<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1997
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TOYOTA AUTO LEASE TRUST 1997-A
(Issuer with respect to the Certificates)
(Exact name of Registrants as specified in its charter)
TOYOTA LEASING, INC.
(Originator with respect to the Toyota Auto Lease Trust 1997-A)
CALIFORNIA 6146 Applied for
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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19001 SOUTH WESTERN AVENUE
TORRANCE, CALIFORNIA 90509
(310) 618-4000
(Address, including zip code, and telephone number,
including area code, of Originator's principal executive offices)
--------------------
ALAN F. COHEN, ESQ.
GENERAL COUNSEL
TOYOTA MOTOR CREDIT CORPORATION
19001 SOUTH WESTERN AVENUE
TORRANCE, CALIFORNIA 90509
(310) 787-1310
(Name, address, including zip code, and telephone number, including
area code, of agent for service with respect to the Registrant)
DAVID J. JOHNSON, JR, ESQ. COPIES TO: RENWICK D. MARTIN, ESQ.
DANIEL F. PASSAGE, ESQ. BROWN & WOOD LLP
ANDREWS & KURTH L.L.P. ONE WORLD TRADE CENTER, 58TH FLOOR
601 S. FIGUEROA, SUITE 4200 NEW YORK, NEW YORK 10048
LOS ANGELES, CALIFORNIA 90017
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
134, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Amount of
Proposed Title of Amount to Be Offering Price Per Maximum Aggregate Registration
Securities to be Registered Registered Unit(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Automobile Lease Asset Backed
Certificates, Class A-1 $500,000 100% $500,000 $152.52
- -----------------------------------------------------------------------------------------------------
Automobile Lease Asset Backed
Certificates, Class A-2 $500,000 100% $500,000 $152.52
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum offering price per unit.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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CROSS REFERENCE SHEET FURNISHED
PURSUANT TO RULE 501(B) OF REGULATION S-K
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ITEM AND CAPTION IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . . . . . . . . . . Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages
of Prospectus; Description of the
Certificates
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . . . . . . Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . *
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . *
7. Selling Security Holders . . . . . . . . . . . . . . . . . . *
8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . Underwriting
9. Description of Securities to be
Registered . . . . . . . . . . . . . . . . . . . . . . . . . Summary; The Trust and the SUBI; The
Contracts; Maturity, Prepayment and Yield
Considerations; Description of the
Certificates; Security for the
Certificates
10. Interests of Named Experts and Counsel . . . . . . . . . . . *
11. Information With Respect to the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . The Trust and the SUBI; The Titling Trust
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
__________________________________
* Answer negative or item inapplicable.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any
such jurisdiction.
PROSPECTUS SUBJECT TO COMPLETION, DATED o, 1997
- ----------
TOYOTA AUTO LEASE TRUST 1997-A
$o o% AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-1
$o o% AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-2
TOYOTA LEASING, INC.
(TRANSFEROR)
TOYOTA MOTOR CREDIT CORPORATION
(SERVICER)
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The Auto Lease Asset Backed Certificates (the "Certificates") will
represent undivided interests in the Toyota Auto Lease Trust 1997-A (the
"Trust") formed pursuant to a securitization trust agreement (the "Agreement")
between Toyota Leasing, Inc. (the "Transferor") and o, as trustee (the
"Trustee"). The property of the Trust will consist of a Special Unit of
Beneficial Interest (the "SUBI"), which, in turn, will evidence a beneficial
interest in certain specified assets (the "SUBI Assets") of Toyota Lease Trust,
a Delaware business trust (the "Titling Trust"), monies on deposit in the
Reserve Fund and certain other accounts and certain other assets described more
fully herein under "The Trust and the SUBI". The assets of the Titling Trust
(the "Titling Trust Assets") will consist primarily of retail closed-end lease
contracts and the automobiles and light duty trucks relating thereto and
certain other assets described more fully herein. Toyota Motor Credit
Corporation ("TMCC") will service the lease contracts included in the Titling
Trust Assets. (Continued on next page)
FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A CERTIFICATES, SEE "RISK FACTORS" ON PAGE 17 HEREIN.
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THE CLASS A CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE
TRUST AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF TOYOTA MOTOR CREDIT CORPORATION, TOYOTA MOTOR SALES,
U.S.A., INC., TOYOTA LEASING, INC., TOYOTA LEASE TRUST
OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
APPLICATION WILL BE MADE TO LIST THE CLASS A CERTIFICATES ON THE LUXEMBURG
STOCK EXCHANGE, AND FOR LISTING AND PERMISSION TO DEAL IN THE CLASS
A CERTIFICATES ON THE STOCK EXCHANGE OF HONG KONG LIMITED.
<TABLE>
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Underwriting Proceeds to the
Price to Public(1) Discounts Seller(1)(2)
<S> <C> <C> <C>
Per Class A-1 Certificate . . . . . o% o% o%
Per Class A-2 Certificate . . . . . o% o% o%
Total . . . . . . . . . . . . $o $o $o
</TABLE>
(1) Plus accrued interest, if any, calculated at the related Certificate Rate
from the date of initial issuance.
(2) Before deducting expenses payable by the Seller estimated to be $o.
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The Class A Certificates are offered subject to prior sale, when, as and
if issued to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the Class
A Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company in the United States, Cedel
Bank, societe anonyme and the Euroclear System in Europe and Asia, on or about
o, 1997, against payment therefor in immediately available funds.
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[Underwriters]
THE DATE OF THIS PROSPECTUS IS o, 1997.
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(Continued from front cover)
From time to time until principal is first distributed to the holders
of Certificates ("Certificateholders"), as described below, principal
collections on or in respect of the SUBI Assets will be reinvested in
additional lease contracts originated as described herein and assigned to the
Titling Trust, together with the automobiles and light duty trucks relating
thereto, which at the time of reinvestment will become SUBI Assets. The SUBI
will not evidence a direct interest in the SUBI Assets, nor will it represent a
beneficial interest in any of the Titling Trust Assets other than the SUBI
Assets. Payments made on or in respect of the Titling Trust Assets not
represented by the SUBI will not be available to make payments on the
Certificates.
The Certificates will consist of two classes of senior certificates
(respectively, the "Class A-1 Certificates", and the "Class A-2 Certificates",
and collectively, the "Class A Certificates") and one class of subordinated
certificates (the "Class B Certificates"). The Class A Certificates are the
only Certificates offered hereby. The initial principal amount of the Class B
Certificates will be $o, and the Class B Certificates will be subordinated to
the Class A Certificates to the extent described herein. The Class A-1, Class
A-2 and Class B Certificates will initially evidence in the aggregate o%, o%
and o% undivided interests in the SUBI, respectively. The Transferor will own
the undivided interest in the Trust not represented by the Certificates (the
"Transferor Interest"). The initial principal amount of the Transferor
Interest will be $o. See "Description of the Certificates".
Interest on the Class A-1 and Class A-2 Certificates will accrue at
the respective per annum interest rates specified above and will be distributed
to holders thereof on the twenty-fifth day of each month (or, if such day is
not a Business Day, on the next succeeding Business Day), commencing on o, 1997
(each, a "Distribution Date"). Principal will be distributed to holders of the
Certificates to the extent described herein on each Distribution Date scheduled
to commence on o 1997 or, under certain limited circumstances, earlier as more
fully described herein. In general, no principal payments will be made on the
Class A-2 Certificates until the Class A-1 Certificates have been paid in full.
The Final Scheduled Distribution Date will be the o Distribution Date.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Class A Certificates. Such transactions may include stabilizing and the
purchase of Class A Certificates to cover syndicate short positions. For a
description of these activities, see "Underwriting".
UNTIL o, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN
INVESTOR WHO HAS RECEIVED AN ELECTRONIC PROSPECTUS OR A REQUEST BY SUCH
INVESTOR'S REPRESENTATIVE WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS
DELIVERY OBLIGATION, THE TRANSFEROR OR THE UNDERWRITERS WILL PROMPTLY DELIVER,
OR CAUSE TO BE DELIVERED, WITHOUT CHARGE, A PAPER COPY OF THE PROSPECTUS.
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AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed with the
Securities and Exchange Commission (the "Commission") on behalf of the Trust a
Registration Statement on Form S-1 (together with all amendments and exhibits
thereto, the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Class A Certificates. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Suite 1300, Seven World Trade Center, New York, New York 10048.
Copies of such information can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, copies of the Registration Statement and all
of the documents incorporated by reference herein (including the Titling Trust
Agreement and the Agreement) may be obtained at no charge at the offices of o,
Luxembourg, and at the offices of o, Hong Kong. The Servicer, on behalf of the
Trust, will also file or cause to be filed with the Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the Commission
thereunder. Electronic filings made through the Electronic Data Gathering
Analysis and Retrieval System are publicly available through the Commission's
Website at http://www.sec.gov.
REPORTS TO CERTIFICATEHOLDERS
o, as Trustee, will provide to Certificateholders (which shall be Cede
& Co. as the nominee of DTC unless Definitive Certificates are issued under
the limited circumstances described herein) unaudited monthly and annual
reports concerning the Contracts and Leased Vehicles. See "Description of the
Certificates--Reports to Certificateholders". For so long as the Class A-1
Certificates are outstanding, each such report (including a statement of the
outstanding principal balance of each Class of Certificates) also shall be
delivered to the Luxembourg Stock Exchange and The Stock Exchange of Hong Kong
Limited on the related date for delivery to Certificateholders. Copies of such
reports may be obtained at no charge at the offices of o, Luxembourg, and at
the offices of o, Hong Kong.
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OVERVIEW OF TRANSACTION
[CHART]
iv
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus on the
pages indicated in the "Index of Terms".
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OVERVIEW . . . . . . . . . . . . . . . . . Certain motor vehicle dealers ("Dealers") whose dealerships are located in
California, Florida, Michigan, Pennsylvania and Ohio (the "Trust States") have
assigned and will assign closed-end retail automobile and light-duty truck leases
to the Titling Trust pursuant to their dealer agreements with the Titling Trust.
The Titling Trust was created in October 1996 to avoid the administrative
difficulty and expense associated with retitling leased vehicles in the
securitization of automobile and light duty truck leases. The Titling Trust has
issued to TMCC an Undivided Trust Interest (the "UTI") representing the entire
beneficial interest in the unallocated Titling Trust Assets.
TMCC will instruct the trustee of the Titling Trust to allocate a separate
portfolio of leases and leased vehicles from and among the Titling Trust Assets
represented by the UTI and create a special unit of beneficial interest (the
"SUBI") which will represent the entire beneficial interest in such portfolio.
Titling Trust Assets allocated to the SUBI will no longer be represented by the
UTI. TMCC will sell the SUBI to the Transferor and the Transferor will contribute
substantially all of the SUBI to the Trust. In return, the Trust will issue the
Class A Certificates offered hereby and the Class B Certificates, and will create
the Transferor Interest for the benefit of the Transferor. The "Transferor
Interest" is the undivided interest in the Trust not evidenced by the Certificates
and will be permanently retained by the Transferor.
TMCC, from time to time in the future, may cause the Titling Trust to allocate
additional separate portfolios of leases and leased vehicles and to create
additional special units of beneficial interest similar to the SUBI relating to
such portfolios ("Other SUBIs") which may be sold to the Transferor or one or more
other entities. The Trust and the Certificateholders will have no interest in the
UTI, any Other SUBI or any Titling Trust Assets evidenced by the UTI or any Other
SUBI.
A. THE TRUST . . . . . . . . . . . . . . . The Trust will be formed pursuant to the Agreement between the Transferor and o,
as Trustee. The property of the Trust will consist primarily of the SUBI and
monies on deposit in certain accounts established as described herein.
B. THE TITLING TRUST . . . . . . . . . . . The Titling Trust is a Delaware business trust formed pursuant to the Titling
Trust Agreement. The primary business purpose of the Titling Trust is to take
assignments of and serve as holder of title
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<TABLE>
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to substantially all of the lease contracts and the related leased vehicles
originated by the Dealers beginning on dates prior to the execution of the SUBI
Supplement. Pursuant to the Servicing Agreement, TMCC will service the lease
contracts included in the Titling Trust Assets, including the Contracts. See
"Additional Document Provisions--The Trust Agreement" and "--The Servicing
Agreement" and "Certain Legal Aspects of the Titling Trust--The Titling Trust".
The Titling Trust is governed by an Amended and Restated Trust and Servicing
Agreement (the "Titling Trust Agreement") among TMCC, as grantor, initial
beneficiary and Servicer, TMTT, Inc., as trustee (the "Titling Trustee") and First
Bank National Association ("First Bank"), as trust agent (the "Trust Agent").
TMTT, Inc. is a Delaware corporation and a wholly owned, special purpose
subsidiary of First Bank that was organized solely for the purpose of acting as
Titling Trustee. TMTT, Inc. is not affiliated with TMCC or any affiliate
thereof. See "The Titling Trust--The Titling Trustee".
C. TITLING TRUST ASSETS
ALLOCATED AS SUBI ASSETS . . . . . . . The Titling Trust Assets consist primarily of retail closed-end lease contracts
and the automobiles and light duty trucks relating thereto. The SUBI will
evidence a beneficial interest in a specified portion of the Titling Trust Assets
allocated to the SUBI. Certain lease contracts (the "Initial Contracts")
originated by the Dealers, the automobiles and light duty trucks relating thereto
(the "Initial Leased Vehicles") and certain monies due under or payable in respect
of the Initial Contracts and the Initial Leased Vehicles on or after o, 1997 (the
"Initial Cutoff Date") will be allocated to the SUBI on the Closing Date. See "The
Trust and the SUBI--The SUBI". Prior to the time when principal is first
distributed to Certificateholders as described herein, payments made on or in
respect of the SUBI Assets allocable to principal will be reinvested in additional
retail closed-end lease contracts (the "Subsequent Contracts" and, together with
the Initial Contracts, the "Contracts") assigned to the Titling Trust by Dealers
and the related automobiles and light duty trucks (the "Subsequent Leased
Vehicles" and, together with the Initial Leased Vehicles, the "Leased Vehicles").
At the time of such reinvestment, such Subsequent Contracts and Subsequent Leased
Vehicles will be allocated to the SUBI and will no longer be UTI Assets. All such
assets, together with certain other assets and rights, are the "SUBI Assets". See
"Summary--The Revolving Period; Subsequent Contracts and Subsequent Leased
Vehicles" and "The Trust and the SUBI--The SUBI".
The SUBI will evidence an indirect beneficial interest, rather than a direct legal
interest, in the SUBI Assets. The SUBI will not represent a beneficial interest
in any Titling Trust Assets other
</TABLE>
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<TABLE>
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than the SUBI Assets. Payments made on or in respect of the Titling Trust Assets
other than the SUBI Assets will not be available to make payments on the
Certificates.
THE TRANSFEROR . . . . . . . . . . . . . . Toyota Leasing, Inc. is a California corporation which is a wholly owned, special
purpose subsidiary of TMCC. See "The Transferor".
TMCC . . . . . . . . . . . . . . . . . . . TMCC is a California corporation that has 34 branches in various locations in the
United States and one branch in the Commonwealth of Puerto Rico. TMCC's primary
business is providing retail leasing, retail and wholesale financing and certain
other financial services to authorized Toyota and Lexus vehicle and Toyota
industrial equipment dealers and their customers in the United States (excluding
Hawaii) and Puerto Rico. TMCC is a wholly owned subsidiary of Toyota Motor Sales,
U.S.A., Inc. ("TMS"), which is primarily engaged in the wholesale distribution of
automobiles, light duty trucks, industrial equipment and related replacement parts
and accessories throughout the United States (excluding Hawaii). TMS is a
wholly-owned subsidiary of Toyota Motor North America, Inc. ("TMA").
Substantially all of TMS's products are either manufactured by its affiliates or
are purchased from Toyota Motor Corporation ("TMC"), which wholly owns TMA, or
affiliates of TMC.
Pursuant to the Agreement and the Series 1997-A Servicing Supplement to the
Titling Trust Agreement dated as of o, 1997 among TMCC, the Titling Trustee and
the Transferor (the "Servicing Supplement" and together with the Titling Trust
Agreement, the "Servicing Agreement"), TMCC will act as the initial servicer of
the Titling Trust Assets, including the SUBI Assets (in such capacity, the
"Servicer"). The Trustee is a third party beneficiary of the Servicing Agreement.
SECURITIES OFFERED . . . . . . . . . . . . The Certificates will represent fractional undivided beneficial interests in the
Trust. The Certificates will consist of two classes of senior certificates (the
Class A-1 and Class A-2 Certificates) and one class of subordinated certificates
(the Class B Certificates). Only the Class A Certificates are being offered
hereby.
Principal payments generally will not be made in respect of the Class A-2
Certificates until the Class A-1 Certificates have been paid in full. See
"Description of the Certificates--Distributions on the Certificates--Application
and Distributions of Principal--Amortization Period". The Class B Certificates
will be subordinated to the Class A Certificates to the extent described herein.
See "Description of the Certificates--Distributions on the Certificates". The
Transferor Interest also will be subordinated to
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the Certificates. See "Summary--Assets of the Trust--Subordination of the
Transferor Interest".
Each Certificate will represent the right to receive monthly payments of interest
at the related Certificate Rate and, to the extent described herein, monthly
payments of principal during the Amortization Period. These payments will be
funded from payments received by the Trust on or in respect of the SUBI and, in
certain circumstances, from Excess Collections, monies on deposit in the Reserve
Fund, and monies that otherwise would be distributable in respect of the
Transferor Interest. Interests in the assets of the Trust will be allocated among
the Class A-1 Certificateholders (the "Class A-1 Interest"), the Class A-2
Certificateholders (the "Class A-2 Interest" and, together with the Class A-1
Interest, the "Class A Interest"), the Class B Certificateholders (the "Class B
Interest" and, together with the Class A Interest, the "Investor Interest") and
the Transferor Interest.
On the date of initial issuance of the Certificates (the "Closing Date"), the
Trust will issue $o aggregate principal amount of Class A-1 Certificates (the
"Initial Class A-1 Certificate Balance"), $o aggregate principal amount of Class
A-2 Certificates (the "Initial Class A-2 Certificate Balance" and, together with
the Initial Class A-1 Certificate Balance and the Initial Class A-2 Certificate
Balance, the "Initial Class A Certificate Balance") and $o aggregate principal
amount of Class B Certificates (the "Initial Class B Certificate Balance" and,
together with the Initial Class A Certificate Balance, the "Initial Certificate
Balance"). Except as described below, the aggregate principal amount of the Class
A-1, Class A-2 and Class B Certificates will remain fixed at their respective
Initial Certificate Balances during the Revolving Period and thereafter will
decline during the Amortization Period to the extent described herein.
The "Class Certificate Balance" of any Class of Certificates on any day will equal
the Initial Certificate Balance thereof, reduced by the sum of all distributions
made in respect of principal of such class (including distributions in respect of
Loss Amounts and Certificate Principal Loss Amounts allocable to such Class) on or
prior to such day and any unreimbursed Certificate Principal Loss Amounts in
respect of such Class, as described herein. The "Class A Certificate Balance"
will mean the sum of the Class A-1 and Class A-2 Certificate Balances. The
"Certificate Balance" with respect to the Certificates will mean the sum of the
Class A Certificate Balance and the Class B Certificate Balance.
The Transferor Interest will represent the interest in the Trust not represented
by the Investor Interest. The Transferor Interest will initially equal $o ([o]%
of the Aggregate Net Investment Value
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as of the Initial Cutoff Date) and on any day will equal the difference between
the Aggregate Net Investment Value and the Certificate Balance, calculated as
described below, but may not exceed $o. See "Summary--Titling Trust Assets--The
SUBI--The Contracts". As more fully described herein, the Aggregate Net
Investment Value can change daily and the Transferor Interest can decrease daily
as the Aggregate Net Investment Value decreases. The Transferor Interest may
increase on a Distribution Date as the Certificate Balance declines. See
"Description of the Certificates--General".
INTEREST . . . . . . . . . . . . . . . . . On each Distribution Date, distributions in respect of the Class A Certificates
will be made to the holders of record thereof as of the day immediately preceding
such Distribution Date or, if Definitive Certificates are issued, the last day of
the immediately preceding calendar month (each such date, a "Record Date"). On
each Distribution Date, the Trustee will distribute interest for the related
Interest Period to the holders of the Class A-1 and Class A-2 Certificates based
on the related Class Certificate Balance as of the close of business on the
preceding Distribution Date or, in the case of the first Distribution Date, on the
related Initial Certificate Balance. During each Interest Period, interest will
accrue on the Class A-1 Certificates at a per annum rate of o% (the "Class A-1
Rate") and on the Class A-2 Certificates at a per annum rate of o% (the "Class A-2
Rate").
With respect to each Distribution Date, the related "Interest Period" will be the
period from and including the preceding Distribution Date to but excluding such
Distribution Date, except that the first Interest Period will be the period from
and including the Closing Date to but excluding the First Distribution Date.
Interest will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
The final scheduled Distribution Date for the Certificates (the "Final Scheduled
Distribution Date") will be the Distribution Date in o. A "Business Day" will be
a day other than a Saturday or Sunday or a day on which banking institutions in
the States of California or Illinois are authorized or obligated by law, or
executive order or government decree to be closed; provided that, solely for
purposes of identifying any Distribution Date with respect to the making of
payments on the Class A-1 Certificates in Luxembourg or Hong Kong by a paying
agent there located, "Business Day" shall also exclude any day on which banking
institutions located in that jurisdiction are authorized by law, regulation,
governmental order or decree to be closed, whether or not payments are made with
respect to such Certificates in any other jurisdiction on such date, but such
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definition shall not be used for making any other calculation with respect to the
Contracts or any other Certificates.
THE REVOLVING PERIOD . . . . . . . . . . . No principal will be payable on the Certificates until the Distribution Date (the
"First Principal Distribution Date") in the month commencing after the earlier to
occur of o, 1998 (the "Amortization Date") or an Early Amortization Event. Early
Amortization Events are described under "Description of the Certificates--Early
Amortization Events". From the Closing Date and through the Business Day
preceding the commencement of the Amortization Period (i.e., the earlier of o 1,
1998 or the date of an Early Amortization Event) (the "Revolving Period"), all
Principal Collections and amounts otherwise distributable to Certificateholders as
reimbursements of Loss Amounts will be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles so as to maintain the Certificate Balance at a constant
level during the Revolving Period; provided that during the Revolving Period the
Certificate Balance of a Class of Certificates will decrease to the extent
Certificate Principal Loss Amounts are allocated thereto and not reimbursed. See
"Description of the Certificates--Distributions on the Certificates--Distributions
of Interest".
During the Revolving Period, on one or more Business Days selected by the Servicer
(each, a "Transfer Date"), the Servicer will direct the Titling Trustee to
reinvest Principal Collections and certain reimbursed Loss Amounts in Subsequent
Contracts and Subsequent Leased Vehicles. Upon such reinvestment, such Subsequent
Contracts and Subsequent Leased Vehicles will become SUBI Assets. If on the last
Business Day of any month during the Revolving Period the Servicer determines that
the amount of Principal Collections not reinvested in Subsequent Contracts and
Subsequent Leased Vehicles during the preceding calendar month exceeds $o, an
Early Amortization Event will be deemed to have occurred, the Revolving Period
will terminate as of such day and all Principal Collections and reimbursed Loss
Amounts not reinvested as of such day will be distributed as principal to the
Trust and then to Certificateholders on the succeeding Distribution Date. See
"Description of the Certificates--Distributions on the Certificates--Application
and Distributions of Principal--Revolving Period".
During the Revolving Period, Subsequent Contracts and Subsequent Leased Vehicles
will be selected from the Titling Trust's portfolio of lease contracts and related
vehicles not allocated to any Other SUBI, based on the criteria applicable to
Initial Contracts and Initial Leased Vehicles and certain other criteria described
under the "The Contracts--Representations, Warranties and Covenants".
Reinvestment of Principal Collections and reimbursed Loss Amounts will be in the
lease
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contracts having the earliest origination dates and the related vehicles and
Titling Trust Assets (excluding those previously allocated to any Other SUBI). If
any Other SUBI is created and allocations are being made in respect of such Other
SUBI at the same time out of the Titling Trust's general pool of unallocated lease
contracts, reinvestment in respect of the SUBI will be given priority. See "The
Contracts".
"Principal Collections" will mean, with respect to any Collection Period, all
Collections allocable to the principal component of any Contract (including any
payment in respect of the related Leased Vehicle, other than any payment as to
which a Loss Amount has been realized and allocated during any prior Collection
Period), discounted to the extent described below. With respect to any
Distribution Date, the related "Collection Period" will be the preceding calendar
month. For purposes of determining Principal Collections, the principal component
of all payments made on or in respect of a Contract (or the related Leased
Vehicle) with a Lease Rate less than o% per annum (each, a "Discounted Contract")
will be discounted at a per annum rate of o%, thereby effectively reallocating a
portion of the payments received in respect of the principal component of the
Contracts to Interest Collections and providing additional credit enhancement for
the benefit of the Certificateholders. With respect to any Collection Period,
"Collections" will include all net collections received in respect of the
Contracts and Leased Vehicles during such Collection Period, such as Monthly
Payments (including Payments Ahead that represent Monthly Payments due during such
Collection Period), Prepayments, Advances, Net Matured Leased Vehicle Proceeds,
Net Repossessed Vehicle Proceeds and other Net Liquidation Proceeds, less (i)
amounts representing Payments Ahead with respect to future Collection Periods,
(ii) amounts retained by or paid to the Servicer in respect of outstanding
Advances and (iii) Additional Loss Amounts in respect of such Collection Period.
In addition, for each Collection Period during the Revolving Period, amounts
otherwise payable to the Certificateholders on the related Distribution Date as
reimbursement of Loss Amounts allocable to the Investor Interest will be treated
as Principal Collections and reinvested in Subsequent Contracts and Subsequent
Leased Vehicles. See "Description of the Certificates--Distributions on the
Certificates--Distributions of Interest").
With respect to any Collection Period "Interest Collections" generally will equal
the amount by which Collections exceed Principal Collections. "Net Repossessed
Vehicle Proceeds" will equal Repossessed Vehicle Proceeds net of Repossessed
Vehicle Expenses, and "Net Liquidation Proceeds" will equal Liquidation Proceeds
net of Liquidation Expenses.
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AMORTIZATION PERIOD;
PRINCIPAL PAYMENTS . . . . . . . . . . . The "Amortization Period" shall commence on the earlier of the Amortization Date
or the day on which an Early Amortization Event occurs, and will end when (i) each
Class of Certificates has been paid in full and all Certificate Principal Loss
Amounts and any Class B Certificate Principal Carryover Shortfalls have been
repaid in full, together with accrued interest thereon, or (ii) the Trust
otherwise terminates. During the Amortization Period, Principal Collections and
reimbursed Loss Amounts will no longer be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles. On each Distribution Date beginning with the First
Principal Distribution Date and ending on the Distribution Date on which the Class
A-1 Certificates have been paid in full, all Principal Collections for the related
Collection Period allocable to the Investor Interest will be distributed as
principal payments first to the Class A-1 Certificateholders until the Class A-1
Certificates have been paid in full, and thereafter the Class A Percentage and the
Class B Percentage of any remaining such Principal Collections will be distributed
as principal payments to the Class A-2 Certificateholders and to the holders of
record of the Class B Certificates (the "Class B Certificateholders"),
respectively. On each Distribution Date after the Class A-1 Certificates have
been paid in full, the Class A Percentage and the Class B Percentage of Principal
Collections for the related Collection Period allocable to the Investor Interest
will be distributed to the Class A-2 Certificateholders and the Class B
Certificateholders, respectively, until the related Class of Certificates has been
paid in full. The "Class A Percentage" will mean the Class A- 2 Certificate
Balance immediately after the Class A-1 Certificates have been paid in full as a
percentage of the Certificate Balance at such time, and the "Class B Percentage"
will mean the Class B Certificate Balance at such time as a percentage of the
Certificate Balance at such time. The Class A Percentage and the Class B
Percentage will not change after they are set.
Principal distributed in respect of any Class of Certificates on any Distribution
Date will not exceed the sum of the related Certificate Balance and Loss Amounts
allocable and reimbursable thereto on such date. Under certain circumstances, (i)
Class A Certificateholders will be entitled to receive reimbursement of an
allocable percentage of Loss Amounts as a distribution of principal from sources
other than Principal Collections and (ii) principal allocable to the Class B
Certificates may instead be distributed in respect of Loss Amounts allocable to
the Class A-2 Certificates, Class A-2 Certificate Principal Loss Amounts and
accrued and unpaid interest thereon. See "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest",
"--Application and Distributions of Principal" and
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"Risk Factors--Maturity and Prepayment Considerations--Reimbursement of Certain
Losses".
During the Amortization Period, the amount of Principal Collections allocable to
the Investor Interest in respect of a Collection Period (the "Principal
Allocation") generally will mean the Principal Collections in respect of such
Collection Period allocable to the SUBI Interest multiplied by the Investor
Percentage for such Principal Collections. The "Investor Percentage" for purposes
of the Principal Allocation will equal the percentage equivalent of a fraction
(not to exceed 100%), the numerator of which is the Certificate Balance and the
denominator of which is the Aggregate Net Investment Value, calculated as of the
last day of the Collection Period (i) preceding the Amortization Date or (ii)
preceding the month, if any, during which an Early Amortization Event occurs. See
"Description of the Certificates--Calculation of Investor Percentage and
Transferor Percentage."
Allocations based upon the Principal Allocation may result in distributions to
Certificateholders of Principal Collections with respect to Collection Periods
during the Amortization Period in amounts that are greater relative to the
declining Certificate Balances than would be the case if no fixed Investor
Percentage were used. Additionally, the Accelerated Principal Distribution Amount
will be distributed as an additional payment of principal to the
Certificateholders in the same manner and priority as principal is distributed in
respect of the Certificates as described in the preceding paragraphs. To the
extent that on any Distribution Date during the Amortization Period any portion of
the Investor Percentage of Interest Collections in respect of the related
Collection Period remains after required distributions have been made, such excess
interest will be deposited into the Reserve Fund until the amount on deposit
therein equals the Specified Reserve Fund Balance. Any remaining excess interest,
up to but not exceeding the product of (i) one-twelfth of [o]% and (ii) the
Aggregate Net Investment Value as of the last day of such Collection Period will
constitute the "Accelerated Principal Distribution Amount". See "Description of
the Certificates-- Distributions on the Certificates--Distributions of Interest"
and "Assets of the Trust--The Accounts; Collections--The SUBI Collection
Account--Certain Withdrawals from the SUBI Collection Account".
The "Aggregate Net Investment Value" as of any date will equal the sum of (i) the
Discounted Principal Balance of all Contracts other than Charged-off, Liquidated,
Matured and Additional Loss Contracts, (ii) the aggregate Residual Value of all
Leased Vehicles to the extent that the related Contracts have reached their
scheduled maturities (each, a "Matured Contract") within the
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three immediately preceding Collection Periods but which Leased Vehicles as of the
last day of the most recent Collection Period have remained unsold and not
otherwise disposed of by the Servicer for no more than three full Collection
Periods (the "Matured Leased Vehicle Inventory") plus certain related charges and
(iii) during the Revolving Period, the amount of unreinvested Principal
Collections and reimbursed Loss Amounts. The "Discounted Principal Balance" for
each Contract with a Lease Rate less than o% will be its Outstanding Principal
Balance discounted by o% (each such Contract, a "Discounted Contract"), and for
each Contract with a Lease Rate at least equal to o% will be its Outstanding
Principal Balance. As of the Initial Cutoff Date, the Aggregate Net Investment
Value equaled the aggregate Discounted Principal Balance of the Initial Contracts
or $o.
OPTIONAL PURCHASE . . . . . . . . . . . . . The Transferor will have an option to purchase the SUBI Certificate on any
Distribution Date if, either before or after giving effect to any payment of
principal required to be made on such Distribution Date, the Certificate Balance
has been reduced to an amount less than or equal to 10% of the Initial Certificate
Balance. Such a purchase would result in the retirement of the Certificates of
each Class. See "Description of the Certificates--Termination of the Trust;
Retirement of the Certificates".
FORM, DENOMINATIONS AND REGISTRATION
OF THE CLASS A CERTIFICATES . . . . . . . .
Except under limited circumstances, the Class A Certificates will be available
only in book- entry form in minimum denominations of $1,000. Persons acquiring
beneficial ownership interests in the Class A Certificates ("Certificate Owners")
will hold their Certificates through The Depository Trust Company ("DTC"), in the
United States, or Cedel Bank, societe anonyme ("Cedel Bank") or the Euroclear
System ("Euroclear") in Europe or Asia. See "Risk Factors--Book-Entry
Registration", "Description of the Certificates--Book-Entry Registration" and
"ANNEX I: Global Clearance, Settlement and Tax Documentation Procedures".
LISTING . . . . . . . . . . . . . . . . . . Application will be made for listing of the Class A Certificates on the Luxembourg
Stock Exchange and for listing of and permission to deal in the Class A-1
Certificates on The Stock Exchange of Hong Kong Limited. The Issuer has requested
that such permission be made effective on or before o, 1997.
THE SUBI . . . . . . . . . . . . . . . . . The SUBI will be evidenced by a certificate (the "SUBI Certificate") evidencing a
100% beneficial interest in the SUBI Assets and will not evidence an interest in
any Titling Trust Assets other than the SUBI Assets. Payments made on or in
respect of any other Titling Trust Assets will not be available to make payments
on the Certificates. The Titling Trust Assets evidenced by the SUBI will
primarily include the Contracts and
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Leased Vehicles allocated to the SUBI. See "The Trust and the SUBI" and "The
Titling Trust".
1. The Contracts . . . . . . . . . . . The Contracts will consist of retail closed-end lease contracts originated by the
Dealers having original terms of not more than 60 months. Each Contract will be a
finance lease for accounting purposes and will have been written for a
"capitalized cost" (which may exceed the manufacturer's suggested retail price and
may include certain origination fees), plus a lease charge which is based on an
imputed interest rate (the "Lease Rate"). Each Contract will provide for equal
monthly payments (each, a "Monthly Payment") that when allocated between principal
and the lease charge at the Lease Rate on a constant yield basis, will be
sufficient to amortize the capitalized cost over the term of the lease to an
amount equal to the Residual Value. A Residual Value is established at the
origination of the lease (based on documentation provided to the Dealers by TMCC)
and represents the estimated wholesale market value at the end of the lease term
("Residual Value"). The amount to which the capitalized cost of a Contract has
been amortized at any point in time is referred to herein as its "Outstanding
Principal Balance".
