the prospectus supplement, the Certificate 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, that 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 that 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 that 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 day is
computed by dividing the Certificate 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 Certificate Rate in effect on any Interest
Reset Date will be the applicable rate as reset on that date.
Unless otherwise specified in the applicable prospectus supplement, all
percentages resulting from any calculation of the Certificate 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 that 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 the series) of floating rate
certificates will be distributable on the distribution dates and for the
interest accrual periods as and to the extent specified 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 that series or class will provide the
Certificate Rate then in effect and, if determined, the Certificate Rate that
will become effective on the next Interest Reset Date with respect to that
floating rate certificate.
(1) CD Rate Certificates. Each CD Rate certificate will bear interest for
--------------------
each Interest Reset Period at the Certificate Rate calculated with reference to
the CD Rate and the Spread or Spread Multiplier, if any, specified in that
certificate and in the applicable prospectus supplement.
Unless otherwise specified in the applicable prospectus supplement, the "CD
Rate" for each Interest Reset Period shall be the rate as of the second Business
Day prior to the Interest Reset Date for that Interest Reset Period (a "CD Rate
Determination Date"), for negotiable United States dollar certificates of
deposit having the Index Maturity designated in the applicable prospectus
supplement
17
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 pertaining to such CD Rate Determination Date, then
the "CD Rate" for that Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable United States dollar 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 that 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 (which may include the
underwriters or their affiliates) 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 applicable prospectus supplement in a denomination of
$5,000,000; provided, however, that if the dealers selected by the calculation
agent are not quoting offered rates as mentioned in this sentence, the "CD Rate"
for that Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period (or, if there was no Interest Reset
Period, the Initial Certificate 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 that CD Rate
Determination Date or, if that 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 Certificate
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 that Commercial Paper Rate Certificate as of the second
Business Day prior to the Interest Reset Date for that Interest Reset Period (a
"Commercial Paper Rate Determination Date", and shall be the Money Market Yield
on that Commercial Paper Rate Determination Date of the rate for commercial
paper having the Index Maturity specified in the applicable prospectus
supplement, as that 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
pertaining to that Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for that Interest Reset Period shall be calculated by
the calculation agent and shall be the Money Market Yield on that Commercial
Paper Rate Determination Date of the rate for commercial paper of the specified
Index Maturity as published in Composite Quotations under the heading
"Commercial Paper." If by 3:00 p.m., New York City time, on that 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 that 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 that Commercial Paper
Rate Determination Date of three leading dealers of commercial paper in The City
of New York (which may include the underwriters or their affiliates) selected by
the calculation agent for that 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 the calculation
- -------- -------
agent are not quoting offered rates as mentioned in this sentence, the
"Commercial Paper Rate" for that Interest Reset Period will be the same as the
Commercial Paper Rate for the immediately preceding Interest Reset Period or, if
there was no Interest Reset Period, the Initial Certificate Rate.
18
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360 X 100
Money Market Yield = -------------
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 the 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 Certificate Rate
calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any, specified in that 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 the Interest Reset Period (a "Federal Funds Rate
Determination Date"), for United States dollar 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 pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for that 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 that rate is not
yet published in either H.15(519) or Composite Quotations, then the "Federal
Funds Rate" for that Interest Reset Period shall be the rate on that Federal
Funds Rate Determination Date made publicly available by the Federal Reserve
Bank of New York which is equivalent to the rate which appears in H.15(519)
under the heading "Federal Funds (Effective)"; provided, however, that if such
rate is not made publicly available by the Federal Reserve Bank of New York by
3:00 p.m., New York City time, on such Federal Funds Rate Calculation Date, the
"Federal Funds Rate" for that 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 Interest Reset Period, the Initial Certificate Rate).
Unless otherwise specified in the applicable prospectus supplement, in the case
of a Federal Funds Rate certificate that resets daily, the Certificate Rate on
that certificate for the period from and including a Monday to but excluding the
succeeding Monday will be reset by the calculation agent for that certificate on
that 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 Certificate Rate calculated with reference to LIBOR
and the Spread or Spread Multiplier, if any, specified in that 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:
19
On the second London Banking Day prior to the Interest Reset Date for the
applicable Interest Reset Period (a "LIBOR Determination Date"), the calculation
agent for the 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 that Interest
Reset Date, which appear on the Reuters Screen LIBO Page at approximately 11:00
a.m., London time, on the 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 of the offered rates appear on the Reuters Screen LIBO Page, "LIBOR"
for that Interest Reset Period will be the arithmetic mean of the offered rates
as determined by the calculation agent for that LIBOR certificate.
If fewer than two offered rates appear on the Reuters Screen LIBO Page on
that LIBOR Determination Date, the calculation agent for that LIBOR certificate
will request the principal London offices of each of four major banks in the
London interbank market selected by the calculation agent to provide that
calculation agent with its offered quotations for deposits in U.S. dollars for
the period of the specified Index Maturity, commencing on that Interest Reset
Date, to prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on that 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 the market at that time. If at least two such quotations are
provided, "LIBOR" for that Interest Reset Period will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, "LIBOR" for that
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 that LIBOR
certificate at approximately 11:00 a.m., New York City time, on that LIBOR
Determination Date for loans in U.S. dollars to leading European banks, for the
period of the specified Index Maturity, commencing on the 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 the market at that time; provided,
--------
however, that if fewer than three banks selected as aforesaid by the calculation
- -------
agent are quoting rates as specified in this sentence, "LIBOR" for that Interest
Reset Period will be the same as LIBOR for the immediately preceding Interest
Reset Period (or, if there was no Interest Reset Period, the Initial Certificate
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 specify the method for determining such rate.
(5) Treasury Rate Certificates. Each Treasury Rate certificate will bear
--------------------------
interest for each Interest Reset Period at the Certificate 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 for that Interest Reset Period of
direct obligations of the United States ("Treasury bills") having the Index
Maturity specified in the applicable prospectus supplement, as that 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
that rate is not published prior to 3:00 p.m., New York City time, on the
Treasury Rate Calculation Date pertaining to that 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 that
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 described above by 3:00 p.m., New York City time, on that Treasury Rate
Calculation Date, or if no auction is held on that Treasury Rate Determination
Date, then the "Treasury Rate" for that Interest
20
Reset Period shall be calculated by the calculation agent for that 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 that Treasury Rate Determination
Date, of three leading primary United States government securities dealers
selected by the 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 that calculation agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate" for
that Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period (or, if there was no Interest Reset
Period, the Initial Certificate Rate).
The "Treasury Rate Determination Date" for any Interest Reset Period will
be the day which the Interest Reset Date for that Interest Reset Period falls on
which Treasury bills would normally be auctioned. Treasury bills are normally
sold at auction every Monday, unless a Monday is a legal holiday, in which case
the auction is normally held on the following Tuesday or the preceding Friday.
If, as the result of a legal holiday, an auction is held on the preceding
Friday, that Friday will be the Treasury Rate Determination Date for the
Interest Reset Period commencing in the following week. Unless otherwise
specified in the applicable prospectus supplement, if an auction date falls on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
certificate, then that Interest Reset Date shall instead be the Business Day
immediately following that 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 that Treasury Rate Determination Date or, if that 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 otherwise specified in the applicable prospectus supplement, 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 certificate holder 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 applicable
prospectus supplement, distributions generally will be applied to undistributed
accrued interest on, then to principal of, and then to premium, if any, on, each
certificate of the class or classes entitled thereto (in the manner and priority
specified in that prospectus supplement) until the aggregate Certificate
Principal Balance of that 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 on that certificate, and, if applicable
pursuant to the terms of the related series, by the amount of any net losses
realized on any deposited assets allocated to the certificate. Unless otherwise
specified in the applicable prospectus supplement, 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
applicable prospectus supplement. Distributions of principal of any class of
certificates will be made on a pro rata basis among all the certificates of that
class. Strip Certificates with no Certificate Principal Balance will not receive
distributions of principal.
Dual Currency Certificates
Certificates may be issued as dual currency certificates, in which case
payments of principal and/or interest in respect of those dual currency
certificates will be made in those currencies, and rates of exchange will be
calculated upon that bases, as indicated in the certificates and described
21
in the applicable prospectus supplement. Other material terms and conditions
relating to dual currency certificates will be specified in the certificates and
the applicable prospectus supplement.
Credit Derivatives
If so specified in the applicable prospectus supplement, a trust issuing a
series of certificates may enter into a credit derivative arrangement such as a
credit default swap agreement. Under a swap agreement the trust would agree, in
return for a fee or other consideration, to assume the default or other credit
risk on a security not owned by the trust (a "Reference 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 specified in the applicable prospectus supplement with similar
effects. Similarly, if so specified in the applicable 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 on the security.
Reference Securities will be of the same types as the underlying securities
described in this prospectus. The applicable prospectus supplement will include
information regarding Reference Securities and the issuer of the Reference
Securities that is similar to that provided with respect to underlying
securities.
