PROSPECTUS
$1,469,660,000
Asset Backed Senior Notes
BMW Vehicle Lease Trust 2000-A
Issuer
BMW Auto Leasing LLC
Transferor
BMW Financial Services NA, LLC
Servicer
----------
The trust's main sources for payment of the senior notes will be lease payments
generated by a portfolio of retail lease contracts and the proceeds from the
sale of the BMW automobiles leased under those contracts.
Interest and principal will be payable monthly and the first payment date is
November 27, 2000.
BEFORE YOU DECIDE TO INVEST, READ THIS PROSPECTUS CAREFULLY, ESPECIALLY THE RISK
FACTORS BEGINNING ON PAGE 10.
The senior notes are obligations of the trust only. The senior notes are not
obligations of BMW Auto Leasing LLC, BMW Financial Services NA, LLC or any of
their affiliates.
The trust will issue the following classes of senior notes--
<TABLE>
<CAPTION>
ORIGINAL INTEREST FINAL
PRINCIPAL RATE SCHEDULED PRICE UNDERWRITING PROCEEDS TO
AMOUNT (PER ANNUM) PAYMENT DATE TO PUBLIC DISCOUNT TRANSFEROR
-------------- ----------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Class A-1 Note ..... $ 180,000,000 6.67375% October 2001 100.00000% 0.080% 99.92000%
Per Class A-2 Note ..... $ 600,000,000 6.65% February 2002 99.99742% 0.150% 99.84742%
Per Class A-3 Note ..... $ 300,000,000 6.64% May 2003 99.99772% 0.170% 99.82772%
Per Class A-4 Note ..... $ 389,660,000 6.67% October 2003 99.99686% 0.195% 99.80186%
Total ............ $1,469,660,000
</TABLE>
o The price to the public and proceeds to the transferor do not include
interest accrued from the date the senior notes will be issued.
o The proceeds to the transferor excludes expenses, estimated at
approximately $1,612,000.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS
ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.
----------
Salomon Smith Barney
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Chase Securities Inc.
November 2, 2000
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
CONTENT OF PROSPECTUS
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with different information.
We include cross-references in this prospectus to the captions under which
you can find additional related information. The following table of contents
lists the pages on which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under "Index of Principal Terms" beginning on page 88.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
o if used in a jurisdiction in which an offer or solicitation is not
authorized;
o if the person making an offer or solicitation is not qualified to do
so; or
o if an offer or solicitation is made to anyone to whom it is unlawful
to make an offer or solicitation.
DEALER PROSPECTUS DELIVERY REQUIREMENTS
For 90 days after the date of this prospectus, all dealers that effect
transactions in the senior notes, whether or not participating in this offering,
may be required to deliver a prospectus. This requirement is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters with
respect to their unsold allotments or subscriptions.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
OVERVIEW OF TRANSACTION .............................................. 4
SUMMARY .............................................................. 5
RISK FACTORS ....................................................... 10
OVERVIEW OF THE TRANSACTION .......................................... 15
USE OF PROCEEDS ...................................................... 18
THE VEHICLE TRUST .................................................... 18
General ............................................................ 18
The UTI Beneficiary ................................................ 19
The Vehicle Trustee ................................................ 19
Property of the Vehicle Trust ...................................... 19
Lease Origination and the Titling of
Leased Vehicles .................................................. 20
THE SUBIs ............................................................ 20
General ............................................................ 20
Transfers of the SUBI Certificates ................................. 21
THE TRANSFEROR ....................................................... 22
BMW FS ............................................................... 22
BMW FS' LEASE FINANCING PROGRAM ...................................... 22
General ............................................................ 22
Underwriting ....................................................... 22
Servicing .......................................................... 24
Physical Damage and Liability Insurance ............................ 24
Leased Vehicle Maintenance ......................................... 24
End of Lease Term; Vehicle Disposition ............................. 24
Residual Values .................................................... 26
Calculation of the Securitization Value of
the Specified Leases ............................................. 26
Delinquency Experience ............................................. 27
Net Credit Loss and Repossession
Experience ....................................................... 27
Residual Value Loss Performance .................................... 28
THE SPECIFIED LEASES ................................................. 29
General ............................................................ 29
Characteristics .................................................... 30
Representations, Warranties and Covenants .......................... 33
MATURITY, PAYMENT AND YIELD
CONSIDERATIONS ..................................................... 34
NOTE FACTORS, CERTIFICATE FACTOR AND
TRADING INFORMATION ................................................ 39
DESCRIPTION OF THE SENIOR NOTES ...................................... 40
General ............................................................ 40
Interest ........................................................... 40
Principal .......................................................... 41
Optional Purchase .................................................. 42
The Indenture Trustee .............................................. 42
Book-Entry Registration ............................................ 42
ADDITIONAL INFORMATION REGARDING THE
SECURITIES ......................................................... 46
Payment on the Securities .......................................... 46
Optional Purchase .................................................. 48
Statements to Securityholders ...................................... 48
Definitive Notes ................................................... 49
SECURITY FOR THE SECURITIES .......................................... 49
General ............................................................ 49
The Program Operating Lease ........................................ 50
The Subordinated Notes ............................................. 51
The Certificates ................................................... 51
The Accounts ....................................................... 51
The Contingent and Excess Liability
Insurance ........................................................ 53
ADDITIONAL DOCUMENT PROVISIONS ....................................... 54
The Indenture ...................................................... 54
The Trust Agreement ................................................ 57
The SUBI Trust Agreement ........................................... 60
The Servicing Agreement ............................................ 61
Miscellaneous Provisions ........................................... 69
ADDITIONAL LEGAL ASPECTS OF THE VEHICLE
TRUST AND THE SUBIS ................................................ 73
The Vehicle Trust .................................................. 73
The SUBIs .......................................................... 74
Insolvency-Related Matters ......................................... 75
ADDITIONAL LEGAL ASPECTS OF THE SPECIFIED
LEASES AND THE SPECIFIED VEHICLES .................................. 77
Back-up Security Interests ......................................... 77
Vicarious Tort Liability ........................................... 78
Repossession of Specified Vehicles ................................. 78
Deficiency Judgments ............................................... 79
Consumer Protection Laws ........................................... 79
Other Limitations .................................................. 80
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ............... 80
CERTAIN ERISA CONSIDERATIONS ......................................... 84
RATINGS OF THE SENIOR NOTES .......................................... 85
UNDERWRITING ......................................................... 86
LEGAL MATTERS ........................................................ 87
AVAILABLE INFORMATION ................................................ 87
INDEX OF PRINCIPAL TERMS ............................................. 88
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES ........ A-1
3
<PAGE>
OVERVIEW OF TRANSACTION
[GRAPHICAL REPRESENTATION OF FLOW CHART]
4
<PAGE>
--------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
senior notes, you should carefully read this entire prospectus.
This summary provides an overview of some calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus.
BASIC TERMS OF THE SENIOR NOTES
ISSUER/TRUST: BMW Vehicle Lease Trust 2000-A
TRANSFEROR: BMW Auto Leasing LLC
SERVICER: BMW Financial Services NA, LLC
OWNER TRUSTEE: Wilmington Trust Company
INDENTURE
TRUSTEE: The Chase Manhattan Bank
VEHICLE
TRUST: Financial Services Vehicle Trust
VEHICLE
TRUSTEE: Chase Manhattan Bank
USA, N.A.
TRUST ASSETS: Beneficial and security
interests in leased vehicles
and lease contracts, and
related proceeds
INTEREST BASIS:
Class A-1
notes: Actual number of days
elapsed and assuming a
360-day year
Other Class A
notes: A 360-day year of twelve
30-day months
LEASES: Retail closed-end
operating leases of
BMW automobiles
CUTOFF DATE: Opening of business on
October 1, 2000
CREDIT A reserve fund, the subordinated notes
ENHANCEMENT: and the certificates
NOTES TO BE OFFERED:
Class A-1 notes: $180,000,000
Class A-2 notes: $600,000,000
Class A-3 notes: $300,000,000
Class A-4 notes: $389,660,000
INTEREST RATES:
Class A-1 notes: 6.67375%
Class A-2 notes: 6.65%
Class A-3 notes: 6.64%
Class A-4 notes: 6.67%
PAYMENT
DATES: The 25th day of each month
or, if not a business day, the
next succeeding business day
RECORD DATE: Holders of record are determined
one businessday prior to a
payment date
FIRST PAYMENT
DATE: November 27, 2000
FINAL SCHEDULED PAYMENT DATES:
Class A-1 notes: October 2001
Class A-2 notes: February 2003
Class A-3 notes: May 2003
Class A-4 notes: October 2003
CLEARANCE AND
SETTLEMENT: The Depository Trust
Company, Clearstream
and Euroclear
CLOSING DATE: Expected to be
November 9, 2000
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
THE STRUCTURE OF THIS TRANSACTION
GENERAL
Dealers in BMW products, known as BMW Centers, have assigned retail leases
and the related leased vehicles to Financial Services Vehicle Trust. Some of
these leases and the related leased vehicles, all of which were new BMW
automobiles at the time of lease origination, have been allocated to a separate
pool of assets. Beneficial interests - but not direct ownership - in the leased
vehicles and leases in that pool will be transferred to the trust. Neither the
trust nor holders of the trust's securities will receive any interest in assets
other than those in that pool. Payment of the senior notes will be backed by
those beneficial interests in the leased vehicles and leases in the pool.
The trust will apply the net proceeds from the issuance and sale of the
senior notes and the private placement of the certificates to purchase those
interests in the asset pool. In addition to the senior notes, the trust is also
issuing $30,951,089 in aggregate principal amount of asset backed subordinated
notes and $46,927,000 in aggregate principal amount of asset backed
certificates. The trust is not offering the subordinated notes or the
certificates under this prospectus. The subordinated notes will be issued to BMW
Auto Leasing, LLC, also known as the transferor. The certificates will be sold
in one or more private placements.
The trust will rely upon collections from the lease contracts, sales
proceeds from the disposition of the related leased vehicles and funds on
deposit in specified accounts to make payments on the senior notes. The trust
will be solely liable for payments made on the senior notes.
REPAYMENT OF THE SENIOR NOTES
The timing of payments of principal on the senior notes is largely
dependent on the timing of collections of cash flows generated by the underlying
assets. Principal will be paid on your senior notes on each payment date in an
amount generally equal to the available principal distribution amount generated
by the leases and proceeds from the sale of the leased vehicles.
Principal payments on the senior notes generally will be made to the
holders of the senior notes sequentially, so that no principal will be paid on
any class of senior notes until each class of senior notes with a lower
numerical designation has been paid in full. For example, no principal will be
paid on the Class A-2 senior notes until the Class A-1 senior notes have been
paid in full.
Until all principal due on the senior notes is paid, no principal will be
paid on the subordinated notes or the certificates. Principal will then be paid
on the subordinated notes until they have been paid in full (which amounts will
be deposited into the reserve fund), and then on the certificates.
An exception to the sequential payment rule is that allocable principal
from the sale of the trust's assets following a default under the indenture and
the acceleration of the senior notes or the transferor's insolvency will be paid
first to the Class A-1 senior notes until they have been paid in full, second,
on a pro rata basis, to all other classes of senior notes until they have been
paid in full, and third, ratably, to the subordinated notes (which amounts will
be deposited into the reserve fund) and the certificates pro rata until they
have been paid in full.
Any unpaid principal amount of each class of senior notes will be payable
in full on the final scheduled payment dates listed on the cover page of this
prospectus.
BMW Financial Services NA, LLC, also known as BMW FS, will administer the
leases, the disposition of the related leased vehicles when the leases terminate
and the collection of amounts due in respect of the leases.
For information on BMW FS' role in servicing the leases, see "BMW FS' Lease
Financing Program".
See "Description of the Senior Notes -- Principal" and "Additional
Information Regarding the Securities -- Payments on the Securities -- Deposits
to the Distribution Accounts; Priority of Payments" for additional detail
regarding the allocation of any principal losses or shortfalls in amounts
required to be distributed to holders of senior notes and the reimbursement of
those losses.