The Initial Contracts consist of o lease contracts. As of the Initial Cutoff
Date, the Initial Contracts had Lease Rates ranging from o% to o% and a weighted
average Lease Rate of o%. The aggregate of the original principal balances of the
Initial Contracts as of their respective dates of origination was $o. As of the
Initial Cutoff Date, the Initial Contracts had an aggregate Outstanding Principal
Balance of $o, an aggregate Residual Value of $o, an Aggregate Net Investment
Value of $o, a weighted average original term of o months and a weighted average
remaining term to scheduled maturity of o months. See "The Contracts".
2. The Leased Vehicles . . . . . . . . The Leased Vehicles will be comprised of automobiles and light duty trucks. As of
the times of origination of the Contracts, the related Leased Vehicles will
include new and/or used vehicles (including dealer demonstrator vehicles or
manufacturers' program vehicles), as described under "The Contracts--General".
The certificates of title to the Initial Leased Vehicles are registered, and the
certificates of title to all Leased Vehicles will be, registered at all times
prior to liquidation in the name of the Titling Trust. The certificates of title
will not reflect the indirect interest of the Trustee in the Leased Vehicles by
virtue of its beneficial interest in the SUBI. Therefore, if the Class A
Certificates were recharacterized as secured loans, the Trustee would have a
perfected security interest in the SUBI Certificate, Contracts and Contract Rights
but not in the Leased Vehicles. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations" and "--Back-up Security Interests".
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THE SUBI COLLECTION ACCOUNT;
COLLECTIONS . . . . . . . . . . . . . . . The Titling Trustee will maintain the SUBI Collection Account for the benefit of
the holders of interests in the SUBI. Except under certain limited
circumstances, the Servicer will be permitted to deposit amounts collected in
respect of payments made on or in respect of the Contracts or the Leased Vehicles
during each Collection Period into the SUBI Collection Account on the related
Deposit Date rather than when received. Such payments will include, but will not
be limited to, (i) Monthly Payments, not including Monthly Payments determined by
the Servicer to be due in one or more future Collection Periods, which will
include partial prepayments (each, a "Payment Ahead") until the Collection Periods
during which such Payments Ahead are due, (ii) Prepayments, (iii) proceeds from
the sale or other disposition of Leased Vehicles under Matured Contracts,
including payments for excess mileage and excess wear and tear ("Matured Leased
Vehicle Proceeds"), (iv) proceeds received in connection with the sale or other
disposition of Leased Vehicles that have been repossessed ("Repossessed Vehicle
Proceeds") and (v) other amounts received in connection with the realization of
the amounts due under any Contract (together with Matured Leased Vehicle Proceeds
and Repossessed Vehicle Proceeds, "Liquidation Proceeds").
The Servicer will be entitled to reimbursement for expenses incurred in connection
with the realization of Matured Leased Vehicle Proceeds ("Matured Leased Vehicle
Expenses"), Repossessed Vehicle Proceeds ("Repossessed Vehicle Expenses") and
other Liquidation Proceeds (such expenses, together with Matured Leased Vehicle
Expenses and Repossessed Vehicle Expenses, "Liquidation Expenses"), to be netted
from proceeds or Collections in respect of such payments (including other
Liquidation Proceeds), whether or not on deposit in the SUBI Collection Account.
The Servicer also will be entitled to reimbursement of certain payments made and
expenses and charges incurred by it in the ordinary course of servicing the
Contracts (including payments it makes on behalf of the related lessees in
connection with the payment of taxes, vehicle registration, clearance of parking
tickets and similar items) from Collections with respect to the related Contracts,
separate payment thereof by the related lessees or from amounts realized upon the
final disposition of the related leased vehicle. To the extent such amounts are
reimbursed prior to or at the final disposition of the related leased vehicle but
remain unpaid by the related lessee, such unreimbursed amounts (together with any
unpaid Monthly Payments under the related Contract) will be treated as Matured
Leased Vehicle Expenses or Liquidation Expenses, as the case may be, and will
therefor reduce Net Matured Leased Vehicle Proceeds or Liquidation proceeds, as
the case may be.
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On the Business Day immediately preceding each Distribution Date (each, a "Deposit
Date"), the following additional amounts will be deposited into the SUBI
Collection Account: (i) Advances by the Servicer and (ii) Reallocation Payments by
TMCC (together with, under certain circumstances during the Amortization Period,
Reallocation Deposit Amounts) in respect of certain Contracts as to which an
uncured breach of certain representations and warranties or certain servicing
covenants has occurred. In addition, the Required Amount will be withdrawn from
the Reserve Fund and deposited into the SUBI Collection Account on each Deposit
Date. Thereafter, the Interest Collections (and, with respect to the Deposit Date
in any month following the month during which the Amortization Period commences,
the Principal Collections) on deposit in the SUBI Collection Account in respect of
the related Collection Period will be available for distribution of required
amounts to Certificateholders and the Transferor. Any funds remaining in the SUBI
Collection Account on a Distribution Date in respect of the related Collection
Period following the payment of amounts required to be paid therefrom will be
deposited into the Reserve Fund until the amount on deposit therein equals the
Specified Reserve Fund Balance, and thereafter generally will be paid to the
Transferor. See "Assets of the Trust--The Accounts; Collections--The SUBI
Collection Account".
The Certificateholders and the Transferor (as holder of the Transferor Interest)
are entitled on any Distribution Date to be allocated or to receive Matured Leased
Vehicle Proceeds up to, but not in excess of, the aggregate of the Residual Values
of Leased Vehicles sold or otherwise disposed of from Matured Leased Vehicle
Inventory during the related Collection Period. It is possible that in any
Collection Period the Servicer could incur Matured Lease Vehicle Expenses that, if
reimbursed from collections in respect of Matured Leased Vehicle Proceeds, would
result in Net Matured Leased Vehicle Proceeds being less than the sum of the
Residual Values of all Leased Vehicles so sold or otherwise disposed. Any such
shortfall will result in the realization of Residual Value Loss Amounts. On each
Deposit Date on which Matured Leased Vehicle Proceeds received during the related
Collection Period net of related Matured Leased Vehicle Expenses incurred during
such Collection Period ("Net Matured Leased Vehicle Proceeds") exceed the
aggregate Residual Value of the related Leased Vehicles (the "Residual Value
Surplus"), such excess will be released to the Transferor and neither the Trust
nor the Certificateholders will have any further claim thereto or interest
therein.
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THE RESERVE FUND . . . . . . . . . . . . . A Reserve Fund will be maintained with the Trustee for the benefit of the
Certificateholders and the Transferor. The Reserve Fund is designed to provide
additional funds for the benefit of the Certificateholders in the event that on
any Distribution Date Interest Collections allocable to the Investor Interest for
the related Collection Period are insufficient to pay, among other things, (i)
accrued interest, (ii) overdue interest (with interest thereon at the applicable
Certificate Rate, to the extent lawful) and (iii) any Loss Amount for such
Collection Period allocable to the Investor Interest, together with interest
thereon at the applicable Certificate Rate (the aggregate amount of such
deficiency, the "Required Amount"). Monies on deposit in the Reserve Fund also
will be available to Certificateholders should Collections ultimately be
insufficient to pay in full any Class of Certificates. The Reserve Fund will not
be an asset of the Trust. See "Assets of the Trust--The Accounts;
Collections--The Reserve Fund".
The Reserve Fund will be created with an initial deposit (the "Initial Deposit")
by the Transferor of $o (an amount equal to o% of the Aggregate Net Investment
Value as of the Initial Cutoff Date). On each Distribution Date, the Reserve Fund
will be supplemented by (i) all Excess Collections and (ii) certain monies that
otherwise would be distributed as Transferor Amounts, until the amount on deposit
therein equals the applicable Specified Reserve Fund Balance. After giving effect
to all payments from the Reserve Fund on a Distribution Date, monies on deposit
therein in excess of the Specified Reserve Fund Balance will be paid to the
Transferor, free and clear of any interest of the Trust. See "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest" and
"Assets of the Trust--The Accounts; Collections--The Reserve Fund--The Specified
Reserve Fund Balance".
SUBORDINATION . . . . . . . . . . . . . . . The Class B Certificates will be subordinated to the Class A Certificates so that
on any Distribution Date (i) interest payments generally will not be made in
respect of the Class B Certificates until interest in respect of the Class A
Certificates has been paid on such Distribution Date, (ii) principal payments
generally will not be made in respect of the Class B Certificates until the Class
A-1 Certificates have been paid in full and (iii) if other sources available to
make payments of principal on the Class A-2 Certificates are insufficient on such
Distribution Date, amounts that otherwise would be paid in respect of the Class B
Certificates on such Distribution Date generally will be available for that
purpose.
To provide additional credit enhancement for the Certificates, payments will not
be made to the Transferor in respect of the Transferor Interest on any
Distribution Date until all payments required to be made to Certificateholders on
such Distribution
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Date as described under "Description of the Certificates--Distributions on the
Certificates--Distributions of Interest" have been made and the amount on deposit
in the Reserve Fund equals the Specified Reserve Fund Balance. See "Description
of the Certificates--Certain Payments to the Transferor".
ADVANCES . . . . . . . . . . . . . . . . . On each Deposit Date, the Servicer will be obligated to make an advance with
respect to each outstanding delinquent Contract and certain Contracts as to which
payments have been deferred that has not been reallocated to the UTI with an
accompanying Reallocation Payment as described herein, provided that the Servicer
will not be required to make any Advance to the extent that it determines such
Advance may not be ultimately recoverable from Net Liquidation Proceeds or
otherwise. Each such advance will be made by deposit into the SUBI Collection
Account of an amount equal to the aggregate amount of Monthly Payments due but not
received during the related Collection Period (each, an "Advance"). See
"Additional Document Provisions--The Servicing Agreement--Collections" and
"--Advances".
SERVICING COMPENSATION . . . . . . . . . . The Servicer will be entitled to receive a monthly fee with respect to the SUBI
Assets (the "Servicing Fee"), payable on each Distribution Date, equal to
one-twelfth of 1% of the Aggregate Net Investment Value as of the first day of the
related Collection Period (or, in the case of the first Distribution Date, as of
the Initial Cutoff Date). The Servicer also will be entitled to additional
servicing compensation in the form of, among other things, late fees, Deferral
Fees and other administrative fees or similar charges under the Contracts. See
"Additional Document Provisions--The Servicing Agreement--Servicing
Compensation".
TAX STATUS . . . . . . . . . . . . . . . . Andrews & Kurth L.L.P., special federal income tax counsel to the Transferor, will
deliver an opinion to the effect that the Class A Certificates will be
characterized as indebtedness for federal income tax purposes. Each Class A
Certificateholder, by its acceptance of a Class A Certificate, and each
Certificate Owner by its acquisition of an interest in the Class A Certificates,
will agree to treat the Class A Certificates as indebtedness for federal, state
and local income tax purposes. Prospective investors are advised to consult their
own tax advisors regarding the federal income tax consequences of the purchase,
ownership and disposition of Class A Certificates, and the tax consequences
arising under the laws of any state or other taxing jurisdiction. See "Certain
Federal Income Tax Considerations".
ERISA CONSIDERATIONS . . . . . . . . . . . Subject to considerations described below, the Class A Certificates are eligible
for purchase by employee benefit
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plan investors. Under a regulation issued by the Department of Labor, the Trust's
assets would not be deemed "plan assets" of an employee benefit plan holding the
Class A Certificates if certain conditions are met, including that the Class A
Certificates must be held, upon completion of the public offering made hereby, by
at least 100 investors who are independent of the Transferor and of one another.
The Underwriters expect that the Class A Certificates will be held by at least 100
independent investors at the conclusion of the offering, although no assurance can
be given, and no monitoring or other measures will be taken to ensure, that such
condition will be met. The Transferor anticipates that the other conditions of
the regulation will be met. If the Trust's assets were deemed to be "plan assets"
of an employee benefit plan investor (e.g., if the 100 independent investor
criterion is not satisfied), violations of the "prohibited transaction" rules of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), could
result and generate excise tax and other liabilities under ERISA and section 4975
of the Internal Revenue Code of 1986, as amended (the "Code"), unless another
statutory, regulatory or administrative exemption is available. It is uncertain
whether existing exemptions from the "prohibited transaction" rules of ERISA would
apply to all transactions involving the Trust's assets if such assets were treated
for ERISA purposes as "plan assets" of employee benefit plan investors.
Accordingly, fiduciaries or other persons contemplating purchasing the
Certificates on behalf or with "plan assets" of any employee benefit plan should
consult their counsel before making a purchase. See "ERISA Considerations".
RATINGS . . . . . . . . . . . . . . . . . . It is a condition of issuance that each of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's" and, together with Moody's, the "Rating
Agencies") rate each Class of Class A Certificates in its highest rating category.
The ratings of the Class A Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold a security and may be subject to revision or
withdrawal at any time by the assigning Rating Agency. See "Ratings of the Class
A Certificates".
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RISK FACTORS
LIMITED LIQUIDITY; ABSENCE OF SECONDARY MARKET
There is currently no market for the Class A Certificates. The
Underwriters currently intend to make a market in each Class of Class A
Certificates but are under no obligation to do so. There can be no assurance
that a secondary market for either Class of Class A Certificates will develop
or, if one does develop, that it will provide the related Certificateholders
with liquidity of investment or will continue for the life of the related Class
A Certificates.
REIMBURSEMENT OF CERTAIN LOSSES
In the event that Loss Amounts are incurred in respect of the
Contracts and the Leased Vehicles during a Collection Period relating to a
Distribution Date during the Revolving Period, an amount equal to the Investor
Percentage of such Loss Amounts, to the extent reimbursed out of Excess
Collections or otherwise, will be treated as Principal Collections received
during the succeeding Collection Period and will be available for reinvestment
in Subsequent Contracts and Subsequent Leased Vehicles. If the related
Distribution Date occurs during the Amortization Period, the Class A-1
Certificateholders will be entitled to receive the Class A-1 Allocation
Percentage of the Investor Percentage of such Loss Amounts and the Class A-2
Certificateholders will be entitled to receive the Class A-2 Allocation
Percentage of the Investor Percentage of such Loss Amounts, in each case as a
distribution of principal from, to the extent available, Excess Collections,
amounts on deposit in the Reserve Fund, certain amounts otherwise payable to
the Transferor in respect of the Transferor Interest and, in the case of the
Class A-2 Certificates, amounts otherwise payable as principal to the Class B
Certificateholders. Loss Amounts realized during the Amortization Period may
accelerate the rate of return of principal on the Certificates. To the extent
that Principal Collections and reimbursements of Loss Amounts are reinvested in
Subsequent Contracts during the Revolving Period, the aggregate Residual Value
of the Leased Vehicles as a percentage of the Aggregate Net Investment Value
may increase thereby increasing the exposure of the Certificates of each Class
to the risk of being allocated Residual Value Loss Amounts. Furthermore, to
the extent that Loss Amounts (including Residual Value Loss Amounts) ultimately
exceed the sources available for repayment thereof, investors in the Class A
Certificates could incur a loss on their investment.
"Loss Amounts" will include Charged-off Amounts, Residual Value Loss
Amounts and Additional Loss Amounts. The "Residual Value Loss Amount" for any
Collection Period generally will represent the aggregate net losses on
dispositions of Matured Leased Vehicle Inventory, and will be equal to the sum
of (a) the aggregate of the Residual Values of all those Leased Vehicles that
were included in Matured Leased Vehicle Inventory but that had remained unsold
and not otherwise disposed of by the Servicer for at least three full
Collection Periods as of the last day of such Collection Period and (b) the
excess, if any, of (i) the aggregate of the Residual Values of all Leased
Vehicles previously included in Matured Leased Vehicle Inventory that were sold
or otherwise disposed of during such Collection Period over (ii) Net Matured
Vehicle Proceeds for such Collection Period. See "TMCC--Delinquency,
Repossession and Loss Data". Residual Value Loss Amounts experienced will
depend on a variety of factors, including the effect of TMCC's active
encouragement of lessees under lease contracts with remaining terms of less
than one year to buy, trade in or refinance the related vehicles, and the
supply of, and demand for, vehicles similar to the Leased Vehicles in the used
car market. Uncollected payments for excess mileage or excess wear and use
also could affect the related proceeds. No assurance can be given as to the
likely Residual Value Loss Amounts allocated to the Investor Interest over the
life of the Certificates.
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MATURITY AND PREPAYMENT CONSIDERATIONS
Possible Early Termination of Revolving Period
No principal will be paid to the Class A Certificateholders until the
First Principal Distribution Date. During the Revolving Period, Principal
Collections will be reinvested in Subsequent Contracts and Subsequent Leased
Vehicles. The continuation of the Revolving Period will be dependent upon,
among other things, the continued origination and assignment to the Titling
Trust of lease contracts and leased vehicles meeting the eligibility criteria
described herein in amounts corresponding to Principal Collections and
reimbursed Loss Amounts to be reinvested. An unexpectedly high rate of
Principal Collections (including Prepayments) received during any Collection
Period or a significant decline in the number of qualifying lease contracts
available to be assigned to the Titling Trust could result in the occurrence of
an Early Amortization Event and the commencement of the Amortization Period
prior to the Amortization Date. The retail automobile and light duty truck
leasing business in the United States or in one or more of the Trust States may
be affected by a variety of social, economic and geographic factors. Economic
factors include interest rates, unemployment levels, the rate of inflation and
consumer perception of economic conditions. However, it is not possible to
determine or predict whether or to what extent economic, geographic or social
factors will affect retail automobile and light duty truck leasing in general,
or that of the Dealers in particular. As a result, there can be no assurance
that the Revolving Period will not terminate prior to the Amortization Date,
shortening the final maturities and weighted average lives of and affecting the
yields on one or more Classes of Certificates. See "Description of the
Certificates--Early Amortization Events".
The rate of payment of principal on the Certificates will depend on
the rate of payments on or in respect of the Contracts and the Leased Vehicles
(including prepayments and liquidations of the Contracts) and losses with
respect thereto, which cannot be predicted. If on any Distribution Date during
the Amortization Period any Excess Collections exist at a time when the amount
on deposit in the Reserve Fund is at least equal to the Specified Reserve Fund
Balance, the related Accelerated Principal Distribution Amount will be
distributed as additional principal to Certificateholders. See "Description of
the Certificates--Distributions on the Certificates--Distributions of
Interest". A substantial increase in the rate of payments on or in respect of
the Contracts and Leased Vehicles (including prepayments and liquidations of
the Contracts) during the Amortization Period may shorten the final maturity
and weighted average lives of, and may significantly affect the yields on, each
Class of Class A Certificates. The rate of payment of principal of the Class A
Certificates may also be affected by (i) payment by TMCC of Reallocation
Payments (and under certain circumstances during the Amortization Period,
Reallocation Deposit Amounts) in respect of Contracts as to which an uncured
breach of certain representations and warranties or certain servicing covenants
has occurred and (ii) the exercise by the Transferor of its right to purchase
the SUBI Interest under certain circumstances, thereby retiring the
Certificates. See "Description of the Certificates--Termination of the Trust;
Retirement of the Certificates", "The Contracts--Representations, Warranties
and Covenants" and "Additional Document Provisions--The Servicing
Agreement--Collections".
Each of the Contracts may be prepaid by the related lessee without
penalty in full or in part at any time. TMCC actively encourages lessees under
lease contracts with remaining terms of less than one year to either buy, trade
in or refinance the related leased vehicles prior to their scheduled
maturities. TMCC estimates that during calendar years 1994, 1995 and 1996,
approximately o%, o% and o% of the retail automobile and light duty truck lease
contracts in its portfolio terminated prior to maturity. Such early
terminations primarily were due to voluntary prepayments. No assurance can be
given that the Contracts will experience the same rate of prepayment or default
or any greater or lesser rate than TMCC's historical rate for the retail
automobile and light duty truck lease contracts in its portfolio. See
"Maturity, Prepayment and Yield Considerations".
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<PAGE> 25
SEQUENTIAL PAYMENT OF PRINCIPAL ON THE CERTIFICATES
In general, no principal payments will be made on the Class A-2 or
Class B Certificates until the Class A-1 Certificates have been paid in full.
On each Distribution Date during the Amortization Period, all Principal
Collections for the related Collection Period that are allocable to the
Investor Interest will be distributed first to the Class A-1 Certificateholders
until the Class A-1 Certificates have been paid in full, and thereafter the
Class A Percentage and the Class B Percentage of any such remaining Principal
Collections will be distributed as principal payments to the Class A-2
Certificateholders and the Class B Certificateholders, respectively.
Principal payments in respect of the Class A-2 and Class B
Certificates will be based on the fixed Class A Percentage and Class B
Percentage, which will be calculated when the Class A-1 Certificates have been
paid in full. The Investor Percentage of Loss Amounts will be allocated among
the Certificateholders on a pro rata basis, based on the Class A-1, Class A-2
and Class B Allocation Percentages, as the case may be, and then reimbursed out
of available funds in the amounts and order of priority described in
"Description of the Certificates--Distributions on the
Certificates--Distributions of Interest". To the extent net proceeds of any
sale or other disposition of the SUBI Interest, the SUBI Certificate or other
property of the Trust constitute Principal Collections, which may occur under
certain circumstances involving an Insolvency Event of the Transferor (as
described under "Description of the Certificates--Early Amortization Events"),
they will be distributed first, on a pro rata basis, to the Class A
Certificateholders based on their respective Class Certificate Balances until
the Class A Certificates have been paid in full, and second, to the Class B
Certificateholders. Sequential payment of the Certificates is also likely to
cause Classes of Certificates that pay later than other Classes to be
outstanding during periods when an increasingly large percentage of the
Aggregate Net Investment Value will be represented by Residual Values as
opposed to unpaid Monthly Payments, thereby increasing the exposure of such
Certificates to the risk of being allocated Residual Value Loss Amounts.
As a result, Class A-2 Certificates may be allocated more Loss Amounts
(including Residual Value Loss Amounts) than the Class A-1 Certificates as a
relative percentage of their respective Initial Certificate Balances, primarily
because Loss Amounts will be allocated thereto on each Distribution Date based
on the then-current Class A-2 Allocation Percentage, which will increase as the
Certificate Balance of the Class A-1 Certificates decreases during the
Amortization Period and most amortization is through Monthly Payments rather
than Residual Value Proceeds.
However, any portion of Principal Collections comprised of the
Investor Percentage of the net proceeds of any sale or other disposition of the
SUBI Interest, the SUBI Certificate or other property of the Trust (which may
occur under certain circumstances involving an Insolvency Event with respect to
the Transferor as described under "Description of the Certificates --Early
Amortization Events") will not be distributed to the Class A Certificateholders
sequentially, but instead will be distributed to the holders of each Class of
Class A Certificates pro rata, based on the respective Class A Certificate
Balances, until all Class A Certificates have been paid in full, and then to
the Class B Certificateholders.
GEOGRAPHIC, ECONOMIC AND OTHER FACTORS
The Dealers which originated and will originate the Contracts are
located in the Trust States and the Contracts and Leased Vehicles generally are
and will be located in the Trust States. However, a significant number of
lessees may live in or relocate to other states and may register, title and/or
operate Leased Vehicles in other states. For a breakdown of the percentage of
Initial Contracts originated in each of the Trust States, see "The
Contract--Characteristics of Contracts--Distribution of the Initial Contracts
by State". Due to the geographic concentration of Contracts in the Trust
States, adverse economic conditions in one or more of the Trust States may have
a significant impact on the performance of the SUBI Assets. Economic factors
such as unemployment, interest rates, the rate of inflation and consumer
perceptions of the economy may affect the rate of prepayment and
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<PAGE> 26
defaults on the Contracts and the ability to sell or otherwise dispose of
Leased Vehicles relating to Matured Contracts for an amount at least equal to
their respective Residual Values. These economic factors, as well as other
factors such as consumer perceptions of used vehicle values, also may affect
the ability to realize the Residual Values of Leased Vehicles upon sale.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws, including the
federal Consumer Leasing Act of 1976 and Regulation M promulgated by the Board
of Governors of the Federal Reserve System, impose requirements on retail lease
contracts such as the Contracts. These laws apply to the Titling Trust as the
lessor under the Contracts and may also apply to the Trust as owner of the SUBI
Certificate. Failure by the Titling Trust or the Servicer to comply with such
requirements may give rise to liabilities on the part of the Titling Trust, and
enforcement of the Contracts by the Titling Trust may be subject to set-off as
a result of such noncompliance. Many states, including certain of the Trust
States, have adopted Lemon Laws that provide vehicle users certain rights in
respect of substandard vehicles. A successful claim under a Lemon Law could
result in, among other things, the termination of the Contract relating to a
substandard Leased Vehicle and/or require the refunding of a portion of
payments previously paid thereon. TMCC will make representations and
warranties that each Contract complies with all requirements of law in all
material respects. If any such representation and warranty proves incorrect,
has certain material adverse effects and is not timely cured, TMCC will be
required to make a Reallocation Payment (together with, under certain
circumstances during the Amortization Period, Reallocation Deposit Amounts)
into the SUBI Collection Account and reallocate the related Contract and Leased
Vehicle out of the SUBI, as described under "The Contracts--Representations,
Warranties and Covenants" and "Description of the Certificates--Reallocation
Payments and Reallocation Deposit Amounts". See "Certain Legal Aspects of the
Contracts and the Leased Vehicles--Consumer Protection Laws".
ERISA LIABILITIES
It is possible that the Titling Trust Assets, including the SUBI
Assets, could become subject to liens in favor of the Pension Benefit Guaranty
Corporation to satisfy unpaid ERISA obligations of any member of an "affiliated
group" that includes TMCC, TMS, Toyota Leasing, Inc. and their respective
affiliates. However, the Transferor believes that the likelihood of any such
liability being asserted against the Titling Trust Assets, including the SUBI
Assets, or being successfully pursued is remote. In particular, the Transferor
believes that the Titling Trust should, as a legal matter, be treated as a
distinct entity separate and apart from such affiliated group, under ERISA's
"common control" provisions. All such plans maintained by such affiliated
group historically have had assets that significantly exceeded their
liabilities. However, no assurance can be given that any of these conditions
will continue in the future.
VICARIOUS TORT LIABILITY
Although the Titling Trust will own the Leased Vehicles and the Trust
will have an interest therein, they will be controlled and operated by the
related lessees and their invitees. State laws differ as to whether anyone
suffering injury to person or property involving a leased vehicle may bring an
action against the owner of the vehicle merely by virtue of that ownership. To
the extent that applicable state law permits such an action, the Titling Trust
and the Titling Trust Assets, including the SUBI Assets, may be subject to
liability to such an injured party. However, the laws of most States,
including the Trust States, either do not permit such suits or limit the
lessor's liability to the amount of any liability insurance that the lessee was
required and failed to maintain. Notwithstanding the foregoing, in the event
that vicarious liability is imposed on the Titling Trust as owner of a Leased
Vehicle and the coverage provided by the Contingent and Excess Liability
Insurance Policies is insufficient to cover such loss, including in certain
circumstances with respect to a leased vehicle that is an Other SUBI Asset or a
UTI Asset, investors in the Class A Certificates could incur a loss on their
investments. See "Certain Legal
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Aspects of the Contracts and the Leased Vehicles--Vicarious Tort Liability",
"Certain Legal Aspects of the Titling Trust--Structural
Considerations--Allocation of Titling Trust Liabilities", "--Third-Party Liens
on SUBI Assets" and "Assets of the Trust--The Contingent and Excess Liability
Insurance Policies".
All of the Contracts will contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state law. Such policies
may lapse, be terminated or otherwise not be maintained properly by a lessee.
If a replacement primary insurance policy is not put into place by the related
lessee within o days of notice that no such policy is in place, the Servicer
promptly will attempt to repossess the related leased vehicle and terminate the
related lease contract. Moreover, the policies issued with respect to a
significant number of the Initial Contracts name TMCC rather than the Titling
Trust as additional loss payee. If a primary insurer makes payment under such
a policy to TMCC, TMCC will apply such amounts or forward such amounts to the
Titling Trust for application as appropriate. If a primary insurer failed to
make payments under a policy to the lessee and also to TMCC and the Titling
Trust, losses could be experienced by the Certificateholders. However, the
Transferor has been advised by the primary provider of the Contingent and
Excess Liability Policies described herein that such provider will not refuse
any claim under the Contingent and Excess Liability Policies solely because a
primary policy names an approved TMCC affiliate, rather than the Titling Trust,
as additional loss payee (although under such circumstances a deductible of $o
(rather than the standard $o deductible) will be payable by TMCC and as to
which TMCC will indemnify the Trust).
Actions by third parties might exceed the limits of the policies
maintained by lessees or claims might arise based on legal theories other than
negligence, such as a product defect or improper vehicle preparation prior to
the origination of the related lease contract that are not covered thereby.
The Titling Trust will be the beneficiary of the Contingent and Excess
Liability Insurance Policies which will cover certain claims in excess of the
limits of the lessees' policies. Such Contingent and Excess Liability
Insurance Policy will be subject to significant per occurrence deductibles in
respect of which TMCC will indemnify the Trust. See "Assets of the Trust--The
Contingent and Excess Liability Insurance Policies". Although the Titling
Trust's insurance coverage is for $100 million per claim, with an allowance for
multiple claims in any policy period, in the event that all such insurance
coverage were exhausted and/or TMCC did not satisfy its indemnity obligations
such that damages were assessed against the Titling Trust, claims could be
imposed against the Titling Trust Assets, including the SUBI Assets. If any
such claims are imposed against any SUBI Assets or, in certain limited
circumstances, any Other SUBI Assets or UTI Assets, investors in the Class A
certificates could incur a loss on their investment. See "Certain Legal
Aspects of the Titling Trust--Structural Considerations--Allocation of Titling
Trust Liabilities", "--Third-Party Liens on SUBI Assets" and "Certain Legal
Aspects of the Contracts and the Leased Vehicles--Vicarious Tort Liability".
INSOLVENCY OF TMCC; SUBSTANTIVE CONSOLIDATION WITH TMCC
The Transferor has taken steps in structuring the transactions
contemplated hereby intended to ensure that the voluntary or involuntary
application for relief under the United States Bankruptcy Code or similar
applicable state laws ("Insolvency Laws") by TMCC will not result in the
consolidation of the assets and liabilities of the Transferor, the Titling
Trust or the Trust with those of TMCC. With respect to the Transferor, these
steps include its creation as a separate, special purpose finance subsidiary of
TMCC pursuant to articles of incorporation containing certain limitations
(including the requirement that it must have at all times at least one
"independent director" and restrictions on the nature of its businesses and on
its ability to commence a voluntary case or proceeding under any Insolvency Law
without the affirmative vote of a majority of its directors including the
independent director).
Reallocation Payments or deposits of Reallocation Deposit Amounts made
by TMCC and unreimbursed Advances made by TMCC, as Servicer, may be recoverable
by TMCC as debtor-in-possession or by a creditor or a trustee in bankruptcy of
TMCC as a preferential transfer from TMCC if such payments were made within one
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year prior to the filing of a bankruptcy case in respect of TMCC. In addition,
the insolvency of TMCC could result in the replacement of TMCC as Servicer,
which could result in a temporary interruption of payments on the Certificates.
If prior to the Amortization Date a conservator, receiver or
bankruptcy trustee were appointed by the Transferor, or if certain other events
relating to the bankruptcy or insolvency of the Transferor were to occur (each,
an "Insolvency Event"), the Amortization Period would commence and the Trustee
may, and upon receipt of written instructions from holders of Certificates
evidencing Voting Interests of not less than 51% of the Class A Certificates
(voting together as a single class) or 51% of the Class A Certificates and the
Class B Certificates (voting together as a single class) will, attempt to sell
the SUBI Interest, the SUBI Certificate and the other property of the Trust.
The consummation of such sale would result in an early termination of the Trust
and a pro rata loss to the Class A Certificateholders if the Investor
Percentage of the net proceeds of such sale were insufficient to pay in full
the Class A Certificate Balances, together with any unreimbursed Class A-1 and
Class A-2 Certificate Principal Loss Amounts, with accrued and unpaid interest
thereon at the related Certificate Rates, respectively.
On the Closing Date, Andrews & Kurth L.L.P., special counsel to the
Transferor and TMCC, will render an opinion based on a reasoned analysis of
analogous case law (although there is no precedent based on directly similar
facts) subject to certain facts, assumptions and qualifications specified
therein, that, under applicable statutes and precedent, if TMCC were to become
a debtor in a case under the Bankruptcy Code, it would not be a proper exercise
by a federal bankruptcy court of its equitable discretion to disregard the
separate legal forms so as to substantively consolidate the assets and
liabilities of the Transferor, the Titling Trust or the Trust with those of
TMCC. In addition, on the Closing Date, Andrews & Kurth L.L.P. will render an
opinion to the effect that (i) the transfer of the SUBI Certificate by the
Transferor to the Trust constitutes a sale of the SUBI Certificate and the SUBI
Assets evidenced thereby, subject in each case to the rights of the Transferor
as the holder of the Transferor Interest, or (ii) if such transfer does not
constitute a sale, then the Agreement creates a valid perfected security
interest, for the benefit of Certificateholders, in the Transferor's right,
title and interest in the SUBI Certificate. See "Certain Legal Aspects of the
Titling Trust--Insolvency Related Matters".
The Titling Trust may be subject to the Insolvency Laws, and claims
against the Titling Trust Assets could have priority over the beneficial
interest therein represented by the SUBI. In addition, claims of a third party
against the Titling Trust Assets, including the SUBI Assets, to the extent such
claims are not covered by insurance, would take priority over the holders of
beneficial interests in the Titling Trust, such as the Trustee. See "Assets of
the Trust--The Contingent and Excess Liability Insurance Policies" and "Certain
Legal Aspects of the Contracts and Leased Vehicles--Vicarious Tort Liability".
LEGAL PROCEEDINGS
The Transferor is not a party to any legal proceeding. Neither the
Titling Trust, nor the Titling Trustee on behalf of the Titling Trust, has been
named as a defendant in any legal proceeding. TMCC is a party to, and is
vigorously defending, several legal proceedings, all of which it believes
constitute ordinary routine litigation incidental to the business and
activities conducted by TMCC. As of the date of this Prospectus, TMCC is a
defendant in one lawsuit that was certified to proceed as a class action
alleging that certain technical provisions of lease forms used by TMCC violate
certain consumer protection laws. Summary judgment has been granted in favor
of TMCC on most of the claims raised in that lawsuit. TMCC is vigorously
defending the remaining claims in that lawsuit, and the summary judgment is the
subject of an appeal. While there are uncertainties as to the final
disposition of this case, management of TMCC believes that an adverse final
judgment in this case would not have a material adverse effect on the Titling
Trust Assets, the SUBI or the Dealers' or Titling Trust's ability to originate
sufficient new leases to satisfy reinvestment obligations under the Titling
Trust Agreement, the SUBI Supplement and the Servicing Supplement. However,
there can be no assurance of this result.