Optional Exchange
Subject to the provisions of the following paragraph, the applicable
prospectus supplement may provide that DBAB or the call warrant holder may
exchange certificates of any given series (an "Exchangeable Series") for the
deposited assets (an "Optional Exchange Right"). The applicable prospectus
supplement and the related Trust Agreement will specify the terms upon which an
Optional Exchange Right may be exercised; provided that (a) any Optional
Exchange Right shall be exercisable only to the extent that the exercise of such
right (i) would not affect the trust's ability to be exempt under Rule 3a-7
under the Investment Company Act of 1940, as amended, and all applicable rules,
regulations and interpretations thereunder and (ii) would not affect the
characterization of the trust as a "grantor trust" under the Code, and (b) if
the deposited assets constitute a pool of underlying securities, any exercise of
the Optional Exchange Right will be effected so that, with respect to each
series or issue of underlying securities included in such pool (together with
any related assets that credit enhance or otherwise support that series or issue
of underlying securities), the proportion that the principal amount of that
series or issue of underlying securities (together with those related assets)
bears to the aggregate principal amount of certificates immediately prior to
such exercise will be equal to the proportion that the principal amount of that
series or issue of underlying securities (together with those related assets)
bears to the aggregate principal amount of certificates immediately after that
exercise. In addition, the exercise of an Optional Exchange Right will decrease
the aggregate amount of certificates of the applicable Exchangeable Series
outstanding. See "Risk Factors--Optional Exchange for Deposited Assets Will
Generally Be Unavailable."
The applicable prospectus supplement may provide that DBAB may exchange a
certain percentage of the certificates constituting an unsold allotment for a
like percentage of the deposited assets. Except as otherwise described in this
paragraph, the Optional Exchange Right in respect of each trust will be
exercisable in whole but not in part.
22
Generally, a holder exchanging certificates will receive a pro-rata portion
of the designated, publicly issued, security or pool of securities comprising
the underlying securities. See "Description of Deposited Assets and Credit
Support." Due to the discrepancy in the denominations of the underlying
securities and the certificates in some instances, it may be necessary to sell a
portion of the underlying securities in order to provide a pro-rata distribution
to the certificateholders engaging in an optional exchange. The exercise of an
Optional Exchange Right will not result in under-collateralization because the
proportion that the principal amount of that series or issue of underlying
securities that the principal bears to the aggregate principal amount of
certificates immediately prior to such exchange will be the same proportion
immediately after exercise. Unless otherwise specified in the applicable
prospectus supplement, the administrative agent or the trustee will continue to
forward or cause to be forwarded reports to certificateholders with each
distribution to certificateholders, including information regarding the
principal amount of the deposited assets. See "Description of Deposited Assets
and Credit Support--Reports to Certificateholders--Notice".
Call Right
DBAB, or the depositor, or if so specified in the relevant prospectus
supplement, a transferee as a result of a private placement to eligible
investors, may hold a call right to purchase, in whole but not in part, the
certificates of a given series or class from the holders or all of the
underlying securities of a given series from the trust. If one or more specified
persons holds a call right, the applicable prospectus supplement will designate
the series as a "Callable Series."
The terms upon which any specified person or entity may exercise a call
right will be specified in the applicable prospectus supplement. Such terms may
relate to, but are not limited to, the following:
. the initial holder of the call right;
. whether the Certificate Principal Balance or Notional Amount, as
defined below, of each certificate being purchased pursuant to the
call right must be an Authorized Denomination;
. the call date or dates; and
. the call price.
After receiving notice of the exercise of a call right, the trustee will
provide notice as specified in the standard terms. Upon the satisfaction of any
applicable conditions to the exercise of a call right, each certificateholder
will be entitled to receive payment of a pro rata share of the call price paid
in connection with the exercise. In addition, in conjunction with the exercise
of a call on underlying securities in respect of all of the underlying
securities, the certificates will be redeemed in whole or in accordance with the
Allocation Ratio, as applicable and as specified in the applicable prospectus
supplement. A call right is not expected to be exercised unless the value of the
underlying securities exceeds the call price payable upon exercise of the call
right.
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, or DTC, New York, New York for registered
certificates denominated and payable in U.S. dollars, or such other depositary
identified in the applicable prospectus supplement, and registered in the name
of a nominee of the depositary. Global securities may be issued in registered
form and in either temporary or permanent form. Unless and
23
until it is exchanged in whole or in part for the individual certificates
represented (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 the depositary or by a nominee of that depositary to that depositary
or another nominee of the depositary or by that depositary or any nominee to a
successor of that depositary or a nominee of the successor.
DTC has advised the depositor as follows: DTC 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. DTC 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
DBAB, 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. DTC
has confirmed to the depositor that it intends to follow those 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 that global security to the accounts of
its participants. The accounts to be credited shall be designated by the
underwriters of those certificates, or, if those certificates are offered and
sold directly through one or more agents, by the depositor or that agent or
agents.
Ownership of beneficial interests in a global security will be limited to
participants or persons that may hold beneficial interests through participants.
Ownership of beneficial interests in a global security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the depositary for such global security or by participants or persons that hold
through participants. The laws of some states require that certain purchasers of
securities take physical delivery of the securities. These limits and 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 specified 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 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.
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 the depositor, the administrative agent, if any, the
trustee, any paying agent, any securities intermediary or the certificate
registrar will have responsibility or liability for any aspect of the records
relating to or payments made on account of
24
beneficial interests in a global security or for maintaining, supervising or
reviewing any records relating to beneficial interests.
The depositor 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 the depositary. The depositor also expects
that payments by participants to owners of beneficial interests in a global
security held through the 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 those participants.
If the depositary for certificates of a given class of any series is at any
time unwilling or unable to continue as depositary and a successor depositary is
not appointed by the depositor within ninety days, the depositor will issue
individual definitive certificates in exchange for the global security or
securities representing those certificates. In addition, the depositor may at
any time and in its sole discretion determine not to have any certificates of a
given class represented by one or more global securities and, in such event,
will issue individual definitive certificates of that class in exchange for the
global security or securities representing those certificates. Further, if the
depositor so specifies with respect to the certificates of a given class, an
owner of a beneficial interest in a global security representing certificates of
that class may, on terms acceptable to the depositor and the depositary of the
global security, receive individual definitive certificates in exchange for that
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 that beneficial interest and to
have definitive certificates registered in its name (if the certificates of that
class are issuable as registered certificates). Individual definitive
certificates of that class so issued will be issued as registered certificates
in denominations, unless otherwise specified by the depositor or in the
applicable prospectus supplement, of $1,000 and integral multiples thereof if
the certificates of that class are issuable as registered certificates.
The applicable prospectus supplement will specify any specific terms of the
depositary arrangement with respect to any class or series of certificates being
offered by the prospectus supplement to the extent not specified or different
from the description above.
25
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 class is offered by this prospectus) within that
series, will represent an ownership interest specified for that series, or
class, of certificates in a designated, publicly issued, security or a pool of
securities (the "underlying securities"), purchased by the depositor, or an
affiliate thereof, in the secondary market and assigned to a trust as described
in the applicable prospectus supplement. The underlying securities will
represent one or more of the following:
. publicly issued 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, in accordance with
the Exchange Act, file reports and other information with the SEC or,
for certain depository institutions, with a federal bank or thrift
regulatory agency ("domestic corporate securities"), and which, if
that security or securities are Concentrated Underlying Securities,
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 certificates;
. publicly issued debt securities or investment grade term preferred
stock of one or more foreign private issuers, as defined in rule 405
under the Securities Act, subject to the informational requirements of
the Exchange Act and, in accordance with the Exchange Act, file
reports and other information with the SEC ("foreign private
securities" and together with domestic corporate securities, the
"corporate securities") and which, if that 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 S-3 at the time of offering of the certificates;
. 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, in accordance with
the Exchange Act, file reports and other information with the SEC
("trust preferred securities"), and, if the 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 S-3 at the time
of the offering of the certificates;
. 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,
in accordance with the Exchange Act, file reports and other
information with the SEC ("asset-backed securities" and, together with
corporate securities and trust preferred securities, the "Private
Sector Securities");
. 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");
26
. an obligation of one or more U.S. government sponsored entities,
("GSEs"), described below (see "Underlying Securities-Domestic
Government Securities");
. Government Trust Certificates ("GTCs") described below; or
. an obligation issued by a Multilateral Bank Issuer (as defined below).
Notwithstanding any requirement stated or incorporated in this prospectus
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 DBAB 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 or Form S-3
should be evaluated in light of these limitations.
This prospectus relates only to the certificates offered by this prospectus
and does not relate to the underlying securities. The following description of
the underlying securities is intended only to summarize certain characteristics
of the underlying securities the depositor is permitted to deposit in a trust
and is not a complete description of any prospectus relating to any underlying
security, and, if applicable, underlying securities indenture 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:
. corporate securities;
. trust preferred securities; or
. asset-backed securities.
Corporate Securities. Corporate securities may consist of senior or
--------------------
subordinated debt obligations, or investment grade term preferred stock issued
by domestic or foreign issuers, as described above.
Debt obligations may be issued with a wide variety of terms and conditions.
Set forth below is a description of certain features that may be associated with
one or more underlying securities consisting of debt obligations.
Indentures. With respect to senior or subordinated debt obligations, the
applicable prospectus supplement will specify whether each underlying security
will have been issued pursuant to an indenture between the issuer of the
underlying securities and the underlying securities trustee. If so specified in
the applicable 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 and the underlying securities indenture will contain
certain provisions required by the Trust Indenture Act.