OPTIONAL REDEMPTION OF THE NOTES
The transferor has the option to purchase all of the assets of the trust on
any payment date when the combined unpaid principal balance of the senior notes,
subordinated notes and certificates is less than or equal to 10% of the total
initial balance of the senior notes, subordinated notes and certificates.
--------------------------------------------------------------------------------
6
<PAGE>
--------------------------------------------------------------------------------
THE PROPERTY OF THE TRUST
GENERAL
The primary property of the trust will be:
o the vehicle SUBI certificate, which is described below, including the
right to receive the amounts realized from sales of the specified
vehicles;
o the program operating lease, which is described below, under which the
trust will lease the vehicle SUBI certificate to the transferor;
o the right under the program operating lease to receive an amount equal
to the payments made in respect of the monthly payments under the
specified vehicle leases;
o the pledge by the transferor of the lease SUBI certificate to secure
the payments due under the program operating lease; and
o the right to certain amounts deposited in the reserve fund.
THE PROGRAM OPERATING LEASE
When the senior notes are issued, the trust and the transferor will enter
into a program operating lease, under which the trust will lease the vehicle
SUBI certificate to the transferor, subject to the lien of the indenture.
Pursuant to the program operating lease and a pledge of the lease SUBI
certificate, the transferor will be obligated to make payments during the period
that each underlying specified vehicle is represented by the vehicle SUBI and
covered by the program operating lease.
The transferor will make payments on the program operating lease on each
payment date from proceeds of the specified leases and specified vehicles
received during the month immediately before the month in which the related
payment date occurs. These payments consist of:
o the scheduled monthly payment portion of the total monthly payment
paid under each specified lease;
o early termination payments made upon early termination of a specified
lease by the lessee;
o any proceeds received from the sale or other disposition of specified
vehicles after the scheduled maturity or other termination of the
related specified leases; and
o excess mileage and excess wear and tear payments received upon
termination of a specified lease.
The trust will apply these amounts to pay interest on and principal of the
senior notes, the subordinated notes and the certificates in accordance with
their terms.
THE SPECIFIED LEASES AND THE SPECIFIED VEHICLES
The specified vehicles are BMW automobiles titled in the name of the
vehicle trust. The specified leases are retail closed-end leases of the
specified vehicles. BMW FS originated the specified leases in 16 states and
services the specified leases, as well as many other leases in which the trust
does not have an interest. Each specified lease is an operating lease for
accounting purposes.
Each specified lease provides for equal monthly payments that are allocated
between principal and rent charges. The rent charge portion of each monthly
payment is the amount the lessee is charged on the lease balance and is
calculated on a constant yield basis at an imputed interest rate known as the
lease rate. The lease balance of a specified lease equals the present value of
the remaining monthly payments owed by the lessee and the present value of the
residual value of the related vehicle set forth in such lease, each determined
using a discount rate equal to the lease rate.
The initial lease balance of a specified lease equals the adjusted
capitalized cost set forth in the lease. The adjusted capitalized cost of a
lease represents the initial value of the lease and the related vehicle - which
value may exceed the manufacturer's suggested retail price and may include
certain fees and costs related to the origination of the specified lease. The
initial lease balance amortizes over the term of the lease to an amount equal to
the residual value of the related vehicle set forth in the lease.
As part of BMW sales support programs, the specified leases have been
written in many cases with residual values that are higher than the residual
values determined by BMW FS based on estimated end-of-lease vehicle values. Only
the BMW FS residual values are being financed herein.
--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
The securitization value of the specified leases will equal the sum of (i)
the present value of the remaining monthly payments payable under the specified
leases and (ii) the present values of the BMW FS residual values of the related
specified vehicles, each determined using a discount rate equal to the sum of
(a) the interest rate on the Class A-4 notes, (b) a 1.00% per annum servicing
fee and (c) 2.83%.
As of October 1, 2000:
o the aggregate securitization value, calculated using a discount rate
of 10.5%, of the specified leases and specified vehicles was
$1,547,538,089;
o the aggregate BMW FS residual value of the specified leases being
financed was $1,201,560,236;
o the weighted average original number of monthly payments of the
specified leases was 35.38;
o the weighted average remaining number of monthly payments of the
specified leases was 22.79: and
o the weighted average lease rate was 7.49%.
THE SUBI CERTIFICATES
The vehicle trust will issue two special units of beneficial interest,
which are also called SUBIs:
o a lease SUBI that will constitute a beneficial interest in the
specified leases, and
o a vehicle SUBI that will constitute a beneficial interest in the
related leased vehicles.
The SUBIs relating to the trust thus consist of the lease SUBI and the
vehicle SUBI. The SUBIs will not be offered to you under this prospectus.
One SUBI certificate will be issued for the lease SUBI and one SUBI
certificate will be issued for the vehicle SUBI. The SUBI certificate for the
lease SUBI will be pledged and the SUBI certificate for the vehicle SUBI will be
transferred to the trust at the time it issues the senior notes. The SUBI
certificates will not be offered to you under this prospectus.
The SUBI certificates will evidence a beneficial interest in the related
SUBI assets, not a direct ownership interest in those SUBI assets. The SUBI
assets are the specified leases and specified vehicles. By holding the vehicle
SUBI certificate and the program operating lease, the trust will be entitled to
receive an amount equal to all payments made on or in respect of the SUBI
assets.
The SUBI certificates will not evidence an interest in any vehicle trust
assets other than the SUBI assets, and payments made on or in respect of all
other vehicle trust assets will not be available to make payments on the senior
notes, subordinated notes or the certificates.
For more information regarding the trust's property, see "The SUBIs" and
"The Specified Leases".
CREDIT ENHANCEMENT
The credit enhancement for the senior notes will consist primarily of the
following:
o subordination of the subordinated notes;
o subordination of the certificates; and
o the reserve fund.
SUBORDINATION OF THE SUBORDINATED NOTES
The subordinated notes will be subordinated to the senior notes to provide
credit enhancement for the senior notes. On each payment date, instead of being
paid to the transferor, in its capacity as subordinated noteholder, all payments
of interest and principal on the subordinated notes will be deposited into the
reserve fund.
SUBORDINATION OF THE CERTIFICATES
The certificates will be subordinated to the senior notes to provide
additional credit enhancement for the senior notes.
THE RESERVE FUND
As an additional source of credit enhancement, the servicer will establish
a reserve fund. The reserve fund will be funded as follows:
o on the closing date, the transferor will make an initial deposit to
the reserve fund of $81,245,750 which is 5.25% of the aggregate
initial balance of the senior notes, subordinated notes and
certificates;
o on each payment date, interest and principal, if any, paid on the
subordinated notes will be deposited into the reserve fund; and
--------------------------------------------------------------------------------
8
<PAGE>
--------------------------------------------------------------------------------
o on each payment date, any excess collections remaining after interest
and principal on the senior notes, subordinated notes and certificates
and various other obligations and expenses of the trust have been paid
will be deposited into the reserve fund.
Amounts in the reserve fund on each payment date will be available to cover
shortfalls in distributions of interest and principal on the senior notes and
the certificates.
On each payment date, after all required distributions have been made, the
amount on deposit in the reserve fund in excess of the reserve fund requirement
will be released to the subordinated noteholder, up to the aggregate amount
deposited into the reserve fund in respect of the subordinated notes (net of
amounts previously released to the subordinated noteholder), and any additional
excess will be released to the transferor.
The reserve fund requirement equals 6.75% of the aggregate initial balance
of the senior notes, subordinated notes and certificates.
SERVICING
BMW Financial Services NA, LLC will service the vehicle trust assets,
including the SUBI assets.
For more information regarding the servicer, see "Additional Document
Provisions--The Servicing Agreement", "BMW FS" and "BMW FS' Lease Financing
Program".
TAX STATUS
Weil, Gotshal & Manges LLP, as special tax counsel to the transferor, is of
the opinion that although there is no authority with respect to a transaction
closely comparable to that contemplated herein:
o the senior notes will constitute indebtedness for federal income tax
purposes, and
o the trust will not constitute an association or a publicly traded
partnership taxable as a corporation for federal income tax purposes.
By accepting a senior note, each holder or beneficial owner will be deemed
to have agreed to treat the senior notes as indebtedness. You should consult
your own tax advisor regarding the federal tax consequences of the purchase,
ownership and disposition of the senior notes, and the tax consequences arising
under the laws of any state or other taxing jurisdiction.
For more information, see "Material United States Federal Income Tax
Consequences".
ERISA CONSIDERATIONS
Subject to the ERISA considerations set forth herein, it is expected that
the senior notes will be eligible for purchase by employee benefit plans.
However, plans contemplating a purchase of senior notes should consult their
counsel before making a purchase.
For more information, see "Certain ERISA Considerations".
SENIOR NOTE RATINGS
The Class A-1 senior notes will be rated in the highest short-term rating
category and the other senior notes will be rated in the highest long-term
category by at least two nationally recognized rating agencies. There can be no
assurance that a rating will not be lowered or withdrawn by an assigning rating
agency.
MONEY MARKET INVESTMENT
The Class A-1 senior notes have been structured to be eligible securities
for purchase by money market funds under Rule 2a-7 under the Investment Company
Act of 1940. However, money market funds contemplating a purchase of Class A-1
senior notes should consult their counsel before making a purchase.
--------------------------------------------------------------------------------
9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the senior notes:
YOU MAY HAVE DIFFICULTY SELLING
YOUR SENIOR NOTES OR OBTAINING
YOUR DESIRED SALES PRICE. o The senior notes will not be
listed on any securities
exchange. The underwriters intend
to make a secondary market for
the senior notes. The
underwriters will do so by
offering to buy the senior notes
from investors that wish to sell.
However, the underwriters will
not be obligated to make offers
to buy the senior notes and may
stop making offers at any time.
In addition, the prices offered,
if any, may not reflect prices
that other potential purchasers
would be willing to pay, were
they to be given the opportunity.
There have been times in the past
where there have been very few
buyers of asset backed securities
and thus there has been a lack of
liquidity. There may be a similar
lack of liquidity at times in the
future. As a result, you may not
be able to sell your senior notes
when you want to do so, or you
may not be able to obtain the
price that you wish to receive.
YOU WILL EXPERIENCE A LOSS ON YOUR
INVESTMENT IF DEFAULTS ON THE
SPECIFIED LEASES OR RESIDUAL VALUE
LOSSES EXCEED THE AVAILABLE
CREDIT ENHANCEMENT. o The trust does not have, nor is
it expected to have, any
significant assets or sources of
funds other than the SUBI
certificates and payments under
the program operating lease,
together with available funds in
the reserve fund and the
distribution and collection
accounts. The senior notes
represent obligations solely of
the trust and will not be insured
or guaranteed by any entity.
Accordingly, you will rely
primarily upon payments on the
program operating lease which are
based on collections on the
specified leases and specified
vehicles--together with monies on
deposit in the reserve fund--for
payments on the senior notes. The
reserve fund, together with the
credit enhancement provided by
subordination of the subordinated
notes and the certificates, are
intended to provide protection
against delinquencies on the
specified leases and losses on
the specified leases and
specified vehicles. However, if
the level of delinquencies and
losses exceeds the available
credit enhancement, you will
suffer a loss. You will have no
claim to any amounts properly
distributed to others from time
to time.
YOUR SHARE OF POSSIBLE LOSSES MAY
NOT BE PROPORTIONATE. o Principal payments on the senior
notes generally will be made to
the holders of the senior notes
sequentially, so that no
principal will be paid on any
class of senior notes until each
class of senior notes with a
lower numerical designation has
been paid in full. Losses in
excess of the available credit
enhancement relating to the
specified leases and specified
vehicles will be allocated, after
the Class A-1 senior notes are
paid, to each remaining class of
senior notes based on a fraction
equal to the unpaid principal
amount of that class divided by
the unpaid principal amount of
all classes. As a result, a class
of senior notes with a later
maturity may be allocated more
losses than a class of senior
notes with an earlier maturity as
a relative percentage of their
initial principal amounts.