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THE TRUST AND THE SUBI
GENERAL
The Trust and the Certificateholders will have no interest in the UTI,
any Other SUBI or any Titling Trust Assets evidenced by the UTI or any Other
SUBI. Payments made on or in respect of the Titling Trust Assets not
represented by the SUBI will not be available to make payments on the
Certificates. See "The Titling Trust".
THE TRUST
Pursuant to the Agreement, the Transferor will establish the Trust by
transferring and assigning the SUBI Interest represented by the SUBI
Certificate, to the Trustee in exchange for the Certificates and a certificate
evidencing the Transferor Interest. The property of the Trust will primarily
include (i) the SUBI Interest, which evidences a beneficial interest in certain
specified Titling Trust Assets (i.e., the SUBI Assets), (ii) such amounts as
from time to time may be held in the SUBI Collection Account and the Reserve
Fund, and investments of amounts on deposit in the SUBI Collection Account and
(iii) the Trustee's rights as a third-party beneficiary to the Servicing
Agreement and the SUBI Supplement. The Trust also will have a beneficial
interest in such amounts as from time to time may be held in the SUBI
Collection Account and investments of such amounts.
Except for the protection provided to the Class A Certificateholders
by the Initial Deposit to the Reserve Fund, the Class A Certificateholders
ultimately will have to look to payments made on or in respect of the Contracts
and the Leased Vehicles (including under certain related insurance policies) to
make distributions on the SUBI Certificate, which in turn will be distributed
to the Certificateholders. In such event, certain factors, such as the fact
that the Trust will not have a direct ownership interest in the Contracts or
the Leased Vehicles or a perfected security interest in the Leased Vehicles
(which will be titled in the name of the Titling Trust) may limit the amount
realized to less than the amount due from the related lessees. Investors in
the Class A Certificates may thus be subject to delays in payment and may incur
losses on their investment in the Class A Certificates as a result of defaults
or delinquencies by lessees and because of depreciation in the value of the
related Leased Vehicles. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations", "Assets of the Trust--The Accounts;
Collections--The Reserve Fund", "Additional Document Provisions--The Servicing
Agreement--Insurance on Leased Vehicles" and "Certain Legal Aspects of the
Contracts and the Leased Vehicles".
THE SUBI
The SUBI will be issued pursuant to the Series 1997-A Supplement to
the Titling Trust Agreement (the "SUBI Supplement") and will evidence a
beneficial interest in certain specified Titling Trust Assets allocated to the
SUBI consisting of (i) the Contracts, the Leased Vehicles and all proceeds or
payments received or due on or after the related Cutoff Date; (ii) certain
monies in the Reserve Fund, and (iii) all other related Titling Trust Assets
allocated to the SUBI, including (A) the SUBI Collection Account, (B) the right
to receive payments made to TMCC, the Titling Trust or the Titling Trustee
under certain insurance policies relating to the Contracts, the related lessees
or the Leased Vehicles, (C) the right to receive the proceeds of any Dealer
repurchase obligations in respect of the Contracts or Leased Vehicles, and (D)
all proceeds of the foregoing. During the Revolving Period, Principal
Collections and reimbursement of Loss Amounts will be reinvested in Subsequent
Contracts and Subsequent Leased Vehicles which will become SUBI Assets at the
time of such reinvestment.
Pursuant to the SUBI Supplement, on the Closing Date the Titling
Trustee will issue the SUBI Certificate, which will evidence the SUBI Interest,
to the Transferor, and the Transferor will transfer and assign the SUBI
Certificate, to the Trustee pursuant to the Agreement.
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THE TITLING TRUST
GENERAL
The Titling Trust is a Delaware business trust formed pursuant to the
Titling Trust Agreement. The primary business purpose of the Titling Trust is
to take assignments of and serve as holder of title to substantially all of the
lease contracts and the related leased vehicles originated by the Dealers
beginning on dates prior to the execution of the SUBI Supplement. Pursuant to
the Servicing Agreement, TMCC will service the lease contracts included in the
Titling Trust Assets, including the Contracts. See "Additional Document
Provisions--The Trust Agreement" and "--The Servicing Agreement" and "Certain
Legal Aspects of the Titling Trust--The Titling Trust".
Except as otherwise described under "Additional Document
Provisions--The Titling Trust Agreement", pursuant to the Titling Trust
Agreement the Titling Trust has not and will not (i) issue interests therein or
securities thereof other than the SUBI Interest, the SUBI Certificate, Other
SUBIs representing divided interests in Other SUBI Assets and certificates (the
"Other SUBI Certificates") representing Other SUBIs or portions thereof, and
one or more certificates (the "UTI Certificates") representing the UTI or
portions thereof; (ii) borrow money (except from TMCC or as described in (vi)
below) in connection with funds used to acquire lease contracts and the related
leased vehicles; (iii) make loans; (iv) invest in or underwrite securities,
other than Permitted Investments or as otherwise permitted by the Titling Trust
Agreement or the SUBI Supplement; (v) offer securities in exchange for property
(other than the SUBI Certificate, the Other SUBI Certificates and the UTI
Certificates); or (vi) repurchase or otherwise reacquire its securities except
in connection with financing or refinancing the acquisition of lease contracts
and the related leased vehicles or as otherwise permitted by each such
financing or refinancing. The Titling Trust will not be permitted to acquire
lease contracts other than through the Dealers. The Titling Trust Agreement
will permit the Titling Trust, in the course of its activities, to incur
certain liabilities relating to its assets other than the SUBI Assets, or
relating to its assets generally, and to which, in certain circumstances, the
SUBI Assets may be subject. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities" and
"--Third-Party Liens on SUBI Assets". However, the Titling Trust Agreement
will require the holders of Other SUBI Certificates and UTI Certificates to
waive any claim that they might otherwise have with respect to the SUBI Assets
and to fully subordinate any claims to the SUBI Assets in the event that this
waiver is not given effect. Similarly, by virtue of holding Certificates or a
beneficial interest in the Certificates, Certificateholders and Certificate
Owners will be deemed to have waived any claim that they might otherwise have
with respect to Other SUBI Assets and the UTI Assets and to subordinate their
interests therein.
ALLOCATION OF TITLING TRUST LIABILITIES
The Titling Trust Assets may be comprised of several portfolios of
assets other than the SUBI Assets, including portfolios of Other SUBI Assets
and the remaining portfolio of UTI Assets. The Titling Trust Agreement permits
the Titling Trust, in the course of its activities, to incur certain
liabilities relating to its assets other than the SUBI Assets, or relating to
its assets generally, and to which, in certain circumstances, the SUBI Assets
may be subject. Pursuant to the Titling Trust Agreement, as among the
beneficiaries of the Titling Trust, liabilities relating to a particular
Titling Trust Asset will be allocated to and charged against the allocated
portfolio of Titling Trust Assets to which it belongs. Titling Trust
liabilities that are incurred with respect to the Titling Trust Assets
generally will be borne pro rata among all portfolios of Titling Trust Assets.
The Titling Trustee and the beneficiaries of the Titling Trust (including the
Trustee and the Certificateholders) will be bound by this allocation. In
particular, the Titling Trust Agreement will require the holders from time to
time of Other SUBI Certificates and any UTI Certificates to waive any claim
that they might otherwise have with respect to the SUBI Assets and to fully
subordinate any claims to the SUBI Assets in the event that this waiver is not
given effect. Similarly, by virtue of holding Certificates or a beneficial
interest in the Certificates,
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Certificateholders and Certificate Owners will be bound by this allocation.
Similarly, by virtue of holding Certificates or a beneficial interest in the
Certificates, Certificateholders and Certificate Owners will be deemed to have
waived any claim that they might otherwise have with respect to Other SUBI
Assets and the UTI Assets.
THE TITLING TRUSTEE
The Titling Trustee is a wholly owned, special purpose subsidiary of
First Bank that was organized in 1996 solely for the purpose of acting as
Titling Trustee. First Bank, as Trust Agent, serves as agent for the Titling
Trustee to perform certain functions of the Titling Trustee pursuant to the
Titling Trust Agreement. The Titling Trust Agreement provides that in the
event that First Bank no longer can be the Trust Agent, a designee of TMCC
(which may not be TMCC or any affiliate thereof) will have the option to
purchase the stock of the Titling Trustee for a nominal amount. If TMCC's
designee does not timely exercise this option, then the Titling Trustee will
appoint a new trust agent, and that new trust agent (or its designee) will next
have the option to purchase the stock of the Titling Trustee. If none of these
options is timely exercised, First Bank may sell the stock of the Titling
Trustee to another party.
PROPERTY OF THE TITLING TRUST
The property of the Titling Trust consists of (i) fixed rate retail
closed-end lease contracts originated in the Trust States and assigned to the
Titling Trust by the Dealers since November 1996, all rights thereunder
including the right to reserve proceeds of Dealer repurchase obligations under
the related Dealer agreement, and all monies due from lessees thereunder; (ii)
the automobiles and light duty trucks leased pursuant thereto and all proceeds
thereof; (iii) the rights to proceeds from physical damage, credit life,
disability and all other insurance policies, if any (excluding the residual
value insurance policy described herein), covering the lease contracts, the
related lessees or the leased vehicles, including, but not limited to, the
Contingent and Excess Liability Insurance Policies; (v) all security deposits
with respect to such lease contracts (to the extent applied to cover excess
wear and tear charges or treated as Liquidation Proceeds as described herein
and as provided in the contracts), and (vi) all proceeds of the foregoing
(collectively, the "Titling Trust Assets"). From time to time after the date
of this Prospectus, TMCC will cause Dealers to originate additional retail
closed-end lease contracts and assign them to the Titling Trust and, as
described below, title the related leased vehicles in the name of the Titling
Trust.
CONTRACT ORIGINATION; TITLING OF LEASED VEHICLES
All lease contracts originated by the Dealers and assigned to the
Titling Trust have been, or will be, underwritten by TMCC personnel using the
underwriting criteria described under "TMCC--Lease Contract Underwriting
Procedures". In connection with the origination of each lease contract, the
Titling Trust will be listed as the owner of the related leased vehicle on the
related certificate of title. Liens will not be placed on such certificates of
title, and new certificates of title will not be issued, to reflect the
interest of the Trustee, as holder of the SUBI Certificate, in the Leased
Vehicles.
Pursuant to agreements between the Titling Trust and the Dealers, each
Dealer is obligated, after origination of lease contracts of the Titling Trust,
to repurchase such lease contracts which do not meet certain representations
and warranties made by such Dealer. These representations and warranties
relate primarily to the origination of the lease contracts and the titling of
the related leased vehicles, and do not typically relate to the
creditworthiness of the related lessees or the collectibility of such lease
contracts. The Dealer agreements do not generally provide for recourse to the
Dealer for unpaid amounts in respect of a defaulted lease contract, other than
in connection with the breach of such representations and warranties. The
rights of the Titling Trust to receive proceeds of such Dealer repurchase
obligations will constitute Titling Trust Assets (and SUBI Assets, to the
extent they relate to the Contracts and Leased Vehicles), although the related
Dealer agreements will not constitute Titling Trust Assets.
25
<PAGE> 32
USE OF PROCEEDS
The net proceeds from the sale of the Class A Certificates (i.e., the
proceeds of the public offering of the Class A Certificates minus expenses
relating thereto) will be applied by the Transferor to purchase the SUBI
Certificate and to make the Initial Deposit into the Reserve Fund.
THE TRANSFEROR
The Transferor is a wholly owned, special purpose finance subsidiary
of TMCC and was incorporated under the laws of California in April 1997. TMCC
may not transfer its ownership interest in the Transferor except to an
affiliate of TMCC so long as any financings involving interests in the Titling
Trust (including the transaction described herein) are outstanding. TMCC is
the sole shareholder of the Transferor. The principal office of the Transferor
is located at 19001 South Western Avenue, Torrance, California 90509 and its
telephone number is (310) 787-1310.
The Transferor was organized solely for the purpose of acquiring
interests in the SUBI and the Other SUBIs, causing the issuance of certificates
similar to the Certificates and engaging in related transactions. The
certificate of incorporation of the Transferor limits its activities to the
foregoing purposes and to any activities incidental to and necessary for such
purposes.
TMCC
Toyota Motor Credit Corporation ("TMCC") was incorporated in
California on October 4, 1982, and commenced operations in May 1983. At
December 31, 1996, TMCC had 34 branches in various locations in the United
States and one branch in the Commonwealth of Puerto Rico. In addition to the
Transferor, TMCC has four wholly owned subsidiaries engaged in the insurance
business, a wholly owned subsidiary that provides retail and wholesale
financing and certain other financial services to authorized Toyota and Lexus
vehicle dealers and their customers in Puerto Rico and a wholly owned
subsidiary through which TMCC securitizes retail installment sales contracts.
TMCC's primary business is providing retail leasing, retail and
wholesale financing and certain other financial services to authorized Toyota
and Lexus vehicle and Toyota industrial equipment dealers and their customers
in the United States (excluding Hawaii) and Puerto Rico. TMCC is a wholly
owned subsidiary of TMS, which is primarily engaged in the wholesale
distribution of automobiles, light duty trucks, industrial equipment and
related replacement parts and accessories throughout the United States
(excluding Hawaii). Substantially all of TMS's products are either
manufactured by its affiliates or are purchased from TMC or its affiliates.
As of September 30, 1996, September 30, 1995 and September 30, 1994,
TMCC had approximately 624,000, 438,000 and 387,000 retail lease contracts
outstanding (including retail lease contracts that were assigned to the Titling
Trust and are still being serviced by TMCC), respectively. Aggregate net
outstanding principal balances of retail lease contracts at such dates, were
approximately $12.0 billion, $9.4 billion and $7.6 billion, respectively.
The principal executive offices of TMCC are located at 19001 South
Western Avenue, Torrance, California and its telephone number is (310)
787-1310.
26
<PAGE> 33
TMCC'S LEASING OPERATIONS
LEASE CONTRACT UNDERWRITING PROCEDURES
TMCC's underwriting standards are intended to evaluate a prospective
lessee's credit standing and ability to make payments. Each prospective lessee
is required by the Dealer to complete a credit application on a form prepared
or approved by TMCC. As part of the description of the applicant's financial
condition, the applicant is required to provide information demonstrating,
among other things, employment history, residential status, bank account
information, annual income and credit references. The Dealer then transmits
the completed application to the appropriate branch office. Upon receipt,
income and employment data generally are verified by a credit investigator
within the branch office and certain data is obtained through an independent
credit bureau report that is combined with data from the application and
certain calculations made by a credit analyst within the branch office. Such
data is entered into a centralized computer network (owned and maintained by
TMCC) and weighted by a statistically validated credit scoring process which
"scores" the application with the use of a scorecard. The scorecard enables
TMCC to review an application and establish the probability that the proposed
lease contract will be paid in accordance with its terms. The credit scores
rank-order applications according to credit risk, which is the likelihood that
the lessee will make all payments when due. TMCC actively monitors and
regulates the volume of lease contracts that it acquires of any given credit
grade in its efforts to maintain a portfolio it deems to contain an appropriate
mix.
INSURANCE
Each lease contract requires the lessee to maintain automobile bodily
injury and property damage liability insurance which must name TMCC or, with
respect to the Contracts, the Titling Trust, as an additional insured. Each
lease contract further requires the lessee to maintain (all risks)
comprehensive and collision insurance covering damage to the leased vehicle and
naming TMCC or, with respect to the Contracts, the Titling Trust, as loss
payee.
COLLECTION, REPOSSESSION AND DISPOSITION PROCEDURES
Collection efforts are performed through the applicable branch office.
TMCC considers a lease to be past due when a borrower fails to make at least
90% of a scheduled monthly payment by the due date. TMCC automatically reviews
all past due accounts for action every three working days. Automated
collection efforts begin on the date a scheduled monthly payment is 11 days
past due (commencing on such date with the mailing of a notice letter). The
account is placed in an on-line collection system for branch office follow up
(prioritized by degree of delinquency) if payment is not received by the date
such payment is 26 days past due.
Occasionally, situations occur in the collection process when a lessee
has become delinquent and is willing but unable to bring the related account
current (i.e., where a deferred payment is deemed reasonably likely to be
followed by subsequent performance). In this situation, at the discretion of
collection department management, but subject to extensive guidelines, one or
more payments under the lease contract may be deferred, provided that the
lessee pays a deferral fee (each, a "Deferral Fee"). Deferral Fees relating to
the Contracts will not be deposited into the SUBI Collection Account, but will
be treated as additional servicing compensation. The Servicing Agreement will
provide that a Contract may not be deferred more than o times in the aggregate,
and that the Servicer will be required to make Advances with respect to the
related Contracts as set forth herein. Deferral of payments has the practical
effect of extending the maturity date of a lease contract.
Occasionally a lessee requests an extension of a lease contract for
one or more months during the period of time between the original specified
maturity of such lease and the time such lessee negotiates a new lease contract
or sales contract with respect to a different vehicle. Any such extension is
effected by the modification
27
<PAGE> 34
of the related lease contract to provide for an additional number of Monthly
Payments with a continuation of the appropriate lease charge and a corresponding
reduction in the related Residual Value to reflect receipt of additional
amortizing payments. The Servicing Agreement will require that Contracts not be
extended by more than o months in the aggregate or to a date later than the last
day of the month immediately preceding the month in which the Final Scheduled
Distribution Date occurs. The Servicing Agreement will provide that Advances be
made with respect to Contracts as to which payments are deferred to the extent
such deferrals would diminish the amount of Collections received in connection
therewith relative to the originally scheduled Monthly Payments. The Servicing
Agreement will also provide for the reallocation to the UTI from the SUBI
(accompanied by an appropriate Reallocation Payment by TMCC) of each Contract as
to which more than o deferrals are made or as to which, through deferrals or
extensions, the maturity date is extended beyond the last day of the Collection
Period relating to the Final Scheduled Distribution Date. Upon any such
reallocation, such Contract and the related Leased Vehicle and other related
assets and rights will be UTI Assets and will no longer constitute SUBI Assets.
See "Additional Document Provisions--The Servicing Agreement--Collections".
Generally, TMCC collectors make every effort to preserve a lease as a
performing lease. However, if a delinquency cannot be satisfactorily resolved
through deferrals or otherwise, the decision to repossess a leased vehicle will
be made before a payment is more than 60 days past due. Lessees are typically
notified on the day of or within two days after repossession of any right they
may have under applicable state law to redeem their vehicles. TMCC attempts to
sell all repossessed vehicles within 30 days of repossession. TMCC disposes of
off-lease and repossessed vehicles not purchased by the related lessee or the
dealer to whom the vehicle is returned through regional automobile auctions.
DELINQUENCY, REPOSSESSION AND LOSS DATA
The following tables set forth certain delinquency, repossession and
loss data with respect to TMCC's entire retail automobile and light duty truck
lease contract portfolio, including those Contracts originated in the Trust
States during the periods shown, as of and for the periods shown.
The data presented in the following tables are for illustrative
purposes only. Delinquency, repossession and loss experience may be influenced
by a variety of economic, social, geographic and other factors. There is no
assurance that the Trust's delinquency, repossession and loss experience with
respect to its retail automobile and light duty truck lease contracts and the
related leased vehicles in the future, or the experience with respect to the
Contracts and the Leased Vehicles, will be similar to that set forth below.
28
<PAGE> 35
ENTIRE PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At September 30
At March 31, ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease Contracts(1)
Ending Number of Lease Contracts
Number and Percentage of Delinquent
Lease Contracts(2)(3)(4)
31-60 Days
61-90 Days
91 Days or More
TOTAL . . . . . . . . . .
</TABLE>
________________________
(1) Based on the sum of all principal amounts outstanding under lease contracts
originated by TMCC in the United States (inclusive of the residual values of
the related leased vehicles).
(2) Excludes lease contracts the related lessees of which are bankrupt or have
commenced bankruptcy proceedings. As of o, approximately o lease contracts
involving bankrupt lessees were delinquent for at least 61 days.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) As a percentage of the total number of lease contracts at period end.
29
<PAGE> 36
ENTIRE PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At September 30
At March 31, ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease Contracts(1)
Ending Number of Lease Contracts
Average Lease Contracts Outstanding
Repossessions:
Number of Repossessions
Number of Repossessions as a Percentage of
Lease Contracts Outstanding %(4) %(4)
Average Lease Contracts Outstanding %(4) %(4)
Losses:
Average Net Receivables Outstanding
Net Repossession Losses(2)
Average Net Repossession Loss per
Liquidated Lease Contract(1)(3)
Net Repossession Losses as a Percentage of %(4) %(4) %(4) %(4) %(4) %(4)
Average Net Receivables
</TABLE>
- -----------------------
(1) Based on the sum of all principal amounts outstanding under lease contracts
originated by TMCC in the United States (inclusive of the residual values of
the related leased vehicles).
(2) Includes losses on charged-off accounts, but does not include expenses
incurred to dispose of vehicles.
(3) Dollars not in thousands.
(4) Annualized.
30
<PAGE> 37
ENTIRE PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
At September 30
----------------------------------------------
At March 31,
1997 1996 1995 1994 1993 1992
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Number of Leased Vehicles
Scheduled to Terminate
Number of Leased Vehicles Returned to
and Sold by TMCC
Full Term Ratio(2)
Total Losses/(Gains) on Vehicles that
Reached Scheduled Term
Average Loss/(Gain)(3)
</TABLE>
_______________________
(1) Because the terms of the retail closed-end lease contracts originated by
TMCC have gradually shifted from five years to three years since 1991, the
residual value loss experience for the periods in the table may not be fully
comparable.
(2) The ratio of line 2 over line 1 expressed as a percentage.
(3) Dollars not in thousands.
31
<PAGE> 38
THE CONTRACTS
GENERAL
The Initial Contracts will consist of a pool of o closed-end retail
lease contracts, having an aggregate Outstanding Principal Balance as of the
Initial Cutoff Date of $o, selected from the Titling Trust's portfolio of
retail closed-end automobile and light duty truck lease contracts. During the
Revolving Period, Principal Collections (and reimbursements of Loss Amounts)
will be reinvested in Subsequent Contracts and Subsequent Leased Vehicles,
which at the time of such reinvestment will become SUBI Assets. See
"Description of the Certificates--Distributions on the
Certificates--Application and Distributions of Principal--Revolving Period".
The Initial Contracts were, and the Subsequent Contracts will be, originated by
the Dealers in the Trust States and assigned to the Titling Trust in accordance
with TMCC's underwriting procedures and underwriting criteria. The Initial
Contracts have been selected based upon the criteria specified in the Titling
Trust Agreement and SUBI Supplement. See "The Contracts--Characteristics of
the Contracts--General" and "--Representations, Warranties and Covenants".
Subsequent Contracts may be originated by TMCC using different underwriting
criteria than those which were applied to the Initial Contracts which may cause
the characteristics of the Subsequent Contracts to vary from those of the
Initial Contracts, and will be selected from among Titling Trust Assets not
allocated or reserved for allocation to any Other SUBI. Principal Collections
(and reimbursements of Loss Amounts) will first be reinvested in the eligible
lease contract with the earliest origination date, then with the eligible lease
contract with the next earliest origination date and so forth. To the extent
that reinvestment of such amounts from the SUBI are being made out of the
Titling Trust's general pool of available lease contracts at any time after the
creation of one or more Other SUBIs, such reinvestment will first be made with
respect to the SUBI. TMCC will represent and warrant that no adverse selection
procedures were employed or will be employed in selecting the Initial Contracts
or the Subsequent Contracts for inclusion in the SUBI Assets and that it is not
aware of any bias in the selection of such Contracts that would cause the
delinquencies or losses on such Contracts to be worse than other retail
closed-end automobile and light duty truck lease contracts held in the Titling
Trust's portfolio, although there can be no assurance in this regard.
Each Contract will have been written for an original term of not more
than 60 months, and will have been written for a "capitalized cost" (which may
exceed the manufacturer's suggested retail price), plus a lease charge which is
based on the imputed Lease Rate. Each Contract will provide for equal monthly
payments that when allocated between principal and the lease charge at the
Lease Rate on a constant yield basis, will be sufficient to amortize the
capitalized cost over the term of the lease to an amount equal to the Residual
Value. Each Residual Value is established at the origination of the lease
(based on documentation provided to the Dealers by TMCC) and represents the
estimated wholesale market value at the end of the lease term.
At the times of origination of the related Contracts, the Leased
Vehicles were, in the case of the Initial Contracts, or will be, in the case of
the Subsequent Contracts, new vehicles, including dealer demonstrator vehicles
driven fewer than 20,000 miles, or used vehicles four model years old or less at
the time of origination of the related Contract, including certified used
vehicles and manufacturer's program vehicles. Certified used vehicles are
vehicles that are purchased by dealers, reconditioned and certified to meet
certain Toyota/Lexus required standards and sold or leased with an extended
warranty. Manufacturers' program vehicles are vehicles that have been sold to
rental car companies, repurchased by the manufacturer and subsequently purchased
by the dealer to sell or lease as current and one year old used vehicles with
20,000 miles or less.
All of the Contracts will be closed-end leases. Under a "closed-end
lease", at the end of its term, if the lessee does not elect to purchase the
related leased vehicle by exercise of the purchase option contained in such
32
<PAGE> 39
lease contract, the lessee is required to return the leased vehicle to or upon
the order of the lessor, at which time the lessee will then owe only incidental
charges for excess mileage, excessive wear and use and other items as may be
due under such lease. In contrast, under an "open-end lease", the lessee is
also obligated to pay at the end of the lease term any deficit between the fair
market value of the leased vehicle at that time and the residual value
established at the time of origination of such lease.
Each lessee will be permitted to purchase the Leased Vehicle at the
end of the term of the related Contract. The purchase price will be a fixed
dollar amount equal to the Residual Value plus any applicable taxes and all
other incidental charges which may be due under the Contract. In addition,
each Contract will allow the related lessee voluntarily to terminate such
Contract by paying certain miscellaneous charges and the Payoff Amount
described below.
Each Contract will provide that the lessor may terminate such Contract
and repossess the Leased Vehicle in the event of a default by the lessee.
Events of default under the Contracts will include, but will not be limited to,
failure to make payment when due, certain events of bankruptcy or insolvency,
failure to maintain the insurance required by the Contract, failure to maintain
or repair the Leased Vehicle as required or to comply with any other term or
condition of the Contract and the making of a material misrepresentation by
the lessee in the lease application. TMCC regularly tracks lessees' compliance
with their payment obligations and monitors the related leases for
noncompliance. See "TMCC--Insurance" and "--Collection, Repossession and
Disposition Procedures".
In the forms of contract used to originate Contracts, upon termination
at or before maturity where the lessee is not in default and does not exercise
its option to purchase the Leased Vehicle, the amount owed by the lessee (the
"Payoff Amount") will be determined by adding (i) unpaid Monthly Payments and
any incidental charges owing under the Contract, less unearned lease charges
and (ii) the Residual Value, subtracting the "Realized Value" (as described
below), from the sale or other disposition of the related Leased Vehicle and
applying the Security Deposit, if any, to reduce any deficiency. In
calculating the amount of unearned lease charges under clause (i) above, the
Contracts will provide that the constant yield method will be used, in which
lease charges are earned on a daily basis through the payment date immediately
following the date of early termination. If, instead, there is an early
termination and the lessee is in default, the amount owed by a lessee in
default will be determined by adding (i) the Payoff Amount, (ii) payments
accrued under the Contract through the date of termination, (iii) collection,
repossession, storage, preparation and sale expenses and (iv) attorneys' fees
and disbursements incurred after default.
The "Realized Value" of a Leased Vehicle is the actual wholesale price
or the wholesale price otherwise determined by TMCC in a commercially
reasonable manner. However, each Contract provides that the lessee has the
right to obtain from an independent third party acceptable to the lessor a
professional appraisal of the wholesale value of the Leased Vehicle that could
be realized at sale. This appraised value then would be used as the wholesale
value for purposes of calculating sums due from the lessee.
In the event of early termination of a Contract where the lessee is in
default, the amounts collected with respect to such Contract and the related
Leased Vehicle (after deducting the costs and other sums retained by the
Servicer in connection therewith) may be less than the Outstanding Principal
Balance of such Contract. In the event that a Contract reaches the date on
which the last Monthly Payment is due, as such date may have been extended (the
"Maturity Date"), but the related Leased Vehicle cannot be sold or otherwise
disposed of for a net amount at least equal to its Residual Value, there may be
an additional shortfall in amounts otherwise expected to be received in respect
of the SUBI Interest. In the event that any such shortfalls allocable to the
Certificates are not covered by the Investor Percentage of certain excess
Interest Collections, available monies on deposit in the Reserve Fund, Net
Insurance Proceeds or Net Liquidation Proceeds, amounts otherwise payable to
the Transferor in respect of the
33
<PAGE> 40
Transferor Interest, the subordination of interest payments otherwise payable
to the Class B Certificateholders and, in the case of the Class A-2
Certificates, the subordination of principal payments otherwise payable to the
Class B Certificateholders, in each case to the extent described herein,
investors in the Class A Certificates could suffer a loss on their investments.
CHARACTERISTICS OF THE CONTRACTS
General
The Initial Contracts were, and the Subsequent Contracts will be,
selected by reference to several criteria, including, as of the related Cutoff
Date, that each Contract (i) is written with respect to a Leased Vehicle that
was at the time of the origination of the related lease contract a new or used
vehicle, (ii) was originated in the United States, after o, 1996 in the case of
the Initial Contracts, and on or before o, 1997 in the case of the Subsequent
Contracts; (iii) has a Maturity Date on or after o and no later than o in the
case of the Initial Contracts, and on or after o and no later than o in the
case of the Subsequent Contracts; (iv) fully amortizes to an amount equal to
the Residual Value of the related Leased Vehicle based on a fixed Lease Rate
calculated on a constant yield basis and provides for level payments over its
term (except for payment of the Residual Value); (v) was not more than 60 days
past due as of the Initial Cutoff Date or the related Subsequent Cutoff Date,
as the case may be; and (vi) has not been deferred more than o times or
extended by more than o months in the aggregate.
34
<PAGE> 41
Composition of Initial Contracts
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance as of Initial
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . $o
Number of Initial Contracts . . . . . . . . . . . . . . . . . . . o
Average Outstanding Principal Balance as of Initial
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . $o
Average Discounted Principal Balance as of Initial
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . $o
Range of Original Principal Balances of Initial Contracts . . . $o to $o
Weighted Average Lease Rate(1) . . . . . . . . . . . . . . . . . . o%
Range of Lease Rates(2) . . . . . . . . . . . . . . . . . . . . o% to o%
Weighted Average Original Number of Monthly
Payments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . o months
Range of Original Number of Monthly Payments . . . . . . . . . . o months to o months
Weighted Average Remaining Number of Monthly
Payments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . o months
Range of Remaining Number of Monthly Payments . . . . . . . . . o months to o months
Weighted Average Original Residual Value(2) . . . . . . . . . . . $o
Range of Original Residual Values(2) . . . . . . . . . . . . . . $o to $o
Aggregate of Residual Values as a Percentage of Aggregate
Net Investment Value as of Initial Cutoff Date . . . . . . . . . o%
Percentage of Lease Contracts for New Vehicles
(by Outstanding Principal Balance)(2) . . . . . . . . . . . . . o%
Percentage of Lease Contracts for Used Vehicles
(by Outstanding Principal Balance)(2) . . . . . . . . . . . . . o%
</TABLE>
- ----------
(1) Weighted by Outstanding Principal Balance as of the Cutoff Date.
(2) Without giving effect to discounting for calculation of Discounted
Principal Balances.
35
<PAGE> 42
INITIAL CONTRACTS
<TABLE>
<CAPTION>
AVERAGE MINIMUM MAXIMUM
------- ------- --------
<S> <C> <C> <C>
Original Principal Balance $ $ $
Outstanding Principal Balance(1)
Residual Value
Lease Rate(1)(2) % % %
Seasoning (months)(1) (3)
Remaining Term (months)(1)
</TABLE>
______________________
(1) As of the Initial Cutoff Date.
(2) Without giving effect to discounting for calculation of Discounted
Principal Balances.
(3) Weighted by Outstanding Principal Balance as of the Initial Cutoff Date.
36
<PAGE> 43
Distribution of the Initial Contracts by Lease Rate
The distribution of the Initial Contracts as of the Initial Cutoff
Date by Lease Rate was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING
LEASE RATE RANGE INITIAL CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
2.00% to 2.99% % $ %
3.00% to 3.99% % $ %
4.00% to 4.99% % $ %
5.00% to 5.99% % $ %
6.00% to 6.99% % $ %
7.00% to 7.99% % $ %
8.00% to 8.99% % $ %
10.00% to 10.99% % $ %
Total . . . . % $ %
</TABLE>
Distribution of the Initial Contracts by Maturity
The distribution of the Initial Contracts as of the Initial Cutoff
Date by year of maturity was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING
YEARS OF MATURITY INITIAL CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1999 % $ %
2000 % $ %
2001 % $ %
2002 % $ %
Total . . . . . % $ %
</TABLE>
37
<PAGE> 44
Distribution of the Initial Contracts by State
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
STATE OF NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING
ORIGINATION(1) INITIAL CONTRACT INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
California % $ %
Florida % $ %
Michigan % $ %
Ohio % $ %
Pennsylvania % $ %
Total . . . . 100% $ 100%
</TABLE>
- ------------
(1) by Dealer location
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Initial Contracts and Initial Leased Vehicles will be described in
a schedule appearing as an exhibit to the SUBI Supplement, which schedule will
be amended from time to time as Subsequent Contracts and Subsequent Leased
Vehicles become SUBI Assets during the Revolving Period (collectively, the
"Schedule of Contracts and Leased Vehicles").