Certain Covenants. If specified in the applicable prospectus supplement,
the underlying securities that consist of senior or subordinated debt
obligations will be issued pursuant to an
27
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:
. consolidate, merge, or transfer or lease assets;
. incur or suffer to exist any lien, charge, or encumbrance upon any of
its property or assets;
. 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
. 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 in this
prospectus. 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 for any series of certificates will describe
material covenants in relation to any underlying securities (including Foreign
Government Securities) that represent ten percent or more of the total
underlying securities with respect to that series of certificates (a
"Concentrated Underlying Security") and, as applicable, will describe material
covenants that apply to all of the securities in any pool of underlying
securities.
Events of Default. Indentures generally provide that any one of a number of
specified events will constitute an event of default with respect to the
securities issued thereunder. Events of default typically include the following
or variations:
. 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;
. 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 of the failure is given
to the issuer by the indenture trustee or the holders of not less than
a specified percentage of the outstanding securities; or
. 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 of the securities.
28
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, the indenture trustee 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 to be indemnified by
the security holders prior to proceeding to exercise any right or power under
such indenture with respect to the securities at the request of the 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 that request
within a reasonable time.
Each underlying securities indenture or underlying security may include
some, all or none of the foregoing provisions or variations or additional events
of default not discussed in this prospectus. 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
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
some other action to declare the principal amount of an underlying security and
any accrued and unpaid interest to be due and payable, the certificateholders'
objectives may differ from those of holders of other securities of the same
series and class as any underlying security ("Outstanding Debt Securities"), in
determining whether to declare the acceleration of the underlying securities.
Subordination. As specified 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 issuer of the underlying securities. 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 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 the 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 the securities
even if holders of subordinated securities receive amounts in respect of the
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 (the "Secured Underlying Securities"). Generally, unless an event of
default shall have occurred and is continuing, or with respect to certain
collateral or as otherwise specified in the indenture pursuant to which the
29
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. 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 the
securities pending the sale of any collateral and prior to or during the 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 the securities
(to the extent not repaid from the proceeds of the sale of the collateral) would
have only an unsecured claim ranking pari passu with the claims of all other
general unsecured creditors.
The underlying securities indenture with respect to any Secured Underlying
Security may include, some, all or none of the foregoing provisions or
variations thereof. The prospectus supplement used to offer any series of
certificates which includes Concentrated Underlying Securities which are Secured
Underlying Securities, will describe the security provisions of the Underlying
Securities and the related collateral. With respect to any trust comprised of a
pool of securities, a substantial portion of which are Secured Underlying
Securities, the applicable prospectus supplement will disclose general
information regarding the security provisions and the collateral.
Trust Preferred Securities. As specified in the applicable 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 that trusts' affiliates.
The subordinated debt obligations are subordinated to all other unsubordinated
debt of the affiliates, including the debt issued subsequent to issuance of the
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 the
parents, the trusts 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 applicable 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. These financial assets may consist
of secured or unsecured
30
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. The
servicing agreements, indentures and pooling and servicing agreements are
referred to as 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. This 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, or "UCC", (for instance, home equity loan notes) certain of the
documents evidencing the underlying receivables are delivered to the possession
of the trustee or other custodian for the holders of the asset-backed
securities. In the case of most assets, either no documents evidence the
receivables (for instance, credit card receivables) or documents exist, but the
UCC does not require their possession to perfect a transfer (for instance,
automobile installment sales contracts). In these cases, the transferor
segregates the assets only on its own books and records, such as by marking its
computer files, and perfects the trustee's interest by filing a financing
statement under the UCC. This method of segregation and perfection presents the
risk that the trustee's interest in the assets could be lost as a result of
negligence or fraud, such that the trustee and the asset-backed security holders
become unsecured creditors of the transferor of the assets.
Domestic Government Securities
Domestic Government Securities will be:
. Treasury Securities;
. GSEs; or
. 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 specify 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 specified in the applicable
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
31
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 applicable prospectus
supplement, the underlying securities with respect to any GSE issuer will not be
guaranteed by the United States and do not constitute a debt or obligation of
the United States or of any agency or instrumentality thereof other than the
related GSE.
Contractual and Statutory Restrictions. A GSE issuer and the related
underlying securities may be subject to contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of specified events. Unless otherwise specified in the applicable
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 applicable 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:
. 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);
. 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 is given to the issuer by the fiscal agent or the
holders of not less than a specified percentage of the outstanding
securities; and
. 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 the securities.
GTCs. As specified in the applicable prospectus supplement, a trust may
----
include one or more GTCs. GTCs are certificates evidencing undivided fractional
interests in a trust, the assets of which consist of promissory notes, (the "GTC
Notes"), payable in U.S. dollars, of a certain foreign government, backed a full
faith and credit guaranty issued by the United States of America, acting through
the Defense Security Assistance Agency of the Department of Defense, of the due
and punctual payment of 90% of all payments of principal and interest due on the
GTC Notes and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government thereof,
sufficient to pay the remaining 10% of all payments of principal and interest
due on the GTC Notes.
Multilateral Bank Issuers
As specified in the applicable 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
32
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 Terms of Underlying Securities
Reference is made to the applicable prospectus supplement for each series
of certificates for a description of the following terms, as applicable, of any
Concentrated Underlying Security:
(i) the title and series of the underlying securities, and the
aggregate principal amount, denomination and form thereof;
(ii) whether the debt securities are senior or subordinated to any
other existing or future 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 the
debt securities;
(v) the dates on which, or the range of dates within which, the
principal of (and premium, if any, on) the debt securities will
be payable;
(vi) the rate or rates or the method of determination, at which the
underlying securities will bear interest, if any (the "Underlying
Securities Rate"); the date or dates from which the interest will
accrue (the "Underlying Securities Interest Accrual Periods");
and the dates on which the interest will be payable (the
"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 similar 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 the debt securities may be redeemed or repurchased, in
whole or in part, pursuant to that obligation;
(viii) the periods within which or the dates on which, the prices at
which and the terms and conditions upon which the debt securities
may be redeemed, if any, in whole or in part, at the option of
the issuer of the underlying securities;
(ix) the periods within which or the dates on which, the prices at
which and the terms and conditions upon which the holder of the
underlying securities may require the issuer of the underlying
securities to repurchase or otherwise repay the underlying
securities;
(x) whether the underlying securities were issued at a price lower
than the principal amount;
(xi) if other than U.S. dollars, the foreign or composite currency in
which the debt securities are denominated, or in which payment of
the principal of (and premium, if any) or any interest on the
underlying securities will be made (the "Underlying Securities
Currency"), and the circumstances, if any, when the currency of
payment may be changed;
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(xii) material events of default or restrictive covenants provided for
with respect to the underlying securities;
(xiii) the rating, if any; and
(xiv) any other material terms of the underlying securities.
With respect to a trust containing a pool of underlying securities, the
applicable prospectus supplement will describe the composition of the underlying
securities pool as of the Cut-off Date, certain material events of default or
restrictive covenants common to the underlying securities, and, on an aggregate,
percentage or weighted average basis, as applicable, the characteristics of the
pool with respect to the terms set forth in (ii), (iii), (v), (vi), (vii),
(viii) and (ix) of the preceding paragraph and any other material terms
regarding such pool of securities.
Publicly Available Information
In addition to the foregoing, with respect to each Concentrated Underlying
Security the applicable prospectus supplement will disclose the identity of the
applicable obligor and the underlying securities trustee, if applicable, and
will describe the existence and type of certain information that is made
publicly available by each obligor regarding such underlying security and will
disclose where and how prospective purchasers of the certificates may obtain
publicly available information about the 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 applicable prospectus
supplement. However, the precise nature of that 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 specified in the applicable prospectus
supplement.
If an issuer of Concentrated Underlying Securities ceases to file periodic
reports under the Exchange Act, the depositor, on behalf of the trust, will
continue to be subject to the reporting requirements of the Exchange Act, but
certain information regarding that issuer may be unavailable.
Unless otherwise specified in the applicable prospectus supplement, 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, the depositor shall within a reasonable period
of time (i) file periodic reports containing the information that such issuer(s)
would otherwise file or (ii) instruct the trustee to distribute within a
reasonable period of time the underlying security or securities to the
certificateholders pursuant to the procedures set forth in the trust agreement
or (iii) instruct the trustee to sell the underlying security or securities and
distribute the proceeds from that sale to the certificateholders in accordance
with the Allocation Ratio (any such sale will result in a loss to the
certificateholders of the relevant series if the sale price is less than the
purchase price for such Concentrated Underlying Securities).
Other Deposited Assets
The depositor may deposit, assets other than the underlying securities,
into a trust assets related or incidental to one or more of the 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
34
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, are referred to as the "deposited
assets". To the extent described in the applicable prospectus supplement, the
trustee on behalf of the certificateholders of a trust may enter into an
agreement constituting or providing for the purchase of certain assets as
described above. The applicable prospectus supplement will, to the extent
appropriate, contain analogous disclosure with respect to the foregoing assets
as referred to above with respect to the underlying securities.
Unless otherwise specified in the applicable 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 that series. In that event, the other classes of that
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 that series (or any class or group of classes within that
series) may have the benefit of, credit support for any class or group of
classes within that 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
specify whether the trust for any class or group of classes of certificates
contains, or the certificateholders of the 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 class or classes and certain
information with respect to the obligors of each element, including financial
information with respect to any obligor providing credit support for 20% or more
of the aggregate principal amount of the class or classes unless that obligor is
subject to the informational requirements of the Exchange Act.