10
<PAGE>
THE TIMING OF PRINCIPAL PAYMENTS
IS UNCERTAIN. o The amount of distributions of
principal on the senior notes and
the time when you receive those
distributions depend on the rate
of payments and losses relating
to the specified leases and the
specified vehicles, which cannot
be predicted with certainty.
Those principal payments may be
regularly scheduled payments or
unscheduled payments like those
resulting from prepayments or
liquidations of defaulted
specified leases. Additionally,
the servicer may be required to
make payments relating to
specified leases and specified
vehicles under some
circumstances, and the transferor
will have the right to purchase
all assets of the trust pursuant
to an optional redemption of the
notes. Each of these payments
will have the effect of
shortening the average lives of
the senior notes. You will bear
any reinvestment risks resulting
from a faster or slower rate of
payments of the specified leases
and the specified vehicles.
THE GEOGRAPHIC CONCENTRATION OF
THE LEASES, ECONOMIC FACTORS AND
THE AUTOMOBILE MARKET COULD
NEGATIVELY AFFECT THE TRUST'S ASSETS. o The specified leases were
originated in 16 states. As of
the Cutoff Date, specified leases
originated in California, New
York and New Jersey represents
approximately 35%, 20% and 16% of
the outstanding securitization
value, respectively. Adverse
economic conditions in one or
more of California, New York or
New Jersey or adverse market
conditions for BMW automobiles
may have a disproportionate
impact on the performance of the
specified leases and the
specified vehicles. Economic
factors like unemployment,
interest rates, the rate of
inflation and consumer
perceptions of the economy may
affect the rate of prepayment and
defaults on the specified leases
and the ability to sell or
dispose of the related specified
vehicles for an amount at least
equal to their BMW FS residual
values.
TURN-IN RATES MAY
AFFECT LOSSES. o User-lessees who decide not to
purchase their specified vehicles
at lease termination will expose
the trust to possible losses
resulting from the valuation of
such vehicles in the used car
market. The level of turn-ins at
lease termination could be
adversely affected by user-lessee
views on vehicle quality, the
relative attractiveness of new
models available to the
user-lessees, sales and lease
incentives offered with respect
to other vehicles (including
those offered by BMW FS), the
level of contract residual values
(which are the purchase option
prices for the specified vehicles
and which are equal to or higher
than the BMW FS residual values
being financed herein) compared
to new and used vehicle prices
and economic conditions
generally. The grant of
extensions and the early
termination of specified leases
by lessees may affect the number
of turn-ins in a particular
month. If losses resulting from
increased turn-ins exceed the
credit enhancement, you may
suffer a loss on your investment.
USED CAR MARKET FACTORS COULD
INCREASE RISK OF LOSS FOR ALL
INVESTORS. o The used car market could be
adversely affected by factors
such as changes in consumer
tastes, discovery of defects,
styling changes, an overabundance
of used cars in the marketplace
and economic conditions
generally. Any such adverse
change could result in reduced
11
<PAGE>
proceeds upon the liquidation or
other disposition of specified
vehicles, and therefore could
result in increased residual
value losses. The market for used
luxury vehicles may respond
differently to changes in
economic conditions than the
market for other used cars. BMW
FS manages the market for used
BMW vehicles through certain
programs described herein, but
there can be no assurance that
such efforts will continue to be
successful.
o The used car market for any
particular model of vehicle could
be adversely affected by factors
not affecting other model types,
such as changes in consumer
tastes, discovery of defects in
respect of such model, or
overabundance of that model in
the used car market. Three model
types will be included in the
asset pool underlying the
securities. By number of
vehicles, the BMW 3 Series, 5
Series and 7 Series represent
approximately 36%, 41% and 23%,
respectively, of the specified
vehicles as of the Cutoff Date.
Any such adverse change with
respect to a specific model type
could result in reduced proceeds
upon the liquidation or other
disposition of specified vehicles
of such model type, and therefore
could result in increased
residual value losses. If such
losses exceed the credit
enhancement, you may suffer a
loss on your investment.
RISKS ASSOCIATED WITH CONSUMER
PROTECTION LAWS. o 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 upon lessors and
servicers of retail lease
contracts such as the specified
leases. California has enacted
comprehensive vehicle leasing
statutes that, among other
things, regulate the disclosures
to be made at the time a vehicle
is leased. These laws apply to
the vehicle trust as the lessor
under the specified leases and
may also apply to the trust as
owner of the vehicle SUBI
certificate. Failure by the
vehicle trust or the servicer to
comply with such requirements may
give rise to liabilities on the
part of the vehicle trust, and
enforcement of the specified
leases by the vehicle trust may
be subject to set-off as a result
of such noncompliance. Many
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
related specified lease and/or
require the refund of all or a
portion of payments previously
paid thereon. BMW FS will make
representations and warranties
that each specified lease
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, BMW FS
will be required to make a
reallocation payment in respect
of the related specified lease
and specified vehicle and
reallocate the related specified
lease and specified vehicle out
of the related SUBIs.
VICARIOUS TORT LIABILITY MAY RESULT
IN A LOSS ON YOUR INVESTMENT. o Some states allow a party that
incurs an injury involving a
leased vehicle to sue the owner
of the vehicle merely because of
that ownership. Most states,
however, either prohibit these
vicarious liability suits or
limit the lessor's liability to
the amount of liability insurance
that the lessee was required to
carry under applicable law but
12
<PAGE>
failed to maintain. If vicarious
liability imposed on the trust or
the vehicle trust exceeds the
coverage provided by BMW's
primary and excess liability
insurance policies, you could
experience delays in payments due
to you or may ultimately suffer a
loss.
For a discussion of the possible
liability of the trust in
connection with the use or
operation of the specified
vehicles, see "Additional Legal
Aspects of the Specified Leases
and the Specified Vehicles
--Vicarious Tort Liability".
A BANKRUPTCY OF THE TRANSFEROR OR
THE SERVICER COULD DELAY OR LIMIT
PAYMENTS TO YOU. Following a bankruptcy or
insolvency of the servicer or the
transferor, a court could conclude
that the vehicle SUBI certificate
is owned by the servicer or the
transferor, instead of the trust.
This conclusion could be either
because the transfer of the vehicle
SUBI certificate from the
transferor to the trust was not a
true sale or because the court
concluded that the transferor or
the trust should be treated as the
same entity as the servicer or the
transferor for bankruptcy purposes.
If this were to occur, you could
experience delays in payments due
to you or may not ultimately
receive all interest and principal
due to you as a result of:
o the automatic stay which prevents
a secured creditor from
exercising remedies against a
debtor in bankruptcy without
permission from the court, and
o the fact that neither the trust
nor the indenture trustee has a
perfected security interest in
the specified vehicles and may
not have a perfected security
interest in any cash collections
of the specified leases and
specified vehicles held by the
servicer at the time that a
bankruptcy proceeding begins.
For a discussion of how a
bankruptcy proceeding of the
servicer, the transferor or certain
related entities may affect the
trust and the senior notes, see
"Additional Legal Aspects of the
Vehicle Trust and the
SUBIs--Insolvency-Related Matters".
IF ERISA LIENS ARE PLACED ON THE
ASSETS OF THE TRUST, YOU COULD SUFFER
A LOSS ON YOUR INVESTMENT. o Liens in favor of the Pension
Benefit Guaranty Corporation
could attach to the specified
leases and specified vehicles and
be used to satisfy unpaid ERISA
obligations of any member of a
controlled group that includes
BMW FS and its affiliates. These
liens could have priority over
the interest of security holders
in SUBI assets, like the
specified vehicles, that are not
covered by a prior perfected
security interest in favor of the
indenture trustee. The transferor
believes that the likelihood of
this liability being asserted
against the assets of the trust
or, if so asserted, being
successfully pursued, is remote.
However, you cannot be sure the
specified leases and specified
vehicles will not become subject
to an ERISA liability.
A CHANGE OR WITHDRAWAL BY THE
RATING AGENCIES OF THEIR INITIAL
RATINGS MAY REDUCE THE MARKET
VALUE OF THE SENIOR NOTES. o A security rating is not a
recommendation by a rating agency
that you buy, sell or hold
securities. Similar ratings on
different types of securities do
not necessarily mean the same
thing. You are encouraged
13
<PAGE>
to analyze the significance of
each rating independently from
any other rating. Any rating
agency may change its rating of
the senior notes after the senior
notes are issued if that rating
agency believes that
circumstances have changed. A
rating downgrade may reduce the
price that a subsequent purchaser
will be willing to pay for the
senior notes.
THE FAILURE TO MAKE PRINCIPAL
PAYMENTS ON THE NOTES WILL
GENERALLY NOT RESULT IN AN EVENT
OF DEFAULT. o You should be aware that the
amount of principal required to
be paid to you prior to the final
scheduled payment date for a
class of senior notes generally
will be limited to amounts
available for those purposes.
Therefore, the failure to repay
principal of a class of senior
notes generally will not result
in the occurrence of an event of
default under the indenture until
the final scheduled payment date
for the class of notes.
THE SENIOR NOTES ARE NOT SUITABLE
INVESTMENTS FOR ALL INVESTORS. o The senior notes are not a
suitable investment if you
require a regular predictable
schedule of payments. The senior
notes are complex investments
that should be considered only by
investors who, either alone or
with their financial, tax and
legal advisors, have the
expertise to analyze prepayment,
reinvestment, default, residual
value and market risk, the tax
consequences of an investment,
and the interaction of these
factors.
14
<PAGE>
OVERVIEW OF THE TRANSACTION
Please refer to page 4 for a diagram providing an overview of the
transaction described in this prospectus. You can find a listing of the pages
where capitalized terms used in this prospectus are defined under the caption
"Index of Principal Terms" beginning on page 88.
Dealers in BMW products ("BMW Centers") have assigned, and will assign,
automobile leases and the related vehicles to Financial Services Vehicle Trust,
a Delaware business trust (the "Vehicle Trust"). The Vehicle Trust was created
in August 1995 to facilitate the titling of automobiles and sports utility
vehicles in connection with the securitization of automobile and sports utility
vehicle leases. The Vehicle Trust has issued to BMW Manufacturing LP ("BMW LP"
or the "UTI Beneficiary") a beneficial interest in the undivided trust interest
(the "UTI"). The UTI represents the entire beneficial interest in assets of the
Vehicle Trust that have not been allocated to special units of beneficial
interest such as the ones described in this prospectus. The trustee of the
Vehicle Trust will be directed by the UTI Beneficiary:
o to establish two special units of beneficial interest (each a "2000-A
SUBI," and collectively, the "SUBIs");
o to allocate a separate portfolio of leases and some related assets of
the Vehicle Trust (the "Specified Leases") to one 2000-A SUBI (the
"Lease SUBI"); and
o to allocate the vehicles that are leased under the Specified Leases
and some other related assets of the Vehicle Trust (the "Specified
Vehicles") to the other 2000-A SUBI (the "Vehicle SUBI").
The SUBIs will represent the entire beneficial interest in the Specified Leases
and Specified Vehicles (collectively, the "SUBI Assets"). Upon creation of each
2000-A SUBI, the related SUBI Assets will no longer be a part of the Vehicle
Trust Assets represented by the UTI, and the interest in the Vehicle Trust
Assets represented by the UTI will be reduced accordingly. Each 2000-A SUBI will
evidence an indirect beneficial interest, rather than a direct legal interest,
in the related SUBI Assets. Each 2000-A SUBI will not represent a beneficial
interest in any Vehicle Trust Assets other than the related SUBI Assets.
Payments made on or in respect of any Vehicle Trust Assets other than the SUBI
Assets will not be available to make payments on the senior notes, the
subordinated notes or the certificates. The UTI Beneficiary may from time to
time cause special units of beneficial interest other than the SUBIs (each, an
"Other SUBI") to be created out of the UTI. The Trust (and, accordingly, its
securityholders) will have no interest in the UTI, any Other SUBI or any assets
of the Vehicle Trust Assets evidenced by the UTI or any Other SUBI. See "The
SUBIs" and "The Vehicle Trust".