The Schedule of Contracts and Leased Vehicles will identify each
Contract by identification number, will identify each Leased Vehicle by its
vehicle identification number and will set forth as to each such Contract,
among other things, its: (i) date of origination; (ii) Maturity Date; (iii)
Monthly Payment; (iv) original Outstanding Principal Balance; (v) Outstanding
Principal Balance and Discounted Principal Balance as of the related Cutoff
Date; and (vi) Residual Value. In the Servicing Agreement, representations and
warranties will be made with respect to each Contract and Leased Vehicle to the
effect described under "The Contracts--Characteristics of the
Contracts--General", and that, among other things, each such Contract, and, to
the extent applicable, the related Leased Vehicle or lessee: (a) was originated
by a Dealer located in the United States in the ordinary course of its business
and in compliance with TMCC's normal credit and underwriting policies and
practices; (b) is owned by the Titling Trust, free of all liens, encumbrances
or rights of others; (c) was originated in compliance with, and complies with,
all material applicable legal requirements; (d) all material consents,
licenses, approvals or authorizations of, or registrations or declarations
with, any governmental authority required to be obtained, effected or given by
the originator of such Contract and the Titling Trustee in connection with (i)
the origination of such Contract, (ii) the execution, delivery and performance
by such originator of the Contract and (iii) the acquisition by the Titling
Trust of such Contract and Leased Vehicle, have been duly obtained, effected or
given and are in full force and effect as of such date of creation or
acquisition; (e) is the legal, valid and binding obligation of the lessee; (f)
to the knowledge of TMCC, is not subject to any right of rescission, setoff,
counterclaim or any other defense of the related lessee to pay the Outstanding
Principal Balance due under such Contract and no such right of rescission,
setoff, counterclaim or other defense has been asserted or threatened; (g) the
related Dealer, the Servicer and the Titling Trust have each satisfied all
obligations required to be fulfilled on its part with respect thereto; (h) is
payable solely in United States dollars in the United States; (i) the lessee
thereunder is located in the United States and is not TMCC, the Transferor or
any of their respective affiliates; (j) requires the lessee to maintain
insurance against loss or damage to the related Leased Vehicle under an
insurance policy that names the Titling Trust as loss payee; (k) the related
certificate of title is registered in the name of the Titling Trust (or a
properly completed application for such title has been submitted to the
appropriate titling authority); (l) is a closed-end lease
38
<PAGE> 45
that requires equal monthly payments to be made within 60 months of the date of
origination of such Contract; (m) is fully assignable and does not require the
consent of the lessee as a condition to any transfer, sale or assignment of the
rights of the originator; (n) has a Residual Value that does not exceed an
amount reasonably established by the Servicer consistent with its policies and
practices; (o) has not been deferred more than o times or extended by more than
o months in the aggregate or otherwise modified except in accordance with
TMCC's normal credit and collection policies and practices; (p) is not an Other
SUBI Asset; (q) to the knowledge of TMCC, the lessee thereunder is not bankrupt
or currently the subject of a bankruptcy proceeding; (r) is not more than 60
days past due; (s) is a finance lease for accounting purposes; and (t) is a
"true lease" for applicable state law purposes relating to the perfection of
security interests.
The Servicing Agreement will provide that the reinvestment of
Principal Collections (and Loss Amounts otherwise reimbursable to
Certificateholders) in Subsequent Contracts and Subsequent Leased Vehicles
during the Revolving Period will be subject to the satisfaction of certain
conditions precedent including, among other things, that after giving effect to
such reinvestment, (i) each Subsequent Contract will be allocated as a SUBI
Asset based upon its Discounted Principal Balance as of the relevant Cutoff
Date, (ii) the weighted average remaining term of the Contracts (including the
Subsequent Contracts) is not greater than o months and (iii) the weighted
average Residual Value of the Leased Vehicles relating to the Contracts
(including the Subsequent Contracts), as a percentage of the aggregate
Outstanding Principal Balance of the Contracts (including the Subsequent
Contracts), in each case as of the related dates of origination, is not greater
than o%. The foregoing criteria may be changed without the consent of any
Certificateholder if the Trustee receives notice from each Rating Agency to the
effect that the use of such changed criteria will not result in the reduction,
withdrawal or qualification of its then current rating of any Certificates.
The Servicing Agreement will provide that upon the discovery by the
Titling Trustee, TMCC, the Trustee or the Transferor of a breach of any
representation, warranty or covenant referred to in the second preceding
paragraph that materially and adversely affects the owners of interests in the
SUBI or the Certificateholders in the related Contract or Leased Vehicle, which
breach is not cured in all material respects within 60 days after TMCC
discovers such breach or is given notice thereof, such Contract and Leased
Vehicle (and the related SUBI Assets) will be reallocated to the UTI and TMCC
will be required to deposit (or cause to be deposited) into the SUBI Collection
Account an amount (the "Reallocation Payment") equal to the Discounted
Principal Balance of such Contract as of the last day of the Collection Period
during which the related cure period ended, plus an amount equal to any imputed
lease charge on such Contract at the related Lease Rate that was delinquent as
of the end of such Collection Period. The foregoing payment obligation will
survive any termination of TMCC as Servicer under the Servicing Agreement.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
All of the Contracts will be prepayable, in whole or in part, at any
time without penalty. The prepayment experience with respect to the Contracts
will affect the weighted average lives of the Class A Certificates.
In general, the rate of prepayments on the Contracts may be influenced
by a variety of economic, social, geographic and other factors. The Titling
Trust was formed and began to accept assignments of lease contracts in November
1996. All of the lease contracts assigned to the Titling Trust since that time
have been, and all of the lease contracts to be assigned to the Titling Trust
will be, assigned by Dealers using TMCC's underwriting standards. TMCC
actively encourages lessees under lease contracts with remaining terms of less
than one year to either buy, trade in or refinance the related leased vehicles
prior to the related scheduled maturities of such lease contracts. TMCC
estimates that during its fiscal years 1994, 1995 and 1996 approximately o%, o%
and o% of
39
<PAGE> 46
the retail automobile and light duty truck lease contracts in its portfolio that
were scheduled to mature during such years were terminated prior to maturity,
either because of voluntary prepayments or repossession of the leased vehicles
due to default by the lessees under the related lease contracts. No assurance
can be given that the Contracts will experience the same rate of prepayment or
default or any greater or lesser rate than TMCC's historical rate, or that the
Residual Value experience of Leased Vehicles related to Contracts that have
reached their Maturity Dates will be the same as or higher or lower than from
TMCC's historical residual value loss experience with respect to lease contracts
in its portfolio.
The effective yield on, and weighted average life of, each Class of
Class A Certificates will depend upon, among other things, the amount of
scheduled and unscheduled payments on or in respect of the Contracts and the
Leased Vehicles and the rate at which such payments are paid to the Class A
Certificateholders. In the event of prepayments of the Contracts (including
liquidations of the Contracts and payment of the Residual Value of the related
Leased Vehicles) or payment of any Accelerated Principal Distribution Amount
during the Amortization Period, Class A Certificateholders who receive such
amounts may not be able to reinvest the related payments of principal received
on the Class A Certificates at yields as high as the related Certificate Rate.
The timing of changes in the rate of prepayments on the Contracts and payments
in respect of the Leased Vehicles may also affect significantly an investor's
actual yield to maturity and the weighted average life of the related Class of
Class A Certificates. A substantial increase in the rate of payments on or in
respect of the Contracts and Leased Vehicles during the Amortization Period may
shorten the final maturity and weighted average lives of the Class A
Certificates. In the case of Class A Certificates purchased at a discount to
their principal amounts, a slower than anticipated rate of principal payments
is likely to result in a lower than anticipated yield to the investor. In the
case of Certificates purchased at a premium to their principal amounts, a
faster than anticipated rate of principal payments is likely to result in a
lower than anticipated yield to the investor.
Additionally, although monies on deposit in the Accounts and Principal
Collections (and reimbursed Loss Amounts) that have not been reinvested in
Subsequent Contracts and Subsequent Leased Vehicles during the Revolving Period
will be invested in Permitted Investments, and all gain or other income from
such investments will be available for making distributions on the
Certificates, no assurance can be made as to the rate of return that will be
realized on such Permitted Investments. Any reinvestment risk resulting from
the rate of prepayment of the Contracts (and payment of the Residual Value of
the related Leased Vehicles) and the making of the foregoing investments will
be borne by the Class A Certificateholders.
In general, during the Amortization Period, no principal payments will
be received by Class A-2 or Class B Certificateholders until the Class A-1
Certificates have been paid in full. In addition, the Class A Percentage and
the Class B Percentage of Principal Collections allocable to the Investor
Interest will be calculated when the Class A-1 Certificates have been paid in
full, and then used to determine the distribution of principal payments on the
Class A-2 Certificates and the Class B Certificates. See "Risk
Factors--Maturity and Prepayment Considerations--Sequential Payment of
Principal on the Certificates". The Investor Percentage of Loss Amounts will
be allocated among the Certificateholders on a pro rata basis, based on the
Class A-1, Class A-2 and Class B Allocation Percentages, as the case may be,
and then reimbursed out of available funds in the amounts and order of priority
described in "Description of the Certificates--Distributions on the
Certificates--Distributions of Interest". In addition, the Investor Percentage
of the net proceeds of any sale or other disposition of the SUBI Interest, the
SUBI Certificate and other property of the Trust, which may occur under certain
circumstances involving an Insolvency Event with respect to the Transferor, to
the extent constituting Principal Collections, will be distributed first, on a
pro rata basis, to the Class A Certificateholders based on their respective
Class Certificate Balances until the Class A Certificates have been paid in
full, and second, to the Class B Certificateholders.
40
<PAGE> 47
The following information is provided solely to illustrate the effect
of prepayments of the Contracts on the Class A-1 Certificate Balance and the
Class A-2 Certificate Balance and the weighted average life of each Class of
Class A Certificates. The following information relies on the assumptions
stated below, and is not a prediction of the actual prepayment rates that might
be experienced with respect to the Contracts.
To illustrate the effects of prepayments of lease contracts in a
variety of securitizations, a standardized model (referred to herein as the
"ABS") has been developed which contemplates a specific constant monthly rate
of prepayments of contracts in a pool. The following tables express the
results of the application of a specific prepayment assumption (the "Prepayment
Assumption"), and variations thereof, to create different scenarios in which
different percentages of ABS apply to specified periods of time during the
life of each contract in a pool. Thus, as used herein, the 100% Prepayment
Assumption scenario describes the basic Prepayment Assumption scenario in which
(based on the further assumptions in the next paragraph) the original
Outstanding Principal Balance of any Contract will prepay as follows: o. A 0%
Prepayment Assumption assumes no prepayments on a Contract, a 50% Prepayment
Assumption assumes that a Contract will prepay at 50% of the Prepayment
Assumption, and so forth. Neither the ABS, the Prepayment Assumption nor any
variation thereof purports to be a historical description of the prepayment
experience of any pool of contracts including the Contracts or a prediction as
to the anticipated rate of prepayment of any pool of contracts, including the
Contracts. There can be no assurance that the Contracts will prepay at any
single rate during any period, at the assumed rates during any period or at any
other rate or combination of rates during any period.
The tables below were prepared on the basis of the further assumptions
that: (i) all Collections (including Monthly Payments and net sale proceeds in
respect of the Leased Vehicles relating to Matured Contracts) are timely
received, and that no Contracts are ever delinquent; (ii) no Reallocation
Payment or Reallocation Deposit Amount is made in respect of any Contract;
(iii) there are no Loss Amounts; (iv) the Transferor exercises its option to
purchase the SUBI Certificate as described herein; (v) all distributions of
principal (including any Accelerated Principal Distribution Amount) and
interest on the Class A Certificates are made on the dates specified herein;
(vi) the Servicing Fee is 1% per annum of the Aggregate Net Investment Value;
(vii) all prepayments are full Prepayments; (viii) the Revolving Period ends on
o; (ix) all of the Initial Contracts have assumed lease rates of o% and were
originated four months prior to the Initial Cutoff Date; and (x) all Principal
Collections in respect of each Collection Period during the Revolving Period
are reinvested, on a Transfer Date that is the twenty-fifth day of the following
calendar month, in Subsequent Contracts that have stated terms of three years,
Lease Rates of o% and Residual Values equal to o% of the original Outstanding
Principal Balances thereof, were originated two months prior to the Closing
Date and that otherwise have terms that are substantially similar to those of
the Initial Contracts.
No representation is made as to what the actual levels of losses and
delinquencies on the Contracts will be. Since the tables below were prepared
on the basis of the foregoing assumptions about the characteristics of the
Contracts, including loss and delinquency assumptions, there will be
discrepancies between the characteristics of the Contracts that actually have
been and will be allocated as SUBI Assets and such assumed characteristics,
including the loss and delinquency experiences in respect of the Contracts.
Any such discrepancy may (i) increase or decrease the percentage of the
outstanding Class A-1 or Class A-2 Certificate Balance, (ii) lengthen or
shorten the weighted average lives of each or any Class of Class A Certificates
and/or (iii) result in distributions of principal on the Class A Certificates
earlier or later than as set forth in the tables.
The following tables set forth the percentages of the Initial
Certificate Balance of each Class of Class A Certificates that would be
outstanding after each of the dates shown, based on prepayment rates equal to
0%, 50%, 100%, 150% and 200% of the Prepayment Assumption.
41
<PAGE> 48
PERCENTAGE OF INITIAL CLASS A-1 CERTIFICATE BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-1 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-----------------------------------------------------
DISTRIBUTION DATE o% o% o% o% o%
----------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
o 1998
o 1999
o 2000
o 2001
o 2002
Weighted Average Life (Years)(1)
</TABLE>
________________
(1) The weighted average life of the Class A-1 Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
[months][years] from the Closing Date to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the Initial Class
A-1 Certificate Balance.
42
<PAGE> 49
PERCENTAGE OF INITIAL CLASS A-2 CERTIFICATE BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-2 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-----------------------------------------------------
DISTRIBUTION DATE o% o% o% o% o%
----------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
o 1998
o 1999
o 2000
o 2001
o 2002
Weighted Average Life (Years)(1)
</TABLE>
_________________
(1) The weighted average life of the Class A-2 Certificates is determined by
(i) multiplying the amount of each principal payment by the number of
[months][years] from the Closing Date to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the Initial Class
A-2 Certificate Balance.
CLASS A CERTIFICATE FACTORS AND TRADING INFORMATION;
REPORTS TO CLASS A CERTIFICATEHOLDERS
The "Class A-1 Certificate Factor" and the "Class A-2 Certificate
Factor" will each be a seven-digit decimal that the Servicer will compute each
month indicating the Class A-1 or Class A-2 Certificate Balance, as the case
may be, as of the close of business on the Distribution Date in such month as a
fraction of the Initial Certificate Balance of the related Class of Class A
Certificates. Each Certificate Factor will initially be 1.0000000 and will
remain unchanged during the Revolving Period, except in certain limited
circumstances where there are unreimbursed Class A-1 or Class A-2 Certificate
Principal Loss Amounts. During the Amortization Period, each Certificate
Factor will decline to reflect reductions in the related Certificate Balance
resulting from distributions of principal and unreimbursed Class A-1 or Class
A-2 Certificate Principal Loss Amounts, if any. The portion of the Class A
Certificate Balance for a given month allocable to a Class A Certificateholder
can be determined by multiplying the original denomination of the holder's
Class A Certificate by the related Certificate Factor for that month.
Pursuant to the Agreement, o, as Trustee, will provide to the Class A
Certificateholders (which shall be Cede & Co. as the nominee of DTC unless
Definitive Certificates are issued under the limited circumstances described
herein) unaudited monthly reports concerning payments received on or in respect
of the Contracts and the Leased Vehicles, the Aggregate Net Investment Value,
the Investor Percentage, the Class A-1 and Class A-2 Certificate Factors and
various other items of information. Certificate Owners may obtain copies of
such reports upon a request in writing to the Trustee. In addition, Class A
Certificateholders during each calendar year will be furnished information for
tax reporting purposes not later than the latest date permitted by law. See
"Description of the Certificates--Statements to Certificateholders" and
"--Book-Entry Registration".
43
<PAGE> 50
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement which,
together with the Titling Trust Agreement, the SUBI Supplement and the
Servicing Supplement, have been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summaries of
material provisions of the foregoing documents as well as the summaries
included elsewhere in this Prospectus do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the actual
provisions of such documents.
GENERAL
The Class A Certificates will be issued in minimum denominations of
$1,000 and integral multiples thereof in book-entry form. The Class A
Certificates will initially be represented by global certificates registered in
the name of Cede & Co., the nominee of DTC. No Certificate Owner will be
entitled to receive a certificate representing such owner's Certificate, except
as set forth below. Unless and until Definitive Class A Certificates are
issued under the limited circumstances described below, all references herein
to distributions, notices, reports and statements to Class A Certificateholders
will refer to the same actions made with respect to DTC or Cede & Co., as the
case may be, for the benefit of Certificate Owners in accordance with DTC
procedures. See "Description of the Certificates--Book-Entry Registration" and
"--Definitive Certificates".
The Class Certificate Balance of each Class of Certificates at any
time will be equal to the initial Class Certificate Balance of such Class of
Certificates, less the sum of (i) all payments made to the holders thereof on
or prior to such date allocable to principal, (ii) Certificate Principal Loss
Amounts allocated to such Class of Certificates and not reimbursed as described
herein and (iii) in the case of the Class B Certificates, any unreimbursed
Class B Certificate Principal Carryover Shortfall. See "Description of the
Certificates--Distributions on the Certificates". Each Certificate will
represent the right to receive payments of interest at the related Certificate
Rate and, to the extent described herein, payments in respect of principal
thereof during the Amortization Period funded from the Investor Percentage of
distributions to the Trust of Interest Collections and Principal Collections
allocable to the SUBI Interest and Accelerated Principal Distribution Amounts
allocable to Certificates of the related Class, amounts on deposit in the
Reserve Fund and amounts otherwise payable to the Transferor in respect of the
Transferor Interest, in each case to the extent described herein.
Distributions of interest and principal on the Class B Certificates will be
subordinated to the right of the Class A Certificates to receive such payments
to the extent provided herein. See "Description of the
Certificates--Distributions on the Certificates".
The Transferor will permanently retain the Transferor Interest, which
will represent the interest in the Trust not represented by the Certificates,
including the right to receive the Transferor Percentage of Interest
Collections and Principal Collections. See "Description of the
Certificates--Calculation of Investor Percentage and Transferor Percentage".
The Transferor Interest will be subordinated to the Certificates to the extent
described herein, and on any day will equal the difference between the
Aggregate Net Investment Value and the Certificate Balance. See "Description
of the Certificates--Certain Payments to the Transferor".
During the Revolving Period, the Certificate Balance will remain
constant except to the extent there are unreimbursed Certificate Principal Loss
Amounts. During the Amortization Period, the Certificate Balance will decline
as the Investor Percentage of Principal Collections allocable to the SUBI
Interest and Accelerated Principal Distribution Amounts are distributed to the
Certificateholders and as Certificate Principal Loss Amounts are incurred and
not reimbursed.
44
<PAGE> 51
TRANSFER OF THE SUBI INTEREST
On the Closing Date, the Transferor will deliver the SUBI Certificate
to the Trustee and transfer and assign to the Trustee, without recourse, all of
its right, title and interest in and to the SUBI Interest [(excluding the right
to proceeds of any residual value insurance policy represented thereby)].
Concurrently therewith, the Trustee will execute, authenticate and deliver the
Certificates to or upon the order of the Transferor. Pursuant to the
Agreement, the Transferor will represent and warrant that, immediately prior to
the transfer and assignment of the SUBI Certificate to the Trustee, it had good
title to and was the sole legal and beneficial owner of the SUBI Certificate,
free and clear of liens and claims.
REALLOCATION PAYMENTS AND REALLOCATION DEPOSIT AMOUNTS
Under certain circumstances TMCC will be required to make Reallocation
Payments in respect of certain Contracts (and the related Leased Vehicles)
discovered not to be in compliance with TMCC's representations or warranties or
Contracts as to which certain servicing procedures have not been followed, in
either case that materially and adversely affects the interests of the
Transferor or the Certificateholders in the related Contract or Leased Vehicle.
Upon any such payment during the Amortization Period (but not during the
Revolving Period), the Aggregate Net Investment Value will decline by an amount
equal to the Discounted Principal Balance of such Contract, thereby reducing
the amount of the Transferor Interest by the same amount, and such Contract and
the related Leased Vehicle will no longer constitute SUBI Assets as they will
be reallocated and become UTI Assets. If such deduction would cause the
Transferor Interest to become less than zero, TMCC will be required to deposit
(or cause to be deposited) in the SUBI Collection Account the amount (the
"Reallocation Deposit Amount") by which the Transferor Interest would be
reduced to less than zero. Notwithstanding the foregoing, in the event a
Reallocation Deposit Amount is required to be made, reallocation of the related
Contract (and the related Leased Vehicle) will not be considered to have
occurred unless such deposit is actually made. See "The
Contracts--Representations, Warranties and Covenants" and "Additional Document
Provisions--The Servicing Agreement--Collections"
CALCULATION OF INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
Pursuant to the Servicing Agreement, to the extent allocable to the
SUBI Interest, the Servicer will allocate between the Investor Interest and the
Transferor Interest, based on the applicable Investor Percentage and the
Transferor Percentage for the related Collection Period, all Interest
Collections and (during the Amortization Period) Principal Collections
collected or received in respect of the related Collection Period. In
addition, similar allocations will be made by the Servicer at the end of each
Collection Period in respect of (i) an amount equal to the Discounted Principal
Balance of any Contract that became a Charged-off Contract during such
Collection Period (the aggregate of such amounts in any Collection Period, the
"Charged-off Amount"), (ii) the Residual Value Loss Amount for such Collection
Period and (iii) any Additional Loss Amounts incurred during such Collection
Period. A "Charged-off Contract" will be a Contract (a) with respect to which
the related Leased Vehicle has been repossessed and sold or otherwise disposed
of or (b) which has been written off by the Servicer in accordance with its
normal policies for writing off lease contracts other than with respect to
repossession.
The Investor Percentage in respect of any Collection Period will mean,
with respect to (i) Charged-off Amounts, Residual Value Loss Amounts and
Additional Loss Amounts (collectively, "Loss Amounts") and Interest
Collections, in each case that are allocable to the SUBI Interest, the
percentage equivalent of a fraction (not to exceed 100%) the numerator of which
is the Certificate Balance on the last day of the immediately preceding
Collection Period (or, in the case of the first Collection Period, the Initial
Certificate Balance) and the denominator of which is the Aggregate Net
Investment Value on the last day of the immediately preceding Collection Period
45
<PAGE> 52
(or, in the case of the first Collection Period, as of the Initial Cutoff Date)
and (ii) Principal Collections during the Amortization Period, the percentage
equivalent of a fraction (not to exceed 100%) the numerator of which is the
Certificate Balance and the denominator of which is the Aggregate Net
Investment Value, in each case as of the last day of the last Collection Period
preceding (a) the Amortization Date or (b) the date on which an Early
Amortization Event occurs. The "Transferor Percentage" will in all cases, be
equal to 100% minus the applicable Investor Percentage.
As a result of the calculations described above, Interest Collections
allocable to the SUBI Interest in each Collection Period will be allocated to
the Certificateholders based on the relationship of the Certificate Balance to
the Aggregate Net Investment Value (which may change from Collection Period to
Collection Period). As described above, the Investor Percentage applied when
allocating Principal Collections allocable to the SUBI Interest may vary
monthly during the Revolving Period, because the Certificate Balance as a
percentage of the Aggregate Net Investment Value may fluctuate monthly. During
the Amortization Period, however, the Principal Allocation will be determined
by reference to a fixed percentage which will equal the Investor Percentage
with respect to Principal Collections allocable to the SUBI Interest as of the
last day of the Revolving Period.
CERTAIN PAYMENTS TO THE TRANSFEROR
On each Distribution Date, the Trustee will pay to the Transferor,
from amounts on deposit in the SUBI Collection Account in respect of the
related Collection Period that are allocable to the SUBI Interest, the
following amounts (the "Transferor Amounts"): (i) if such Distribution Date is
prior to the First Principal Distribution Date, the Transferor Percentage of
Interest Collections and (ii) if such Distribution Date is on or after the
First Principal Distribution Date, the Transferor Percentage of Interest
Collections and, to the extent that the Transferor Interest is equal to or
greater than zero, the Transferor Percentage of Principal Collections. Any
Principal Collections not paid to the Transferor because the Transferor
Interest is less than or equal to zero ("Unallocated Principal Collections")
will be retained in the SUBI Collection Account for payment to
Certificateholders.
Notwithstanding the foregoing, no Transferor Amounts will be paid to
the Transferor on a Distribution Date unless (i) the amounts described in
clauses (i) through (xiv) of the first paragraph under "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest"
have been paid in full and (ii) the amount on deposit in the Reserve Fund,
after giving effect to all withdrawals therefrom and other deposits thereto on
such Distribution Date, is at least equal to the Specified Reserve Fund
Balance.
DISTRIBUTIONS ON THE CERTIFICATES
General
On the second Business Day prior to each Distribution Date (each, a
"Determination Date"), the Servicer will inform the Trustee of, among other
things, the amount of Interest Collections and Principal Collections allocable
to the SUBI Interest, the Investor Percentage, the Transferor Percentage, the
Class A-1 and Class A-2 Certificate Factors, the Class A-1, Class A-2 and
Class B Allocation Percentages, the amount of Advances to be made by the
Servicer, the Required Amount, if any, to be withdrawn from the Reserve Fund
and the Servicing Fee and other servicing compensation payable to the Servicer
with respect to the related Collection Period. On or prior to each
Determination Date, the Servicer shall also determine the Specified Reserve
Fund Balance and the amounts to be distributed to the Certificateholders and to
the Transferor in respect of the Transferor Interest and in respect of other
amounts released from the Trust.
46
<PAGE> 53
Distributions of Interest Collections
On each Distribution Date, the Trustee will make the following
payments in the amounts and order of priority described below. The Trustee
will distribute from amounts on deposit in the SUBI Collection Account the
Investor Percentage of Interest Collections collected during or received in
respect of the related Collection Period allocable to the SUBI Interest,
together with the amount withdrawn from the Reserve Fund in respect of the
Required Amount, if any, to the extent necessary, plus Transferor Amounts that
would otherwise be payable to the Transferor in respect of the Transferor
Interest and, to the extent needed to make distributions described in clauses
(viii) through (x) to the Class A-2 Certificateholders during the Amortization
Period, amounts that would otherwise be distributable to the Class B
Certificateholders in respect of the Class B Percentage of the Investor
Percentage of such Principal Collections:
(i) in the event of an Early Amortization Event involving
an Insolvency Event as a result of the Trustee having received written
instructions from holders of Certificates evidencing Voting Interests
of not less than 51% of the Class A Certificates (voting together as a
single class) or 51% of the Class A Certificates and Class B
Certificates (voting together as a single class) to sell or dispose of
the SUBI Interest, to the Trustee, the Investor Percentage of Capped
Trust Administrative Expenses;
(ii) to the related Class A Certificateholders, interest
for the related Interest Period at the related Certificate Rate on the
Class A-1 or Class A-2 Certificate Balance, as applicable, as of the
close of business on the preceding Distribution Date or, in the case
of the first Distribution Date, on the Initial Class A-1 or Class A-2
Certificate Balance, together with any unpaid Class A-1 or Class A-2
Interest Carryover Shortfall;
(iii) to the Class B Certificateholders, interest for the
related Interest Period at o% per annum (the "Class B Certificate
Rate" and, together with the Class A-1 and Class A-2 Certificate
Rates, the "Certificate Rates"), on the Class B Certificate Balance as
of the close of business on the preceding Distribution Date or, in the
case of the first Distribution Date, on the Initial Class B
Certificate Balance, together with any unpaid Class B Interest
Carryover Shortfall;
(iv) to the Servicer, reimbursement of the Investor
Percentage of Capped Contingent and Excess Liability Premiums;
(v) to the Titling Trustee, the Investor Percentage of
Capped Titling Trust Administration Expenses;
(vi) in circumstances other than as set forth in clause
(i) above, to the Trustee, the Investor Percentage of Capped Trust
Administration Expenses;
(vii) to the Servicer, the Investor Percentage of (a) the
Servicing Fee and (b) any unpaid Servicing Fees payable in respect of
one or more prior Collection Periods;
(viii) to each Class of Class A Certificateholders, an
amount equal to the Class A-1 or Class A-2 Allocation Percentage, as
applicable, multiplied by the Investor Percentage of all Loss Amounts
incurred during the related Collection Period and allocable to the
SUBI Interest;
(ix) to each Class of Class A Certificateholders, the
aggregate of the amounts allocable to such Class pursuant to clause
(viii) above that were not previously distributed pursuant to such
clause or this
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clause (each such amount, a "Class A-1 Certificate Principal Loss
Amount" or "Class A-2 Certificate Principal Loss Amount");
(x) to each Class of Class A Certificateholders, accrued
and unpaid interest at the related Certificate Rate, on any related
unreimbursed Certificate Principal Loss Amount;
(xi) to the Class B Certificateholders, an amount equal to
the Class B Allocation Percentage multiplied by the Investor
Percentage of all Loss Amounts incurred during the related Collection
Period and allocable to the SUBI Interest;
(xii) to the Class B Certificateholders, the aggregate of
the amounts allocable pursuant to clause (xi) above that were not
previously distributed pursuant to such clause or this clause (each
such amount, a "Class B Certificate Principal Loss Amount"), together
with any Class B Certificate Principal Carryover Shortfall;
(xiii) to the Class B Certificateholders, accrued and unpaid
interest at the Class B Certificate Rate on any unreimbursed Class B
Certificate Principal Loss Amount and any unreimbursed Class B
Certificate Principal Carryover Shortfall; and
(xiv) to the Trustee and the Titling Trustee, the Investor
Percentage of all specified expenses incurred with respect to the
Trust or the Titling Trust in excess of the Capped Administrative
Expenses that have been paid but have not yet been reimbursed (the
"Uncapped Administrative Expenses").
Notwithstanding the foregoing, amounts otherwise payable to
Certificateholders pursuant to clauses (viii), (ix), (xi) and (xii) above on a
Distribution Date that is during the Revolving Period will be being treated as
Principal Collections for the Collection Period in which such Distribution Date
occurs and, unless an Early Amortization Event happens prior to the related
Transfer Date, are to be available to be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles. See "Description of the
Certificates--Distributions on the Certificates--Application and Distributions
of Principal".
The balance, if any, of the Interest Collections allocated to the
Investor Interest for the related Collection Period, after giving effect to the
distributions in clauses (i) through (xiv) above, will constitute "Excess
Collections". On each Distribution Date, Excess Collections will be deposited
into the Reserve Fund until the amount on deposit therein (after giving effect
to all withdrawals therefrom on such Distribution Date) equals the Specified
Reserve Fund Balance, and then, if such Distribution Date occurs (i) prior to
the First Principal Distribution Date, any remaining Excess Collections will be
paid to the Transferor and (ii) on or after the First Principal Distribution
Date, an amount equal to the related Accelerated Principal Distribution Amount
will be paid to Certificateholders as a payment of principal and any remaining
Excess Collections will be paid to the Transferor. To the extent that an
Accelerated Principal Distribution Amount is paid to Certificateholders on any
Distribution Date, such amount will be distributed first to the Class A-1
Certificateholders until the Class A-1 Certificates have been paid in full, and
thereafter the Class A Percentage and the Class B Percentage of any remaining
amount will be distributed to the Class A-2 Certificateholders and the Class B
Certificateholders, respectively. If any Transferor Amounts are required to be
applied to make any of the distributions in clauses (i) through (xiv) above,
the Interest Collections that are part of the Transferor Amounts will be
applied before any Principal Collections that are part of the Transferor
Amounts are so applied.
If on any Distribution Date there remains any shortfall in amounts
required to be distributed to the Class A-1 and Class A-2 Certificateholders
under clauses (ii), (viii), (ix) or (x) above, then the amount available will
be
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distributed pro rata to such Certificateholders based on the Class A-1 and
Class A-2 Allocation Percentages, respectively.
"Capped Titling Trust Administrative Expenses" with respect to any
Distribution Date will equal one twelfth of the aggregate amounts sufficient to
pay specified administrative costs and expenses of the Titling Trust that are
allocable to the SUBI Interest up to but not exceeding $o in any calendar year.
"Capped Trust Administrative Expenses" will equal the amounts sufficient to pay
specified administrative costs and expenses associated with the Certificates
such as the Trustee's compensation, the reasonable fees and disbursements of
the Transferor's accountants and attorneys up to but not exceeding $o in any
calendar year (or $o in a calendar year in which an Early Amortization Event
occurs with respect to which the Trustee sells or otherwise disposes of the
SUBI Interest).
"Capped Contingent and Excess Liability Premiums" with respect to any
Distribution Date will equal the amounts sufficient to pay or reserve for
payment one-twelfth of the portion of the annual premium payable on the
Contingent and Excess Liability Insurance Policy allocable to the SUBI
Interest, up to but not exceeding $o in any calendar year.
A "Certificate Principal Loss Amount" with respect to any Distribution
Date will equal the sum of any Class A-1, Class A-2 and Class B Certificate
Principal Loss Amount and will represent a loss of principal in respect of Loss
Amounts allocable to the Investor Interest and will arise when the Investor
Percentage of Interest Collections allocable to the SUBI Interest, the Required
Amount, the Transferor Amounts and, with respect to any Class A-2 Certificate
Principal Loss Amount, amounts otherwise payable in respect of principal to the
Class B Certificateholders are not sufficient to cover such loss. As described
under "Description of the Certificates--General", any Certificate Principal
Loss Amounts allocable to a Class of Class A Certificates which are not
reimbursed as provided herein will reduce the Certificate Balance of such Class
of Class A Certificates.
The "Class A-1 Interest Carryover Shortfall" with respect to any
Distribution Date will equal the excess, if any, of (i) the amount of interest
distributable on the Class A-1 Certificates for such Distribution Date and any
outstanding Class A-1 Interest Carryover Shortfall from the immediately
preceding Distribution Date, plus interest (to the extent legally permitted) at
the Class A-1 Certificate Rate on such outstanding Class A-1 Interest Carryover
Shortfall from such immediately preceding Distribution Date through the current
Distribution Date, over (ii) the amount of interest distributed to the Class
A-1 Certificateholders on such Distribution Date. The "Class A-2 Interest
Carryover Shortfall" and the "Class B Interest Carryover Shortfall" will be
calculated in the same manner as the Class A-1 Interest Carryover Shortfall,
appropriately modified to relate to the Class A-2 and Class B Certificates,
respectively.
The "Class B Certificate Principal Carryover Shortfall", with respect
to any Distribution Date from and after that on which the Class A-1
Certificates are paid in full, will equal the amount, if any, of the Class B
Percentage of the Investor Percentage of Principal Collections allocable to the
SUBI Interest for such Distribution Date that is instead applied to the
distribution of principal to the Class A-2 Certificateholders, pursuant to
clauses (viii) through (x) above. The Class B Percentage of the Investor
Percentage of Principal Collections allocable to the SUBI Interest will be
applied for such purposes only to the extent that the other amounts available
therefor are insufficient.