Subordination. As discussed below under "--Collections," the rights of the
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certificateholders of any given class within a series of certificates to receive
collections from the trust for that series and any credit support obtained for
the benefit of the certificateholders of that series (or classes within that
series) may be subordinated to the rights of the certificateholders of one or
more other classes of that series to the extent described in the applicable
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 so that the collections received are insufficient to
make all distributions on the certificates of that series, those realized losses
would be allocated to the certificateholders of any class of any series that is
subordinated to another class, to the extent and in the manner specified in the
applicable prospectus supplement. In addition, if so specified 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 applicable
prospectus supplement.
If so specified in the applicable prospectus supplement, the credit support
for any series or class of certificates may include, in addition to the
subordination of certain classes of that series and the establishment of a
reserve account, any of the other forms of credit support described below. Any
other forms of credit support that are solely for the benefit of a given class
will be limited to the extent necessary to make required distributions to the
certificateholders of such class
35
or as otherwise specified in the applicable prospectus supplement. In addition,
if so specified in the applicable prospectus supplement, the obligor of any
other forms of credit support may be reimbursed for amounts paid pursuant to
that credit support out of amounts otherwise payable to one or more of the
classes of the certificates of that series.
Letter of Credit; Surety Bond. The certificateholders of any series (or
-----------------------------
class or group of classes of certificates within that 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, unless otherwise specified in the applicable
prospectus supplement in a timely manner the fees or premiums therefor. 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 specify 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
applicable prospectus supplement, the trustee or 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 the 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 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 specified in the applicable prospectus supplement,
----------------
the trustee or other person named in the prospectus supplement will deposit or
cause to be deposited into a reserve account maintained with an eligible
institution (which may be the trustee) 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 the 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 the class or group of classes within
that series, or may be used for other purposes, in the manner and to the extent
specified in the applicable prospectus supplement. Amounts deposited in any
reserve account will be invested in certain permitted investments by, or at the
direction of, the trustee, the depositor or other person named in the applicable
prospectus supplement.
Collections
The trust agreement will establish procedures by which the trustee or 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 certificate account
maintained or controlled by the trustee for the benefit of that series. An
administrative
36
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 the 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 that
series (and classes within that series), all in the manner and priorities
described in the applicable 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 that period, to pay amounts then due and owing
to holders of those certificates. The applicable prospectus supplement will also
specify the manner and priority by which any net losses realized on any
deposited assets 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.
37
DESCRIPTION OF THE TRUST AGREEMENT
The following summary of certain provisions of the trust agreement that may
be applicable to each series of certificates does not purport to be complete,
and the summary is qualified in its entirety by reference to the detailed
provisions of the form of trust agreement filed as an exhibit to the
registration statement. Wherever defined terms of the standard terms or the
series supplement are referred to, the defined terms are incorporated in this
prospectus by reference as part of the statement made, and the statement is
qualified in its entirety by reference.
Assignment of Deposited Assets
At the time of issuance of any series of certificates, the depositor will
cause the underlying securities to be included in the related trust, and any
other deposited asset specified in the prospectus supplement, to be assigned to
the related trustee, together with all principal, premium, if any, and interest
received by or on behalf of the depositor on or with respect to 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. The trustee will,
concurrently with such assignment, deliver the certificates to the depositor in
exchange for certain assets to be deposited in the trust. 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, the depositor will, with respect to each deposited asset,
deliver or cause to be delivered to the trustee (or to the custodian hereinafter
referred to) all documents necessary to transfer ownership of such deposited
asset to the trustee. The trustee (or such custodian) will review 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.
With respect to the types of deposited assets specified in the applicable
prospectus supplement if and to the extent described 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 the
depositor, and the administrative agent, if any, and the trustee will
immediately notify the relevant person who sold the applicable deposited asset
to the depositor. To the extent specified in the applicable prospectus
supplement, if the relevant person who sold the applicable deposited asset to
the depositor cannot cure that omission or defect within 60 days after receipt
of notice, that applicable person will be obligated, within 90 days of receipt
of notice, to repurchase the related deposited asset from the trustee at the
purchase price or provide a substitute for the deposited asset. There can be no
assurance that the relevant person who sold the applicable deposited asset to
the depositor 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 that administrative agent
nor the depositor will be obligated to repurchase or substitute for such
deposited asset if the relevant person who sold the applicable deposited asset
to the depositor defaults on its obligation. Unless otherwise specified in the
applicable 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.
Each of the depositor and the administrative agent, if any, will make
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 representation of the depositor or administrative agent, as
38
the case may be, which materially and adversely affects the interests of the
certificateholders, the depositor or any administrative agent, respectively,
will be obligated to cure the breach in all material respects.
Collection and Other Administrative Procedures
General. With respect to any series of certificates the trustee or such
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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 referred to as the "credit support instruments", and provided that,
except as otherwise expressly specified 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 a third party
sub-administrative agent they deem qualified to perform the obligations.
However, the trustee or administrative agent will remain obligated with respect
to the 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 the 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 the sub-administration agreement will
be a contract solely between the 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 that 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 the fees. However, a sub-administrative agent may be entitled to a Retained
Interest in certain deposited assets to the extent specified in the applicable
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 the series. See "--Retained Interest; Administrative Agent
Compensation and Payment of Expenses."
The administrative agent or trustee may require any sub-administrative
agent to agree to indemnify the administrative agent or trustee, as applicable,
for any liability or obligation sustained in connection with any act or failure
to act by the sub-administrative agent.
Realization upon Defaulted Deposited Assets. Unless otherwise specified in
-------------------------------------------
the applicable prospectus supplement, the trustee, on behalf of the
certificateholders of a given series, or any class or classes within the series,
will present claims under each applicable credit support
39
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 specified 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. However, except as
otherwise expressly specified in the applicable prospectus supplement, the
trustee 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 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.
Only if and to the extent specified 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 the 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 of the Retained Interest. 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 specified 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, with respect to a given series of certificates.
If and to the extent specified in the applicable prospectus supplement, in
addition to amounts payable to any sub-administrative agent, the administrative
agent, if any or 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 applicable prospectus supplement.
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
specified in the applicable prospectus supplement, the administrative agent or
the
40
trustee will advance on or before each distribution date its own funds or funds
held in the certificate account for the series that are not part of the funds
available for distribution for such distribution date. The amount of funds
advanced will equal 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 applicable 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 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 to payments, rather than to guaranty or insure against
losses. Unless otherwise specified in the applicable 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 the 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. If so specified in the applicable 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 specified in the applicable
prospectus supplement.
Certain Matters Regarding the Administrative Agent and the Depositor
An administrative agent, if any, for each series of certificates under the
trust agreement will be named in the applicable prospectus supplement. The
entity serving as administrative agent for any the series may be the trustee,
the depositor, an affiliate of either the relevant person who sold the
applicable deposited asset to the depositor or any third party and may have
other normal business relationships with the trustee, the depositor, their
affiliates or the relevant person who sold the applicable deposited asset to the
depositor.
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 that resignation, and the appointment of a
successor, will not result in a withdrawal or downgrading of the rating of any
class of certificates of that series, or upon a determination that its duties
under the trust agreement with respect to that 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 that series.
The trust agreement will further provide that neither an administrative
agent, the depositor nor any director, officer, employee, or agent of the
administrative agent or the depositor will incur any liability to the related
trust or certificateholders for any action taken, or for refraining from taking
any action, in good faith pursuant to the trust agreement or for errors in
judgment; provided, however, that none of the administrative agent, the
depositor 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 their or by reason of reckless disregard of
obligations and duties thereunder. The standard terms will further provide that,
unless otherwise provided in the
41
applicable series supplement thereto, an administrative agent, the depositor and
any director, officer, employee or agent of the administrative agent or the
depositor will be entitled to indemnification by the related trust and will be
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to the trust agreement or the certificates, other than
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence in the performance of their or by reason of reckless
disregard of their obligations and duties. In addition, the trust agreement will
provide that neither an administrative agent nor the depositor 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 the depositor 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 and the interests of the
certificateholders thereunder. The applicable prospectus supplement will
describe how the legal expenses and costs of such action and any resulting
liability will be allocated.
Any person into which an administrative agent may be merged or
consolidated, or any person resulting from any merger or consolidation to which
an administrative agent is a part, or any person succeeding to the business of
an administrative agent, will be the successor of the administrative agent under
the trust agreement with respect to the certificates of any given series.
Administrative Agent Termination Events; Rights Upon Administrative Agent
Termination Event
Unless otherwise specified in the applicable prospectus supplement,
"Administrative Agent Termination Events" under the trust agreement with respect
to any given series of certificates will consist of the following:
. 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 failure
to the administrative agent by the trustee or the depositor, or to the
administrative agent, the depositor and the trustee by the holders of
the certificates evidencing not less than 25% of the voting rights;
. 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 the series which continues
unremedied for thirty days after the giving of written notice of that
failure to the administrative agent by the trustee or the depositor,
or to the administrative agent, the depositor and the trustee by the
holders of the certificates evidencing not less than 25% of the voting
rights; and
. 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 specified 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 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 that 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
42
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 applicable
prospectus supplement.