BMW LP will sell, transfer and assign its interest in each 2000-A SUBI to
BMW Auto Leasing LLC (the "Transferor"). The Transferor will in turn (a)
transfer and assign the certificate representing its interest in the Vehicle
SUBI (the "Vehicle SUBI Certificate") to BMW Vehicle Lease Trust 2000-A (the
"Trust") and (b) pledge the certificate representing its interest in the Lease
SUBI (the "Lease SUBI Certificate", and together with the Vehicle SUBI
Certificate, the "SUBI Certificates") to the Trust. The Trust will issue four
classes of asset backed senior notes (the "Senior Notes") in an aggregate
principal amount of $1,469,660,000 (the "Initial Senior Note Balance"). The
Trust will also issue one class of asset backed subordinated notes (the
"Subordinated Notes", and together with the Senior Notes, the "Notes") in an
aggregate principal amount of $30,951,089 (the "Initial Subordinated Note
Balance") and one class of asset backed certificates (the "Certificates") in an
aggregate principal amount of $46,927,000 (the "Initial Certificate Balance").
The Trust will pledge the Vehicle SUBI Certificate and its interest in the Lease
SUBI Certificate to the Indenture Trustee as security for the Senior Notes and
the Subordinated Notes. The Senior Notes, the Subordinated Notes and the
Certificates are collectively referred to as the "Securities" and the holders of
Securities are referred to as "Securityholders". Each Senior Note and each
Subordinated Note will represent an obligation of, and for some non-tax purposes
each Certificate will represent a fractional undivided interest in, the Trust.
Payments in respect of the Subordinated Notes and the Certificates will be
subordinated to payments in respect of the Senior Notes to the extent described
in this prospectus. The Subordinated Notes and the Certificates are not being
offered to you in this offering.
15
<PAGE>
On the date of initial issuance of the Securities (the "Closing Date"), the
Trust and the Transferor will enter into a program operating lease (the "Program
Operating Lease") under which the Trust will lease the Vehicle SUBI Certificate,
subject to the lien of the Indenture, to the Transferor in exchange for the
obligation of the Transferor to make certain payments during the period that
each underlying Specified Vehicle is covered by the Program Operating Lease. The
Trust will apply these payments, together with proceeds received from certain
sales of Specified Vehicles, to pay interest on and principal of the Securities.
As a condition to the issuance of the Senior Notes, at least two nationally
recognized rating agencies (each, a "Rating Agency"), must each rate the Class
A-1 Senior Notes in their highest short-term rating category, and the remaining
classes of Senior Notes in their highest long-term rating category. See "Ratings
of the Senior Notes" for further information concerning the ratings assigned to
the Senior Notes, including the limitations of such ratings.
THE TRUST
Formation
The Trust will be formed under the laws of the State of Delaware solely for
the purposes of the transactions described in this prospectus. The Trust will be
governed by a trust agreement, dated as of November 1, 2000 (the "Trust
Agreement"), between the Transferor and Wilmington Trust Company, as Owner
Trustee.
The Trust will issue the Senior Notes under an indenture, dated as of
November 1, 2000 (the "Indenture"), between the Trust and The Chase Manhattan
Bank, as trustee (in that capacity, the "Indenture Trustee"). The Subordinated
Notes and the Certificates will be issued under the Trust Agreement.
The Trust will not engage in any activity other than as duly authorized in
accordance with the terms of the Trust Agreement. On the Closing Date, the
authorized purposes of the Trust will be limited to:
o issuing the Securities;
o acquiring the Vehicle SUBI Certificate and the other property of the
Trust with the net proceeds from the sale of the Senior Notes and the
Certificates;
o assigning and pledging the property of the Trust to the Indenture
Trustee;
o leasing the Vehicle SUBI Certificate to the Transferor;
o making payments on the Securities;
o entering into and performing its obligations under the transaction
documents to which it is a party; and
o engaging in other transactions, including entering into agreements,
that are necessary, suitable or convenient to accomplish, or that are
incidental to or connected with, any of the foregoing activities.
Approval of additional Trust activities and purposes may be requested by holders
of at least 75% of the outstanding balance of the Certificates and will require
(a) that each Rating Agency have been notified of such additional activities and
purposes and have confirmed that such additional activities and purposes would
not cause any of its then-current ratings of the Senior Notes or the
Certificates to be qualified, reduced or withdrawn, and (b) approval by holders
of at least 75% of the outstanding balance of the Senior Notes, or if the Senior
Notes are no longer outstanding, by the Subordinated Noteholder.
Under an administration agreement, dated as of November 1, 2000 (the "Trust
Administration Agreement"), BMW FS, as administrator (the "Administrator"), will
perform the Trust's administrative obligations under the Trust Agreement and the
Indenture.
The Trust's principal offices will be in Wilmington, Delaware, in care of
the Owner Trustee, at the address listed below under "--The Owner Trustee".
16
<PAGE>
Capitalization
On the Closing Date, the Trust will be capitalized with $1,547,538,089
aggregate principal amount of Securities. The Trust will sell the Senior Notes
and the Certificates, other than the Transferor Certificate, to third party
investors that are expected to be unaffiliated with the Transferor, the Servicer
or their respective affiliates. In exchange for the transfer of the Vehicle SUBI
Certificate and the pledge of the Lease SUBI Certificate, the Trust will pay the
Transferor the net proceeds from the sale of the Senior Notes and the net
proceeds from the sale of the Certificates,and will issue to the Transferor the
Subordinated Notes and a certificate (the "Transferor Certificate") with a
$470,000 principal balance, which will equal 1% of the Initial Certificate
Balance. The following table illustrates the capitalization of the Trust as of
the Closing Date, as if the issuance and sale of the Securities had taken place
on that date:
Senior Notes $1,469,660,000
Subordinated Notes 30,951,089
Certificates 46,927,000
--------------
Total $1,547,538,089
==============
The Owner Trustee
Wilmington Trust Company will be the trustee (the "Owner Trustee") under
the Trust Agreement. Wilmington Trust Company is a Delaware banking corporation,
and its Corporate Trust Office is located at 1100 North Market Street, Rodney
Square North, Wilmington, Delaware 19890-0001. The Transferor, the Servicer and
their affiliates may maintain normal commercial banking relationships with the
Owner Trustee and its affiliates. The fees and expenses of the Owner Trustee
will be paid by the Administrator. See "Additional Document
Provisions--Miscellaneous Provisions--Fees and Expenses".
Property of the Trust
On the Closing Date, the Transferor will transfer the Vehicle SUBI
Certificate to the Trust pursuant to the Issuer SUBI Certificate Transfer
Agreement and will pledge the Lease SUBI Certificate to the Trust pursuant to
the Program Operating Lease. The Trust will then pledge its interest in each
SUBI Certificate to the Indenture Trustee under the Indenture and then, subject
to that pledge, will lease the Vehicle SUBI Certificate to the Transferor
pursuant to the Program Operating Lease. See "The SUBIs--Transfers of the SUBI
Certificates".
After giving effect to the transactions described in this prospectus, the
property of the Trust (the "Trust Estate") will include:
o the Vehicle SUBI Certificate, evidencing a beneficial interest in the
assets allocated to the Vehicle SUBI (the "Vehicle SUBI Assets"),
including the right to payments thereunder from certain Sales
Proceeds, Termination Proceeds and Recovery Proceeds on deposit in the
SUBI Collection Account and investment earnings, net of losses and
investment expenses, on amounts on deposit in the SUBI Collection
Account;
o the rights of the Trust under the Program Operating Lease;
o the rights of the Trust as pledgee of the Lease SUBI Certificate;
o the rights of the Trust as secured party under a back-up security
agreement with respect to the SUBI Certificates and the undivided
interest in the SUBI Assets;
o the rights of the Trust to funds on deposit from time to time in the
Note Distribution Account and any other account or accounts
established pursuant to the Indenture;
o the rights of the Transferor, as transferee, under the SUBI
Certificate Transfer Agreement;
o the rights of the Trust, as transferee, under the Issuer SUBI
Certificate Transfer Agreement;
17
<PAGE>
o the security interest of the Trust in the Subordinated Notes and the
Reserve Fund (including investment earnings, net of losses and
investment expenses, on amounts on deposit therein); and
o all proceeds of the foregoing.
The Indenture will require the Trust Estate to be pledged by the Trust to the
Indenture Trustee.
Because each SUBI will represent a beneficial interest in the related SUBI
Assets, Securityholders will be dependent on payments made on the Specified
Leases and proceeds received in connection with the sale or other disposition of
Specified Vehicles for the payment of interest on and principal of the related
Securities. The Trust will not have a direct ownership interest in the Specified
Leases or a direct ownership interest or perfected security interest in the
Specified Vehicles - which will be titled in the name of the Vehicle Trust or
the Vehicle Trustee - and it is therefore possible that a claim or lien in
respect of the Specified Vehicles or the Vehicle Trust could limit the amounts
payable in respect of the SUBI Certificates to less than the amounts received
from the lessees of the Specified Vehicles (each, a "User-Lessee") or received
from the sale or other disposition of Specified Vehicles. To the extent that a
claim or lien were to delay the disposition of the Specified Vehicles or reduce
the amount paid to the holders of the SUBI Certificates in respect of their
beneficial interests in the SUBI Assets, Senior Noteholders could experience
delays in payment or losses on their investment. See "Risk Factors--A bankruptcy
of the transferor or the servicer could delay or limit payments to you" and "-
If ERISA liens are placed on the assets of the trust, you could suffer a loss on
your investment", "The SUBIs", "Additional Legal Aspects of the Vehicle Trust
and the SUBIs--The SUBIs" and "Additional Legal Aspects of the Specified Leases
and the Specified Vehicles--Back-up Security Interests".
USE OF PROCEEDS
The net proceeds from the sale of the Senior Notes - the proceeds of the
public offering minus expenses relating thereto - together with the net proceeds
from the private placement of the Certificates, will be applied by the Trust to
acquire the Vehicle SUBI Certificate and the pledge of the Lease SUBI
Certificate from the Transferor.
THE VEHICLE TRUST
General
The Vehicle Trust is a Delaware business trust and is governed by an
amended and restated trust agreement, dated as of September 27, 1996, as further
amended as of May 25, 2000 (the "Vehicle Trust Agreement"), between the UTI
Beneficiary and Chase Manhattan Bank Delaware (predecessor in interest to Chase
Manhattan Bank USA, N.A.), as trustee (the "Vehicle Trustee"). The assets of the
Vehicle Trust (the "Vehicle Trust Assets") consist of:
o closed-end retail lease contracts (the "Leases") of BMW automobiles,
light trucks, sports utility vehicles and motorcycles (the "Leased
Vehicles"), which Leases are or were originated by BMW Centers
pursuant to dealer agreements entered into with BMW FS, and all
proceeds thereof;
o the Leased Vehicles, together with all accessories, additions and
parts constituting a part thereof and all accessions thereto and all
proceeds thereof; and
o certain payments under the Leases, proceeds from sales of the Leased
Vehicles, and other assets more fully described below.
The primary business purpose of the Vehicle Trust is to acquire, and serve as
record holder of title to, the Leases and Leased Vehicles, in connection with
asset backed securities issuance transactions.
Under a servicing agreement, dated as of August 30, 1995, as amended by a
supplement to be dated as of November 1, 2000 (as amended or supplemented from
time to time, the "Servicing Agreement"), among the Vehicle Trust, the UTI
Beneficiary, and BMW FS, as servicer (in that capacity, the "Servicer"), BMW FS
will service the Leases, including the Specified Leases, and the Leased
Vehicles, including the Specified Vehicles.
18
<PAGE>
Except as otherwise described under "Additional Document Provisions--The
SUBI Trust Agreement," under the Vehicle Trust Agreement, the Vehicle Trust has
not and will not:
o issue interests or securities other than the SUBIs, the SUBI
Certificates, Other SUBIs, one or more certificates representing each
Other SUBI (the "Other SUBI Certificates"), the UTI and one or more
certificates representing the UTI (the "UTI Certificates");
o borrow money, except from BMW FS or the UTI Beneficiary in connection
with funds used to acquire Leases and Leased Vehicles;
o make loans;
o invest in or underwrite securities;
o offer securities in exchange for Vehicle Trust Assets, with the
exception of the SUBI Certificates, Other SUBI Certificates and the
UTI Certificates; or
o repurchase or otherwise reacquire its securities, other than for
purposes of cancellation, except as permitted by or in connection with
financing or refinancing the acquisition of Leases and Leased Vehicles
or as otherwise permitted by each such financing or refinancing.