The "Class A-1 Allocation Percentage" with respect to any Distribution
Date will mean the Class A-1 Certificate Balance as a percentage of the
Certificate Balance, calculated as of the last day of the related Collection
Period. The "Class A-2 Allocation Percentage" with respect to any Distribution
Date will mean the Class A-2 Certificate Balance as a percentage of the
Certificate Balance, calculated as of the last day of the related Collection
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Period. The "Class B Allocation Percentage" with respect to any Distribution
Date will mean the Class B Certificate Balance as a percentage of the
Certificate Balance, calculated as of the last day of the related Collection
Period.
The amount of funds to be withdrawn from the Reserve Fund on a
Distribution Date and applied to payments to be made as described above will
equal the lesser of (i) the amount on deposit in the Reserve Fund on the
related Deposit Date and (ii) the amount, if any, by which (a) the full amount
distributable on such Distribution Date pursuant to clauses (i) through (xiv)
above exceeds (b) the Investor Percentage of Interest Collections allocable to
the SUBI Interest for the related Collection Period. See "Summary--Assets of
the Trust--The Reserve Fund" and "Assets of the Trust--The Accounts;
Collections--The Reserve Fund".
Application and Distributions of Principal
Revolving Period. No principal will be payable to the Class A
Certificateholders until the First Principal Distribution Date. On each
Transfer Date, the Servicer will identify lease contracts and the related
leased vehicles of the Titling Trust that meet the eligibility criteria
described under "The Contracts" and are not evidenced by the SUBI or any Other
SUBI and, on behalf of the Titling Trustee, will allocate lease contracts and
related leased vehicles having an aggregate Discounted Principal Balance as of
the related Subsequent Cutoff Date approximately equal to, but not greater
than, all Principal Collections collected or received since the Initial Cutoff
Date (including Loss Amounts otherwise reimbursable to the Certificateholders)
that have not yet been so reinvested. Upon such allocation, the related lease
contracts and leased vehicles will become Subsequent Contracts and Subsequent
Leased Vehicles and accordingly will become SUBI Assets. No partial interest
in lease contracts (and the related leased vehicles) will be so allocated.
Coincident with such allocation, the Servicer, acting on behalf of the Titling
Trustee, will transfer from the SUBI Collection Account (or from its own funds
if the Servicer is not then subject to the requirement to make deposits therein
prior to the Deposit Date) an amount of unreinvested Principal Collections and
reimbursed Loss Amounts equal to such aggregate Discounted Principal Balance to
an account maintained by the Titling Trustee to hold collections with respect
to the Titling Trust Assets that are not SUBI Assets.
Principal Collections (including Loss Amounts otherwise reimbursable
to the Certificateholders) not so reinvested may be reinvested in additional
Subsequent Contracts and Subsequent Leased Vehicles on one or more subsequent
Transfer Dates prior to the end of the Revolving Period. During the Revolving
Period, if the Servicer determines on the last day of any calendar month that
the amount of Principal Collections that have not been reinvested in Subsequent
Contracts and Subsequent Leased Vehicles as of the last day of the preceding
calendar month exceeds $o, an Early Amortization Event will occur, the
Revolving Period will terminate and all unreinvested Principal Collections and
reimbursed Loss Amounts will be distributed as principal to the Trust and then
to Certificateholders on the succeeding Distribution Date.
Amortization Period. On each Distribution Date beginning with the
First Principal Distribution Date and ending on the Distribution Date on which
the Class A-1 Certificates have been paid in full, the Trustee will distribute
an amount equal to the Investor Percentage of all Principal Collections
collected or received in respect of the related Collection Period allocable to
the Investor Interest as principal first to the Class A-1 Certificateholders
until the Class A-1 Certificates have been paid in full, and thereafter the
Class A Percentage and the Class B Percentage of any such remaining Principal
Collections will be distributed as principal to the Class A-2
Certificateholders and the Class B Certificateholders, respectively. The
Trustee will also distribute to Class A Certificateholders on the First
Principal Distribution Date, in the same order of priority, the Class A
Percentage of the Investor Percentage of the sum of (i) any Principal
Collections and reimbursed Loss Amounts allocable to the SUBI Interest that
were not reinvested in Subsequent Contracts and Subsequent Leased Vehicles as
of the end of the Revolving Period and (ii) any Unallocated Principal
Collections on deposit in the SUBI Collection Account at
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the time the Amortization Period commences. The aggregate distributions of
principal to the Class A Certificateholders will not exceed the Initial
Certificate Balances of the related Class of Certificates.
The Investor Percentage of Loss Amounts will be allocated among
Certificateholders on a pro rata basis, based on the Class A-1, Class A-2 and
Class B Allocation Percentages, and then reimbursed out of available funds in
the amounts and order of priority described in "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest".
Loss Amounts will not be allocated or reimbursed to any Certificateholder once
the related Certificates have been paid in full. In addition, the Investor
Percentage of the net proceeds of any sale or other disposition of the SUBI
Interest, the SUBI Certificate or other property of the Trust, to the extent
such net proceeds constitute Principal Collections, will be distributed on a
pro rata basis, first, to the Class A Certificateholders based on their
respective Class Certificate Balances until the Class A Certificates have been
paid in full and, second, to the Class B Certificateholders.
In addition, on any Distribution Date relating to the Amortization
Period from and after that on which the Class A-1 Certificates are paid in
full, but only to the extent that other amounts available therefor are
insufficient, amounts that would otherwise be distributable to the Class B
Certificateholders in respect of the Class B Percentage of the Investor
Percentage of Principal Collections collected or received in respect of the
related Collection Period and allocable to the SUBI Interest will instead be
distributed as principal payments to the Class A-2 Certificateholders up to an
amount equal to the sum of (i) the Class A-2 Allocation Percentage of the
Investor Percentage of Loss Amounts incurred during the related Collection
Period and allocable to the SUBI Interest, (ii) any Class A-2 Certificate
Principal Loss Amounts and (iii) accrued and unpaid interest on any Class A-2
Certificate Principal Loss Amounts. See "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest."
EARLY AMORTIZATION EVENTS
As described above, the Amortization Period will commence on the
earlier of the Amortization Date or the occurrence of an Early Amortization
Event and continue until the earlier of the payment in full of the Certificates
and the termination of the Trust. An "Early Amortization Event" will mean any
of the following events:
(i) failure by the Servicer (a) to make any payment or
deposit required with respect to the SUBI, the SUBI Interest or the
Certificates under the Agreement or the Servicing Agreement, within
five Business Days after the date the payment or deposit is required
to be made, or (b) to deliver a Servicer's Certificate within ten
Business Days after any Determination Date which failure continues
unremedied for three Business Days;
(ii) failure by the Transferor or the Servicer duly to
observe or perform in any material respect any other of its covenants
or agreements in the Agreement (other than those described in clause
(i) above) or the Servicing Agreement, which failure materially and
adversely affects the rights of holders of the SUBI Interest or
Certificateholders and which continues unremedied for 60 days after
the giving of written notice of such failure (a) to the Transferor or
the Servicer, as the case may be, by the Trustee or the Titling
Trustee or (b) to the Transferor or the Servicer, as the case may be,
and to the Trustee by holders of Certificates evidencing not less than
25% of the Voting Interests of the Class A Certificates and the Class
B Certificates, voting together as a single class;
(iii) failure to cure the inaccuracy of certain
representations, warranties and certificates of the Transferor or the
Servicer in the Agreement or the Servicing Agreement, which failure
materially and adversely affects the rights of holders of the
Transferor or Certificateholders and which continues uncured
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for 60 days after notice is given as described in clause (ii) above;
provided that an Early Amortization Event pursuant to this
subparagraph (iii) will not be deemed to occur if a related
Reallocation Payment is due in connection with such breach and has
been paid by the Servicer in accordance with the Servicing Agreement;
(iv) the occurrence of certain Insolvency Events relating
to the Transferor;
(v) creation of any lien or encumbrance not otherwise
permitted by the Agreement or the Servicing Agreement on the SUBI
Assets, which lien or encumbrance is not released within 60 days of
its creation;
(vi) the Transferor, the Trust or the Titling Trust
becomes subject to registration as an "investment company" for
purposes of the Investment Company Act of 1940, as amended;
(vii) if the Servicer determines on the last day of any
calendar month that the amount of Principal Collections and reimbursed
Loss Amounts that have not been reinvested in Subsequent Contracts and
Subsequent Leased Vehicles as of the last day of the preceding
Collection Period exceeds $o;
(viii) an Event of Servicing Termination occurs; or
(ix) if on any Distribution Date the aggregate amount
withdrawn from the Reserve Fund and deposited into the SUBI Collection
Account on or prior to such Distribution Date (without giving effect
to any deposits into the Reserve Fund) exceeds $o (i.e., o% of the
Aggregate Net Investment Value as of the Initial Cutoff Date).
If, because of the occurrence of an Early Amortization Event, the
Amortization Period begins earlier than the Amortization Date, Class A-1
Certificateholders will, and Class A-2 Certificateholders may, begin receiving
distributions of principal earlier than they would otherwise have under the
Agreement, which may shorten the final maturity and the weighted average life
of any such Class of Certificates.
In addition, if an Insolvency Event with respect to the Transferor
were to occur during the Revolving Period, the Agreement will require the
Transferor promptly to give notice of such Insolvency Event to the Trustee.
Pursuant to the Agreement, within 15 days of such notice, the Trustee may, and
upon receipt of written instructions from holders of Certificates evidencing
Voting Interests of not less than 51% of the Class A Certificates (voting
together as a single class) or 51% of the Class A Certificates and Class B
Certificates (voting together as a single class) shall, publish a notice of the
Insolvency Event stating that the Trustee intends to sell or dispose of the
SUBI Interest and the SUBI Certificate and the other property of the Trust in a
commercially reasonable manner. Following such publication, unless otherwise
prohibited by applicable law, the Trustee will sell or otherwise dispose of the
SUBI Interest, the SUBI Certificate and such other property in a commercially
reasonable manner and on commercially reasonable terms; provided that such sale
shall not be made without the consent of all the Certificateholders if a net
loss would be realized as a result of such sale. The net sale or disposition
proceeds of the SUBI Interest, the SUBI Certificate and such other property
will be deposited into the SUBI Collection Account and treated as Collections
on or in respect of the SUBI Assets. The interest portion of the Investor
Percentage of such proceeds will be distributed to the Certificateholders in
the priority provided for herein, and the principal portion of the Investor
Percentage of such proceeds will be distributed first, on a pro rata basis, to
the Class A-1 and Class A-2 Certificateholders based on their respective Class
Certificate Balances until the Class A-1 and Class A-2 Certificates have been
paid in full, and second, to the Class B Certificateholders. If such proceeds,
together with all amounts on deposit in the Accounts and the Reserve Fund,
amounts otherwise payable to the Transferor
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in respect of the Transferor Interest and, in the case of the Class A-2
Certificates, certain amounts otherwise distributable in respect of the Class B
Certificates, are insufficient to pay the Certificate Balance of a Class of
Class A Certificates, any unreimbursed Certificate Principal Loss Amount in
respect of such Class of Class A Certificates and any accrued and unpaid
interest thereon in full, the related Class A Certificateholders will suffer a
corresponding loss.
The "Voting Interests" of the (i) Class A Certificates will be
allocated among the Class A-1 and Class A-2 Certificateholders or Certificate
Owners, as the case may be, in accordance with their respective Class
Certificate Balances, and (ii) Class B Certificates will be allocated among the
Class B Certificateholders in accordance with the Class B Certificate Balance
represented thereby. Notwithstanding the foregoing, in certain circumstances,
any Class A Certificates or Class B Certificates held or beneficially owned by
the Transferor, TMCC or any of their respective affiliates shall be excluded
from such determination.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each
distribution to each Certificateholder a statement, setting forth with respect
to such Distribution Date or the related Collection Period, among other things,
the following:
(i) the Investor Percentage and Transferor Percentage in
effect with respect to the related Collection Period;
(ii) the amount being distributed to Certificateholders
(the "Certificate Distribution Amount");
(iii) the amount of the Certificate Distribution Amount
allocable to interest on and principal of each Class of Certificates;
(iv) the amount of the Certificate Distribution Amount
allocable to any Class A-1 Interest Carryover Shortfall, any Class A-2
Interest Carryover Shortfall and any Class B Interest Carryover
Shortfall;
(v) the amount, if any, of any unpaid Class A-1 Interest
Carryover Shortfall, unpaid Class A-2 Interest Carryover Shortfall and
unpaid Class B Interest Carryover Shortfall, after giving effect to
distribution of the Certificate Distribution Amount;
(vi) the Certificate Balance, the Class A-1 Certificate
Balance, the Class A-2 Certificate Balance, the Class A-1 Certificate
Factor, the Class A-2 Certificate Factor, the Class A-1 Allocation
Percentage, the Class A-2 Allocation Percentage and the Class B
Allocation Percentage as of such Distribution Date, in each case after
giving effect to distribution of the Certificate Distribution Amount;
(vii) the aggregate amount, if any, of the reimbursement of
Loss Amounts included in distribution of the Certificate Distribution
Amount and the amount thereof allocated to each Class of
Certificateholders;
(viii) the amount of the Certificate Distribution Amount
allocable to reimbursement of previous Class A-1 Certificate Principal
Loss Amounts, Class A-2 Certificate Principal Loss Amounts and Class B
Certificate Principal Loss Amounts, in each case together with the
amount of accrued interest thereon included in such distribution;
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(ix) the amount, if any, of the aggregate unreimbursed
Class A-1 Certificate Principal Loss Amounts, Class A-2 Certificate
Principal Loss Amounts and Class B Certificate Principal Loss Amounts,
after giving effect to distribution of the Certificate Distribution
Amount;
(x) the amount of any unreimbursed Class B Certificate
Principal Carryover Shortfall;
(xi) the Investor Percentage of the Servicing Fee;
(xii) the amount of any Required Amount included in the
Certificate Distribution Amount, the balance on deposit in the Reserve
Fund on such Distribution Date, after giving effect to withdrawals
therefrom and deposits thereto on such Distribution Date, the change
in such balance from the immediately preceding Distribution Date and
the Specified Reserve Fund Balance;
(xiii) the amount of Transferor Amounts, if any, included in
the Certificate Distribution Amount;
(xiv) the Aggregate Net Investment Value as of the end of
such Collection Period;
(xv) the aggregate amount of Payments Ahead received by
the Servicer and being held thereby or on deposit in the SUBI
Collection Account in respect of future Collection Periods and the
change in such amount from the immediately preceding Distribution
Date;
(xvi) the amount of Advances made in respect of such
Collection Period and the amount of unreimbursed Advances on such
Distribution Date; and
(xvii) certain information used in determining the Specified
Reserve Fund Balance.
Copies of such statements may be obtained by Certificateholders or
Certificate Owners by a request in writing addressed to the Trustee. In
addition, within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Agreement, the Trustee
will mail to each person who at any time during such calendar year shall have
been a Class A or Class B Certificateholder or a Certificate Owner, a statement
containing the sum of the amounts described in clauses (ii) through (xi) above
for the purpose of preparing such person's federal income tax return.
TERMINATION OF THE TRUST; RETIREMENT OF THE CERTIFICATES
The respective obligations and responsibilities of the Transferor and
the Trustee created by the Agreement will terminate upon the earliest to occur
of (i) the maturity, sale or other liquidation, as the case may be, of the last
outstanding Contract and Leased Vehicle evidenced by the SUBI and the
distribution of all proceeds thereof, together with all amounts on deposit in
the Accounts and the Reserve Fund, in the manner to be prescribed in the
Agreement, (ii) the day following the Distribution Date on which the
Certificates have been paid in full and after which there is no unreimbursed
Certificate Principal Loss Amount or Class B Certificate Principal Carryover
Shortfall (together with accrued interest thereon) and (iii) the Transferor's
optional repurchase of the SUBI Certificate as described below. In order to
avoid excessive administrative expenses, the Transferor will be permitted at
its option to purchase the SUBI Certificate from the Trust on any Distribution
Date if, either before or after giving effect to any payment of principal
required to be made on such Distribution Date, the Certificate Balance is less
than or equal to 10% of the Initial Certificate Balance. The purchase price
will be equal to the greater of (i) the sum of the Class A Certificate Balance
and the Class B Certificate Balance, in each case plus
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accrued and unpaid interest thereon at the related Certificate Rate, plus
certain other accrued and unpaid amounts, if any, due to the Investor
Certificateholders or the Servicer, and (ii) the Aggregate Net Investment Value
as of the last day of the preceding Collection Period. The Trustee will give
written notice of termination of the Trust to each Certificateholder. In
connection with any such termination, except as otherwise provided in the
Agreement, the Transferor will be deemed to relinquish all claims it may have
against the assets of the Trust in respect of Transferor Amounts that were not
paid to the Transferor.
The final distribution to any Certificateholder will be made only upon
surrender and cancellation of such Certificateholder's Certificate at an office
or agency of the Trustee specified in the notice of termination.
PRESCRIPTION
In the event that any Certificateholder shall not surrender its
Certificates for retirement within six months after the date specified in
written notice given by the Trustee of the date for final payment thereof, the
Trustee shall give a second written notice to the remaining Certificateholders
to surrender their Certificates for retirement and receive the final
distribution with respect thereto. If within one year after such second notice
any Certificates shall not have been surrendered, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets that remain subject to this Agreement. Any funds remaining in the Trust
after exhaustion of such remedies shall be distributed by the Trustee to a
charity specified in the Agreement.
BOOK-ENTRY REGISTRATION
Unless and until Definitive Certificates are issued with respect to
the Certificates or any Class of Certificates, each Class of Certificates
offered hereby will be represented by one or more certificates registered in
the name of Cede & Co., as nominee of DTC. Until then, Certificate Owners will
hold beneficial interests in Certificates through DTC (in the United States) or
Cedel Bank or Euroclear (in Europe or Asia) directly if they are participants
of such systems, or indirectly through organizations which are participants in
such systems. All references herein to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from DTC Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and
statements to Cede & Co., as the registered holder of the Securities, for
distribution to Certificateholders in accordance with DTC procedures. As such,
it is anticipated that the only Certificateholder will be Cede & Co., as
nominee of DTC. Certificate Owners will not be recognized by the Trustee as
Certificateholders as such term is used in the Agreement or Servicing
Supplement, and Certificate Owners will only be permitted to exercise their
rights as such indirectly through DTC and DTC Participants, as further
described below.
Cedel Bank and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in their respective
names on the books of their respective Depositaries which in turn will hold
such positions in customers' securities accounts in the Depositaries' names on
the books of DTC.
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Bank Participants and Euroclear Participants
will occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel Bank or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant international clearing system by its
Depositary. However,
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each such cross-market transaction will require delivery of instructions to the
relevant international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines.
The relevant international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Cedel Bank Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of Certificates received in
Cedel Bank or Euroclear as a result of a transaction with a DTC Participant
will be made during subsequent securities settlement processing and dated the
Business Day following the DTC settlement date. Such credits or any
transactions in such Certificates settled during such processing will be
reported to the relevant Euroclear or Cedel Bank Participant on such Business
Day. Cash received in Cedel Bank or Euroclear as a result of sales of
Certificates by or through a Cedel Bank Participant or a Euroclear Participant
to a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel Bank or Euroclear cash account only as
of the Business Day following settlement in DTC. As used in this paragraph,
"Business Day" means a Business Day on which Cedel Bank and Euroclear are also
transacting settlements in securities.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating members ("DTC Participants") and to facilitate
the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities brokers
and dealers, banks, trust companies and clearing corporations which may include
underwriters, agents or dealers with respect to the Certificates of any class
or series. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the Commission.
Unless otherwise specified in the related Prospectus Supplement,
Certificate Owners that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through DTC Participants and Indirect
DTC Participants. DTC Participants will receive a credit for the Certificates
on DTC's records. The ownership interest of each Certificate Owner will in
turn be recorded on respective records of the DTC Participants and Indirect DTC
Participants. Certificate Owners will not receive written confirmation from
DTC of their purchase, but Certificate Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect DTC
Participant through which the Certificate Owner entered into the transaction.
Transfers of ownership interests in the Certificates of any Class will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Certificate Owners.
The deposit of Certificates with DTC and their registration in the
name of Cede & Co. will effect no change in Certificate ownership. DTC will
have no knowledge of the identities of Certificate Owners and its records will
reflect only the identity of the DTC Participants to whose accounts such
Certificates are credited, which may or may not be the Certificate Owners. DTC
Participants and Indirect DTC Participants will remain responsible for keeping
account of their holdings on behalf of their customers. While the Certificates
are held in book-entry form, Certificate Owners will not have access to the
list of Certificate Owners, which may impede the ability of Certificate Owners
to communicate with each other.
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Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect DTC Participants and by DTC
Participants and Indirect DTC Participants to Certificate Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. DTC Participants and Indirect DTC Participants with which
Certificate Owners have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners.
DTC's practice is to credit DTC Participants' accounts on each
Distribution Date in accordance with their respective holdings shown on its
records, unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants and Indirect DTC
Participants to Certificate Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name", and will be the
responsibility of such DTC Participant and not of DTC, the Trustee or Titling
Trustee (or any paying agent appointed thereby), the Transferor or the
Servicer, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal of and interest on each class
of Certificates to DTC will be the responsibility of the Trustee, disbursement
of such payments to DTC Participants will be the responsibility of DTC and
disbursement of such payments to the related Certificate Owners will be the
responsibility of DTC Participants and Indirect DTC Participants. As a result,
under the book-entry format, Certificate Owners may experience some delay in
their receipt of payments. DTC will forward such payments to its DTC
Participants which thereafter will forward them to Indirect DTC Participants or
Certificate Owners.
The ability of a Certificate Owner to pledge Certificates to persons
or entities that do not participate in the DTC system, or otherwise take
actions with respect to such Certificates, may be limited due to the lack of a
physical certificate for such Certificates.
DTC has advised the Transferor that it will take any action permitted
to be taken by a Certificateholder only at the direction of one or more DTC
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC has advised the Transferor that it will take such actions
with respect to specified percentages of the Certificateholders' interest only
at the direction of and on behalf of DTC Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of DTC Participants whose holdings
include such undivided interests.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Certificates. Under its usual procedures, DTC will mail an "Omnibus Proxy" to
the Trustee as soon as possible after any applicable Record Date for such a
consent or vote. The Omnibus Proxy will assign Cede & Co.'s consenting or
voting rights to those DTC Participants to whose accounts the related
Certificates are credited on that record date (which record date will be
identified in a listing attached to the Omnibus Proxy).
Cedel Bank, societe anonyme ("Cedel Bank") is incorporated under the
laws of Luxembourg as a professional depository. Cedel Bank holds securities
for its participating organizations ("Cedel Bank Participants") and facilitates
the clearance and settlement of securities transactions between Cedel Bank
Participants through electronic book entry changes in accounts of Cedel Bank
Participants, thereby eliminating the need for physical
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movement of certificates. Transactions may be settled in Cedel Bank in any of
28 currencies, including United States dollars. Cedel Bank provides to Cedel
Bank Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel Bank interfaces with domestic
markets in several countries. As a professional depository, Cedel Bank is
subject to regulation by the Luxembourg Monetary Institute. Cedel Bank
Participants are recognized financial institutions around the world including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations and may include any underwriters,
agents or dealers with respect to any Class A Certificates offered hereby.
Indirect access to Cedel Bank is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Bank Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include any underwriters, agents or dealers with respect to any Class A
Certificates offered hereby. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member Bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding through
Euroclear Participants.
Distributions with respect to Certificates held through Cedel Bank or
Euroclear will be credited to the cash accounts of Cedel Bank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax withholding in accordance with relevant United States tax
laws and regulations. See"Certain Income Tax Considerations" and "Annex
I--Global Clearance, Settlement and Tax Documentation Procedures--Certain U.S.
Federal Tax Documentation Requirements". Cedel Bank or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder on behalf of a Cedel Bank Participant or Euroclear
Participant
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only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedel Bank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners rather
than to DTC only if (i) DTC is no longer willing or able to discharge its
responsibilities with respect to the Class A Certificates, and neither the
Trustee nor the Transferor is able to locate a qualified successor, (ii) the
Transferor, at its option, elects to terminate the book-entry system through
DTC or (iii) after an Early Amortization Event, Certificate Owners representing
in the aggregate not less than 51% of the Voting Interests of the Class A
Certificates (voting together as a single class) advise the Trustee through DTC
or its successor in writing that the continuation of a book-entry system
through DTC or its successor is no longer in the best interest of Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners, through Participants, of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the certificates representing the
related Class A Certificates and the receipt of instructions for
re-registration, the Trustee will issue Definitive Certificates to Certificate
Owners, who thereupon will become Certificateholders for all purposes of the
Agreement.
Payments on the related Class A Certificates will thereafter be made
by the Trustee directly to holders of such Class A Certificates in accordance
with the procedures set forth herein and to be set forth in the Agreement.
Interest payments and any principal payments on the Definitive Certificates on
each Distribution Date will be made to holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Payments will be made by check mailed to the address of such holders as
they appear on the Certificate Register or, under the circumstances to be
provided by the Agreement, by wire transfer to a bank or depository institution
located in the United States and having appropriate facilities therefor. The
final payment on any Class A Certificates, however, will be made only upon
presentation and surrender of such Definitive Certificates or global
certificates at the office or agency specified in the notice of final
distribution to Class A Certificateholders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar to be set forth in the
Agreement. No service charge will be imposed for any registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith.
ASSETS OF THE TRUST
GENERAL
The property of the Trust will primarily consist of the SUBI Interest
evidenced by the SUBI Certificate. The property of the Trust will also include
such amounts as from time to time are held in the SUBI Collection Account. The
Trust will also have the collateral benefit of the Contingent and Excess
Liability Insurance Policies described below (and indemnification by TMCC of
the related deductibles) and the Trustee's rights as a third-party beneficiary
of the Servicing Supplement and SUBI Supplement).
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As registered holder of the SUBI Certificate, the Trustee will be
deemed to have ownership of the SUBI Certificate and, through such ownership,
an indirect beneficial ownership interest in the Contracts and Leased Vehicles.
If a court of competent jurisdiction recharacterizes the transfer of the SUBI
Interest to the Trust as a transfer for security, the Trustee may instead be
deemed to have a perfected security interest in the SUBI Certificate, the
Contracts and Contract Rights susceptible of perfection under the UCC, but in
no event will the Trustee be deemed to have a perfected security interest in
the Leased Vehicles. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations".
THE ACCOUNTS; COLLECTIONS
The SUBI Collection Account
On or prior to the Closing Date, the Titling Trustee will establish an
account maintained at the Trust Agent in the name of the Titling Trustee as the
SUBI Collection Account (the "SUBI Collection Account" and, together with the
Reserve Fund, the "Accounts") as a trust account for the exclusive benefit of
the holders of interests in the SUBI into which collections on or in respect of
the Contracts and the Leased Vehicles with respect to each Collection Period
generally will be deposited on the Deposit Date.
Deposits into the SUBI Collection Account. Deposits into the SUBI
Collection Account will include, but will not be limited to, the following
payments made in respect of the SUBI Assets: (i) Monthly Payments; (ii) early
payments in full of the Outstanding Principal Balance of a Contract, including
an amount equal to the Residual Value of the related Leased Vehicle (each, a
"Prepayment"); (iii) Matured Leased Vehicle Proceeds, Repossessed Vehicle
Proceeds and other Liquidation Proceeds; (iv) Payments Ahead; (v) Advances made
by the Servicer; and (vi) Reallocation Payments by TMCC (together with, under
certain circumstances during the Amortization Period, Reallocation Deposit
Amounts) in respect of certain Contracts as to which an uncured breach of
certain representations and warranties or certain servicing covenants has
occurred. Pursuant to the Agreement and the Servicing Agreement, in the event
that TMCC, as Servicer, ceases to satisfy certain tests with respect to its
credit ratings, the Servicer will thereafter be required to commence depositing
Interest and Principal Collections and other proceeds in respect of the
Contracts and Leased Vehicles into the SUBI Collection Account within two
Business Days of receipt thereof, and will cease to have the right, described
below, to make such deposits net of amounts payable, reimbursable or
distributable to TMCC, as Servicer. See "Assets of the Trust--The Accounts;
Collections". Deposits also will be made to the SUBI Collection Account from,
among other sources,(i) monies on deposit in the Reserve Fund and (ii) the
Transferor, in the event it purchases the SUBI Certificate when the Certificate
Balance is less than or equal to 10% of the Initial Certificate Balance.
"Net Insurance Proceeds" will include recoveries pursuant to the
Contingent and Excess Liability Insurance Policies and the comprehensive,
collision, public liability and property damage insurance policy required to be
obtained and maintained by the lessee pursuant to each Contract (or payment by
TMCC of the deductibles as to which it has indemnified the Trust as described
in "Additional Document Provisions--The Servicing Agreement--Insurance on
Leased Vehicles"), and amounts paid by any insurer under any other insurance
policies relating to the Contracts, the related lessees or the Leased Vehicles
(excluding any Residual Value insurance policy the proceeds of which may be a
SUBI Asset not transferred by the Transferor to the Trust), in each case net of
certain sums applied to the repair of the related Leased Vehicles.
Net Deposits. So long as TMCC is the Servicer, the Servicer will be
permitted to deposit in the SUBI Collection Account only the net amount
distributable to the Trustee, as holder of the SUBI Certificate, and the
Transferor on the related Deposit Date. The Servicer, however, will account to
the Trustee, the Titling Trustee, the
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Certificateholders and the Transferor as if all of the deposits and
distributions described herein were made individually. This "net deposit"
provision will be for the administrative convenience of the parties involved
and will not affect amounts required to be deposited into the Accounts.
Certain Withdrawals from the SUBI Collection Account. To the extent
not already netted against Collections, Matured Leased Vehicle Proceeds or
Liquidation Proceeds, as the case may be, the Titling Trustee shall remit to
the Servicer, without interest and prior to any other distribution from the
SUBI Collection Account on such date, monies from the SUBI Collection Account
representing (i) unreimbursed Matured Leased Vehicle Expenses, Repossessed
Vehicle Expenses and other Liquidation Expenses; (ii) delinquent Monthly
Payments with respect to which the Servicer has made an unreimbursed Advance;
and (iii) an amount equal to any unreimbursed Advances that the Servicer has
concluded are Nonrecoverable Advances. See "Additional Document
Provisions--The Servicing Agreement--Advances" regarding Nonrecoverable
Advances".
The Reserve Fund
On or prior to the Closing Date, the Servicer will establish the
Reserve Fund as a trust account with the Trustee for the benefit of the
Certificateholders and the Transferor. The Reserve Fund will not be an asset
of the Trust. On each Distribution Date, to the extent described herein,
monies on deposit in the Reserve Fund will be applied to pay certain shortfalls
in respect of amounts collected with respect to the related Collection Period.
In addition, to the extent not otherwise required to make any of the payments
described under "Description of the Certificates--Distributions on the
Certificates--Distributions of Interest", monies on deposit in the Reserve Fund
will be available to make payments to the Certificateholders should Collections
ultimately be insufficient to reduce the Class A-1 Certificate Balance, the
Class A-2 Certificate Balance or the Class B Certificate Balance to zero.
The Specified Reserve Fund Balance. The Reserve Fund will be created
on or prior to the Closing Date with the deposit by the Transferor of the
Initial Deposit. On each Distribution Date, the Reserve Fund will be
supplemented by (i) all Excess Collections and (ii) certain monies that
otherwise would be distributed as Transferor Amounts, until the amount on
deposit therein equals the applicable Specified Reserve Fund Balance. Except
as described below, the "Specified Reserve Fund Balance" with respect to any
Distribution Date will equal $o, except that, if on any Distribution Date (i)
the average of the Charge-off Rates for the three preceding Collection Periods
exceeds o% or (ii) the average of the Delinquency Percentages for the three
preceding Collection Periods exceeds o%, then the Specified Reserve Fund
Balance will be an amount equal to the greater of (a) $o and (b) o% of the sum
of the outstanding principal amounts of each Class of Certificates (after
giving effect to distributions of principal to be made on such Distribution
Date); provided, however, that the Specified Reserve Fund Balance shall in no
event be more than the sum of the outstanding principal amounts of each Class
of Certificates.
The "Charge-off Rate" with respect to a Collection Period will equal
the Aggregate Net Losses with respect to the Contracts expressed, on an
annualized basis, as a percentage of the average of (i) the Aggregate Net
Investment Value on the last day of the immediately preceding Collection Period
and (ii) the Aggregate Net Investment Value on the last day of such Collection
Period. The "Aggregate Net Losses" with respect to a Collection Period will
equal the Outstanding Principal Balance of all Contracts newly designated
during such Collection Period as Charged-off Contracts minus the sum of (x) Net
Liquidation Proceeds collected during such Collection Period with respect to
all Charged-off Contracts and (y) the portion of amounts subsequently received
in respect of Contracts liquidated in prior Collection Periods specified in the
SUBI Supplement. The "Delinquency Percentage" with respect to a Collection
Period will equal (a) the number of all outstanding Contracts 61 days or more
delinquent (after taking into account permitted extensions) as of the last day
of such Collection Period, determined in accordance with the Servicer's normal
practices, plus (b) the number of repossessed Leased Vehicles that have not
been liquidated (to the extent the related Contract is not otherwise reflected
in clause (a) above),
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expressed as a percentage of the aggregate number of Current Contracts on the
last day of such Collection Period.
A "Current Contract" will be a Contract that is not a Charged-off
Contract, a Liquidated Contract, a Matured Contract or an Additional Loss
Contract. A "Liquidated Contract" will be a Contract that has been the
subject of a Prepayment in full or otherwise has been paid in full or, in the
case of a Charged-off Contract, a Contract as to which the Servicer has
determined that the final amounts in respect thereof have been paid. An
"Additional Loss Contract" will be a Contract as to which the related SUBI
Assets have been sold or otherwise disposed of by the Servicer, acting on
behalf of the Titling Trust, to pay an Additional Loss Amount.
The Transferor may, from time to time after the date of this
Prospectus, request each Rating Agency to (a) approve a formula for determining
the Specified Reserve Fund Balance that is different from the one described
above that would result in a decrease in the amount of the Specified Reserve
Fund Balance or (b) a change in the manner by which the Reserve Fund is funded
or to meet the Specified Reserve Fund Balance. If each Rating Agency delivers
a letter to the Trustee to the effect that the use of any such new formula or
change will not result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Certificates, then such new formula or
change will be implemented and, to the extent necessary, the Agreement will be
amended, without the consent of any Certificateholder or Certificate Owner.