Unless otherwise specified in the applicable prospectus supplement, so long
as an Administrative Agent Termination Event under the trust agreement with
respect to a given series of certificates remains unremedied, the depositor or
the trustee may, and at the direction of holders of those certificates
evidencing not less than the "Required Percentage--Administrative Agent
Termination" (as defined in the prospectus supplement, if applicable) of the
Voting Rights, terminate all the rights and obligations of the administrative
agent under the trust agreement relating to the applicable trust and in and to
the related deposited assets (other than any Retained Interest of the
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 that 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
the 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 that
administrative agent under the trust agreement with respect to that series.
Pending such appointment, the trustee is obligated to act in that 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 the administrative agent under the trust agreement with respect to
that 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. The
trustee, however, is under no obligation to exercise any of the trust agreement
or powers vested in it by the trust agreement or to make any investigation of
matters arising from that trust agreement or to institute, conduct or defend any
litigation 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.
Modification and Waiver
Unless otherwise specified in the applicable prospectus supplement, the
trust agreement for each series of certificates may be amended by the depositor
and the trustee with respect to that series, without notice to or consent of the
certificateholders, for specified purposes including:
. to cure any ambiguity;
. to correct or supplement any provision in the trust agreement which
may be inconsistent with any other provision in the agreement or in
the prospectus supplement;
. to add or supplement any credit support for the benefit of any
certificateholders (provided that if an addition affects any series or
class of certificateholders differently than any other series or class
of certificateholders, then such addition will not, as
43
evidenced by an opinion of counsel, have a material adverse effect on
the interests of any affected series or class of certificateholders);
. to add to the covenants, restrictions or obligations of the depositor,
the administrative agent, if any, or the trustee for the benefit of
the certificateholders;
. to add, change or eliminate any other provisions with respect to
matters or questions arising under that trust agreement so long as (x)
an 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 the certificates that the amendment will not cause such rating
agency to qualify, reduce or withdraw the then current rating thereof;
or
. to comply with any requirements imposed by the Code.
Without limiting the generality of the foregoing, unless otherwise
specified in the applicable prospectus supplement, the trust agreement may also
be modified or amended from time to time by the depositor, and the trustee, with
the consent of the holders of certificates evidencing not less than the
"Required Percentage--Amendment", 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 the 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 that series or class.
Except as otherwise specified in the applicable prospectus supplement, no
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 the depositor, the trustee or the
administrative agent, if any, with certain restrictive provisions, if any, of
the trust agreement before the time for that 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 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.
Reports to Certificateholders; Notices
Reports to Certificateholders. Unless otherwise specified 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
specified in the applicable prospectus supplement, will forward or cause to be
forwarded to that certificateholder, to the depositor and to the other parties
as may be specified in the trust agreement, a statement setting forth:
44
(i) the amount of such distribution to certificateholders of such class
allocable to principal of or interest or premium, if any, on the
certificates of such class; and the amount of aggregate unpaid
interest as of such distribution date;
(ii) in the case of certificates with a variable Certificate Rate, the
Certificate Rate applicable to such distribution date, as
calculated in accordance with the method specified in this
prospectus and in the applicable prospectus supplement;
(iii) the amount of compensation received by the administrative agent,
if any, and the trustee for the period relating to such
distribution date, and the other customary information as the
administrative agent, if any, or otherwise the trustee deems
necessary or desirable to enable certificateholders to prepare
their tax returns;
(iv) if advances are provided for, the aggregate amount of advances
included in that distribution, and the aggregate amount of
unreimbursed advances at the close of business on such distribution
date;
(v) the aggregate stated principal amount or, if applicable, notional
principal amount of the deposited assets and the current interest
rate at the close of business on such distribution date to the
extent notified thereof;
(vi) the aggregate Certificate Principal Balance or aggregate Notional
Amount, if applicable, of each class of certificates (including any
class of certificates not offered in the applicable prospectus
supplement) at the close of business on such distribution date,
separately identifying any reduction in the aggregate Certificate
Principal Balance or aggregate Notional Amount due to the
allocation of any net losses realized on any deposited assets or
otherwise; and
(vii) as to any series (or class within that 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 the distribution date to the extent
notified thereof.
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
in any other specified currency) per minimum denomination of certificates or for
such other specified portion. Within a reasonable period of time after the end
of each calendar year, the administrative agent or the trustee, as specified in
the applicable prospectus supplement, shall furnish to each person, at the
address set forth for such person on the records of the trustee or
administrative agent, as applicable, 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 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.
Notices. Unless otherwise specified 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.
45
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 after, a firm of independent public accountants will
furnish a statement to the trustee to the effect that the firm has examined
documents and records relating to the administration of the deposited assets
during the related 12-month period (or, in the case of the first 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, the firm is of the opinion that the
administration was conducted in compliance with the terms of the trust
agreement, except for exceptions as the firm shall believe to be immaterial and
the other exceptions and qualifications as shall be set forth in that report.
The trust agreement may also provide for delivery to the depositor, the
administrative agent, if any, and the trustee on behalf of the
certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the trustee to the effect that the trustee
has fulfilled its obligations under the trust agreement throughout the preceding
year with respect to any series of certificates.
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 specified in the applicable prospectus supplement.
Replacement Certificates
Unless otherwise specified in the applicable prospectus supplement, if a
registered certificate is mutilated, destroyed, lost or stolen, it may be
replaced at the corporate trust office or agency of the applicable trustee in
the City and State of New York or at the principal London office of the
applicable trustee, or 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 and the furnishing of the evidence and
indemnity as that trustee may require. Mutilated certificates must be
surrendered before new certificates will be issued.
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 that deposited asset
and (ii) the purchase of all the assets of the trust by the party entitled to
effect that termination, under the circumstances and in the manner specified in
the applicable prospectus supplement. In no event, however, will any trust
created by the trust agreement continue beyond the respective date specified in
the applicable 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.
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 that
46
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 in the prospectus supplement. The exercise of such right
will effect early retirement of the certificates of that series, but the right
of the person entitled to effect the termination is subject to the aggregate
principal balance of the outstanding deposited assets for the 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
applicable prospectus supplement.
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 the 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. 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 that series. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the trustee is required to examine those documents and to
determine whether they conform to the requirements of the trust agreement.
The Trustee
The trustee for any given series of certificates under the trust agreement
will be named in the applicable prospectus supplement. The commercial bank,
national banking association or trust company serving as trustee will be
unaffiliated with, but may have banking relationships with or provide financial
services to, the depositor, any administrative agent or any of their affiliates.
47
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. Those risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and the specified currency and the possibility of the
imposition or modification of foreign exchange controls with respect to that
specified currency. Such risks generally depend on factors over which the
depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
certificate. Depreciation of the specified currency for a certificate against
the U.S. dollar would result in a decrease in the effective yield of that
certificate below its Certificate 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 other than U.S. dollars for making distributions in
respect of certificates denominated in that currency. At present, the depositor
has identified the following currencies in which distributions of principal,
premium and interest on certificates may be made: Australian dollars, Canadian
dollars, Danish kroner, Italian lire, Japanese yen, New Zealand dollars, U.S.
dollars and ECU. However, certificates distributable with specified currencies
other than those listed may be issued at any time. There can be no assurance
that exchange controls will not restrict or prohibit distributions of principal,
premium or interest in any specified currency other than U.S. dollars. 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 the certificate are distributable would
not be available. In that event, the payments will be made in the manner set
forth above under "Description of the Certificates--General" or as otherwise
specified in the applicable prospectus supplement.
As specified 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, the 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 the securities. The risks include, without limitation,
the possibility of significant changes in rates of exchange between the
specified currency and the underlying securities currency and the possibility of
the imposition or modification of foreign exchange controls with respect to
either the specified currency or the underlying securities currency.
Prospective purchasers should consult their own financial and legal
advisors as to the risks entailed by an investment in certificates denominated
in a currency other than U.S. Dollars. such certificates are not an appropriate
investment for persons who are unsophisticated with respect to foreign currency
transactions.
The information set forth in this prospectus is directed to prospective
purchasers of certificates who are United States residents. The applicable
prospectus supplement for certain issuances of certificates may specify certain
information applicable to prospective purchasers who are residents of countries
other than the United States with respect to matters that may affect the
48
purchase or holding of, or receipt of distributions of principal, premium or
interest in respect of, the certificates.
Any prospectus supplement relating to certificates having a specified
currency other than U.S. dollars will contain information concerning historical
exchange rates for that currency against the U.S. dollar, a description of that
currency, any exchange controls affecting that currency and any other required
information concerning such currency.
Payment Currency
Except as described below or unless otherwise specified in the applicable
prospectus supplement, if distributions in respect of a certificate are required
to be made in a currency other than U.S. dollars and that currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the depositor's control or is no longer used by the government of the
country issuing that currency or for the settlement of transactions by public
institutions of or within the international banking community, then all
distributions in respect of that certificate shall be made in U.S. dollars until
that 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 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 for that 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 for that 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 that
distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date, (the "Day of
Valuation") shall be determined for the certificates of any series and class by
the applicable trustee on the following basis. The component currencies of the
ECU for this purpose (the "Components)" shall be the currency amounts that were
components of the ECU as of the last date on which the ECU was used in the
European Monetary System. The equivalent of the ECU in U.S. dollars shall be
calculated by aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components shall be determined by that
trustee on the basis of the most recently available 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 for those 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 that single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in the 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 those 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
that series.
49
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.
50
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences of the purchase, beneficial ownership and disposition of a
certificate purchased at initial issuance and held as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, but
does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase a certificate.