For further information regarding the Vehicle Trust, the servicing of the Leases
and the Leased Vehicles, see "Additional Document Provisions--The SUBI Trust
Agreement" and "--The Servicing Agreement".
The UTI Beneficiary
BMW LP is the UTI Beneficiary under the Vehicle Trust Agreement. The sole
general partner of BMW LP is BMW Facility Partners, LLC ("BMW Facility
Partners"), a Delaware limited liability company. BMW FS is the limited partner
of the UTI Beneficiary. The UTI Beneficiary was formed as a limited partnership
under the laws of Indiana in September 1992. Currently, its sole purposes are
being the initial beneficiary of the Vehicle Trust, holding the UTI and the UTI
Certificate, acquiring interests in the SUBI and Other SUBIs and engaging in
related transactions. The limited liability company agreement of BMW Facility
Partners and the limited partnership agreement of the UTI Beneficiary limit
their respective activities to the foregoing purposes and to any activities
incidental thereto or necessary therefor. The principal office of BMW LP is
located at 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675 and its
telephone number is (201) 307-4000.
The Vehicle Trustee
Chase Manhattan Bank USA, N.A. is the trustee for the Vehicle Trust. Chase
Manhattan Bank USA, N.A. is a national banking association and its principal
offices are located at 1201 Market Street, Wilmington, Delaware 19801.
The Transferor, the Servicer and their affiliates may maintain normal
commercial banking relationships with the Vehicle Trustee and its affiliates.
Property of the Vehicle Trust
The Vehicle Trust Assets generally consist of:
o Leases originated by BMW Centers and all monies due from User-Lessees
thereunder;
o Leased Vehicles and all proceeds of those Leased Vehicles;
o the rights to proceeds from any physical damage, liability or other
insurance policies, if any, covering the Leases or the related
User-Lessees or the Leased Vehicles, including but not limited to the
Contingent and Excess Liability Insurance; and
o all proceeds of the foregoing.
19
<PAGE>
From time to time after the date of this prospectus, the BMW Centers will
assign additional Leases to the Vehicle Trust and, as described below, title the
related Leased Vehicles in the name of the Vehicle Trust or the Vehicle Trustee
on behalf of the Vehicle Trust.
Lease Origination and the Titling of Leased Vehicles
All Leases have been underwritten using the underwriting criteria described
under "BMW FS' Lease Financing Program--Underwriting". Under each Lease, the
Vehicle Trust, or the Vehicle Trustee on behalf of the Vehicle Trust, will be
listed as the owner of the related Leased Vehicle on the Leased Vehicle's
certificate of title. Liens will not be placed on the certificates of title, nor
will new certificates of title be issued, to reflect the interest of the Trust,
as holder of the Vehicle SUBI Certificate, in the Specified Vehicles.
After the sale of the Vehicle SUBI Certificate to the Trust, the Servicer
will be obligated to repurchase any Specified Vehicles covered by Specified
Leases not meeting certain representations and warranties of the Transferor by
making Reallocation Payments in respect thereof. Those representations and
warranties relate primarily to the origination of the Specified Leases, and do
not typically relate to the creditworthiness of the related User-Lessees or the
collectibility of the Specified Leases. In addition, the Servicer will be
obligated to repurchase certain Specified Vehicles by making Reallocation
Payments in the event the User-Lessee moves to a state that is not a Trust State
or in the event that certain servicing obligations are not complied with.
All Leased Vehicles owned by the Vehicle Trust will be held for the benefit
of entities that from time to time hold beneficial interests in the Vehicle
Trust. Those interests will be evidenced with respect to:
o Leases and Leased Vehicles not allocated to the 2000-A SUBIs or an
Other SUBI, by the UTI,
o the Specified Leases and the Specified Vehicles, by the 2000-A SUBIs,
or
o Leases and Leased Vehicles financed in another transaction, by an
Other SUBI.
Entities holding beneficial interests in the Vehicle Trust will not have a
direct ownership in the related Leases or a direct ownership or perfected
security interest in the related Leased Vehicles.
The certificates of title for the Specified Vehicles will not reflect
the indirect interest of the Trust in the Specified Vehicles by virtue of its
beneficial interest in the Vehicle SUBI Assets. Therefore, the Trust does not
have a direct perfected lien in the Specified Vehicles, but will have filed a
financing statement to perfect the security interest in the Vehicle SUBI Assets,
but only to the extent that the security interest may be perfected by filing
under the UCC. For further information regarding the titling of the Specified
Vehicles and the interest of the Trust therein, see "Additional Legal Aspects of
the Specified Leases and the Specified Vehicles--Back-up Security Interests".
THE SUBIs
General
Each 2000-A SUBI will be issued by the Vehicle Trust under a supplement,
dated as of November 1, 2000 (the "SUBI Supplement" and, together with the
Vehicle Trust Agreement, the "SUBI Trust Agreement"), to the Vehicle Trust
Agreement. The 2000-A SUBIs will not represent a direct interest in the related
SUBI Assets or an interest in any Vehicle Trust Assets other than the related
SUBI Assets. The Trust and the Securityholders will have no interest in the UTI,
any Other SUBI or any assets of the Vehicle Trust evidenced by the UTI or any
Other SUBI. Payments made on or in respect of Vehicle Trust Assets not
represented by the SUBIs will not be available to make payments on the
Securities. For further information regarding the Vehicle Trust, see "The
Vehicle Trust".
The Lease SUBI Certificate will evidence a beneficial interest in the
assets allocated to the Lease SUBI (the "Lease SUBI Assets"), which will
generally consist of the Specified Leases and all proceeds of or payments on the
Specified Leases received on or after October 1, 2000 (the "Cutoff Date") and
all other related Lease SUBI Assets, including:
o amounts in the SUBI Collection Account received in respect of the
Specified Leases,
20
<PAGE>
o certain monies due under or payable in respect of the Specified Leases
on or after the Cutoff Date, including the right to receive payments
made to BMW FS, the Transferor, the Vehicle Trust, the Vehicle Trustee
or the Servicer under any insurance policies relating to the Specified
Leases or the related User-Lessees, and
o all proceeds of the foregoing.
The Vehicle SUBI Certificate will evidence a beneficial interest in the
Vehicle SUBI Assets, which will generally consist of the Specified Vehicles and
all proceeds of or payments on the Specified Vehicles received on or after the
Cutoff Date and all other related Vehicle SUBI Assets, including:
o amounts in the SUBI Collection Account received in respect of the sale
of the Specified Vehicles,
o certain monies payable in respect of the Specified Vehicles on or
after the Cutoff Date, including the right to receive payments made to
BMW FS, the Transferor, the Vehicle Trust, the Vehicle Trustee or the
Servicer under any insurance policies related to the Specified
Vehicles, and
o all proceeds of the foregoing.
Transfers of the SUBI Certificates
Simultaneously with the issuance of the SUBI Certificates to BMW LP, BMW LP
will convey the SUBI Certificates to the Transferor pursuant to a transfer
agreement, dated as of November 1, 2000 (the "SUBI Certificate Transfer
Agreement"). BMW LP will covenant to treat the conveyance of the SUBI
Certificates to the Transferor as an absolute sale, transfer and assignment for
all purposes.
Immediately after the transfer of the SUBI Certificates to the Transferor,
the Transferor will:
o transfer to the Trust, without recourse, all of its right, title and
interest in and to the Vehicle SUBI Certificate under a transfer
agreement, dated as of November 1, 2000 (the "Issuer SUBI Certificate
Transfer Agreement");
o deliver the Vehicle SUBI Certificate to the Trust;
o pledge the Lease SUBI Certificate to the Trust under the Program
Operating Lease as security for the obligations of the Transferor
under the Program Operating Lease; and
o deliver the Lease SUBI Certificate to the Trust to perfect the pledge.
In exchange, the Trust will pay to the Transferor the net proceeds from the sale
of the Senior Notes and the sale, if any, of the Certificates (other than the
Transferor Certificate) to third party investors, and will issue to the
Transferor the Subordinated Notes and the Transferor Certificate.
Immediately following the transfer of the Vehicle SUBI Certificate and the
pledge of the Lease SUBI Certificate to the Trust, the Trust will pledge its
interest in the Trust Estate, which includes the Vehicle SUBI Certificate and
the pledge of the Lease SUBI Certificate, to the Indenture Trustee as security
for the Senior Notes. The Trust will deliver the Lease SUBI Certificate and the
Vehicle SUBI Certificate to the Indenture Trustee to perfect the pledge of the
SUBI Certificates. The Trust and the Transferor will concurrently enter into the
Program Operating Lease, under which the Trust will lease the Vehicle SUBI
Certificate to the Transferor, subject to the pledge thereof to the Indenture
Trustee. During the term of the Program Operating Lease, the Transferor, as
lessee of the Vehicle SUBI Certificate, will be required to make Program
Operating Lease Payments to the Trust and will be entitled to receive proceeds
from the Vehicle SUBI Certificate - as well as from the Lease SUBI Certificate -
in respect of the Specified Vehicles to the extent described under "Security for
the Securities--The Program Operating Lease".
21
<PAGE>
THE TRANSFEROR
The Transferor is a limited liability company that was formed under the
laws of Delaware in August, 2000. BMW FS is the managing member of the
Transferor. The principal office of the Transferor is located at 300 Chestnut
Ridge Road, Woodcliff Lake, New Jersey 07675 and its telephone number is (201)
307-4000.
The Transferor was organized solely for the purpose of acquiring interests
in the SUBIs and Other SUBIs, causing securities like the Securities to be
issued and engaging in related transactions. The limited liability company
agreement of the Transferor limits its activities to those purposes and to any
activities incidental or necessary thereto.
BMW FS
BMW Financial Services NA, Inc., the predecessor of BMW Financial Services
NA, LLC ("BMW FS"), was incorporated on April 23, 1984 in the State of Delaware
and, on May 1, 2000, was converted into a limited liability company organized
under the laws of the State of Delaware. BMW FS is a wholly owned subsidiary of
BMW of North America, Inc. ("BMW NA"). BMW FS provides retail and wholesale
financing, retail leasing and certain other financial services to authorized BMW
Centers and their customers throughout the United States. BMW NA is based in
Woodcliff Lake, New Jersey and is engaged in the wholesale distribution of BMW
motor vehicles and motorcycles throughout the United States. BMW NA is an
indirectly wholly-owned subsidiary of Bayerishe Motoren Werke Aktiengesellschaft
("BMW AG"), a German corporation that is an international manufacturer and
distributor of high performance luxury automobiles, sports utility vehicles and
motorcycles.
The national executive headquarters of BMW FS are located at 300 Chestnut
Ridge Road, Woodcliff Lake, New Jersey 07675. Its telephone number is: (201)
307-4000. Its Customer Service Center is located at 5515 Parkcenter Circle,
Dublin, Ohio 43017.
BMW FS' LEASE FINANCING PROGRAM
General
BMW FS currently provides financing for over 90% of the motor vehicle
consumer lease contracts in respect of BMW products (the "BMW lease contracts")
originated by authorized BMW Centers throughout the United States. BMW FS
finances BMW lease contracts in accordance with its established underwriting
procedures, subject to the terms of its agreement (each, a "Dealer Agreement")
with each BMW Center. Except as otherwise specified, the discussion below
applies to all BMW lease contracts, whether owned by BMW FS or the Vehicle
Trust.
Each Dealer Agreement, among other things, obligates the related BMW Center
to repurchase any BMW lease contract BMW FS financed for the outstanding lease
balance thereof, if the BMW Center breaches certain representations and
warranties as set forth in the Dealer Agreement. The representations and
warranties typically relate to the origination of the BMW lease contract and the
transfer of the related leased vehicles and not the creditworthiness of the
User-Lessee under the BMW lease contract.