Withdrawals from the Reserve Fund. On each Deposit Date the Trustee
shall withdraw from the Reserve Fund, to the extent available, and deposit in
the SUBI Collection Account an amount equal to the Required Amount. Amounts on
deposit in the Reserve Fund will also be available to make certain other
payments to Certificateholders and the Transferor. See "Assets of the
Trust--The Accounts; Collections--The Reserve Fund". Monies on deposit in the
Reserve Fund on a Distribution Date in excess of the Specified Reserve Fund
Balance will be released to the Transferor. Income on investment of amounts
held in the Reserve Fund will belong to the Transferor and will be distributed
thereto on each Distribution Date. Any such amounts received by the Transferor
shall be free of any claim of the Trust, the Trustee or the Investor
Certificateholders and shall not be available to the Trustee or the Trust for
the purpose of making deposits to the Reserve Fund or making payments to the
Investor Certificateholders, nor shall the Transferor be required to refund any
amount properly received by it.
Maintenance of the Accounts
The Reserve Fund and the SUBI Collection Account will be maintained
with the Trustee so long as either (i) the short-term unsecured debt
obligations of the Trustee are rated at least P-1 by Moody's and A-1+ by
Standard & Poor's or (ii) the Trustee is a depository institution or trust
company having a long-term unsecured debt rating from Moody's of at least Baa3
and corporate trust powers and the related Account is maintained in a
segregated trust account in the corporate trust department of the Trustee. If
the Trustee at any time does not qualify under either of these criteria, the
Servicer shall, with the assistance of the Trustee, as necessary, cause the
related Account to be moved to a depository institution organized under the
laws of the United States or any state thereof that does so qualify, or moved
to a segregated trust account located in a corporate trust department of a
depository institution or trust company as described above.
Permitted Investments
At the direction of the Servicer, the Trustee or the Trust Agent, as
the case may be, shall invest funds on deposit in the Accounts in one or more
Permitted Investments maturing no later than the Deposit Date succeeding the
date of such investment. Notwithstanding the foregoing, (a) investments on
which the entity at which the related Account is located is the obligor may
mature on the related Deposit Date or Distribution Date, as the case may be,
and (b) investments during the Revolving Period of Principal Collections on
deposit in the SUBI Collection
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Account may mature on such dates as in the Servicer's discretion will maintain
sufficient cash to acquire Subsequent Contracts and Subsequent Leased Vehicles
on the related Transfer Dates.
All income or other gain from the foregoing investments generally
shall be retained in the related Account with such gain in respect of funds in
the SUBI Collection Account generally being treated as Interest Collections
received in respect of the related Collection Period. Any loss resulting from
such investments shall be charged to the related Account. "Permitted
Investments" will be specified in the SUBI Supplement and will be limited to
investments that meet the criteria of each Rating Agency from time to time as
being consistent with its then-current rating of each Class of Certificates
outstanding.
THE CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES
In addition to the physical damage and liability insurance coverage
required to be obtained and maintained by the lessees pursuant to the Contracts,
and as additional protection in the event that any lessee fails to maintain all
such required insurance, TMCC maintains contingent liability insurance with
third party insurers for bodily injury and property damage suffered by third
persons caused by any vehicle owned by any insured. TMCC also maintains with
such insurers substantial amounts of excess insurance coverage for which the
Titling Trust is an additional named insured (together with the aforementioned
primary contingent liability insurance policy, the "Contingent and Excess
Liability Insurance Policies"). These insurance policies collectively provide
insurance coverage of $100 million per occurrence, and permit multiple claims in
any policy period (with no annual or aggregate cap on the number of claims
thereunder). Such Contingent and Excess Liability Insurance Policies are subject
to significant per occurrence deductibles (generally $o, but $o if the related
lessee's primary insurance policy has lapsed or the related insurer denies
coverage on the basis that an approved TMCC affiliate is named as loss payee
instead of the Titling Trust) in respect of which TMCC will indemnify the Trust.
However, in the event that all such insurance coverage were exhausted and/or
TMCC did not satisfy its indemnity obligations such that damages were assessed
against the Titling Trust, claims could be imposed against the Titling Trust
Assets, including the SUBI Assets. In such event, investors in the Class A
Certificates could incur a loss on their investment. However, the Titling Trust
will be an additional named insured under the Contingent and Excess Liability
Insurance Policies and payments made thereunder in respect of Leased Vehicles
comprising SUBI Assets, and indemnity payments made by TMCC in respect of
related deductibles, will constitute SUBI Assets. To the extent that payments
under the Contingent and Excess Liability Insurance Policies are made to third
party claimants, they will reduce the Additional Loss Amounts that otherwise
would be required to be paid out of the SUBI Assets. See "Risk
Factors--Vicarious Tort Liability", "--Structural Considerations--Allocation of
Titling Trust Liabilities" and "--Third-Party Liens on SUBI Assets" and "Certain
Legal Aspects of the Contracts and the Leased Vehicles--Vicarious Tort
Liability".
The Servicing Agreement will provide that so long as any Certificates
are outstanding, neither the Titling Trustee nor TMCC may terminate or cause
the termination of any Contingent and Excess Liability Insurance Policy unless
a replacement insurance policy or binder is obtained and each Rating Agency has
delivered notice to the Trustee to the effect that the obtaining of any such
replacement insurance will not cause it to qualify, reduce or withdraw its
then-current rating of any Class of Certificates. The foregoing obligations of
TMCC will survive any termination of TMCC as Servicer under the Servicing
Agreement.
RESIDUAL VALUE INSURANCE POLICY
TMCC has obtained an insurance policy naming the Titling Trust as an
additional loss payee and providing coverage with respect to shortfalls in
amounts collected in respect of the Residual Values of lease contracts and
related leased vehicles that are Titling Trust Assets and that are or become
SUBI
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Assets. The proceeds of such policy with respect to Contracts and Leased
Vehicles that are SUBI Assets will also be SUBI Assets, but such SUBI Assets
will not be transferred by the Transferor to the Trust and so will not be
available as Collections, Net Insurance Proceeds or otherwise for the benefit
of the Certificateholders.
SUBORDINATION
The rights of the Class B Certificateholders will be subordinated to
the rights of the Class A Certificateholders to the extent described herein.
This subordination is intended to enhance the likelihood of timely receipt by
Class A Certificateholders of the full amount of interest and principal
required to be paid to them, and to afford such Certificateholders limited
protection against losses in respect of the Contracts.
The Class B Certificateholders will not receive any distributions of
interest with respect to a Distribution Date until the full amount of interest
on the Class A Certificates relating to such Distribution Date has been
distributed to the Class A Certificateholders. The Class B Certificateholders
will not receive any distributions of principal with respect to such
Distribution Date until the full amount of interest on and principal of the
Class A Certificates relating to such Distribution Date has been distributed to
the Class A Certificateholders. Distributions of interest on the Class B
Certificates, to the extent of collections on Contracts allocable to interest
and the amount on deposit in the Reserve Fund, will not be subordinated to the
payment of principal on the Class A Certificates.
In addition, the rights of the Certificateholders to receive
distributions with respect to the Contracts will be subordinated to the rights
of the Servicer (to the extent that the Servicer is paid the Servicing Fee with
respect to the related Collection Period, including any unpaid Servicing Fees
with respect to one or more prior Collection Periods and any additional
servicing compensation as described herein, and to the extent the Servicer is
reimbursed for certain unreimbursed Advances).
ADDITIONAL DOCUMENT PROVISIONS
ADDITIONAL AGREEMENT PROVISIONS
Certain additional provisions of the Agreement are summarized below.
No Petition
The Trustee will agree not to institute, or join in, any bankruptcy or
similar proceeding against the Transferor, TMCC, the Titling Trust or the
Titling Trustee until one year and one day after the later of (i) payment of
the Certificates in full and (ii) final payment of all other financings
involving interests in the Titling Trust (including the transaction described
herein and all other transactions involving the UTI and each Other SUBI).
Amendment
The Agreement may be amended by the Transferor and the Trustee,
without the consent of the Certificateholders, to cure any ambiguity, to
correct or supplement any provision therein which may be inconsistent with any
other provision therein, to add any other provisions with respect to matters or
questions arising under the Agreement which are not inconsistent with the
provisions of the Agreement or to add or amend any provision therein in
connection with permitting transfers of the Class B Certificates; provided that
any such action will not, in the good faith judgment of the parties, materially
and adversely affect the interest of any Certificateholder and
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the Trustee shall have been furnished with an opinion of counsel to the effect
that such amendment will not materially and adversely affect the interest of
any Certificateholder.
The Agreement may also be amended from time to time by the Transferor
and the Trustee (including with respect to changing the formula for determining
the Specified Reserve Fund Balance, the manner in which the Reserve Fund is
funded, changing the remittance schedule for collection deposits in the SUBI
Collection Account or changing the definition of Permitted Investments) if (a)
the Trustee has been furnished with a letter from each Rating Agency to the
effect that such amendment would not cause its then-current rating on any Class
of Certificates to be qualified, reduced or withdrawn or (b) the Trustee has
received the consent of the holders of Certificates evidencing not less than
51% of the Voting Interests of the Class A Certificates and the Class B
Certificates, voting together as a single class, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement or of modifying in any manner the rights of each Class of
Certificateholders; provided, however, that no such amendment shall increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the SUBI or the SUBI Certificate or distributions
that shall be required to be made on any Class of Certificates or the
applicable Certificate Rate and no amendment of any type shall reduce the
percentage of the aggregate Voting Interests of the Certificates of any Class
required to consent to any such amendment, in each case without the consent of
all Certificateholders and Certificate Owners.
Any amendment eliminating the Reserve Fund or reducing the Specified
Reserve Fund Balance shall also require the Transferor to deliver to the
Trustee an opinion of counsel to the effect that after such amendment, for
federal income tax purposes, the Trust will not be treated as an association
taxable as a corporation, and the Class A Certificates will, and the Class B
Certificates should, properly be characterized as indebtedness that is secured
by the assets of the Trust.
List of Certificateholders
Upon a written request of the Servicer, the Trustee, as Certificate
Registrar, will provide to the Servicer within 15 days after receipt thereof a
list of the names and addresses of all Certificateholders. In addition, three
or more Certificateholders or holders of Certificates evidencing not less than
25% of the Voting Interests of any Class of Certificates, upon compliance by
such Certificateholders with certain provisions of the Agreement, may request
that the Trustee, as Certificate Registrar, afford such Certificateholders
access during business hours to the current list of Certificateholders for
purposes of communicating with other Certificateholders with respect to their
rights under the Agreement. See "Description of the Certificates--Book-Entry
Registration" and "--Definitive Certificates".
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
The Trustee
o will be the Trustee under the Agreement. The Corporate Trust Office
of the Trustee is located at o. o is not affiliated with TMCC, although it
does act as a service provider to TMCC.
The Trustee may resign at any time, in which event the Transferor will
be obligated to appoint a successor Trustee. The Transferor may also remove
the Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act or becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance of the appointment by such
successor Trustee.
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The Trustee must be a bank or trust company organized under the laws
of the United States, any state of the United States, the District of Columbia
or the Commonwealth of Puerto Rico, authorized to exercise corporate trust
powers under those laws, and subject to supervision or examination by federal
or state laws, with a combined capital and surplus of at least $50,000,000 and
a long-term deposit rating no lower than Baa3 by Moody's, or must be otherwise
acceptable to each Rating Agency. A co-trustee or separate trustee appointed
as described above need not meet these eligibility requirements.
Holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, generally will have the power to direct any
proceeding for any remedy available to the Trustee under the Agreement, and the
exercise of any trust or power conferred on the Trustee by the Agreement
(including actions by the Trustee in its capacity as a party to, or a
third-party beneficiary of, the SUBI Supplement or the Servicing Supplement).
However, the Trustee will not be required to follow such a direction if, after
being advised by counsel, it concludes that the action is unlawful, or if it in
good faith determines that the proceedings directed would be illegal, would
subject it to personal liability or would be unduly prejudicial to the rights
of other Certificateholders.
A Certificateholder may institute proceedings under the Agreement, but
only if (i) such holder previously has given to the Trustee written notice of
default, (ii) holders of Certificates evidencing not less than 25% of the
Voting Interests of the Class A Certificates and the Class B Certificates,
voting together as a single class, have made written request upon the Trustee
to institute such proceeding in its own name as Trustee and have offered to the
Trustee reasonable indemnity and (iii) the Trustee for 30 days has neglected or
refused to institute any such proceeding. The Trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the Certificateholders, unless
such holders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby. Certificateholders will have no express right to institute a
proceeding directly under the Titling Trust Agreement or the Servicing
Agreement.
Governing Law
The Agreement will be governed by the laws of the State of o.
THE TITLING TRUST AGREEMENT
The SUBI, the Other SUBIs and the UTI
TMCC is the grantor and (as holder of the UTI) a beneficiary of the
Titling Trust. In its capacity as grantor, TMCC will from time to time assign,
transfer, grant and convey (or cause to be assigned, transferred, granted and
conveyed) to the Titling Trustee in trust the Titling Trust Assets. TMCC will
hold the UTI, which represents a beneficial interest in all Titling Trust
Assets other than the SUBI Assets and the Other SUBI Assets. TMCC may pledge
the UTI as security for obligations to third-party lenders and may create and
sell or pledge Other SUBIs in connection with financings similar to the
transaction described herein. Each holder or pledgee of the UTI and any Other
SUBI will be required expressly to disclaim any interest in the Titling Trust
Assets other than the UTI Assets or the Other SUBI Assets, respectively, and to
subordinate fully any claims to such other Titling Trust Assets in the event
that this disclaimer is not given effect. Except under the limited
circumstances described under "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities", the
SUBI Assets will not be available to make payments in respect of, or pay
expenses relating to, the UTI or any Other
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SUBIs, and the Other SUBI Assets evidenced by any Other SUBIs will not be
available to make payments on, or pay expenses relating to, the SUBI, the UTI
or any other SUBI.
Each Other SUBI will be created pursuant to a supplement to the
Titling Trust Agreement (each, an "Other SUBI Supplement") which will amend the
Titling Trust Agreement only with respect to the Other SUBI to which it
relates. The SUBI Supplement will amend the Titling Trust Agreement only as it
relates to the SUBI, and no Other SUBI Supplement will amend the Titling Trust
Agreement as it relates to the SUBI.
All Titling Trust Assets, including the SUBI Assets, will be owned by
the Titling Trust on behalf of the beneficiaries of the Titling Trust. The
SUBI Assets will be segregated from the rest of the Titling Trust Assets on the
books and records of the Titling Trustee and the Servicer and the holders of
other beneficial interests in the Titling Trust (including the UTI and any
Other SUBIs) will have no rights to the SUBI Assets. Liabilities of the
Titling Trust shall be allocated to the SUBI Assets, the UTI Assets or Other
SUBI Assets, respectively, if incurred with respect thereto, or will be
allocated pro rata among all Titling Trust Assets if incurred with respect to
the Titling Trust Assets generally.
Additional Loss Amounts will be incurred in the event that any
uninsured liability to third parties (i.e., litigation risk) on the part of the
Titling Trust is ultimately borne by the SUBI Assets, whether such liability is
incurred (i) with respect to the SUBI Assets and is therefore allocated to the
SUBI Assets pursuant to the SUBI Supplement, (ii) with respect to the Titling
Trust Assets generally and a pro rata portion of such liability is allocated to
the SUBI Assets pursuant to the Titling Trust Agreement or (iii) with respect
to UTI Assets or Other SUBI Assets if such UTI Assets or Other SUBI Assets are
insufficient to pay such liability. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities" and
" --Third-Party Liens on SUBI Assets". For purposes of making calculations
with respect to distributions on the Certificates, "Additional Loss Amounts"
will include both losses incurred with respect to the foregoing uninsured
liabilities and monies reserved within the SUBI Collection Account against
future losses in respect of such liabilities by the Servicer on behalf of the
Trustee.
Special Obligations of TMCC as Beneficiary and Grantor
TMCC, as grantor and holder of the UTI Certificate, will be liable for
all debts and obligations arising with respect to the Titling Trust Assets or
the operation of the Titling Trust; provided, however, that its liability to
any holder, assignee or pledgee of the SUBI or the SUBI Certificate will be
governed by the SUBI Supplement, the Agreement and the agreement pursuant to
which TMCC transfers the SUBI to the Transferor, and its liability with respect
to any transfer, pledge or other financing of the UTI or any UTI Certificate,
or any Other SUBI or Other SUBI Certificate shall be as set forth in the
documents relating thereto. To the extent that TMCC shall pay or suffer any
liability or expense with respect to the Titling Trust Assets or the operation
of the Titling Trust (including reasonable attorneys' fees and expenses, but
excluding all obligations with respect to making Advances, Reallocation
Payments and Reallocation Deposits), TMCC shall be indemnified, defended and
held harmless out of the Titling Trust Assets.
Titling Trustee Duties and Powers; Fees and Expenses
Pursuant to the Titling Trust Agreement, the Titling Trustee will be
required to, among other things, (i) apply for and maintain, or cause to be
applied for and maintained, all licenses, permits and authorizations necessary
and appropriate to accept assignments of the Contracts and the Leased Vehicles
and to carry out its duties as Titling Trustee, including motor vehicle dealer
licenses, and (ii) file, or cause to be filed, applications for certificates of
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title as are necessary and appropriate so as to cause the Titling Trust to be
recorded as the holder of legal title of record to the Leased Vehicles.
The Titling Trustee may be replaced by TMCC only if it ceases to be
qualified in accordance with the terms of the Titling Trust Agreement and shall
be removed if certain representations and warranties made by the Titling
Trustee therein prove to have been materially incorrect when made, or in
certain events of bankruptcy or insolvency thereof. The Trustee, as holder of
the SUBI Certificate, on behalf of the Certificateholders may, or at the
direction of holders of Certificates evidencing not less than 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates voting
together as a single class will, exercise its powers under the Titling Trust
Agreement to cause the Trustee to be removed or replaced for a material breach
of its obligations.
The Titling Trustee will make no representations as to the validity or
sufficiency of the SUBI or the SUBI Certificate (other than as to the execution
and authentication of the SUBI Certificate), or of any Contract, Leased Vehicle
or related document, will not be responsible for performing any of the duties
of TMCC or the Servicer and will not be accountable for the use or application
by any owners of beneficial interests in the Titling Trust Assets of any funds
paid in respect of the Titling Trust Assets, or the investment of any of such
monies before such monies are deposited into the accounts relating to the SUBI,
the Other SUBIs and the UTI. The Titling Trustee will not independently verify
the Contracts or the Leased Vehicles. The duties of the Titling Trustee will
generally be limited to the holding and liquidation of lease contracts, the
titling of the related leased vehicles in the name of the Titling Trust, the
creation of the SUBI, the Other SUBIs and the UTI, the maintenance of the SUBI
Collection Account and accounts relating to the Other SUBIs and the UTI and the
receipt of the various certificates, reports or other instruments required to
be furnished to the Titling Trustee under the Titling Trust Agreement, in which
case it will only be required to examine them to determine whether they conform
to the requirements of the Titling Trust Agreement.
The Titling Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Titling Trust Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of the Servicer, the UTI Beneficiary or by the holders of a majority
in interest in the SUBI, unless such party or parties have offered to the
Titling Trustee reasonable security or indemnity against the costs, expenses
and liabilities that may be incurred therein or thereby. The reasonable
expenses of every such exercise of rights or powers or examination shall be
paid by the party or parties requesting such exercise or examination or, if
paid by the Titling Trustee, shall be a reimbursable expense of the Titling
Trustee.
The Titling Trustee may enter from time to time into one or more
agency agreements (each, an "Agency Agreement") with such person or persons,
including without limitation any affiliate of the Titling Trustee (each, a
"Trust Agent"), as are by experience and expertise qualified to act in a
trustee capacity and otherwise acceptable to TMCC. The Titling Trustee has
engaged o as the Trust Agent. Pursuant to the Agency Agreement, the Trust
Agent shall perform each and every obligation of the Titling Trustee under the
Titling Trust Agreement.
The Titling Trustee shall be paid out of Titling Trust Assets
reasonable compensation and reimbursement of all reasonable expenses (including
reasonable attorneys' fees). However, with regard to the SUBI Assets allocable
to the SUBI Interest, this requirement is subject to provisions regarding
Capped Titling Trust Administrative Expenses. See "Description of the
Certificates--Distributions on the Certificates--Distributions of Interest".
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Indemnity of Titling Trustee and Trust Agents
The Titling Trustee and each Trust Agent will be indemnified and held
harmless out of and to the extent of the Titling Trust Assets with respect to
any loss, liability or expense, including reasonable attorneys' fees and
expenses (collectively "Claims"), arising out of or incurred in connection with
(i) any of the Titling Trust Assets (including without limitation any Claims
relating to lease contracts or leased vehicles of the Titling Trust, any
personal injury or property damage claims arising with respect to any such
leased vehicle or any claim with respect to any tax arising with respect to any
Titling Trust Asset) or (ii) the Titling Trustee's or the Trust Agent's
acceptance or performance of the trusts and duties contained in the Agreement
or any Agency Agreement. Notwithstanding the foregoing, neither the Titling
Trustee nor any Trust Agent will be indemnified or held harmless out of the
Titling Trust Assets as to any Claim (i) which TMCC shall have satisfied
because of its liability therefor pursuant to the Servicing Agreement, (ii)
incurred by reason of the Titling Trustee's or such Trust Agent's willful
misfeasance, bad faith or negligence or (iii) incurred by reason of the Titling
Trustee's or Trust Agent's breach of its respective representations and
warranties pursuant to the Titling Trust Agreement or the Servicing Supplement.
Such indemnities may result in Additional Loss Amounts to the extent payable in
respect of the SUBI Assets or allocated to the SUBI.
Termination
The Titling Trust and the respective obligations and responsibilities
of TMCC and the Titling Trustee shall terminate upon the last to occur of (i)
the payment to TMCC and each permitted purchaser, assignee and pledgee of any
of TMCC's interests in the Titling Trust (including the Trustee, with respect
to the SUBI Interest) of all amounts and obligations required to be paid to
them, and the expiration or termination of all financings secured by the
Titling Trust Assets by their respective terms and (ii) the maturity or
liquidation and the disposition of all Titling Trust Assets and the disposition
to or upon the order of TMCC or any permitted purchaser, assignee or pledgee of
all net proceeds thereof.
No Petition
The Titling Trustee and the Trust Agent will agree not to institute,
or join in, any bankruptcy or similar proceeding against the Transferor or TMCC
until one year and one day after final payment of all financings involving
interests in the Titling Trust. Each pledgee or assignee of any UTI or other
SUBI must give a similar non-petition covenant.
Amendment
The Titling Trust Agreement may be amended by written agreement
between TMCC and the Titling Trustee, with the approval of the Trustee (which
may be given in the circumstances described under "Additional Document
Provisions--Additional Agreement Provisions--Amendment"). To the extent that
any such amendment relates to or affects the UTI or any Other SUBI in addition
to the SUBI, the SUBI Certificate or the SUBI Assets, such amendment may
require certain other approvals.
Governing Law
The Titling Trust Agreement will be governed by the laws of the State
of Delaware.
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Trustee as Third-Party Beneficiary
As the holder of the SUBI Interest, the Trustee will be a third-party
beneficiary of the Titling Trust Agreement. Therefore, the Trustee may, and,
upon the direction of Certificateholders representing at least 51% of the
Voting Interests of the Class A Certificates and the Class B Certificates
(voting together as a single class) will, exercise any right conferred by the
Titling Trust Agreement upon a holder of any interest in the SUBI.
THE SERVICING AGREEMENT
Pursuant to the Servicing Agreement, the Servicer will perform on
behalf of the Titling Trustee all of the obligations of the Trust as lessor
under the Contracts, including, but not limited to, collecting and posting
payments, responding to inquiries of the lessees, investigating delinquencies,
sending payment statements to the lessees, collecting and remitting certain
sales and use and other taxes to state and local governments and agencies,
advancing certain licensing fees, payments of fines for citations and costs of
disposition of Leased Vehicles related to Charged-off Contracts, Matured
Contracts and Additional Loss Contracts and policing the Contracts, commencing
legal proceedings to enforce a Contract on behalf of the Titling Trust,
administering the Contracts, including accounting for collections and
furnishing monthly and annual statements to the Titling Trustee with respect to
distributions and generating federal income tax information. The Titling
Trustee will furnish the Servicer with all powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out such
servicing and administrative duties under the Servicing Agreement. The Trustee
will be a third-party beneficiary of the Servicing Agreement.
Custody of Contract Documents and Certificates of Title
To assure uniform quality in servicing the Contracts and TMCC's own
portfolio of automobile and light duty truck lease contracts and to reduce
administrative costs, the Titling Trustee will appoint TMCC, as Servicer, to be
its agent, bailee and custodian of the Contracts, the certificates of title
relating to the Leased Vehicles and insurance policies and other documents
relating to the Contracts, the related lessees and the Leased Vehicles. Such
documents will not be physically segregated from other automobile and light
duty truck lease contracts, certificates of title and insurance policies and
other documents relating to such lease contracts and leased vehicles of TMCC,
or those which TMCC services for others, including those leased vehicles
constituting Titling Trust Assets that are not evidenced by the SUBI. The
accounting records and computer systems of TMCC will reflect the interests of
the holders of interest in the SUBI in the Initial Contracts, the Subsequent
Contracts, the Initial Leased Vehicles, the Subsequent Leased Vehicles and all
related Contract Rights, and "protective" UCC financing statements reflecting
certain interests in the Contracts and the Contract Rights will be filed. See
"Certain Legal Aspects of the Titling Trust--Structural Considerations--Back-up
Security Interest in Certain SUBI Assets" and"Certain Legal Aspects of the
Contracts and Leased Vehicles--Back-up Security Interests". The Servicer will
be responsible for filing all periodic sales and use tax or property (real or
personal) tax reports, periodic renewals of licenses and permits, periodic
renewals of qualification to act as a trust and a business trust and other
periodic governmental filings, registration or approvals arising with respect
to or required of the Titling Trustee or the Titling Trust.
Collections
The Servicer will service, administer and collect all amounts due on
or in respect of the Contracts. The Servicer will make reasonable efforts to
collect all such amounts and, in a manner consistent with the Servicing
Agreement, will be obligated to service the Contracts generally in accordance
with its customary and usual procedures in respect of lease contracts serviced
by it for its own account.
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Consistent with its usual procedures, the Servicer may, in its
discretion, defer one or more payments (having the practical effect of
extending the Maturity Date of any Contract) by up to o months in the
aggregate, provided that no Contract may be extended more than o times and that
the new Maturity Date of any such Contract must not be later than the last day
of the Collection Period with respect to the Final Scheduled Distribution Date
occurs. The amount of any Deferral Fee received by the Servicer in connection
with the deferral of a Contract will be treated as additional servicing
compensation and will not be deposited into the SUBI Collection Account. The
Servicing Agreement will provide that Advances be made with respect to
Contracts as to which deferrals of payments are made that result in any
diminution of the amount of Collections received in connection therewith
relative to the originally scheduled Monthly Payments. The Servicing Agreement
will also provide for the reallocation to the UTI from the SUBI (accompanied by
an appropriate Reallocation Payment by TMCC) of each Contract as to which more
than o deferrals are made or as to which, through deferrals or extensions, the
maturity date is extended beyond the last day of the Collection Period relating
to the Final Scheduled Distribution Date. Upon any such reallocation, such
Contract and the related Leased Vehicle and other related assets and rights
will be UTI Assets and will no longer constitute SUBI Assets.
Notification of Liens and Claims
The Servicer will be required to notify the Transferor (in the event
that TMCC is not acting as the Servicer), the Trustee and the Titling Trustee
as soon as practicable of all liens or claims of whatever kind made by a third
party that would materially adversely affect the interests of, among others,
the Transferor, the Titling Trust, the Trust or any Certificateholder in or
with respect to the Contracts or Leased Vehicles. Following its learning of
any such lien or claim with respect to the Contracts or Leased Vehicles, the
Servicer will take whatever actions it deems reasonably necessary to cause such
lien or claim to be removed. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations".
Advances
On each Deposit Date, the Servicer will be obligated to make, by
deposit into the SUBI Collection Account, an advance with respect to delinquent
Contracts and Contracts as to which it has deferred payments as described above
under "Collections" in an amount equal to the aggregate amount of Monthly
Payments due thereon but not received during the related Collection Period.
Notwithstanding the foregoing, the Servicer will not be required to
make an Advance to the extent that such Advance would constitute a
Nonrecoverable Advance. A "Nonrecoverable Advance" will be any Advance that, in
the reasonable judgment of the Servicer, may not be ultimately recoverable by
the Servicer from Net Liquidation Proceeds or otherwise. In making Advances,
the Servicer will assist in maintaining a regular flow of scheduled principal
and interest payments on such delinquent or deferred Contracts, rather than to
guarantee or insure against losses. Accordingly, all Advances shall be
reimbursable to the Servicer, without interest, if and when a payment relating
to a Contract with respect to which an Advance has previously been made is
subsequently received. In addition, the Servicer will be reimbursed for all
Nonrecoverable Advances from collections on or in respect of the Contracts and
Leased Vehicles in general.
Security Deposits
The Contract Rights will include all rights under the Contracts to the
security deposits paid by the lessees at the time of origination of the
Contracts (the "Security Deposits") to the extent applied to cover excess wear
and tear charges or treated as Liquidation Proceeds as described below. As
part of its general servicing obligations, the Servicer will retain possession
of each Security Deposit remitted by the lessees as an agent for the Titling
Trust and
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will apply the proceeds of Security Deposits in accordance with the terms of
the Contracts, its customary and usual servicing procedures and applicable law.
However, in the event that any Contract becomes a Charged-off Contract or the
related Leased Vehicle is repossessed, the related Security Deposit will, to
the extent provided by applicable law and such Contract, constitute Liquidation
Proceeds. The Titling Trustee may not have an interest in the Security
Deposits that is enforceable against third parties until such time as they are
deposited into the SUBI Collection Account. The Servicer will not be required
to segregate Security Deposits from its own funds, and any income earned from
any investment thereof by the Servicer shall be for the account of the Servicer
as additional servicing compensation.
Insurance on Leased Vehicles
Each lessee is required to maintain in full force and effect during
the term of a Contract a comprehensive collision and physical damage insurance
policy covering the actual cash value of the related Leased Vehicle and naming
the Titling Trust as loss payee. Each lessee also is required to maintain
bodily injury and property damage liability insurance in amounts equal to the
greater of the amount prescribed by applicable state law or industry standards
as set forth in the Contract and naming the Titling Trust as an additional
insured. Since lessees may choose their own insurers to provide the required
coverage, the specific terms and conditions of their policies vary. If a
lessee fails to obtain or maintain the required insurance, the related Contract
will be in default. It is the practice of TMCC not to obtain insurance on
behalf of and at the expense of the related lessee but rather to attempt to
repossess the related Leased Vehicle if the related lessee does not obtain a
replacement policy within o days of being notified by TMCC of such default.
The policies issued with respect to a significant number of the
Contracts may name TMCC rather than the Titling Trust as additional loss payee.
If a primary insurer makes payment under such a policy to TMCC, TMCC will apply
such amounts or forward such amounts to the Titling Trust for application as a
portion of Net Insurance Proceeds. If a primary insurer failed to make payments
under a policy to the lessee and also to TMCC and the Titling Trust, losses
could be experienced by the Certificateholders. However, the Transferor has
been advised by the primary provider of the Contingent and Excess Liability
Policies described herein that such provider will not refuse any claim under the
Contingent and Excess Liability Policies solely because a primary policy names
an approved TMCC affiliate, rather than the Titling Trust, as additional loss
payee (although under such circumstances, if the primary insurer denies a claim
on such basis, a deductible of $o (rather than the standard deductible of $o)
will be payable, as to which TMCC will indemnify the Trust).
TMCC does not require lessees to carry credit disability, credit life
or credit health insurance or other similar insurance coverage which provides
for payments to be made on the Contracts on behalf of such lessees in the event
of disability or death. To the extent that such insurance coverage is obtained
by a lessee, payments received in respect of such coverage may be applied to
payments on the related Contract to the extent that the lessee's beneficiary
chooses to do so.
Realization Upon Charged-off Contracts
The Servicer will use commercially reasonable efforts to repossess and
liquidate the Leased Vehicle relating to a Contract that comes into and
continues in default and for which no satisfactory arrangements can be made for
collection of delinquent payments. Such liquidation may be through
repossession of such Leased Vehicle and disposition at a public or private
sale, or the Servicer may take any other action permitted by applicable law.
The Servicer may enforce all rights under any such Contract, sell the Leased
Vehicle in accordance with the Contract and commence and prosecute any
proceedings in connection with the Contract. In connection with any such
repossession, the Servicer will follow its usual and customary practices and
procedures in respect of lease
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contracts serviced by it for its own account, and in any event will act in
compliance with all applicable laws. The Servicer will be required to repair
the Leased Vehicle if it reasonably determines that such repairs will increase
the related Net Repossessed Vehicle Proceeds. The Servicer will be responsible
for all costs and expenses incurred in connection with the sale or other
disposition of Leased Vehicles related to Charged-off Contracts and other
Contracts as to which a lessee has defaulted and the related Leased Vehicles,
but will be entitled to reimbursement to the extent that such costs constitute
Repossessed Vehicle Expenses or other Liquidation Expenses or expenses
recoverable under an applicable insurance policy. Proceeds from the sale or
other disposition of repossessed Leased Vehicles will constitute Repossessed
Vehicle Proceeds and will be deposited into the SUBI Collection Account. The
Servicer will be entitled to reimbursement of all related Repossessed Vehicle
Expenses and Principal Collections in respect of a Collection Period will
include all Net Repossessed Vehicle Proceeds collected during such Collection
Period.
Matured Leased Vehicle Inventory
Upon the scheduled maturity of a Contract, the related lessee has the
option to acquire the related Leased Vehicle for an amount equal to its
Residual Value plus any applicable taxes and all other incidental charges which
may be due under such Contract. If the lessee chooses not to exercise this
option but instead returns the Leased Vehicle, the dealer to whom such vehicle
is returned will have the option to purchase such vehicle for the same price.
TMCC disposes of off-lease and repossessed vehicles not purchased by the
related lessee or dealer to whom the vehicle is returned through regional
automobile auctions. Off -lease and repossessed vehicles not yet disosed of
constitute Matured Leased Vehicle Inventory.
Principal Collections in respect of a Collection Period will include
all Net Matured Leased Vehicle Proceeds collected during such Collection
Period. The Servicer also will be entitled to reimbursement of certain
payments made and expenses and charges incurred by it in the ordinary course of
servicing the Contracts (including payments it makes on behalf of the related
lessees in connection with the payment of taxes, vehicle registration,
clearance of parking tickets and similar items) from Collections with respect
to the related Contracts, separate payment thereof by the related lessees or
from amounts realized upon the final disposition of the related Leased Vehicle.