Such consequences generally will depend on the terms of the specific certificate
and the assets collateralizing or otherwise supporting that certificate. Except
as otherwise noted, this discussion deals only with an owner of a certificate
that is (i) a citizen or resident of the United States (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or any State (including the District of Columbia), (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over its administration and one or more United States
persons have the authority to control all of its substantive decisions (each, a
"U.S. Holder").
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. It does not deal with all federal tax consequences applicable
to a holder of certificates in light of that holder's circumstances. In
particular, it does not discuss all the tax consequences that may be relevant to
certain categories of investors subject to special rules such as certain
financial institutions, insurance companies and dealers, investors who hold
their certificates as part of a "straddle," a "hedge" or a "conversion
transaction," and investors that have a "functional currency" other than the
U.S. dollar.
Prospective investors should consult their own tax advisors to determine
the federal, state, local and other tax consequences applicable to them of the
purchase, ownership and disposition of the certificates, including the
advisability of making any of the elections described below, as well as any tax
consequences arising under the law of any state or other taxing jurisdiction.
The trust will be provided with an opinion of Sidley Austin Brown & Wood
LLP, special federal tax counsel to DB Depositor Inc. regarding certain federal
income tax matters discussed below. Further, the tax consequences arising from
the ownership of any series of certificates with special characteristics will be
set forth in the applicable prospectus supplement and a legal opinion of federal
tax counsel will be filed with the Commission in connection with each series of
certificates. In such opinion, federal tax counsel will opine as to the tax
disclosure regarding the certificates specified in this prospectus and the
applicable prospectus supplement. An opinion of federal tax counsel, however, is
not binding on the Internal Revenue Service or the courts. Prospective investors
should note that no rulings have been or will be sought from the Service with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given that the Service will not take contrary positions.
Tax Status of Trust as a Grantor Trust
If the trust is structured so as to constitute a grantor trust for federal
income tax purposes, the applicable prospectus supplement will indicate that
federal tax counsel has provided an opinion that the trust will be classified as
a grantor trust and not as an association, or publicly traded partnership
taxable as a corporation for federal income tax purposes. The following
discussion assumes that the trust will be classified as a grantor trust and not
as an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. Accordingly, each certificate owner will be treated
as the owner of a pro rata undivided interest in the deposited assets in the
trust for federal income tax purposes.
If the trust will be classified for federal income tax purposes as an
entity other than a grantor trust, the applicable prospectus supplement will
contain a description of the material federal
51
income tax consequences to investors of the purchase, beneficial ownership and
disposition of interests in the trust.
Income of Certificate Owners
In General. Each U.S. holder of a certificate will be subject to federal
income taxation as if it owned directly the portion of the deposited assets
allocable to such certificate, and as if it paid directly its share of expenses
paid by the trust. Except as described below, a U.S. holder would report its
share of the income of the trust under its usual method of accounting. Because
the payments collected on the underlying securities generally are paid to U.S.
holders in the following month, the amounts includible in a U.S. holder's gross
income attributable to the underlying securities during any calendar month will
not equal the amounts distributed in that month.
A U.S. holder will allocate the amount it pays for its certificate among
the underlying securities, the interest accrued on the underlying securities
that are treated as debt for federal income tax purposes (the "underlying debt
securities") and the deposited assets in the trust other than the underlying
debt securities (the "Other Deposited Assets") allocable to that certificate, in
proportion to their relative fair market values on the date of purchase of the
certificate. A U.S. holder would calculate separately its income, gain, loss or
deduction realized with respect to each asset.
This discussion assumes that the trust will be treated as a grantor trust
for federal income tax purposes. Should the trust be treated as an entity other
than a grantor trust for federal income tax purposes, the applicable prospectus
supplement will contain a description of the material federal income tax
consequences to investors of the purchase, beneficial ownership and disposition
of interests in the Trust.
Underlying Debt Securities. Except as provided below, each U.S. holder of a
certificate will be required to report on its federal income tax return its pro
rata share of the stated interest that is unconditionally payable at least
annually at a single fixed rate (a "qualified stated interest") on the
Underlying Debt Securities in accordance with its regular method of accounting.
Original Issue Discount. The underlying debt securities may have originally
been sold with original issue discount ("OID"). As provided in the Code and the
applicable regulations, OID is the excess of the "stated redemption price" of a
note (generally, the sum of all payments on the note other than qualified stated
interest) over its "issue price" (generally, the initial offering price to the
public, excluding bond houses and brokers, at which a substantial amount of
those underlying debt securities has been sold).
An underlying debt security issued with a de minimis amount of OID (i.e.,
one-quarter of one percent of the stated redemption price multiplied by the
number of complete years to its maturity) is not treated as having been issued
with OID. A U.S. holder having an interest in an underlying debt security with a
de minimis amount of OID will include that OID in income as capital gain on a
pro rata basis as principal payments are made on the underlying debt security.
A U.S. holder of certificates representing an interest in an underlying
debt security having more than a de minimis amount of OID (an "OID underlying
security"), is required to include OID in income as it accrues, which may be
before the receipt of the cash attributable to such income, based on a
compounding of interest at a constant rate (using the yield to maturity of the
underlying debt security as originally issued). In general, OID must be included
in ordinary gross income the sum of the "daily portions" of OID for all days
during the taxable year that the U.S. holder owns the certificate. The daily
portions of OID are determined by allocating to each day in any "accrual period"
a ratable portion of the OID allocable to that accrual period. The amount of OID
allocable to each accrual period is determined by (i) multiplying the "adjusted
issue price" of the stripped interest
52
by a fraction, the numerator of which is the annual yield to maturity of the
stripped interest and the denominator of which is the number of accrual periods
in a year and (ii) subtracting from that product the amount of qualified stated
interest, if any, payable on the stripped interest during or allocable to that
accrual period.
An "accrual period" would generally be each period ending on an interest
payment date on the underlying debt securities, although Treasury regulations
allow a U.S. holder to elect other accrual periods of no more than a year in
length, as long as each scheduled payment on the underlying debt securities
occurs at the end of an accrual period.
The "adjusted issue price" at the beginning of any accrual period is the
purchase price for a certificate allocable to the underlying debt security
(including accrued interest, if any) (i) increased by the amount of OID
allocable to all prior accrual periods and (ii) reduced by the amount of all
payments other than qualified stated interest payments, if any, in all prior
accrual periods. In addition, if an interval between payments of qualified
stated interest contains more than one accrual period, the adjusted issue price
at the beginning of each accrual period in the interval is increased by the
amount of qualified stated interest that has accrued prior to the first day of
the accrual period but that is not payable until the end of the interval.
The trustee intends to account for OID, if any, reportable by U.S. holders
by reference to the price paid for a certificate by an initial purchaser,
although the amount of OID will differ for subsequent purchasers. Such
subsequent purchasers should consult their tax advisors regarding the proper
calculation of OID.
Stripped Interests. A class of certificates will not be considered to
represent a "stripped bond" or "stripped coupon" (together a "stripped
interest") within the meaning of Section 1286 of the Code to the extent the
class is entitled to receive a proportionate amount of all principal and
interest on the underlying debt securities. A class of certificates will be
considered in its entirety to represent a stripped interest in the underlying
debt securities if it is entitled to receive interest on the underlying debt
securities which is disproportionately less than the principal which it is
entitled to receive on the underlying debt securities, or if it is entitled to
receive all or part of the interest on the underlying debt securities but no
principal on the underlying debt securities. In addition, if a class of
certificates is entitled to receive interest and principal on the underlying
debt securities, but the interest it is entitled to receive on the underlying
debt securities is disproportionately more than the principal it is entitled to
receive on the underlying debt securities, it could be argued that the
certificates represents (a) an interest in the underlying debt securities that
is not a stripped interest to the extent it represents a proportional amount of
all the principal and interest on the underlying debt securities and (b) a
stripped interest in the underlying debt securities to the extent of any
additional interest to which it is entitled on the underlying debt securities.
If a certificate represents, in part a stripped interest and, in part not a
stripped interest, such interests will be treated as two separate items for tax
purposes and a purchaser of certificates will be required to allocate its
purchase price among the two items (as well as any other deposited assets) in
proportion to their relative fair market values on the date of purchase.
In addition to any qualified stated interest, a holder of a certificate
representing a stripped interest having more than a de minimis amount of OID
will be required to include such OID in income as it accrues on a daily basis
under rules similar to those applicable to OID underlying securities. For these
purposes, the amount of OID on a stripped interest is equal to the excess of all
amounts payable on the stripped interest (other than qualified stated interest)
over the portion of the purchase price for the certificate allocable to the
stripped interest. Under the Treasury regulations issued under Section 1286 of
the Code, the interest payable with respect to the stripped interest will, in
the appropriate circumstances, be treated as "qualified stated interest" if it
represents a fixed periodic payment on principal on the underlying debt
securities to which the holder is also entitled. If none of the amounts payable
to a holder with respect to a stripped interest constitutes qualified
53
stated interest, then the stripped interest will have OID in an amount equal to
the excess of all payments to be received on the stripped interest over the
purchase price for the certificate allocable to the stripped interest.