BMW FS currently finances BMW lease contracts relating to new and used
vehicles manufactured by BMW AG and Land Rover as well as a small percentage of
non-BMW used vehicles. See "Underwriting".
Underwriting
BMW lease contracts are acquired or financed by BMW FS in accordance with
underwriting procedures that are intended to assess the applicant's ability to
pay the amounts due on the contract and the adequacy of the leased vehicle as
collateral. BMW FS utilizes predetermined credit score cutoffs and approval
authority levels as credit controls.
22
<PAGE>
BMW FS requires applicants to complete an application form providing
various items of financial information, credit and employment history and other
personal information. Applications are accepted for new and used vehicles from
approved retailers via U.S. mail, facsimile, personal delivery or InfoBahn - a
BMW intranet system linking BMW Centers, BMW NA and BMW FS. The application is
reviewed for completeness. Independent verification of information in the
application generally is not required. However, BMW FS will seek verification of
some information, such as employment, income and/or residence, under some
circumstances, such as discovery of a discrepancy between information in the
application and information in a credit bureau report. For the year ended June
30, 2000, 89.68% of applications were approved, 88.24% of which were funded by
BMW FS.
A credit buyer reviews each application that is not automatically approved.
Credit buyers have credit authority levels of "I" or "II". The credit buyer's
review includes an evaluation of a credit bureau report on the applicant from an
independent credit bureau and the applicant's credit score based on a credit
scoring system or "scorecard" developed for BMW FS. This system, which has been
in use since 1997, calculates a score based on data in a credit application
that, based on past performance of BMW FS' lease contract portfolio, appear to
be indicative of the degree of likelihood that an applicant will make scheduled
payments to BMW FS.
Upon review of the application, the applicant's credit score and credit
bureau report, an assessment is made regarding the relative degree of credit
risk. BMW FS' guidelines provide that an applicant's credit score will be highly
considered by the credit buyer in determining whether to extend credit. Besides
the credit score, BMW FS also considers the applicant's income to debt ratio,
the amount of any down payment applied to reduce the lease's capitalized cost
and other attributes as part of the decision making process. BMW FS' management
sets limits on the approval of applications scoring below the company's minimum
scores. In the case of a complete application scoring above a certain level of
the scoring system, the application may be subject to an automated credit
approval process which does not require the review and approval by a credit
buyer. Applicants that score below a minimum score established by BMW FS
management may not be approved by credit buyers with Level I credit authority.
Such applicants may be approved by a credit buyer with Level II credit authority
(or in some cases only by the credit manager) based on the presence of certain
factors, such as a guarantee by the BMW Center. A credit buyer with Level I
credit authority may not disapprove without management review applicants that
score above the specified minimum.
In case of a commercial applicant, BMW FS reviews information concerning
bank accounts, credit references and recent financial results of each business
entity. BMW FS requires an individual to guarantee the business' obligations
under the BMW lease contract, otherwise it will obtain a Dun and Bradstreet
report.
BMW FS generally does not provide financing to applicants with previous
bankruptcies. However, BMW FS' guidelines do permit such financing under some
circumstances, such as if the customer has re-established credit for at least 24
months and has had no 30-day delinquencies in that period.
The maximum allowable advance in respect of a BMW lease contract generally
will not exceed (1) with respect to a new vehicle, 100% of the manufacturer's
suggested retail price ("MSRP") for the vehicle, or (2) with respect to a used
vehicle, 100% of the retail price reported for the vehicle that is stated in the
most recent edition of the National Automotive Dealers Association Used Car
Guide or the Kelly Blue Book, plus in each case options, certain
dealer-installed accessories, various taxes and fees incurred in connection with
the sale and, in some cases, insurance policies, extended service contracts (up
to the greater of five percent of MSRP or $1,500) and other items. The credit
manager may approve maximum allowable advances up to 105% of the above amounts,
and the national credit manager may approve maximum allowable advances up to
110% of the above amounts.
Security deposits generally are required in an amount equal to one month's
monthly payment under the BMW lease contract. Security deposits are waived for
lease applicants with existing BMW lease contracts that are at least halfway
through their term. For other applicants, the security deposit may be waived by
marking up the lease rate by .00015%. Security deposits are not segregated. Upon
early termination of a BMW lease contract, the security deposit may be applied
to unpaid amounts.
Upon the maturity of a BMW lease contract, the user-lessee has the option
to purchase or re-lease the leased vehicle from BMW FS. The same underwriting
and credit procedures described above apply to any financing offered to these
user-lessees.
23
<PAGE>
Servicing
BMW FS measures delinquency by the number of days elapsed from the date a
payment is due under the BMW lease contract (each, a "Due Date"). BMW FS
considers a payment to be past due or delinquent when a user-lessee fails to
make at least 80% of a scheduled payment by the related Due Date. BMW FS
generally begins collection activities with respect to a delinquent BMW lease
contract through telephone contact. An automated system supports BMW FS'
collection activities to monitor delinquencies and to track the contacts with
the user-lessees.
BMW FS assigns collectors to specific user-lessees and attempts to contact
the delinquent user-lessee by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a contract becomes 60 to 90 days delinquent. Repossessions are
carried out pursuant to applicable state law and specific procedures adopted by
BMW FS.
BMW FS' current policy is to generally charge off a BMW lease contract on
the earlier of (a) the date on which the proceeds of sale of the leased vehicle
are applied to the BMW lease contract balance and (b) the month in which the BMW
lease contract reaches its 150th day of delinquency.
Any deficiencies remaining after repossession and sale of the related
leased vehicle or after full charge-off of the related BMW lease contract are
pursued by BMW FS to the extent practicable and legally permitted. user-lessees
are contacted, and when warranted by individual circumstances, repayment
schedules are established and monitored until the deficiencies are either paid
in full or become impractical to pursue.
Physical Damage and Liability Insurance
Each BMW lease contract requires the user-lessee to obtain physical damage
insurance covering loss or damage to the leased vehicle. The Dealer Agreements
include a requirement that the BMW Centers provide BMW FS with written evidence
that physical damage and liability insurance covers the leased vehicle at least
in the amount required by the BMW lease contract at the time the BMW lease
contract is financed by BMW FS. The amounts of insurance required by the BMW
lease contracts are at least equal to the amounts required by applicable state
law, subject to customary deductibles. BMW FS requires the policy to include the
Vehicle Trust as loss payee. BMW FS tracks the ongoing status of insurance and
attempts to cause the user-lessees to reinstate such insurance in the event that
it is allowed to lapse; nevertheless, there can be no assurance that each leased
vehicle will continue to be covered by physical damage insurance for the entire
term during which the related BMW lease contract is outstanding. BMW FS does not
"force place" insurance.
Leased Vehicle Maintenance
Each BMW lease contract provides that the user-lessee is responsible for
all maintenance, repair, service and operating expenses of the leased vehicle.
In addition, the user-lessee is responsible for all damage to the leased vehicle
and for its loss, seizure or theft. At the scheduled maturity date of a BMW
lease contract, if the user-lessee does not purchase or re-lease the leased
vehicle, the BMW lease contract requires the user-lessee is required to pay BMW
FS the estimated cost to repair any damage to the vehicle which is "excessive
wear and use" ("Excess Wear and Use Payments"). Excessive wear and use generally
includes, but is not limited to: (a) inoperative mechanical and electrical
parts; (b) damage to the body, lights, trim or paint; (c) damaged, broken or
tinted glass; (d) torn, damaged or stained interior; (e) damage from flood,
water, hail or sand; (f) damage from removal of equipment or signs placed on the
vehicle; (g) missing equipment, parts and accessories; and (h) damaged,
excessively worn or missing tires.
End of Lease Term; Vehicle Disposition
Six months prior to the expiration of a BMW lease contract, BMW FS sends to
the user-lessee new product information and a summary of the end-of-lease
options. BMW FS sends to each user-lessee a package with information regarding
(1) security deposit and disposition fee waiver for user-lessees wishing to
finance a new vehicle under BMW FS' lease program, (2) an end-of-lease options
brochure with details about the vehicle turn-in process and BMW FS'
wear-and-tear guidelines and (3) BMW FS' phone number and a business reply card
so
24
<PAGE>
user-lessees can contact BMW FS regarding their end of lease options. Sixty days
prior to lease end, BMW FS will call the user-lessee to determine if the
user-lessee has been in contact with the BMW Center and to discuss their
end-of-lease options. Occasionally, BMW FS will extend a BMW lease contract up
to a maximum of six months. BMW FS only does so if the user-lessee has ordered
another BMW vehicle that has not yet been delivered.
If the user-lessee has decided not to purchase or re-lease the leased
vehicle, an independent inspector will perform a vehicle inspection
approximately 45 days prior to the BMW lease contract's scheduled maturity date.
When the user-lessee delivers the leased vehicle to the BMW Center on the
scheduled maturity date, the BMW Center will validate the results of the
inspection, as well as inspect the vehicle for any repaired items or significant
new damage. The BMW Center will calculate any excess mileage charged based on
the current odometer reading. The user-lessee will execute an Inspection and
Odometer Statement and will be given a copy by the BMW Center. This will serve
as the user-lessee's receipt regarding his financial responsibilities to BMW FS.
Once the vehicle has been turned in, the related BMW Center may elect to
purchase the vehicle for its pre-owned inventory. BMW FS introduced the "Full
Circle" program in 1999 to create a market for off-lease vehicles other than the
auction market. BMW FS has provided incentives for BMW Centers to join the Full
Circle program. BMW Centers that participate in Full Circle are contractually
obligated under agreements with a term of one year (the "Full Circle
Agreements") to purchase all of the leased vehicles they originally leased and
that are returned to them in the year of participation in Full Circle (less an
allowance of up to eight percent of the annual number of the BMW Center's
scheduled lease maturities) at the lower of the contractual residual value and
the four-week rolling average Manheim Marketing Report (MMR) price. MMR is an
impartial pricing report that monitors the pricing of all cars sold at the
Manheim Auctions. Manheim Auctions is a high-volume wholesale automobile auction
company. The BMW Center must notify BMW FS within 72 hours after the vehicle has
been turned in of its purchase decision. BMW FS must receive the purchase price
within 5 business days after the BMW Center's decision. If the BMW Center elects
not to purchase the vehicle, BMW FS has established standardized pickup
procedures to retrieve the vehicle from the BMW Center as quickly as possible.
The vehicle is then delivered to a regional auction site for disposition. The
regional auctions currently used by BMW FS are "open" auctions, which means that
any licensed dealer (not limited to BMW Centers) may participate. Occasionally,
vehicles are sent to a more distant auction site if a higher auction price can
be reasonably obtained for the vehicle. A BMW FS representative is present at
the auction and is responsible for handling BMW FS' decisions at the auction,
including approval of repairs on the vehicle and acceptance of auction bids.
Full Circle Agreements are terminable by BMW Centers at will, subject to the
return of certain rebates actually paid to the BMW Centers by BMW FS under such
Agreements.
The Certified Pre-Owned BMW Vehicle Program ("CPO") was established by BMW
NA in 1996 to create customer and BMW Center demand for off-lease used BMW
vehicles and to enhance the value of off-lease BMW vehicles. To qualify for CPO,
a vehicle must pass an inspection conducted by the related BMW Center based on
standards set by BMW NA. For CPO vehicles, BMW NA provides a limited warranty
for two years or 50,000 miles (whichever comes first) that becomes effective
upon the expiration of the original four year/50,000 mile (whichever comes
first) new car warranty. Each CPO vehicle also is covered by the BMW Roadside
Assistance Program which is identical to that offered on new vehicles. CPO is
actively marketed by BMW NA through a separate sales force and is advertised
using both broadcast and print media.
Occasionally, BMW FS offers to user-lessees, whose BMW lease contracts are
nearing expiration, incentives to lease new vehicles ("New Lease Incentives").