To the extent such amounts are reimbursed prior to or at the final disposition
of the related leased vehicle but remain unpaid by the related lessee, such
unreimbursed amounts (together with any unpaid Monthly Payments under the
related Contract) will be treated as Matured Leased Vehicle Expenses or
Liquidation Expenses, as the case may be, and will therefor reduce Net Matured
Leased Vehicle Proceeds or Liquidation proceeds, as the case may be. Related
Matured Leased Vehicle Expenses may be retained by the Servicer or released
from amounts on deposit in the SUBI Collection Account upon request therefor
presented to the Trustee by the Servicer together with any supporting
documentation reasonably requested by the Trustee. Any Residual Value Surplus
for a Collection Period will be released to the Transferor on the related
Distribution Date, and thereafter neither the Trust nor any Certificateholder
will have a claim to or interest in such amounts.
Records, Servicer Determinations and Reports
The Servicer will retain or cause to be retained all data (including,
without limitation, computerized records, operating software and related
documentation) relating directly to or maintained in connection with the
servicing of the Contracts for at least 2 years after the termination of the
Trust. Upon the occurrence and continuance of an Event of Servicing
Termination and termination of the Servicer's obligations under the Servicing
Agreement, the Servicer will use commercially reasonable efforts to effect the
orderly and efficient transfer of the servicing of the Contracts, including all
such records to the extent necessary, to a successor servicer.
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The Servicer will perform certain monitoring and reporting functions
on behalf of the Transferor, the Trustee, the Titling Trustee and
Certificateholders, including the preparation and delivery to the Trustee, the
Titling Trustee and each Rating Agency of a monthly certificate, on or before
each Determination Date, setting forth all information necessary to make all
distributions required in respect of the related Collection Period (the
"Servicer's Certificate"), and the preparation and delivery of (i) monthly
statements setting forth information described under "Description of the
Certificates--Statements to Certificateholders" and (ii) an annual officer's
certificate specifying, among other things, the occurrence and status of any
Event of Servicing Termination.
Evidence as to Compliance
The Servicing Agreement will provide that a firm of nationally
recognized independent public accountants will furnish to the Trustee annually,
a statement as to compliance by the Servicer during the preceding twelve months
(or since the Closing Date in the case of the first such statement) with
certain standards relating to the servicing of the Contracts. The Servicing
Agreement will also provide for delivery to the Trustee, substantially
simultaneously with the delivery of such accountants' statement, of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under the Servicing Agreement throughout the
preceding twelve months (or since the Closing Date in the case of the first
such certificate) or, if there has been a default in the fulfillment of any
such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Certificate Owners or Class A Certificateholders by a request in writing
addressed to the Trustee at its Corporate Trust Office.
Servicing Compensation
The Servicer will be entitled to compensation for the performance of
its servicing obligations under the Servicing Agreement. The Servicer will be
entitled to receive on each Distribution Date, the Servicing Fee in respect of
the related Collection Period equal to one-twelfth of the product of 1.00% and
the Aggregate Net Investment Value as of the first day of the related
Collection Period (or, in the case of the first Distribution Date, as of the
Initial Cutoff Date). The Servicing Fee will be calculated and paid based upon
a 360-day year consisting of twelve 30-day months. So long as TMCC is the
Servicer, it may, by notice to the Trustee and the Titling Trustee, on or
before a Determination Date, elect to waive the Servicing Fee with respect to
the related Collection Period, so long as TMCC believes that sufficient
collections will be available from Interest Collections on one or more future
Distribution Dates to pay such waived Servicing Fee, without interest. In such
event, the Servicing Fee for such Collection Period shall be deemed to equal
zero for all purposes of the Agreement and the Servicing Agreement.
The Servicer will also be entitled to additional servicing
compensation in the form of certain late payment fees, Deferral Fees and other
administrative fees or similar charges paid with respect to the Contracts, and
earnings from the investment of Security Deposits (to the extent lawful and as
provided in the Contracts). See "Additional Document Provisions--The Servicing
Agreement--Security Deposits". The Servicer will be entitled to retain
Deferral Fees paid in connection with deferred Contracts as additional
servicing compensation. The Servicer will pay all expenses incurred by it in
connection with its servicing activities under the Servicing Agreement,
including the payment of Uncapped Administrative Expenses allocable to the SUBI
Interest, and will not be entitled to reimbursement of such expenses except to
the extent any such expenses constitute Liquidation Expenses in respect of a
Contract or Leased Vehicle or reasonable issuance expenses under an applicable
insurance policy, or to the extent that Uncapped Administrative Expenses are
reimbursed out of Interest Collections.
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The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of the Contracts as an agent for the
Trustee under the Servicing Agreement, including collecting and posting
payments, responding to inquiries of lessees on the Contracts, investigating
delinquencies, policing the SUBI Assets, administering the Contracts, making
Advances, accounting for collections and furnishing monthly and annual
statements to the Trustee with respect to distributions and generating federal
income tax information.
Servicer Resignation and Termination
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder are no
longer permissible by reason of a change in applicable law or regulations. No
such resignation will become effective until a successor servicer has assumed
the Servicer's obligations under the Servicing Agreement. The Servicer may not
assign the Servicing Agreement or any of its rights, powers, duties or
obligations thereunder except as otherwise provided therein or except in
connection with a consolidation, merger, conveyance, transfer or lease made in
compliance with the Servicing Agreement.
The rights and obligations of the Servicer under the Servicing
Agreement may be terminated following the occurrence and continuance of an
Event of Servicing Termination. See "Additional Document Provisions--The
Servicing Agreement--Rights Upon Event of Servicing Termination".
Indemnification by the Servicer
The Servicer will indemnify the Trustee and its agents for any and all
liabilities, losses, damages and expenses that may be incurred by them as a
result of any act or omission by the Servicer in connection with the
performance of its duties under the Servicing Agreement.
Events of Servicing Termination
"Events of Servicing Termination" under the Servicing Agreement with
respect to the SUBI Assets will consist of, among other things: (i) any failure
by the Servicer to deliver to the Titling Trustee for distribution to holders
of interests in the SUBI or to the Trustee for distribution to the
Certificateholders any required payment on the related Certificate as to
allocations and distributions, which failure continues unremedied for three
Business Days after discovery of such failure by an officer of the Servicer or
receipt by the Servicer of notice thereof from the Trustee, the Titling Trustee
or holders of Certificates evidencing not less than 25% of the Voting Interests
of the Class A Certificates and the Class B Certificates, voting together as a
single class; (ii) any failure by the Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Servicing
Agreement which failure materially and adversely affects the rights of holders
of interests in the SUBI or the Certificateholders and which continues
unremedied for 90 days after written notice of such failure is given as
described in clause (i) above; or (iii) the occurrence of certain Insolvency
Events relating to the Servicer. Notwithstanding the foregoing, a delay in or
failure of performance referred to under clause (i) above for a period of ten
Business Days shall not constitute an Event of Servicing Termination if such
failure or delay was caused by an event of force majeure. Upon the occurrence
of any such event, the Servicer shall not be relieved from using all
commercially reasonable efforts to perform its obligations in a timely manner
in accordance with the terms of the Servicing Agreement and the Servicer shall
provide to the Trustee, the Titling Trustee, the Transferor and the
Certificateholders prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations.
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Rights Upon Event of Servicing Termination
As long as an Event of Servicing Termination remains unremedied, the
Titling Trustee, upon the direction of the Trustee or holders of Certificates
evidencing not less than 51% of the Voting Interests of the Class A
Certificates and the Class B Certificates, voting together as a single class,
may terminate all of the rights and obligations of the Servicer under the
Servicing Agreement with respect to the SUBI Assets. In the event of such a
termination affecting the SUBI Assets, the Trust Agent generally will succeed
to the rights, powers, responsibilities, duties and liabilities of the Servicer
under the Servicing Agreement with respect to the SUBI Assets (excluding
certain specific obligations listed in the Servicing Agreement) or provide for
a new Servicer to be approved by each Rating Agency. The Trust Agent or other
new Servicer, will receive substantially the same servicing compensation to
which the Servicer otherwise would have been entitled. If, however, a
bankruptcy trustee or similar official has been appointed for the Servicer, and
no Event of Servicing Termination other than such appointment has occurred,
such trustee or official may have the power to prevent the Titling Trustee, the
Trustee or such Certificateholders from effecting a transfer of servicing.
Notwithstanding the termination of the Servicer's rights and powers in such
event, the Servicer will remain obligated to perform certain specific
obligations listed in the Servicing Agreement and to reimburse the Trust Agent
for any losses incurred in performing certain such obligations, and will be
entitled to payment of certain amounts payable to it for services rendered
prior to such termination.
The holders of Certificates evidencing not less than 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, with the consent of the Titling Trustee and the
Trustee (which consents shall not be unreasonably withheld) may waive any
default by the Servicer in the performance of its obligations under the
Servicing Agreement and its consequences with respect to the SUBI Assets, other
than a default in making any required deposits to or payments from an Account
in accordance with the Servicing Agreement or in respect of a covenant or
provision of the Servicing Agreement that cannot be modified or amended without
the consent of each Certificateholder, in which event the related waiver will
require the approval of holders of all of the Certificates. No such waiver
will impair the rights of the Certificateholders with respect to subsequent
defaults.
No Petition
The Servicer will agree not to institute, or join in, any bankruptcy
or similar proceeding against the Transferor, the Titling Trustee or the
Titling Trust until one year and one day after final payment of all financings
involving interests in the Titling Trust.
Amendment
The Servicing Agreement may be amended from time to time in a writing
signed by the Titling Trustee and the Servicer, with the approval of the
Trustee (which approval may be given in the circumstances described under
"Additional Document Provisions--Additional Agreement Provisions--Amendment").
Any such amendment relating to the UTI or any Other SUBI may require certain
other approvals.
Termination
The Servicing Agreement shall terminate upon the earlier to occur of
(i) the termination of the Titling Trust, (ii) the discharge of the Servicer in
accordance with its terms or (iii) the termination of the Agreement.
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Governing Law
The Servicing Supplement will be governed by the laws of the State of
Delaware.
CERTAIN LEGAL ASPECTS OF THE TITLING TRUST
THE TITLING TRUST
The Titling Trust was formed as a Delaware business trust. The
Titling Trust also has been qualified as a business trust authorized to
transact business in certain other states where it is required to be so
qualified.
Because the Titling Trust has been registered as a business trust for
Delaware and other state law purposes, like a corporation, it may be eligible
to be a debtor in its own right under the United States Bankruptcy Code. See
"Risk Factors--Insolvency of TMCC; Substantive Consolidation with TMCC".
STRUCTURAL CONSIDERATIONS
Unlike many structured financings in which the holders of the related
securities have a direct ownership interest or a perfected security interest in
the underlying assets being securitized, the Trust will not own directly the
SUBI Assets. Instead, the Titling Trust will own the Titling Trust Assets,
including the SUBI Assets, and the Titling Trustee will take action with
respect thereto in the name of the Titling Trust on behalf of and as directed
by the beneficiaries of the Titling Trust (i.e. the holders of the UTI
Certificate and each SUBI Certificate or Other SUBI Certificate). The Trust
will own the assets of the Trust, the primary asset of which will be the SUBI
Certificate evidencing a 100% beneficial interest in the SUBI Assets, and the
Trustee will take action with respect thereto in the name of the Trust and on
behalf of the Certificateholders and the Transferor. Beneficial interests in
the Contracts and Leased Vehicles, rather than direct legal ownership thereof,
are transferred under this structure in order to avoid the administrative
difficulty and expense of retitling the Leased Vehicles in the name of the
transferee. The SUBI Assets will be segregated from the other Titling Trust
Assets on the books and records maintained with respect thereto by the Servicer
and/or the Titling Trustee. Except under the limited circumstances described
below, neither the Servicer nor any holders of other beneficial interests in
the Titling Trust will have rights in the SUBI Assets, and payments made on or
in respect of any Titling Trust Assets other than the SUBI Assets will not be
available to make payments on the Certificates or to cover expenses of the
Titling Trust allocable to the SUBI Assets.
ALLOCATION OF TITLING TRUST LIABILITIES
Pursuant to the Titling Trust Agreement, the various liabilities of
the Titling Trust will be allocated to and charged against (i) to the extent
incurred specifically with respect thereto, the SUBI Assets, the Titling Trust
Assets allocated to Other SUBIs ("Other SUBI Assets") or Titling Trust Assets
not allocated to the SUBI or any Other SUBI (the "UTI Assets"), respectively,
or (ii) pro rata among the Titling Trust Assets if incurred with respect to the
Titling Trust Assets generally. The Titling Trustee and the beneficiaries of
the Titling Trust and their assignees and pledgees will be bound by the
foregoing allocation. Thus, any liability to third parties arising from or in
respect of a Contract or Leased Vehicle will be borne by the Trust as a holder
of interests in the SUBI. If any such liability arises from or in respect of a
contract or leased vehicle that is an Other SUBI Asset or a UTI Asset, the SUBI
Assets will not be subject to such liability unless such Other SUBI Assets or
UTI Assets are insufficient to pay the liability. However, to the extent that
there are no other assets from which to satisfy such liability, and such
liability is owed to entities other than the Titling Trustee or other
beneficiaries of the Titling Trust, the SUBI Assets may be used
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to satisfy such liabilities. Under such circumstances, investors in the Class
A Certificates could incur a loss on their investment.
THIRD-PARTY LIENS ON SUBI ASSETS
Because the Trustee will not own directly the SUBI Assets, and since
its interest therein generally will be an indirect beneficial ownership
interest, perfected liens of third-party creditors of the Titling Trust in one
or more SUBI Assets will take priority over the interest of the Trustee
therein. With respect to claims relating to the SUBI Assets, this result is no
different than would be the case if a claim were made against the Trust and the
Trust directly owned the SUBI Assets. However, because the Titling Trust also
will hold Other SUBI Assets and UTI Assets, and third-party creditors of the
Titling Trust may not be bound in all cases by the allocation of liabilities
described above, a general creditor of the Titling Trust may obtain a lien on
one or more SUBI Assets. Such liens could include tax liens arising against
the Transferor or the Trust, liens arising under various federal and state
criminal statutes, judgment liens arising from successful claims under federal
and state consumer protection laws and Lemon Laws with respect to leases and
leased vehicles that are Titling Trust Assets and judgment liens arising from
successful claims against the Titling Trust arising from the operation of such
leased vehicles. See "Risk Factors--Consumer Protection Laws", "--ERISA
Liabilities" and "--Vicarious Tort Liability".
The Titling Trust Agreement provides that, to the extent that such a
third-party claim is satisfied out of one or more SUBI Assets rather than Other
SUBI Assets or UTI Assets, as the case may be, the Titling Trustee will
reallocate the remaining Titling Trust Assets (i.e., the Other SUBI Assets and
the UTI Assets) so that each portfolio will bear the expense of the claim as
nearly as possible as if the claim had been allocated as provided in the
Titling Trust Agreement. However, if a third party claim exceeds the value of
the portfolio or portfolios of Titling Trust Assets to which it should be
allocated, investors in the Class A Certificates could incur a loss on their
investment. See "Additional Document Provisions--The Titling Trust
Agreement--The SUBI, the Other SUBIs and the UTI".
TMCC may pledge the UTI as security for obligations to third-party
lenders, and may create and sell or pledge Other SUBIs in connection with other
financings. Each holder or pledgee of the UTI or any Other SUBI will be
required expressly to disclaim any interest in the SUBI Assets, and to fully
subordinate any claims to the SUBI Assets in the event that this disclaimer is
not given effect. Although no assurance can be given, in the unlikely event of
a bankruptcy of TMCC, the Transferor believes that the SUBI Assets would not be
treated as part of TMCC's bankruptcy estate and that, even if they were so
treated, the subordination by holders and pledgees of the UTI and Other SUBIs
should be enforceable. In addition, a pledge of the UTI will not impair the
Titling Trustee's ability to reallocate leases and leased vehicles out of the
UTI Assets as Subsequent Contracts and Subsequent Leased Vehicles during the
Revolving Period.
BACK-UP SECURITY INTEREST IN CERTAIN SUBI ASSETS
The transfer of the SUBI Certificate by the Transferor to the Trust is
intended to constitute a sale of the SUBI Certificate and of the beneficial
interest in the SUBI Assets evidenced thereby, subject in each case to the
rights of the Transferor as the holder of the Transferor Interest. Although
unlikely, it is possible that a court could recharacterize (for accounting and
general state law purposes) the transactions contemplated by the Titling Trust
Agreement and SUBI Supplement as a financing secured by a pledge of the SUBI
Certificate or the SUBI Assets rather than as a sale. In such an event, absent
prior perfection of the Trustee's security interest in the SUBI Assets, the
holder of a perfected lien in one or more SUBI Assets would have priority over
the interest of the Trustee in such SUBI Assets.
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Certain actions have been taken to ensure that, if the transfer of the
SUBI Interest were to be so recharacterized as a transfer to secure a loan, the
Trustee would be deemed to have a perfected security interest in the SUBI
Certificate (and the SUBI Interest evidenced thereby) and in the Contracts and
the Contract Rights susceptible of perfection under the Uniform Commercial Code
(the "UCC") as in effect in the Trust States. The "Contract Rights" are all
rights relating to the Contracts and the proceeds thereof, including the
documents evidencing such Contracts, Monthly Payments received or due on or
after the related Cutoff Date, Security Deposits (to the extent applied to cover
excess wear and tear charges or treated as Liquidation Proceeds as described
herein and as provided for in the Contracts) Prepayments, Liquidation Proceeds
and Net Insurance Proceeds (to the extent constituting proceeds of the related
Contract rather than proceeds of the related Leased Vehicle) received on or
after the related Cutoff Date. The SUBI Certificate will constitute an
"instrument" under the UCC and, by virtue of its possession thereof, the Trustee
will be deemed to have a perfected security interest therein (and the SUBI
Interest evidenced thereby). The Contracts will not be stamped to reflect the
Trustee's indirect interest therein. On or prior to the Closing Date, however,
"protective" UCC-1 financing statements will be filed in California, Illinois
and Delaware with respect to the Contracts and the Contract Rights to reflect
the perfection of any security interest that the Trustee would be deemed to have
therein. However, no action will be taken to perfect the lien that the Trustee
would be deemed to have in the Leased Vehicles in the event of such a
recharacterization. Therefore, to the extent that a valid lien is imposed by a
third party against a Leased Vehicle, the interest of the lienholder will be
superior to the unperfected beneficial interest of the Trustee in such Leased
Vehicle. The Servicing Agreement will require the Servicer to contest all such
liens and cause the removal of any liens that may be imposed, but investors in
the Class A Certificates could incur a loss on their investment if any such
liens are imposed against the Leased Vehicles. See "Additional Document
Provisions--The Servicing Agreement--Notification of Liens and Claims".
Additionally, any perfected security interest of the Trustee in all or
part of the property of the Trust could be subordinate to claims of any trustee
in bankruptcy or debtor-in-possession in the event of a bankruptcy of the
Transferor prior to any perfection of the transfer of the assets transferred by
the Transferor to the Trust pursuant to the Agreement. See "Risk
Factors--Insolvency of TMCC; Substantive Consolidation with TMCC".
INSOLVENCY RELATED MATTERS
Although no assurance can be given, the Transferor believes that in
the unlikely event of a bankruptcy of TMCC the SUBI Assets would not be treated
as part of TMCC's bankruptcy estate and that, even if they were so treated, the
subordination by holders and pledgees of the UTI and Other SUBIs should be
enforceable. In addition, the Transferor has taken steps in structuring the
transactions contemplated hereby that are intended to make it unlikely that the
voluntary or involuntary application for relief by TMCC under any Insolvency
Laws will result in consolidation of the assets and liabilities of the
Transferor, the Titling Trust or the Trust with those of TMCC. If, however,
(i) a court concluded that the assets and liabilities of the Transferor, the
Titling Trust or the Trust should be consolidated with those of TMCC in the
event of the application of applicable Insolvency Laws to TMCC, (ii) a filing
were made under any Insolvency Law by or against the Transferor, the Titling
Trust or the Trust or (iii) an attempt were made to litigate any of the
foregoing issues, delays in payments on the Certificates and possible
reductions in the amount of such payments could occur.
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CERTAIN LEGAL ASPECTS OF THE
CONTRACTS AND THE LEASED VEHICLES
Although all Contracts have been or will be originated in the Trust
States, in some instances the related lessees may live in other states at the
time of origination or may move to another state after the time of origination.
Consequently, the related Leased Vehicles may be operated and registered in
states other than Trust States and the related certificates of title may be
recorded in such other states. The following discussion of certain legal
aspects of the Contracts and Leased Vehicles does not purport to address the
laws of every state in which a Leased Vehicle may be operated or registered or
in which title may be recorded.
BACK-UP SECURITY INTERESTS
The Contracts are "chattel paper" as defined in the UCC. Pursuant to
the California UCC, a non-possessory security interest in or transfer of
chattel paper in favor of the Titling Trust and the Transferor may be perfected
by filing a UCC-1 financing statement with the California Secretary of State.
On or prior to the Closing Date, "protective" UCC-1 financing statements will
be filed in the Trust States to effect this perfection. If the Certificates
were to be recharacterized as loans secured by the SUBI Assets, the Trustee
will be deemed to have a perfected security interest in certain SUBI Assets,
including the Contracts. The Trustee's security interest in that circumstance
could be subordinate to the interest of certain other parties, if any, who take
possession of the Contracts before the filing described above has been
completed. Specifically, the Trustee's security interest in a Contract could
be subordinate to the rights of a purchaser of such Contract who takes
possession thereof without knowledge or actual notice of the Trustee's security
interest. The Contracts will not be stamped to reflect the foregoing back-up
security arrangements.
Any perfected security interest of the Trustee in the Contracts will
be unaffected by any change of location of any lessee, since, under the UCC,
this back-up security interest will be perfected by the filing of a UCC-1
financing statement in the jurisdiction in which the chief executive office of
the "debtor" (in this case, the Titling Trust) is located, not the location of
any lessee.
VICARIOUS TORT LIABILITY
Although the Titling Trust will own the leased vehicles, they will be
operated by the lessees and their respective invitees. State laws differ as to
whether anyone suffering injury to person or property involving a leased
vehicle may bring an action against the owner of the vehicle merely by virtue
of that ownership. To the extent that applicable State law permits such an
action, the Titling Trust and the Titling Trust Assets may be subject to
liability to such an injured party.
For example, in California, under Section 17150 of the California
Vehicle Code, the owner of a motor vehicle subject to a lease is responsible
for injuries to persons or property resulting from the negligent or wrongful
operation of the vehicle by any person using the vehicle with the owner's
permission. The owner's liability for personal injuries is limited to $15,000
per person and $30,000 in total per accident and for property damage is limited
to $5,000 per accident. However, recourse for any judgment arising out of the
operation of the vehicle must first be had against the operator's property if
the operator is within the jurisdiction of the court. In Pennsylvania, there
is no cause of action against such an owner/lessor unless the owner/lessor has
negligently entrusted or continued to entrust the vehicle to an inappropriate
lessee.
The laws of most States, including the Trust States (other than
California), either do not permit such suits, or limit the lessor's liability
to the amount of any liability insurance that the lessee was required and
failed to
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maintain. Notwithstanding the foregoing, in the event that vicarious liability
is imposed on the Titling Trust as owner of a Leased Vehicle in a state that
does not so limit liability, and the coverage provided by the Contingent and
Excess Liability Insurance Policies is insufficient to cover such loss,
including in certain circumstances with respect to a leased vehicle that is an
Other SUBI Asset or a UTI Asset, investors in the Class A Certificates could
incur a loss on their investments.
The Titling Trust's insurance coverage is substantial. However, in
the event that all applicable insurance coverage were exhausted and damages
were assessed against the Titling Trust, claims could be imposed against the
Titling Trust Assets, including the Leased Vehicles. Such claims would not
take priority over any SUBI Assets to the extent that the Trustee has a prior
perfected security interest therein (such as would be the case, in certain
limited circumstances, with respect to the Contracts). If any such claims were
imposed against the Titling Trust Assets and the Trustee did not have a prior
perfected security interest, investors in the Class A Certificates could incur
a loss on their investment. See "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Back-up Security Interest in Certain SUBI
Assets".
REPOSSESSION OF LEASED VEHICLES
In the event that a default by a lessee has not been cured within a
certain period of time after notice, the Servicer will ordinarily retake
possession of the related leased vehicle. Some jurisdictions require that the
lessee be notified of the default and be given a time period within which to
cure the default prior to repossession. Generally, this right to cure may be
exercised on a limited number of occasions in any one-year period. In these
jurisdictions, if the lessee objects or raises a defense to repossession, an
order must be obtained from the appropriate state court, and the vehicle must
then be repossessed in accordance with that order. Other jurisdictions
(including California and Pennsylvania) permit repossession without notice, but
only if the repossession can be accomplished peacefully. If a breach of the
peace cannot be avoided, judicial action is required. If a breach of the
peace cannot be avoided, the lessor typically must seek a writ of possession or
replevin in a state court action or pursue other judicial action to repossess
such leased vehicle.
After the Servicer has repossessed a Leased Vehicle, it may provide
the lessee with a period of time within which to cure the default under the
related Contract. If by the end of such period the default has not been cured,
the Servicer will attempt to sell the Leased Vehicle. The Net Repossessed
Vehicle Proceeds therefrom may be less than the remaining amounts due under the
Contract at the time of default by the lessee.
DEFICIENCY JUDGMENTS
The proceeds of sale of a leased vehicle generally will be applied
first to the expenses of resale and repossession and then to the satisfaction
of the amounts due under the related lease contract. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale of a leased vehicle do not cover the full amounts due under the related
lease contract, a deficiency judgment can be sought in those states (including
each of the Trust States other than California and Pennsylvania) that do not
prohibit directly or limit such judgments. However, in some states (including
California and Pennsylvania), a lessee may be allowed an offsetting recovery
for any amount not recovered at resale because the terms of the resale were not
commercially reasonable. In any event, a deficiency judgment would be a
personal judgment against the lessee for the shortfall, and a defaulting lessee
might have little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment. Because it is a personal judgment against an obligor who
may have few if any assets remaining after the repossession, even if a
deficiency judgment is obtained, it may be settled at a significant discount or
it may prove impossible to collect all or any portion thereof.
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CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose
requirements upon lessors and servicers involved in consumer leasing. The
federal Consumer Leasing Act of 1976 and Regulation M, issued by the Board of
Governors of the Federal Reserve System, for example, require that a number of
disclosures be made at the time a vehicle is leased, including, among other
things, all amounts due at the time of origination of the lease, a description
of the lessee's liability at the end of the lease term, the amount of any
periodic payments, the circumstances under which the lessee may terminate the
lease prior to the end of the lease term and (beginning in October 1997) the
capitalized cost of the vehicle and a warning regarding possible charges for
early termination. The various consumer protection laws would apply to the
Titling Trust as a "co-lessor" of the Contracts and may also apply to the Trust
as holder of a beneficial interest in the Contracts. The failure to comply
with such consumer protection laws may give rise to liabilities on the part of
the Servicer, the Titling Trust and the Titling Trustee, including liabilities
for statutory damages and attorneys' fees. In addition, claims by the
Servicer, the Titling Trust and the Titling Trustee may be subject to set-off
as a result of such noncompliance.
Courts have applied general equitable principles in litigation
relating to repossession and deficiency balances. These equitable principles
may have the effect of relieving a lessee from some or all of the legal
consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of lessors violate the due process protection provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally
found that repossession and resale by a lessor do not involve sufficient state
action to afford constitutional protection to consumers.
Many states, including each of the Trust States, have adopted laws
(each, a "Lemon Law") providing redress to consumers who purchase or lease a
vehicle that remains out of conformance with its manufacturer's warranty after
a specified number of attempts to correct a problem or after a specific time
period. Should any Leased Vehicle become subject to a Lemon Law, a lessee
could compel the Titling Trust to terminate the related Contract and refund all
or a portion of payments that previously have been paid. Although the Titling
Trust may be able to assert a claim against the manufacturer of any such
defective Leased Vehicle, there can be no assurance any such claim would be
successful. To the extent a lessee is able to compel the Titling Trust to
terminate the related Contract, such Contract will be deemed to be a Liquidated
Contract and amounts received thereafter on such Contract will be deemed to be
Liquidation Proceeds. As noted below, TMCC will represent and warrant to the
Trustee as of the Initial Cutoff Date and as of each Subsequent Cutoff Date
that none of the Initial Leased Vehicles or the related Subsequent Leased
Vehicles, as the case may be, is out of compliance with any law, including any
Lemon Law. Nevertheless, there can be no assurance that one or more Leased
Vehicles will not become subject to return (and the related Contract
terminated) in the future under a Lemon Law.
Representations and warranties will be made in the Titling Trust
Agreement that each Contract complies with all requirements of law in all
material respects. If any such representation and warranty proves to be
incorrect with respect to any Contract, and is not timely cured, TMCC will be
required under the Servicing Agreement to deposit an amount equal to the
Reallocation Payment (together with, in certain circumstances during the
Amortization Period, an amount equal to the Reallocation Deposit Amount) in
respect of such Contract into the SUBI Collection Account unless the breach is
cured. See "Additional Document Provisions--The Titling Trust Agreement--The
SUBI, the Other SUBIs and the UTI" and "The Contracts--Representations,
Warranties and Covenants".
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OTHER LIMITATIONS
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including applicable Insolvency Laws, may
interfere with or affect the ability of a lessor to enforce its rights under an
automobile or light duty truck lease contract. For example, if a lessee
commences bankruptcy proceedings, the lessor's receipt of rental payments due
under the lease contract is likely to be delayed. In addition, a lessee who
commences bankruptcy proceedings might be able to assign the lease contract to
another party even though the lease prohibits assignment.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
Set forth below is a discussion representing the opinion of Andrews &
Kurth L.L.P., special federal income tax counsel to the Transferor, as to
material federal income tax consequences to holders of the Class A Certificates
who are original owners and who hold the Class A Certificates as capital assets
under the Internal Revenue Code of 1986, as amended (the "Code"). This
discussion does not purport to be complete or to deal with all aspects of
federal income taxation or any aspects of state or local taxation that may be
relevant to Class A Certificateholders or Certificate Owners in light of their
particular circumstances, nor to certain types of Class A Certificateholders or
Certificate Owners subject to special treatment under the federal income tax
laws (for example, banks and life insurance companies). This discussion is
based upon present provisions of the Code, the regulations promulgated
thereunder and judicial and ruling authorities, all of which are subject to
change, which change may be retroactive. The parties do not intend to seek a
ruling from the Internal Revenue Service ("IRS") on any of the issues discussed
below. Moreover, there can be no assurance that if such a ruling were sought,
the IRS would rule favorably. Taxpayers and preparers of tax returns
(including those filed by any partnership or other issuer) should be aware that
under applicable Treasury Regulations a provider of advice on specific issues
of law is not considered an income tax return preparer unless the advice is (i)
given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their respective tax advisors
and tax return preparers regarding the preparation of any item on a tax return,
even where the anticipated tax treatment has been discussed herein.
Prospective investors should consult their own tax advisors with regard to the
federal income tax consequences of the purchase, ownership or disposition of
the Class A Certificates, as well as the tax consequences arising under the
laws of any state, foreign country or other taxing jurisdiction.
CHARACTERIZATION OF THE CLASS A CERTIFICATES AS INDEBTEDNESS
The Transferor and the Trustee (by entering into the Agreement) and
each Certificateholder, and each Certificate Owner (by acquiring a beneficial
interest in a Class A Certificate) will express their intent that and will
agree to treat the Class A Certificates as indebtedness, secured by the assets
of the Trust, for all federal, state and local income and franchise tax
purposes. However, because different criteria are used to determine the
non-tax accounting characterization of the transaction, the Transferor will
treat the transfer of the SUBI to the Trust, for financial accounting purposes,
as a sale of an ownership interest in the Titling Trust Assets and not as the
issuance of a debt obligation.
In general, the characterization of a transaction for federal income
tax purposes is based upon economic substance, and the substance of the
transaction in which the Class A Certificates are issued is consistent with the
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treatment of the Class A Certificates as debt for federal income tax purposes.
Although there are certain judicial precedents holding that under appropriate
circumstances a taxpayer should be required to treat a transaction in
accordance with the form chosen by the taxpayer regardless of the transaction's
substance, the operative provisions of the transaction and the Agreement will
not be inconsistent with treating the Class A Certificates as debt and,
accordingly, these authorities should not be applied to require sale
characterization for federal income tax purposes. The determination of whether
the economic substance of a property transfer is a sale or a loan secured by
the transferred property depends upon numerous factors designed to determine
whether the transferor has relinquished (and the transferee has obtained)
substantial incidents of ownership in the property. The primary factors
examined are whether the transferee has the opportunity to gain if the property
increases in value, and has the risk of loss if the property decreases in
value. Based upon its analysis of such factors, Andrews & Kurth L.L.P. is of
the opinion that, for federal income tax purposes, the characterization of the
Class A Certificates should be governed by the substance of the transaction and
accordingly, (i) the Trust will not be treated as an association or a publicly
traded partnership taxable as a corporation and (ii) the Class A Certificates
will properly be characterized as indebtedness that is secured by the assets of
the Trust.
TAXATION OF INTEREST AND DISCOUNT INCOME
Assuming that the Certificate Owners are owners of debt obligations
for federal income tax purposes, interest generally will be taxable as ordinary
income for federal income tax purposes when received by the Certificate Owners
utilizing the cash method of accounting and when accrued by Certificate Owners
utilizing the accrual method of accounting. Interest received on the Class A
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
Original Issue Discount. Under regulations issued with respect to the
original issue discount ("OID") provisions of the Code, the Class A
Certificates will be deemed to have been issued with OID in an amount equal to
the excess of the "stated redemption price at maturity" of the Class A-1 or
Class A-2 Certificates, as the case may be (generally equal to their principal
amount as of the date of original issuance plus all interest other than
"qualified stated interest" payable prior to or at maturity), over their
original issue price (in this case, the initial offering price at which a
substantial amount of the related Class of Class A Certificates is sold to the
public). Qualified stated interest generally means interest payable at a
single fixed rate or qualified variable rate provided that such interest
payments are unconditionally payable at intervals of one year or less during
the entire term of the Class A-1 or Class A-2, as the case may be. Under the
OID provisions of the Code, interest will only be treated as qualified stated
interest if it is "unconditionally payable". Interest will be treated as
"unconditionally payable" only if Certificateholders have reasonable remedies
to compel payment of interest deficiencies (e.g., default and acceleration
rights). Because Class A Certificateholders will not be entitled to penalty
payments of interest on interest deficiencies, and Class A Certificateholders
will have no default and acceleration rights in the event of interest
shortfalls, interest paid on the Class A Certificates may not be treated by the
IRS as qualified stated interest, and, in such event, would be treated as OID.