If the amount of OID on the stripped interest represented by the
certificate is de minimis, the stripped interest will not be treated as having
OID. The amount of OID with respect to a stripped interest will generally be de
minimis if it is less than one-quarter of one percent of the stated redemption
price at maturity multiplied by the number of complete years remaining after the
purchase date until the maturity of such stripped interest. However, if the
stripped interest provides for amortization of principal, the amount of OID will
be de minimis if it is less than one-quarter of one percent of the stated
redemption price at maturity multiplied by the weighted average maturity (i.e.,
the sum of the amounts obtained by multiplying the amount of each payment under
the stripped interest (other than a payment of qualified stated interest) by a
fraction, the numerator of which is the number of complete years from the
purchase date until the payment is made and the denominator of which is the
stated redemption price at maturity) of the stripped interest. Each U.S. holder
of a certificate would be required to include the de minimis OID in income as
each principal payment on the stripped interest is received, in proportion to
the amount that each principal payment bears to the stated principal amount of
the stripped interest. That income would be capital gain, short-term or
long-term depending upon the U.S. holder's holding period in the certificate.
Principal Repayments. The portion of each monthly payment to a U.S. holder
that is allocable to principal on the underlying debt securities (other than
amounts representing discount, as described below) will represent a recovery of
capital, which will reduce the tax basis of such U.S. holder's undivided
interest in the underlying debt securities.
Acquisition Premium. If a certificate represents an interest in an OID
underlying security purchased with an acquisition premium (i.e., at a price in
excess of its adjusted issue price but less than its stated redemption price),
the annual amount includible in the income of the holder of the certificate as
OID is generally reduced by that portion of the excess properly allocable to
such year. Unless a holder of a certificate makes the accrual method election
described below, acquisition premium is allocated on a pro rata basis to each
accrual of OID, so that that holder is allowed to reduce each accrual of OID by
a constant fraction.
Market Discount. If a certificate represents an interest in an underlying
debt security purchased at a "market discount" (i.e., at a price less than the
stated redemption price or, in the case of an OID underlying security, the
adjusted issue price), the holder of that certificate will be required (unless
the difference is less than a de minimis amount) to treat any principal payments
on, or any gain realized upon the disposition or retirement of, the underlying
debt security as interest income to the extent of the market discount that
accrued while that certificateholder held the underlying debt security. A U.S.
holder may elect to include that market discount in income on a current basis.
Market discount is considered to be de minimis if it is less than one-quarter of
one percent of the underlying debt security's stated redemption price multiplied
by the number of complete years to maturity after the holder acquired the
certificate. If an underlying debt security with more than a de minimis amount
of market discount is disposed of in a nontaxable transaction (other than a
nonrecognition transaction described in Section 1276(d) of the Code), accrued
market discount will be includible as ordinary income to the certificateholder
as if such certificateholder had sold the certificate at its then fair market
value. A U.S. holder of a certificate that represents an interest in an
underlying debt security purchased at a market discount that does not elect to
include market discount in income on a current basis also may be required to
defer the deduction for a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry the certificate until the deferred
income is realized.
Amortizable Bond Premium. Except as noted below, a holder of a certificate
representing an interest in an underlying debt security purchased for an amount
in excess of the principal amount (or
54
in the case of an OID underlying security, the remaining stated redemption
price) will be treated as having premium with respect to the underlying debt
security in the amount of that excess. A U.S. holder of a certificate that
represents an OID underlying security with premium is not required to include in
income any OID with respect to that underlying debt security. If a U.S. holder
makes an election under Section 171(c)(2) of the Code to treat such premium as
"amortizable bond premium" the amount of interest that must be included in that
U.S. holder's income for that accrual period (where that underlying debt
security is not optionally redeemable prior to its maturity date) will be
reduced by the portion of the premium allocable to that period based on the
underlying debt security's yield to maturity. If the underlying debt security
may be called prior to maturity after the U.S. holder has acquired it, the U.S.
holder generally may not assume that the call will be exercised and must
amortize premium to the maturity date. If the underlying debt security is in
fact called, any unamortized premium may be deducted in the year of the call. If
a U.S. holder makes the election under Section 171(c)(2), the election also
shall apply to all bonds the interest on which is not excludible from gross
income ("Fully Taxable Bonds"), held by the certificateholder at the beginning
of the first taxable year to which the election applies and to all Fully Taxable
Bonds thereafter acquired by it, and is irrevocable without the consent of the
Service. If an election is not made, that U.S. holder must include the full
amount of each interest payment in income in accordance with its regular method
of accounting and will receive a tax benefit from the premium only in computing
its gain or loss upon the sale or other disposition or retirement of the
underlying debt security.
Election to Treat All Interest as OID. Any U.S. holder may elect to include
in gross income all interest (including stated interest, OID, de minimis OID,
market discount and de minimis market discount, as adjusted by any bond premium
or acquisition premium) that accrues on an unstripped or stripped interest using
the constant yield method described above, treating the instrument as having
been issued on the U.S. holder's acquisition date at an issue price equal to
that owner's adjusted basis with no interest payments being qualified stated
interest. An election with respect to a unstripped or stripped interest having
amortizable bond premium or market discount would constitute, respectively, an
election to apply the market discount rules or bond premium rules with respect
to all other debt instruments with market discount or amortizable bond premium,
as the case may be, of such U.S. holder.
Other Deposited Assets
The applicable prospectus supplement will contain a summary of the material
federal income tax consequences to a U.S. holder of the deposited assets other
than underlying debt securities held by the trust.
Modification or Exchange of Deposited Asset. Depending upon the
circumstances, it is possible that a modification of the terms of a deposited
asset, or a substitution of other assets for the deposited asset following a
default on the deposited asset, would be a taxable event to U.S. holders on
which they would recognize gain or loss.
Foreign Tax Credits. Any foreign income taxes withheld from payments to the
trust will be includible in the income of U.S. holders and will likewise be
deductible to U.S. holders, or, alternatively, U.S. holders may be eligible for
a U.S. foreign tax credit subject to various limitations.
Deductibility of Trust's Fees and Expenses. In computing its federal income
tax liability, a U.S. holder will be entitled to deduct, consistent with its
method of accounting, its share of reasonable administrative fees, trustee fees
and other fees paid or incurred by the trust as provided in Section 162 or 212
of the Code and any allowable amortization deductions with respect to certain
other assets of the trust. If a U.S. holder is an individual, estate or trust,
this deduction of fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
55
Sale, Exchange, Disposition or Retirement of a Certificate. Upon the sale,
exchange or other disposition of a certificate, or upon the retirement of a
certificate, a U.S. holder will recognize gain or loss equal to the difference,
if any, between the amount realized upon the disposition or retirement and the
U.S. holder's tax basis in the certificate. A U.S. holder's tax basis for
determining gain or loss on the disposition or retirement of a certificate will
be the cost of that certificate to that holder, increased by the amount of OID
and any market discount includible in that holder's gross income with respect to
an underlying debt security, and decreased by the amount of any payments under
an underlying debt security that are part of its stated redemption price and by
the portion of any premium applied to reduce interest payments as described
above.
Gain or loss upon the disposition or retirement of a certificate will be
capital gain or loss, except to the extent the gain represents accrued stated
interest, original issue or market discount on the certificate not previously
included in gross income, to which extent such gain or loss would be treated as
ordinary income. Any capital gain or loss will be long-term capital gain or loss
if at the time of disposition or retirement the certificate has been held for
more than one year.
Backup Withholding. Payments made on the certificates and proceeds from the
sale of the certificates generally will not be subject to a "backup" withholding
tax unless, in general, the U.S. holder fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
Foreign Certificateholders
Withholding at the Source. To the extent that amounts paid to a
certificateholder that is not a U.S. holder, or a foreign certificateholder, are
treated as U.S. source interest with respect to underlying debt securities
originated after July 18, 1984, those amounts generally will not be subject to
U.S. withholding tax, provided that that foreign certificateholder (i) fulfills
certain certification requirements, (ii) the foreign certificateholder does not
actually or constructively own 10% or more of the capital or profits of, or 10%
or more of the combined voting power of the stock of, the issuer of an
underlying debt security; (iii) the foreign certificateholder is not a
controlled foreign corporation related to the issuer of an underlying debt
security within the meaning of Code section 864(d)(4); and (iv) the foreign
certificateholder is not a bank receiving interest pursuant to a loan agreement
with the issuer of an underlying debt security entered into in the ordinary
course of its trade or business. Under such requirements, the holder must
certify, under penalties of perjury, that it is not a "United States person" and
provide its name and address.
A foreign certificateholder that does not have certain present or former
connections with the United States (e.g., holding a certificate in connection
with the conduct of a trade or business within the United States or being
present in the United States for 183 days or more during a taxable year)
generally will not be subject to federal income tax, and no withholding of such
tax will be required, with respect to any gain realized upon the disposition or
retirement of a certificate.
The applicable prospectus supplement will contain a summary of the material
federal income tax consequences to a foreign certificateholder of the deposited
assets other than underlying debt securities held by the trust.
Information Reporting and Backup Withholding. Payments made on the
deposited assets and proceeds from the sale of the certificates will not be
subject to a "backup" withholding tax unless, in general, the foreign
certificateholder fails to comply with certain reporting procedures and is not
an exempt recipient under applicable provisions of the Code.
The federal tax discussion set forth above is intended to address the
anticipated material federal income tax consequences related to the certificates
but may not be applicable depending upon a certificateholder's particular
situation. Certificateholders should consult their own tax
56
advisors with respect to the tax consequences to them of the ownership and
disposition of the certificates, including the tax consequences under the tax
laws of the United States, states, localities, countries other than the United
States and any other taxing jurisdictions and the possible effects of changes in
such tax laws.