These incentives may include forgiveness of one or more monthly payments
otherwise payable under the related BMW lease contracts. In the event that a BMW
lease contract subject to such forgiveness is a Specified Lease, BMW FS has
agreed in the Servicing Agreement to pay to the Trust the Monthly Payments so
forgiven. New Lease Incentives may increase the turn-in rates for the related
vehicles, including Specified Vehicles, and increase the exposure of
securityholders to the risks associated with the market valuation of pre-owned
vehicles.
25
<PAGE>
Residual Values
BMW FS conducts a broad analysis of different factors that may affect the
residual values of the Leased Vehicles. This process involves an analysis of all
available data such as the Automobile Lease Guide (ALG) and current, actual
vehicle values. ALG is an independent publisher of lease residual value
percentages and is frequently used for comparison purposes by the vehicle
leasing industry. In addition, BMW FS uses a residual value forecasting model
developed for BMW FS by KPMG LLP as one of the factors it considers in setting
residual values. This model incorporates BMW FS' experience in marketing
off-lease vehicles.
BMW FS prepares benchmark residual value percentages and distributes them
to BMW Centers every two months. Residual percentages are published for the
standard lease terms: 24, 30, 36, 42, 48, 54 and 60 months. If a term and
corresponding residual value percentage is not published, the residual value is
calculated by extrapolating the appropriate residual value using the published
residual percentages. The residual value set forth in each BMW lease contract is
determined by multiplying the MSRP plus eligible factory options and certain
dealer-installed accessories by the applicable lease residual value percentage.
As part of BMW NA sales support programs, BMW FS distributes to BMW Centers
residual value percentages for certain vehicles that are higher than those
determined pursuant to the methods described above. As a result, the residual
value set forth in a Specified Lease (the "Contract Residual Value") may be
higher than the residual value determined pursuant to the above methods (the
"BMW FS Residual Value"). The Securitization Values have been and will be
calculated by the Servicer based upon BMW FS Residual Values. As a result, the
excess of the Contract Residual Value over BMW FS Residual Values will not be
financed in the transaction described herein. However, the Purchase Option
Prices (which if paid are part of Collections available to the Trust) for the
Specified Vehicles at the Maturity Dates of the related Specified Leases will be
the Contract Residual Values.
Calculation of the Securitization Value of the Specified Leases
Under the Servicing Agreement, the Servicer will calculate a
"securitization value" (the "Securitization Value") for each Specified Lease
equal to the sum of (i) the present value of the remaining Monthly Payments
payable under the Specified Lease and (ii) the present value of the BMW FS
Residual Value of the related Specified Vehicle, in each case discounted at an
annualized rate equal to the Securitization Rate. The initial Securitization
Value represents the amount of financing that will be raised for each Specified
Vehicle and related Specified Lease. The Securitization Value at any given time
during the term of the Specified Lease represents the principal amount of
Securities that can be amortized by the sum of the Monthly Payments due in
respect of the Specified Vehicle over the remaining Lease Term, plus the BMW FS
Residual Value of the Specified Vehicle. The "securitization rate" (the
"Securitization Rate") will equal the sum of (a) the interest rate on the Class
A-4 Senior Notes, (b) the Servicing Fee and (c) 2.83%.
The "Monthly Payment" is the fixed lease payment payable monthly by the
User-Lessee and does not include other amounts payable by the User-Lessee, such
as late charges, returned check fees, taxes and similar items (all of which will
be payable to the Servicer).
26
<PAGE>
BMW FS MANAGED LEASE PORTFOLIO
DELINQUENCY EXPERIENCE (1)(2)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Lease Contracts
Outstanding ................. $7,836,636 $7,438,385
Number of Lease Contracts
Outstanding ................. 218,254 207,644
--------------------------------------
DOLLARS % DOLLARS %
--------------- --------------
Lease Contracts Delinquent
30-59 Days .................. $73,090 0.93% $71,315 0.96%
60-89 Days .................. 15,146 0.19 11,657 0.16
90 Days or More ............. 6,978 0.09 4,477 0.06
--------------- --------------
TOTAL ......................... $95,214 1.21% $87,449 1.18%
=============== ===============
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1996
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Lease Contracts
Outstanding ................. $7,703,553 $6,247,147 $4,723,514 $3,664,452
Number of Lease Contracts
Outstanding ................. 215,500 172,556 132,797 112,518
--------------------------------------- ----------------------------------------
DOLLARS % DOLLARS % DOLLARS % DOLLARS %
---------------- --------------- --------------- ----------------
Lease Contracts Delinquent
30-59 Days .................. $ 88,226 1.15% $60,181 0.97% $65,489 1.39% $36,291 1.00%
60-89 Days .................. 14,440 0.19 11,032 0.18 14,433 0.31 7,428 0.21
90 Days or More ............. 5,876 0.08 4,374 0.07 5,799 0.12 11,271 0.31
---------------- --------------- --------------- ----------------
TOTAL ......................... $108,542 1.42% $75,587 1.22% $85,721 1.82% $54,990 1.52%
================ ================ =============== ================
</TABLE>
----------
(1) Data presented in the table is based upon Lease Balance for new and used
BMW and Land Rover vehicles, including those that have been sold but are
serviced by BMW FS.
(2) An account is considered delinquent if 20% or more of the scheduled monthly
payment is past due.
<TABLE>
BMW FS MANAGED LEASE PORTFOLIO
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)(2)
(DOLLARS IN THOUSANDS)
<CAPTION>
AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Lease Contracts Outstanding ............................ $7,836,636 $7,438,385
Average Lease Contracts Outstanding .................... $7,908,528 $6,935,523
Number of Lease Contracts Outstanding .................. 218,254 207,644
Average Number of Lease Contracts
Outstanding .......................................... 216,877 190,100
Number of Repossessions Sold ........................... 1,194 1,031
Number of Repossessions Sold as a
Percentage of the Average Number
of Lease Contracts Outstanding (3) ................... 0.55% 0.54%
Charge-offs (4) ........................................ $12,223 $10,067
Recoveries (5) ......................................... $2,493 $1,802
---------- ----------
Net Losses ............................................. $9,730 $8,265
========== ==========
Net Losses as Percentage of Average
Dollar Amount of Lease Contracts
Outstanding (6) ...................................... 0.16% 0.16%
<CAPTION>
AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Lease Contracts Outstanding ............................ $7,703,553 $6,247,147 $4,723,514 $3,664,452
Average Lease Contracts Outstanding .................... $7,101,813 $5,558,104 $4,270,629 $3,266,458
Number of Lease Contracts Outstanding .................. 215,500 172,556 132,797 112,518
Average Number of Lease Contracts
Outstanding .......................................... 194,028 152,677 122,658 103,742
Number of Repossessions Sold ........................... 1,368 1,284 1,212 934
Number of Repossessions Sold as a
Percentage of the Average Number
of Lease Contracts Outstanding (3) ................... 0.71% 0.84% 0.99% 0.90%
Charge-offs (4) ........................................ $14,376 $11,939 $10,586 $8,133
Recoveries (5) ......................................... $2,549 $2,268 $2,011 $1,545
---------- ---------- ---------- ----------
Net Losses ............................................. $11,827 $9,671 $8,575 $6,588
========== ========== ========== ==========
Net Losses as Percentage of Average
Dollar Amount of Lease Contracts
Outstanding (6) ...................................... 0.17% 0.17% 0.20% 0.20%
</TABLE>
-----------
(1) Averages are computed by taking a simple average of month end outstanding
amounts for each period presented.
(2) Data presented in the table is based upon Lease Balance for leases of new
and used BMW and Land Rover vehicles, including those that have been sold
but are serviced by BMW FS.
(3) Number of Repossessions Sold means the number of repossessed leased
vehicles that have been sold by BMW FS in a given period.
(4) Charge-offs represent the total aggregate net principal balance of lease
contracts determined to be uncollectible in the period less proceeds from
disposition of the related leased vehicles, other than recoveries described
in Note (5).
(5) Recoveries generally include amounts received with respect to lease
contracts previously charged off, net of the proceeds realized in
connection with the sale of the related leased vehicles.
(6) Data for the nine months ended September 30, 1999 and September 30, 2000
have been annualized.
27
<PAGE>
RESIDUAL VALUE LOSS EXPERIENCE (1)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Number of Leases Scheduled
to Terminate ........................... 53,385 26,772
Number of Returned Vehicles Sold by
BMW FS (2) ............................. 34,889 17,480
Full Term Return Ratio (3) ............... 65.4% 65.3%
Losses on Returned Vehicles Sold by
BMW FS (4) ............................. $44,357,263 $18,877,088
Average Loss per Returned Vehicle
Sold by BMW FS ......................... $1,271 $1,080
Losses as a Percentage of the BMW FS
Residual Values of Returned Vehicles
Sold by BMW FS (5) ..................... 4.37% 3.49%
Losses as a Percentage of the BMW FS
Residual Values of Scheduled
Terminations (6) ....................... 2.91% 2.40%
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Number of Leases Scheduled
to Terminate ........................... 37,237 33,899 40,724 26,452
Number of Returned Vehicles Sold by
BMW FS (2) ............................. 24,437 21,263 20,319 7,452
Full Term Return Ratio (3) ............... 65.6% 62.7% 49.9% 28.2%
Losses on Returned Vehicles Sold by
BMW FS (4) ............................. $28,898,007 $26,961,088 $33,664,167 $ 9,949,384
Average Loss per Returned Vehicle
Sold by BMW FS ......................... $1,183 $1,268 $1,657 $1,335
Losses as a Percentage of the BMW FS
Residual Values of Returned Vehicles
Sold by BMW FS (5) ..................... 3.88% 4.70% 6.84% 5.83%
Losses as a Percentage of the BMW FS
Residual Values of Scheduled
Terminations (6) ....................... 2.67% 3.12% 3.72% 1.85%
</TABLE>
------------
(1) Data presented in the table is based upon BMW FS residual values for new
BMW vehicles whose related lease contracts were scheduled, as of their
origination dates, to terminate during the stated period, including
vehicles that have been sold but are still being serviced by BMW FS.
(2) Includes leased vehicles returned to and sold by BMW FS. Does not include
vehicles sold to customers.
(3) The ratio, expressed as a percentage, of the number of returned vehicles
sold by BMW FS over the number of leases scheduled, on their origination
dates, to terminate during the stated period.
(4) Losses include the excess of the BMW FS residual value over the vehicle
sales proceeds (net of amounts received after the sale and disposition of
the vehicle).
(5) The ratio, expressed as a percentage, of the losses on returned vehicles
sold by BMW FS over the sum of the BMW FS residual values of such vehicles.
(6) The ratio, expressed as a percentage, of the losses on returned vehicles
sold by BMW FS over the sum of the BMW FS residual values for the leases
scheduled to terminate.
28
<PAGE>
THE SPECIFIED LEASES
General
The Specified Leases selected from the Vehicle Trust's portfolio of Leases
will consist of a pool of 43,595 Leased Vehicles that had an Aggregate Cutoff
Date Securitization Value of $1,547,538,089. The Specified Leases were assigned
to the Vehicle Trust by BMW Centers prior to the Closing Date. The Specified
Leases are operating leases under generally accepted accounting principles and
have been selected based upon the criteria specified in the SUBI Trust Agreement
and described under "--Characteristics --General" and "--Representations,
Warranties and Covenants". BMW FS will represent and warrant that aside from
such criteria, it used no adverse selection procedures in selecting the
Specified Leases for allocation to the Lease SUBI as SUBI Assets and that aside
from such criteria, it is not aware of any bias in the selection of the
Specified Leases that would cause delinquencies or losses on the Specified
Leases to be worse than any other Leases held by the Vehicle Trust. However,
there can be no assurance as to delinquencies or losses on the Specified Leases.
All Specified Vehicles relating to the Specified Leases will be titled in the
name of the Vehicle Trust.