A Class A Certificateholder must include OID income over the term of the
related Class A Certificate under a constant yield method. In general, OID
must be included in income in advance of the receipt of cash representing that
income, regardless of the Certificateholder's method of accounting.
The issue price of a Class A Certificate is the first price at which a
substantial amount of Class A Certificates are sold to the public (excluding
brokers, underwriters or wholesalers). If less than a substantial amount of a
particular Class of Class A Certificates is sold for cash on or prior to the
Closing Date, the issue price of such Class will be treated as the fair market
value of such Class on the Closing Date. The issue price of a Class A
Certificate also includes the amount paid by a Class A Certificateholder for
accrued interest that relates to a period prior to the issue date of the Class
A Certificate. The stated redemption price at maturity of a Class A
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Certificate includes the original principal amount of the Class A Certificate,
but generally will not include distributions of interest if such distributions
constitute "qualified stated interest."
Under the de minimis rule, OID on a Class A Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the Class A Certificate multiplied by the weighted average
maturity of the Class A Certificate. Certificateholders generally must report
de minimis OID pro rata as principal payments are received, and such income
will be capital gain if the Class A Certificate is held as a capital asset.
However, accrual method holders may elect to accrue all de minimis OID as well
as market discount under a constant interest method.
The holder of a Class A Certificate issued with OID must include in
gross income, for all days during its taxable year on which it holds such Class
A Certificate, the sum of the "daily portions" of such original issue discount.
The amount of OID includible in income by a Certificateholder will be computed
by allocating to each day during a taxable year a pro rata portion of the
original issue discount that accrued during the relevant accrual period. If a
Certificateholder purchases a Class A Certificate issued with OID at an
"acquisition premium" (i.e., at a price in excess of the adjusted issue price
of the Class A Certificate, but less than or equal to the "stated redemption
price at maturity"), the amount includible by such Certificateholder in income
in each taxable year as OID will be reduced by that portion of the premium
properly allocable to such year.
Although the matter is not entirely clear, the Transferor currently
intends to report all stated interest on the Class A Certificates as qualified
stated interest and not as OID.
Market Discount.
Certificate Owners should be aware that the resale of a Class A
Certificate may be affected by the market discount rules of the Code. These
rules generally provide that, subject to a de minimis exception, if a holder
acquires a Class A Certificate at a market discount (i.e., at a price below its
"adjusted issue price") and thereafter recognizes gain upon a disposition of
the Class A Certificate, the lesser of such gain or the portion of the market
discount that accrued while the Class A Certificate was held by such holder
will be treated as ordinary interest income realized at the time of the
disposition. A taxpayer may elect to include market discount currently in
gross income in taxable years to which it is attributable, computed using
either a ratable accrual or a yield to maturity method.
Premium.
A Certificate Owner who purchases a Class A Certificate for more than
its stated redemption price at maturity will be subject to the premium
amortization rules of the Code. Under those rules, the Certificate Owner may
elect to amortize such premium on a constant yield method. Amortizable premium
reduces interest income on the related Class A Certificate. If the Certificate
Owner does not make such an election, the premium paid for the Class A
Certificate generally will be included in the tax basis of the Class A
Certificate in determining the gain or loss on its disposition.
Each Certificate Owner should consult his own tax advisor regarding
the impact of the original issue discount, market discount, and premium
amortization rules.
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SALES OF CLASS A CERTIFICATES
In general, a Certificate Owner will recognize gain or loss upon the
sale, exchange, redemption or other taxable disposition of a Class A
Certificate measured by the difference between (i) the amount of cash and the
fair market value of any property received (other than amounts attributable to,
and taxable as, accrued stated interest) and (ii) the Certificate Owner's tax
basis in the Class A Certificate (as increased by any OID or market discount
previously included in income by the holder and decreased by any deductions
previously allowed for amortizable bond premium and by any payments, other than
qualified stated interest payments, received with respect to such Class A
Certificate). Subject to the market discount rules discussed above and to the
more than one-year holding period requirement for long-term capital gain
treatment, any such gain or loss generally will be long-term capital gain or
loss, provided that the Class A Certificate was held as a capital asset. The
federal income tax rates applicable to capital gains for taxpayers other than
individuals, estates and trusts are currently the same as those applicable to
ordinary income; however, the maximum ordinary income rate for individuals,
estates and trusts is generally 39.6%, whereas the maximum long-term capital
gains rate for such taxpayers is 28%. Moreover, capital losses generally may
be used only to offset capital gains.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of investors that are not United States persons ("Foreign
Investors") if the Class A Certificates are treated as debt. The term "Foreign
Investor" means any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any state or political subdivision thereof, or
(iii) an estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source or (iv) a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States fiduciaries who have authority to
control all substantial decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The Class A
Certificates will be issued in registered form; therefore, if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Class A Certificates.
For the Class A Certificates to constitute portfolio debt investments
exempt from United States withholding tax, the withholding agent must receive
from the Certificate Owner an executed IRS Form W-8 signed under penalty of
perjury by the Certificate Owner stating that the Certificate Owner is a
Foreign Investor and providing such Certificate Owner's name and address. The
statement must be received by the withholding agent in the calendar year in
which the interest payment is made, or in either of the two preceding calendar
years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on the
sale, exchange or redemption of such Class A Certificate, provided that (i)
such gain is not effectively connected with a trade or business carried on by
the Certificate Owner in the United States, (ii) in the case of a Certificate
Owner that is an individual, such Certificate Owner is not present in the
United States for 183 days or more during the taxable year in which such sale,
exchange or redemption occurs and
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(iii) in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
BACKUP WITHHOLDING
A Certificate Owner may be subject to a backup withholding at the rate
of 31% with respect to interest paid on the Class A Certificates if the
Certificate Owner, upon issuance, fails to supply the Trustee or his broker
with such Certificate Owner's taxpayer identification number, fails to report
interest, dividends or other "reportable payments" (as defined in the Code)
properly, or under certain circumstances, fails to provide the Trustee or his
broker with a certified statement, under penalty of perjury, that such
Certificate Owner is not subject to backup withholding. Information returns
will be sent annually to the IRS and to each Certificate Owner setting forth
the amount of interest paid on the Class A Certificates and the amount of tax
withheld thereon.
POSSIBLE ALTERNATIVE TREATMENT OF THE CLASS A CERTIFICATES
Although, as described above, it is the opinion of Andrews & Kurth
L.L.P. that the Class A Certificates will properly be characterized as debt for
federal income tax purposes, such opinion will not be binding on the IRS and
thus no assurance can be given that such a characterization shall prevail. If
the IRS were to contend successfully that the Class A Certificates did not
represent debt for federal income tax purposes, certain adverse tax
consequences to the Class A Certificateholders could result. For example, the
Trust generally should be required to pay corporate income tax on its taxable
income (thus reducing the cash available to make payments on the Class A
Certificates). In addition, income to certain tax-exempt entities (including
pension funds) generally should be "unrelated business taxable income", and
income to foreign holders generally should be subject to U.S. withholding tax
and reporting requirements. Prospective investors are advised to consult with
their own tax advisors regarding the federal income tax consequences of the
purchase, ownership and disposition of the Class A Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit pension, profit
sharing or other employee benefit plans ("Benefit Plans") from engaging in
certain transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plans.
ERISA also imposes certain duties on persons who are fiduciaries of Benefit
Plans subject to ERISA. Under ERISA, any person who exercises any authority or
control with respect to the management or disposition of the assets of a
Benefit Plan is considered to be a fiduciary of such Benefit Plan (subject to
certain exceptions not here relevant). A violation of these "prohibited
transaction" rules may result in liability under ERISA and the Code for such
persons.
Neither ERISA nor the Code defines the terms "plan assets". Under
Section 2510.3-101 of the United States Department of Labor ("DOL") regulations
(the "Regulation"), a Plan's assets may include an interest in the underlying
assets of an entity (such as a trust) for certain purposes, including the
prohibited transaction provisions of ERISA and the Code, if the Plan acquires
an "equity interest" in such entity. The Transferor believes that the
Certificates will give Certificateholders an equity interest in the Trust for
purposes of the Regulation. Under the Regulation, when a Plan acquires an
equity interest that is neither a "publicly offered security" nor a security
issued by an investment company registered under the Investment Company Act of
1940, the underlying assets of the entity will be considered "plan assets"
unless the entity is an "operating company" or equity participation in the
entity by benefit plan investors is not "significant".
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A "publicly-offered security" is a security that is (a) freely
transferable, (b) part of a class of securities that is owned, immediately
subsequent to the initial offering, by 100 or more investors who were
independent of the issuer and of one another ("Independent Investors") and (c)
either is (i) part of a class of securities registered under section 12(b) or
12(g) of the Exchange Act, or (ii) 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. For
purposes of the 100 Independent Investor criterion, each Class of Certificates
should be deemed to be a "class" of securities that would be tested separately
from any other securities that may be issued by the Trust. Except to the
extent otherwise disclosed herein, it is anticipated that the Class A-1 and
Class A-2 Certificates will meet the foregoing criteria for treatment as
"public-offered securities." No restrictions will be imposed on the transfer
of the Class A-1 or Class A-2 Certificates. Except to the extent otherwise
disclosed, the Transferor expects that the Class A-1 and Class A-2 Certificates
will be held by at least 100 Independent Investors at the conclusion of the
initial public offering although no assurance can be given, and no monitoring
or other measures will be taken to ensure, that such condition is met. The
Class A-1 and Class A-2 Certificates will be sold as part of an offering
pursuant to an effective registration statement under the Act and then will be
timely registered under the Exchange Act.
Equity participation in an entity by "benefit plan investors" (i.e.,
Plans and other employee benefit plans no subject to ERISA, such as
governmental or foreign plans, as well as entities holding assets deemed to be
"plan assets") is not "significant" on any date on which any series of
certificates is issued and outstanding if, immediately after the most recent
acquisition of any equity interest therein, less than 25% of the value of each
class of equity interests therein (excluding interests held by the related
transferor, the trustee or their affiliates in the case of a trust) is held by
benefit plan investors. No assurance can be given by the Transferor as to
whether the value of each Class of Certificates that might be deemed to be
equity interests in the Trust held by benefit plan investors will be
"significant" upon completion of the offering of any Certificates or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions to this exception.
TMCC, on behalf of itself and certain of its affiliates (including the
Transferor), has applied to the DOL for an administrative exemption (the
"Requested Exemption") from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the subsequent
resale by Benefit Plans of certificates similar to the Class A Certificates.
There can be no assurance that the Requested Exemption will be granted or that,
if granted, it will be made retroactive through the date of the issuance of the
Class A Certificates. Should the Requested Exemption be granted, it would
apply to the acquisition, holding and resale by Benefit Plans of the Class A
Certificates provided that specified conditions (including those described
below) are met. The Transferor believes that all conditions of the Requested
Exemption other than those within the control of the investors have or will be
met.
For the Requested Exemption to apply to the acquisition by a Benefit
Plan of Class A Certificates, the Class A Certificates would be required to be
offered and sold initially to the public (including Benefit Plans) pursuant to
an underwriting arrangement with one or more underwriters which have received
one of a group of administrative exemptions from certain of the prohibited
transaction rules of ERISA. Such exemptions apply with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing
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interests in asset backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of such exemption. The DOL has granted such an administrative
exemption to one of the underwriters (Prohibited Transaction Exemption 90-25;
Exemption Application No. D-8102, 55 Fed. Reg. 42597 (1990), as amended).
Among the other conditions that are required to be satisfied for the
Exemption to apply to the acquisition by a Benefit Plan of the Class A
Certificates are the following (each of which the Transferor believes has been
or will be met in connection with the Class A Certificates):
(i) The acquisition of the Class A Certificates by a
Benefit Plan is on terms (including the price for the Class A
Certificates) that are at least as favorable to the Benefit Plan as
they would be in an arm's length transaction with an unrelated party.
(ii) The rights and interests evidenced by the Class A
Certificates acquired by the Benefit Plan are not subordinated to the
rights and interests evidenced by any other Class of Certificates, and
the rights and interests evidenced by the SUBI Interest are not
subordinated to the rights and interests evidenced by Other SUBI
Certificates or UTI Certificates.
(iii) The Class A Certificates acquired by the Benefit Plan
have received a rating at the time of such acquisition that is in one
of the three highest generic rating categories from Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch
Investors Service, Inc. ("Fitch").
(iv) The sum of all payments made to the Underwriters in
connection with the distribution of the Class A Certificates
represents not more than reasonable compensation for underwriting the
Class A Certificates. The sum of all payments made to and retained by
the Transferor pursuant to the sale of the SUBI Interest to the Trust
represents not more than the fair market value of the interest in the
Contracts and Leased Vehicles represented thereby. The sum of all
payments made to and retained by the Servicer with regard to the SUBI
Assets represents not more than reasonable compensation for the
Servicer's services under the Servicing Agreement and reimbursement of
the Servicer's reasonable expenses in connection therewith.
(v) The Revolving Period ends no more than 15 consecutive
months from the Closing Date and (A) all Subsequent Contracts meet the
same terms and conditions for eligibility as the Initial Contracts,
and (B) the addition of Subsequent Contracts does not result in the
reduction of the ratings on the Class A Certificates received from any
of Moody's, Standard & Poor's, Duff & Phelps or Fitch.
(vi) After the Revolving Period ends, the average Lease
Rate for the Contracts included in the SUBI Assets shall not be more
than 200 basis points greater than the average Lease Rate for the
Initial Contracts.
(vii) Principal Collections that are reinvested in
Subsequent Contracts during the Revolving Period are first invested in
an eligible lease contract with the earliest origination date, then in
an eligible lease contract with the next earliest origination date and
so forth, beginning with the lease contracts that have been reserved
specifically for such purpose at the time of the initial allocation of
lease contracts to the SUBI, but excluding those specific lease
contracts reserved for allocation to or allocated to Other SUBIs.
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In addition, it is a condition that the Benefit Plan investing in the
Class A Certificates be an "accredited investor" as defined in Rule 501(a)(1)
of Regulation D of the Commission under the Securities Act.
The Requested Exemption would not apply to Benefit Plans sponsored by
the Transferor, the Underwriters, the Trustee, the Servicer, any lessee with
respect to Contracts allocated to the SUBI Assets constituting more than 5% of
the aggregate unamortized principal balance of the SUBI Assets, or any
affiliate of such parties (the "Restricted Group"). As of the date hereof, no
lessee with respect to the Contracts allocated to the SUBI Assets constitutes
more than 5% of the aggregate unamortized principal balance of the Trust (i.e.,
more than 5% of the Aggregate Net Investment Value as of the Initial Cutoff
Date). Moreover, the Requested Exemption would provide relief for sales,
exchanges or transfers between a Benefit Plan and the underwriter or sponsor
with discretionary investment authority over such Benefit Plan's assets, from
certain self-dealing/conflict of interest prohibited transactions, only if,
among other requirements, (i) a Benefit Plan's investment in the Class A
Certificates does not exceed 25% of all of the Class A Certificates outstanding
at the time of the acquisition, and (ii) immediately after the acquisition, no
more than 25% of the assets of a Benefit Plan with respect to which the person
who has discretionary authority or renders investment advice are invested in
Class A Certificates representing an interest in a trust containing assets sold
or serviced by the same entity.
Due to the complexities of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is important that the fiduciary
of a Benefit Plan considering the purchase of Class A Certificates consult with
its counsel regarding the grant and applicability of the Requested Exemption
and the prohibited transaction provisions of ERISA and the Code to such
investment. Moreover, each Benefit Plan fiduciary should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Class A Certificates is appropriate for
the Benefit Plan, taking into account the overall investment policy of the
Benefit Plan and the composition of the Benefit Plan's investment portfolio.
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UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement datedo, 1997 (the "Underwriting Agreement"), among the
Transferor, TMCC, o, o and o (the "Underwriters"), the Transferor has agreed to
sell to the Underwriters, and the Underwriters have agreed to purchase from the
Transferor, severally but not jointly, the following respective principal
amounts of Class A-1 and Class A-2 Certificates:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF CLASS PRINCIPAL AMOUNT OF CLASS
UNDERWRITER A-1 CERTIFICATES A-2 CERTIFICATES
<S> <C> <C>
o . . . . . . . . . . . . . . . . . . . . . . . . . $o $o
o . . . . . . . . . . . . . . . . . . . . . . . . . $o $o
o . . . . . . . . . . . . . . . . . . . . . . . . . $o $o
Total . . . . . . . . . . . . . . . . . . $o $o
</TABLE>
In the Underwriting Agreement the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the Class A
Certificates if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriter may be increased or the
Underwriting Agreement may be terminated.
The Transferor has been advised by the Underwriters that they propose
to offer the Class A-1 and Class A-2 Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus and
to certain dealers at such prices less a concession of o% and o% of the
principal amount per Class A-1 Certificate and Class A-2 Certificate,
respectively, and that the Underwriters and such dealers may allow a discount
of o% and o% of such principal amount per Class A-1 Certificate and Class A-2
Certificate, respectively, on sales to certain other dealers. After the
initial public offering, the public offering price and concessions and
discounts to dealers may be changed by the Underwriters.
The Transferor and TMCC have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act.
The Class A Certificates are a new issue of securities with no
established trading markets. The Transferor has been advised by the
Underwriters that the Underwriters intend to make a market in each Class of
Class A Certificates, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in either Class of
Class A Certificates and any such market-making may be discontinued at any time
at the sole discretion of the Underwriters without notice. Accordingly, no
assurance can be given as to the liquidity of or trading markets for either
Class of Class A Certificates.
The Underwriters have advised the Transferor that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids and syndicate
covering transactions, which may have the effect of stabilizing or maintaining
the market price of the Class A-1 and/or Class A-2 Certificates at levels above
those that might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Class A-1 and/or Class A-2 Certificates on
behalf of the Underwriters for the purpose of fixing or maintaining the price
of such Certificates. A "syndicate covering transaction" is the bid
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<PAGE> 98
for or the purchase of Class A-1 or Class A-2 Certificates on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with this offering.
Stabilizing bids and syndicate covering transactions may have the
effect of causing the price of the Class A Certificates of either Class to be
higher than it might be in the absence thereof. Neither the Transferor nor the
Underwriters makes any representation or prediction as to the direction or
magnitude of any such effect on the prices for the Certificates. Neither the
Transferor nor the Underwriters makes any representation that the Underwriters
will engage in any such transactions or that, once commenced, any such
transactions will not be discontinued without notice.
The Trust may, from time to time, invest the funds in the Accounts in
Permitted Investments acquired from one or more of the Underwriters or the
Servicer.
It is expected that delivery of the Class A Certificates will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of this Prospectus, which is the o business day following the
date hereof. Under Rule 15c6-1 of the Commission under the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade Class A Certificates on the date
hereof will be required, by virtue of the fact that the Class A Certificates
initially will settle o business days after the date hereof, to specify an
alternate settlement cycle at the time of any such trade to prevent a failed
settlement.
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus, the Transferor or the Underwriters will promptly deliver, or
cause to be delivered, without charge, a paper copy of the Prospectus.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Certificates in Canada is being made
only on a private placement basis exempt from the requirement that the
Transferor prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the Class A Certificates are
effected. Accordingly, any resale of the Class A Certificates in Canada must
be made in accordance with applicable securities laws which will vary depending
on the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Class A
Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Certificates in Canada who receives a
purchase confirmation will be deemed to represent to the Transferor and the
dealer from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such Class
A Certificates without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions".
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<PAGE> 99
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of foreign issuers and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liabilities provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts
named herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada. Following a recent decision of the U.S. Supreme
Court, it is possible that Ontario purchasers will not be able to rely upon the
remedies set out in Section 12(2) of the Securities Act if the securities are
being offered under a U.S. private placement memorandum.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Certificates to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any Class A Certificates acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from the Transferor. Only one such report must be filed in respect of Class A
Certificates acquired on the same date and under the same prospectus exemption.
RATINGS OF THE CLASS A CERTIFICATES
It is a condition of issuance that each of Moody's and Standard &
Poor's rates each Class of Class A Certificates in its highest rating category.
The ratings of the Class A Certificates will be based primarily upon the value
of the Initial Contracts, the Reserve Fund and the terms of the Transferor
Interest and the Class B Certificates. There is no assurance that any such
rating will not be lowered or withdrawn by the assigning Rating Agency if, in
its judgment, circumstances so warrant. In the event that a rating with
respect to any Class of Class A Certificates is qualified, reduced or
withdrawn, no person or entity will be obligated to provide any additional
credit enhancement with respect to such Class of Class A Certificates.
The ratings of the Class A Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold the related Class A Certificates,
inasmuch as such rating does not comment as to market price or suitability for
a particular investor. The ratings of each Class of Class A Certificates
addresses the likelihood of the payment of principal of and interest on such
Certificates pursuant to their terms.
There can be no assurance as to whether any rating agency other than
Moody's and Standard & Poor's will rate the Class A Certificates, or, if one
does, what rating will be assigned by such other rating agency. A rating on
any Class of Class A Certificates by another rating agency, if assigned at all,
may be lower than the ratings assigned to such Class A Certificates by each of
Moody's and Standard & Poor's.
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<PAGE> 100
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters,
with respect to the Class A Certificates will be passed upon for the Transferor
by Andrews & Kurth L.L.P., Los Angeles, California. Certain other legal
matters will be passed upon for the Transferor with respect to California,
Florida, Michigan, Ohio and Pennsylvania law, by Hudson Cook LLP, Crofton,
Maryland. Brown & Wood LLP, New York, New York will act as counsel for the
Underwriters and has performed certain legal services for TMCC in connection
with the Titling Trust.
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<PAGE> 101
INDEX OF CAPITALIZED TERMS
<TABLE>
<S> <C>
Accelerated Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Additional Loss Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Additional Loss Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Agency Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Aggregate Net Investment Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Aggregate Net Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 1
Amortization Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Capped Contingent and Excess Liability Premiums . . . . . . . . . . . . . . . . . . . . . . 49
Capped Origination Trust Administrative Expenses . . . . . . . . . . . . . . . . . . . . . 49
Capped Trust Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Cedel Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Certificate Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Certificate Principal Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Certificate Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Charge-off Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Charged-off Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Charged-off Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Class A Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Class A Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class A-1 Certificate Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Class A-1 Certificate Principal Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . 48
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Class A-1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class A-1 Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class A-1 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class A-2 Certificate Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Class A-2 Certificate Principal Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . 48
Class A-2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Class A-2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class A-2 Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class A-2 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class B Allocation Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class B Certificate Principal Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . 49
Class B Certificate Principal Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . 48
Class B Certificate Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Class B Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
</TABLE>
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<PAGE> 102
<TABLE>
<S> <C>
Class B Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class B Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class B Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Contingent and Excess Liability Insurance Policies . . . . . . . . . . . . . . . . . . . . 63
Contract Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Current Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Deferral Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Delinquency Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Deposit Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Discounted Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Discounted Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, 5
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Early Amortization Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 87
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 58
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Events of Servicing Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Excess Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
First Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
First Principal Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Five States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Indirect DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Initial Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Initial Class A Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Initial Class A-1 Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Initial Class A-2 Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Initial Class B Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Initial Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Initial Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Insolvency Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Interest Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investor Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 103
<TABLE>
<S> <C>
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lemon Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Liquidated Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Loss Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 45
Matured Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Matured Leased Vehicle Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Matured Leased Vehicle Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Matured Leased Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Monthly Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Net Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Net Matured Leased Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Net Repossessed Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Origination Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Other SUBI Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Other SUBI Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other SUBIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Outstanding Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Payment Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Payoff Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Principal Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Principal Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Realized Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Reallocation Deposit Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Reallocation Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Repossessed Vehicle Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Repossessed Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Required Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Residual Value Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Residual Value Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule of Contracts and Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . 38
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Servicing Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Specified Reserve Fund Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Standard & Poor's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
97
<PAGE> 104
<TABLE>
<S> <C>
SUBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 1
SUBI Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SUBI Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SUBI Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SUBI Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Subsequent Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Titling Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Titling Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Titling Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Titling Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TMCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 26
TMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Transferor Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Transferor Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Transferor Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Trust Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Unallocated Principal Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Uncapped Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
UTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
UTI Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
UTI Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Voting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
98
<PAGE> 105
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class
A-1 Certificates (the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through DTC, Cedel Bank or Euroclear. The Global Securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Cedel Bank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedure applicable to U.S.
corporate debt obligations and prior asset-backed securities issues. Secondary
cross-market trading between Cedel Bank or Euroclear and DTC Participants
holding securities will be effected on a delivery-against-payment basis through
the Relevant Depositaries of Cedel Bank and Euroclear (in such capacity) and as
DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel Bank and
Euroclear will hold positions on behalf of their participants through their
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practice. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date. Investors electing to hold their Global Securities through
Cedel Bank or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will
be credited to securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Cedel Bank and/or Euroclear Participants. Secondary
market trading between Cedel Bank Participants or Euroclear Participants will
be settled using the Procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC Seller and Cedel Bank or Euroclear Participants.
When Global Securities are to be transferred from the account of a DTC
Participant to the account of a Cedel Bank Participant or a Euroclear
Participant, the purchaser will send instructions to Cedel Bank or Euroclear
through a Cedel Bank Participant or Euroclear Participant at least one business
day prior to settlement. Cedel Bank or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date,
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<PAGE> 106
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Bank Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and
the cash debt will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel Bank or Euroclear cash
debt will be valued instead as of the actual settlement date.
Cedel Bank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel Bank or Euroclear. Under
this approach, they may take on credit exposure to Cedel Bank or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line of
credit to them, Cedel Bank Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Bank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they clear the overdraft when the Global Securities are credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend
on each Cedel Bank Participants or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of Cedel Bank
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Cedel Bank or Euroclear Seller and DTC Purchaser. Due
to time zone differences in their favor, Cedel Bank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel Bank or Euroclear through a Cedel Bank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Cedel Bank or Euroclear will instruct the Relevant Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in
the account of the Cedel Bank Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Cedel Bank Participant's
or Euroclear Participant's account would be back-valued to the value date
(which would be the preceding day, when settlement occurred in New York).
Should the Cedel Bank Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Bank Participant's or Euroclear Participant's
account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel Bank or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Cedel Bank
Participants or Euroclear Participants should note that these trades would
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<PAGE> 107
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing though Cedel Bank or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel Bank or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel Bank or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Bank
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel Bank or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are Non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Certificate Owners or their
agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner
of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person though whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years, and Form 4224 is effective for one calendar year.
As used in the foregoing discussion, the term "U.S. Person" means (i)
a citizen or resident of the United States, (ii) a corporation or partnership
organized in or under the laws of the United States or any political
subdivision thereof or (iii) an estate or trust that is subject to United
States federal income tax, regardless of the source of its income. The term
"Non-U.S. Person" means any person who is not a U.S. Person. This summary
does not deal
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<PAGE> 108
with all aspects of U.S. federal income tax withholding that may be relevant to
foreign holders of Global Securities. Investors are advised to consult their
own tax advisors for specific tax advice concerning their holding and disposing
of Global Securities.
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<PAGE> 109
<TABLE>
<S> <C>
- ---------------------------------------------------------- ----------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR [LOGO ]
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY TOYOTA AUTO LEASE TRUST 1997-A
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME $o
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE SELLER SINCE SUCH DATE.
$o o% Auto Lease
Asset Backed Certificates, Class A-1
-----------------------------------------
$o o% Auto Lease
TABLE OF CONTENTS Asset Backed Certificates, Class A-2
------------------
Page
----
Available Information . . . . . . . . . . . . . . . iii
Reports to Certificateholders . . . . . . . . . . . . iii TOYOTA LEASING, INC.
Summary . . . . . . . . . . . . . . . . . . . . . . . . 1 Seller
Risk Factors . . . . . . . . . . . . . . . . . . . . . 17
The Trust and the SUBI . . . . . . . . . . . . . . . . 23
The Titling Trust . . . . . . . . . . . . . . . . . . . 24 TOYOTA MOTOR CREDIT CORPORATION
Use of Proceeds . . . . . . . . . . . . . . . . . . . 26 Servicer
The Transferor . . . . . . . . . . . . . . . . . . . . 26
TMCC . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Contracts . . . . . . . . . . . . . . . . . . . . 32
Maturity, Prepayment and Yield Considerations . . . . 39
Class A Certificate Factors and Trading Information;
Reports to Class A Certificateholders . . . . . . . . 43 PROSPECTUS
Description of the Certificates . . . . . . . . . . . 44
Assets of the Trust . . . . . . . . . . . . . . . . . . 59
Additional Document Provisions . . . . . . . . . . . . 64
Certain Legal Aspects of the Titling Trust . . . . . . 77
Certain Legal Aspects of the Contracts and the [Underwriters]
Leased Vehicles . . . . . . . . . . . . . . . . . . . 80
Certain Federal Income Tax Considerations . . . . . . 83
ERISA Considerations . . . . . . . . . . . . . . . . . 87 o, 1997
Underwriting . . . . . . . . . . . . . . . . . . . . . 91
Notice to Canadian Residents . . . . . . . . . . . . . 92
Ratings of the Class A Certificates . . . . . . . . . 93
Legal Matters . . . . . . . . . . . . . . . . . . . . 94
Index of Capitalized Terms . . . . . . . . . . . . . . 96
Global Clearance, Settlement and Tax
Documentation Procedures . . . . . . . . . . . . . A-1
- ---------------------------------------------------------- ----------------------------------------------------------
</TABLE>
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Payment.
Expenses in connection with the offering of the Class A Certificates
being registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . $ 303.04
Legal fees and expenses . . . . . . . . . . . o
Accounting fees and expenses . . . . . . . . . o
Blue sky fees and expenses . . . . . . . . . . o
Rating agency fees . . . . . . . . . . . . . . o
Trustee fees and expenses . . . . . . . . . . o
Printing . . . . . . . . . . . . . . . . . . . o
Miscellaneous . . . . . . . . . . . . . . . . o
Total . . . . . . . . . . . . . . . . $ 303.04
==========
</TABLE>
ITEM 14. Indemnification of Directors and Officers.
Not applicable.
ITEM 15. Recent Sales of Unregistered Securities.
Not applicable.
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<PAGE> 111
ITEM 16. Exhibits and Financial Statement Schedules.
a. Exhibits:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of Toyota Leasing, Inc.*
3.2 Bylaws of Toyota Leasing, Inc.*
4.1 Form of Securitization Trust Agreement between Toyota Leasing, Inc. and o, as Trustee
(including forms of Class A Certificates)*
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to federal income tax matters*
10.1 Amended and Restated Trust and Servicing Agreement among Toyota Motor Credit
Corporation ("TMCC"), TMTT, Inc., as Trustee and o, as Trust Agent, dated as of
October 1, 1996*
10.2 UTI Supplement to Amended and Restated Trust and Servicing Agreement among TMCC,
TMTT, Inc., as Trustee, and o, as Trust Agent, dated October 1, 1996
(including form of UTI Certificate)*
10.3 Form of SUBI Supplement 1997-A to Amended and Restated Trust Agreement among TMCC,
TMTT, Inc., as Trustee and o, as Trust Agent (including form of SUBI Certificate)
dated o, 1997*
10.4 Servicing Supplement to Amended and Restated Trust and Servicing Agreement
between TMTT, Inc. and TMCC, dated as of o, 1997*
10.5 Administration Agreement among TMCC, TMTT, Inc., as Trustee, and o, as Trust Agent,
dated o, 1997*
10.6 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and Toyota Leasing,
Inc., dated as of o, 1997*
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1)
24.1 Power of Attorney* *
</TABLE>
__________________________
* To be filed by amendment
** Included on page II-4
b. Financial Statement Schedules:
Not applicable.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing date
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to provide prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the
II-2
<PAGE> 112
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
(c) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus will be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time will be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Torrance and State of California, on the 8 day
of May, 1997.
TOYOTA AUTO LEASE TRUST 1997-A
By: TOYOTA LEASING, INC., solely as originator
of Toyota Auto Lease Trust 1997-A
By: /s/ GREGORY WILLIS
--------------------------------------
Gregory Willis, Director and President
Each person whose signature appears below hereby constitutes Gregory
Willis, Jerome Lienhard and Dian D. Ogilvie and each of them, his true and
lawful attorney-in-fact and agent, with full powers of substitution, for him
and in his name, place and stead, in any and all capacities, to sign and to
file any and all amendments, including post-effective amendments, to this
registration statement with the Securities and Exchange Commission, granting to
said attorney-in-fact full power and authority to perform any other act on
behalf of the undersigned required to be done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gregory Willis Director and Principal May o, 1997
- ---------------------------------------- Executive Officer of
Gregory Willis Toyota Leasing, Inc.
/s/ Nobu Shigemi Director and Principal May o, 1997
- ---------------------------------------- Financial Officer and
Nobu Shigemi Principal Accounting Officer
of Toyota Leasing, Inc.
/s/ William Latham, III Director of Toyota May o, 1997
- ---------------------------------------- Leasing, Inc.
William Latham, III
</TABLE>
II-4
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Description Numbered Page
------- ----------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of Toyota Leasing, Inc.*
3.2 Bylaws of Toyota Leasing, Inc.*
4.1 Form of Securitization Trust Agreement between Toyota Leasing, Inc. and o, as
Trustee (including forms of Class A Certificates)*
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to federal income tax matters*
10.1 Amended and Restated Trust and Servicing Agreement among Toyota Motor
Credit Corporation ("TMCC"), TMTT, Inc., as Trustee and o, as Trust Agent,
dated as of October 1, 1996*
10.2 UTI Supplement to Amended and Restated Trust and Servicing Agreement
among TMCC, TMTT, Inc., as Trustee, and o, as Trust Agent, dated October 1,
1996 (including form of UTI Certificate)*
10.3 Form of SUBI Supplement 1997-A to Amended and Restated Trust Agreement
among TMCC, TMTT, Inc., as Trustee and o, as Trust Agent (including form
of SUBI Certificate) dated o, 1997*
10.4 Servicing Supplement to Amended and Restated Trust and Servicing Agreement
between TMTT, Inc. and TMCC, dated as of o, 1997*
10.5 Administration Agreement among TMCC, TMTT, Inc., as Trustee, and o, as
Trust Agent, dated o, 1997*
10.6 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and
Toyota Leasing, Inc., dated as of o, 1997*
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1)
24.1 Power of Attorney* *
</TABLE>
__________________________
* To be filed by amendment
** Included on page II-4
II-5