57
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on (a) an employee benefit plan (as
defined in Section 3(3) of ERISA), (b) a plan described in Section 4975(e)(i) of
the Code or (c) any entity whose underlying assets include Plan Assets by reason
of a plan's investment in the entity, (each, a "Plan)".
In accordance with ERISA's general fiduciary standards, before investing in
a certificate, a Plan fiduciary should determine whether such an investment is
permitted under the governing Plan instruments and appropriate for the Plan in
view of the Plan's overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit 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 the Code). Thus, a Plan fiduciary considering an
investment in certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code.
Trust Assets as "Plan Assets"
An investment in certificates by a Plan might result in the assets of the
trust being deemed to constitute Plan Assets, which in turn might mean that
certain aspects of such investment, including the operation of the trust, might
be prohibited transactions under ERISA and the Code. Under Section 2510.3-101 of
the United States Department of Labor regulations (the "Regulation"), "Plan
Assets" may include an interest in the underlying assets of an entity (such as a
trust) for certain purposes, including the prohibited transaction provisions of
ERISA and the Code, if the Plan acquires an "equity interest" in such entity.
Thus, if a Plan acquired a certificate, for certain purposes under ERISA and the
Code (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the trust unless (1)
such certificate is a "publicly-offered security" as defined in such Regulation
or (2) equity participation by "benefit plan investors" is not considered
"significant" under such Regulation.
Under the Regulation, a publicly offered security is a security that is (1)
freely transferable, (2) part of a class of securities that is owned by 100 or
more investors independent of the issuer and of one another at the conclusion of
the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
Participation by benefit plan investors in the certificates would not be
significant if immediately after the most recent acquisition of a certificate,
whether or not from the depositor or DBAB, less than 25% of (1) the value of
such class of certificates and (2) the value of any other class of certificates
that is not a publicly offered security under the Regulation, were held by
benefit plan investors, which are defined as Plans and employee benefit plans
not subject to ERISA (for example, governmental plans).
It is anticipated that certain offerings of certificates will be structured
so that assets of the trust will not be deemed to constitute Plan Assets. In
such cases, the applicable prospectus
58
supplement will indicate either that the certificates will be considered
publicly-offered securities under the Regulation or that participation by
benefit plan investors will not be significant for purposes of the Regulation.
In other instances, however, the offering of certificates may not be so
structured. Thus, the assets of the trust may be deemed to be Plan Assets and
transactions involving the depositor, an underwriter, the trustee, any trustee
with respect to underlying securities, any obligors with respect to underlying
securities or affiliates of such obligors might constitute prohibited
transactions with respect to a Plan holding a certificate unless (i) one or more
prohibited transaction class exemptions ("PTCEs") applies or (ii) in the case of
an issuer of underlying securities, it is not a Disqualified Person or party in
interest with respect to the Plan. Plans maintained or contributed to by the
depositor, an underwriter, the trustee, a trustee with respect to underlying
securities, any issuer of underlying securities, or any of their affiliates,
should not acquire or hold any certificate.
If the trust is deemed to hold Plan Assets, the underlying securities would
appear to be an indirect loan between the issuer of the underlying securities
and any Plan owning certificates; however, that loan, by itself, would not
constitute prohibited transaction unless that obligor is a party in interest or
Disqualified Person with respect to that Plan.
Prohibited Transaction Exemptions
Prohibited transaction 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 transaction determined by
an independent qualified professional asset manager; PTCE 91-38, an exemption
for certain transactions involving bank collective investment funds; PTCE 90-1,
an exemption for certain transactions involving insurance company pooled
separate accounts; PTCE 95-60, an exemption for certain transactions involving
insurance company pooled general accounts, and PTCE 96-23, an exemption for
certain transactions effected by in-house asset managers.
If the underwriter with respect to an offering of certificates is a
broker-dealer registered under the Exchange Act, and customarily purchases and
sells securities for its own account in the ordinary course of its business as a
broker-dealer, sales of certificates by such underwriter to Plans may be exempt
under PTCE 75-1 if the following conditions are satisfied: (i) the underwriter
is not a fiduciary with respect to the Plan and is party in interest or
Disqualified Person solely by reason of Section 3(14)(B) of ERISA or Section
4975(e)(2)(B) of the Code or a relationship to a person described in such
Sections, (ii) the transaction is at least as favorable to the Plan as an
arms-length transaction with an unrelated party and is not a prohibited
transaction within the meaning of Section 503(b) of the Code, and (iii) the Plan
maintains for at least six years such records as are necessary to determine
whether the conditions of PTCE 75-1 have been met.
The custodial and other services tendered by the trustee and any trustee
with respect to underlying securities might be exempt pursuant to Section
408(b)(2) of ERISA and Section 4975(d)(2) of the Code, which exempt services
necessary for the establishment or operation of a Plan under a reasonable
contract or arrangement and for which no more than reasonable compensation is
paid. An arrangement would not be treated as reasonable unless it can be
terminated upon reasonably short notice under the circumstances without penalty.
The statutory exemption for services noted above does not provide exemptive
relief from prohibited transactions described in Section 406(b) of ERISA or
Section 4975(c)(1)(E) or (F) of the Code.
The prospectus supplement relating to any offering of certificates that
will result in the trust assets being deemed to constitute Plan Assets will
provide that, by acquiring and holding a certificate, a Plan shall be deemed to
have represented and warranted to the depositor, trustee, and underwriter that
such acquisition and holding of a certificate does not involve a non-exempt
prohibited transaction with respect to such Plan, including with respect to the
activities of the trust.
59
Any plan or insurance company investing assets of its general account
proposing to acquire certificates should consult with its counsel.
60
UNDERWRITING
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 specify the material 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 the depositor from such sale, whether the certificates are being offered by
the applicable prospectus supplement in connection with trading activities that
may create a short position or are being issued to cover that short position,
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.
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 DBAB. Unless
otherwise specified 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 the depositor
from time to time. Any agent involved in the offer or sale of certificates will
be named, and any commissions payable by the depositor to such agent will be
specified, 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 specified in the applicable prospectus supplement, the depositor will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase certificates at the public offering price described in
that prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a date specified in that prospectus supplement. Those
contracts will be subject only to those conditions specified in the applicable
prospectus supplement. The prospectus supplement will also set forth the
commissions payable for solicitation of those contracts. Any underwriters,
dealers or agents participating in the distribution of certificates may be
deemed to be underwriters and any discounts or commissions received by them on
the sale or resale of certificates may be deemed to be underwriting discounts
and commissions under the Securities Act. Agents and underwriters may be
entitled under agreements entered into with the depositor to indemnification by
the depositor against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments that the agents or
underwriters or their affiliates may be required to make in respect thereof.
Agents and underwriters and their affiliates may be customers of, engage in
transactions with, or perform services for, the depositor or its affiliates in
the ordinary course of business.
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 by this
prospectus. Any unrated classes or classes rated below investment grade may be
retained by the depositor or sold at any time to one or more purchasers.
61
LEGAL MATTERS
The validity of the certificates will be passed upon for the depositor and
the underwriters by Sidley Austin Brown & Wood llp, New York, New York.
62
No person has been authorized to give any information or make any
representations other than those contained in this prospectus supplement or the
accompanying prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized. This
prospectus supplement and the accompanying prospectus do not constitute an offer
to sell or the solicitation of an offer to buy any securities other than the
securities to which they related or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in
which such offer or solicitation would be unlawful. Neither
the delivery of this prospectus supplement and the accompanying
prospectus nor any sale made hereunder shall, under any circumstances, create
any implications that the information contained in this prospectus supplement or
the accompanying prospectus is correct as of any time subsequent to their
respective dates.
Table of Contents
Prospectus Supplement
Page
----
Summary of Principal Terms .............................................. S-4
Summary of Prospectus Supplement ........................................ S-8
Formation of the Trust .................................................. S-12
Risk Factors ............................................................ S-12
Description of the Deposited Assets ..................................... S-16
Description of the Certificates ......................................... S-23
Description of the Trust Agreement ...................................... S-28
Material Federal Income Tax Consequences ................................ S-31
ERISA Considerations .................................................... S-37
Underwriting ............................................................ S-39
Listing ................................................................. S-40
Ratings ................................................................. S-40
Legal Matters ........................................................... S-40
Prospectus
Important Notice About Information Presented in this Prospectus and the
Accompanying Prospectus Supplement .................................... 1
Where You Can Find More Information ..................................... 2
Incorporation of Certain Documents by Reference ......................... 2
Reports to Certificateholders ........................................... 3
Risk Factors ............................................................ 3
The Depositor ........................................................... 8
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 ...................... 26
Description of the Trust Agreement ...................................... 38
Currency Risks .......................................................... 48
United States Federal Income Tax Consequences ........................... 51
ERISA Considerations .................................................... 58
Underwriting ............................................................ 61
Legal Matters ........................................................... 62
- --------------------------------------------------------------------------------
Trust Certificates
Series 2002-1
Underlying Securities
will be 8.197% Capital Securities
issued by W.R. Berkley Capital
Trust
Prospectus Supplement
, 2002
Deutsche Banc Alex. Brown