Each Specified Lease provides for equal Monthly Payments that are allocated
between principal and Rent Charges. The "Rent Charge" portion of each Monthly
Payment is the amount the User Lessee is charged on the Lease Balance and is
calculated on a constant yield basis at an imputed interest rate (the "Lease
Rate"). The "Lease Balance" of a Specified Lease equals the present value of the
remaining Monthly Payments owed by the User Lessee and the present value of the
Contract Residual Value of the related Specified Vehicle, each determined using
a discount rate equal to the Lease Rate. The initial Lease Balance of a
Specified Lease (the "Initial Lease Balance") equals the adjusted capitalized
cost set forth in the Lease. The adjusted capitalized cost of a Specified Lease
represents the initial value of the Specified Lease and the related Specified
Vehicle (which value may exceed the manufacturer's suggested retail price and
may include certain fees and costs related to the origination of the Specified
Lease). The Initial Lease Balance amortizes over the term of the Specified Lease
to an amount equal to the Contract Residual Value.
All of the Specified Leases will be closed-end leases. Under a "closed-end
lease," at the end of its term, if the User-Lessee does not elect to purchase or
re-lease the related leased vehicle by exercise of the purchase or re-lease
option contained in such BMW lease contract, the User-Lessee is required to
return the leased vehicle to or upon the order of BMW FS, at which time the
User-Lessee will then owe (in addition to unpaid Monthly Payments) 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
User-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
contract residual value.
Each User-Lessee will be permitted to purchase or re-lease the Specified
Vehicle at the scheduled termination date specified in the related Specified
Lease (the "Maturity Date") or upon the early termination of the related
Specified Lease. The purchase price (the "Purchase Option Price") is the amount
payable by a User-Lessee upon the exercise of its option to purchase a Specified
Vehicle which amount equals (a) with respect to a Matured Vehicle, the Contract
Residual Value plus any fees, taxes and other charges imposed in connection with
such purchase and (b) with respect to a Specified Vehicle for which the related
Specified Lease has been terminated early by the User-Lessee, the sum of (i) any
due but unpaid Monthly Payments, (ii) any fees, taxes and other charges imposed
in connection with the Specified Lease, (iii) an early termination fee and (iv)
the Actuarial Payoff. In addition, so long as a User-Lessee is not in default
under a Specified Lease, a User-Lessee may terminate the Specified Lease and not
exercise its option to purchase a Specified Vehicle at any time upon payment in
full of a payoff amount (the "Early Termination Cost"). The Early Termination
Cost is the sum of (a) any due but unpaid Monthly Payments; (b) any fees and
taxes assessed or billed in connection with the Specified Lease and any other
amount charged to the User-Lessee under the Specified Lease, including repair
charges at termination; (c) an early termination fee of $250; (d) a disposition
fee of $350; (e) the Actuarial Payoff; minus (f) the estimated value of the
vehicle as determined by Black Book Wholesale Average Condition, or if
unavailable, the N.A.D.A. Official Used Car Guide Wholesale Average Condition
(or, in California, the Kelly Blue Book Auto Market Report). The "Actuarial
Payoff" is the excess of the sum of the Monthly Payments remaining until the end
of the Specified Lease and the Contract Residual Value over the remaining
unearned Rent Charges.
29
<PAGE>
Each Specified Lease will provide that BMW FS may terminate the Specified
Lease and repossess the related Specified Vehicle following an event of default
by the related User-Lessee (each, a "Lease Default"). Typical Lease Defaults
include, but may not be limited to, failure of the User-Lessee to make payments
when due, certain events of bankruptcy or insolvency of the User-Lessee, failure
to maintain required insurance or failure to comply with any other term or
condition of the Specified Lease. BMW FS regularly tracks user-lessees'
compliance with their payment and insurance obligations and monitors
user-lessees for noncompliance as more fully described under "BMW FS' Lease
Financing Program--Physical Damage and Liability Insurance" and "--Servicing".
If a User-Lessee is in default of a Specified Lease, BMW FS may do any or
all of the following: (i) take any reasonable measures to correct the default or
save BMW FS from loss; (ii) terminate the Specified Lease and the User-Lessee's
rights to use and possess the Specified Vehicle, and if the User-Lessee does not
voluntarily return the Specified Vehicle, take possession of the Specified
Vehicle by any method permitted by law; (iii) determine the User-Lessee's "early
termination liability" (the "Early Termination Liability"), which is the sum of
the Early Termination Cost, all collection costs, and to the extent permitted by
law, court costs and reasonable attorney's fees; or (iv) pursue any other remedy
permitted by law. The User-Lessee is also liable for all related expenses, fees,
legal cost and attorney's fees incurred by BMW FS to repossess, store, restore
and/or dispose of the Specified Vehicle.
In the event of termination of a Specified Lease where the related
User-Lessee is in default following a casualty of the related Specified Vehicle,
amounts collected with respect to the Specified Lease and Specified Vehicle,
after deducting costs and other sums retained by the Servicer in connection
therewith may be less than the Securitization Value of the Specified Lease. In
the event that any of the foregoing shortfalls are not covered from available
monies on deposit in the SUBI Collection Account and Reserve Fund and the
subordination of payments otherwise payable to the holders of the Subordinated
Notes and the Certificates to the extent described in this prospectus, investors
in the Senior Notes could suffer a loss on their investment.
Characteristics
General. The Specified Leases were selected by reference to several
criteria, including, that as of the Cutoff Date, each Specified Lease:
o applied to a Specified Vehicle that was a new BMW automobile at the
time of origination of the Specified Lease;
o applied to a Specified Vehicle that has a model year of 1996 or later;
o provides for level payments that fully amortize the Initial Lease
Balance of the Specified Lease at the related Lease Rate to the
related Contract Residual Value over the lease term and, in the event
of a User-Lessee initiated early termination, provides for payment of
the Early Termination Cost;
o was originated on or after January 1, 1998;
o had a Maturity Date on or after March 2001 and no later than July
2004; and
o was not more than 29 days past due.
30
<PAGE>
COMPOSITION OF SPECIFIED LEASES
(AS OF THE CUTOFF DATE)
Aggregate Securitization Value .............. $1,547,538,089
Number of Specified Leases .................. 43,595
Aggregate of Discounted BMW FS Residual
Values (2) as a Percentage of Aggregate
Securitization Value ...................... 63.83%
AVERAGE MINIMUM MAXIMUM
------- ------- -------
Securitization Value ........................ $35,498 $12,793 $113,431
Lease Rate (1) .............................. 7.49% 1.80% 16.51%
Original Number of Monthly Payments (1) ..... 35.38 12.00 48.00
Remaining Number of Monthly Payments (1) .... 22.79 5.00 45.00
BMW FS Residual Value ....................... $27,562 $ 6,802 $ 72,715
Discounted BMW FS Residual Value (2) ........ $22,658 $ 5,238 $ 60,558
-----------
(1) Weighted by Securitization Value as of the Cutoff Date
(2) Discounted by the Securitization Rate
Distribution of the Specified Leases by Cutoff Date Securitization Value
As of the Cutoff Date, the distribution of the Specified Leases by Cutoff
Date Securitization Value was as follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF AGGREGATE
SPECIFIED CUTOFF DATE CUTOFF DATE
CUTOFF DATE SECURITIZATION VALUE ($) LEASES SECURITIZATION VALUE SECURITIZATION VALUE
------------------------------------ --------- -------------------- -----------------------
<S> <C> <C> <C>
Less than 15,000.00 ................ 86 $ 1,230,204 0.08%
15,000.01-20,000.00 ................ 338 5,972,783 0.39
20,000.01-25,000.00 ................ 2,506 58,231,840 3.76
25,000.01-30,000.00 ................ 10,457 294,020,844 19.00
30,000.01-35,000.00 ................ 11,657 373,015,132 24.10
35,000.01-40,000.00 ................ 9,150 342,018,700 22.10
40,000.01-45,000.00 ................ 2,671 111,994,639 7.24
45,000.01-50,000.00 ................ 2,103 100,303,042 6.48
50,000.01-60,000.00 ................ 3,739 201,637,490 13.03
60,000.01-70,000.00 ................ 684 43,353,198 2.80
Greater than 70,000.00 ............. 204 15,760,216 1.02
------ -------------- ------
Total .......................... 43,595 $1,547,538,089 100.00%
====== ============== ======
</TABLE>
Distribution of the Specified Vehicles by Model
As of the Cutoff Date, the distribution of the Specified Vehicles by model
was as follows:
NUMBER OF PERCENTAGE OF AGGREGATE
SPECIFIED AGGREGATE CUTOFF DATE CUTOFF DATE
MODEL LEASES SECURITIZATION VALUE SECURITIZATION VALUE
----- --------- ---------------------- -----------------------
3 Series 18,949 $ 566,866,204 35.98%
5 Series 17,753 638,490,138 41.26
7 Series 6,893 352,181,747 22.76
------ -------------- ------
Total 43,595 $1,547,538,089 100.00%
====== ============== ======
31
<PAGE>
Distribution of the Specified Leases by Original Term to Maturity
As of the Cutoff Date, the distribution of the Specified Leases by the term
to original maturity was as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF AGGREGATE
SPECIFIED AGGREGATE CUTOFF DATE CUTOFF DATE
ORIGINAL TERM TO MATURITY (IN MONTHS) LEASES SECURITIZATION VALUE SECURITIZATION VALUE
------------------------------------- --------- --------------------- -----------------------
<S> <C> <C> <C>
0-12 ............................. 297 $ 9,085,496 0.59%
13-18 ............................. 14 522,134 0.03
19-24 ............................. 1,001 43,143,915 2.79
25-30 ............................. 1,665 61,953,960 4.00
31-36 ............................. 39,893 1,408,390,361 91.01
37-42 ............................. 593 19,665,820 1.27
43-48 ............................. 132 4,776,402 0.31
------ -------------- ------
Total ......................... 43,595 $1,547,538,089 100.00%
====== ============== ======
</TABLE>
Distribution of the Specified Leases by Remaining Term to Maturity
As of the Cutoff Date, the distribution of the Specified Leases by the
number of months until the Maturity Date was as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF AGGREGATE
SPECIFIED AGGREGATE CUTOFF DATE CUTOFF DATE
REMAINING TERM TO MATURITY (IN MONTHS) LEASES SECURITIZATION VALUE SECURITIZATION VALUE (1)
------------------------------------- --------- --------------------- -------------------------
<S> <C> <C> <C>
0-6 ................................ 1,065 $ 33,036,983 2.13%
7-12 ............................... 8,466 254,826,147 16.47
13-18 ............................... 6,137 200,299,023 12.94
19-24 ............................... 1,377 55,734,614 3.60
25-30 ............................... 15,644 585,458,767 37.83
31-36 ............................... 10,761 412,311,962 26.64
37-42 ............................... 122 4,687,088 0.30
43-46 ............................... 23 1,183,505 0.08
------ -------------- ------
Total ........................... 43,595 $1,547,538,089 100.00%
====== ============== ======
</TABLE>
-------------
(1) Percentages may not add to 100.00% due to rounding.
Distribution of the Specified Vehicles by State
As of the Cutoff Date, the distribution of the Specified Vehicles based on
the state in which the related Specified Vehicle is titled, was as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF AGGREGATE
SPECIFIED AGGREGATE CUTOFF DATE CUTOFF DATE
STATE VEHICLES SECURITIZATION VALUE SECURITIZATION VALUE (1)
----- --------- --------------------- ------------------------
<S> <C> <C> <C>
California ........ 15,395 $ 542,824,177 35.08%
Delaware .......... 236 7,772,148 0.50
Hawaii ............ 210 6,779,933 0.44
Idaho ............. 43 1,523,758 0.10
Illinois .......... 2,431 90,436,720 5.84
Indiana ........... 579 20,321,417 1.31
Maryland .......... 858 30,469,382 1.97
Massachusetts ..... 1,967 68,779,657 4.44
Michigan .......... 1,312 45,394,421 2.93
Nebraska .......... 119 4,151,489 0.27
New Jersey ........ 7,001 246,737,956 15.94
New Mexico ........ 66 2,362,470 0.15
New York .......... 8,418 308,857,966 19.96
Pennsylvania ...... 3,194 109,941,619 7.10
Virginia .......... 1,054 36,071,151 2.33
Washington ........ 712 25,113,824 1.62
------ -------------- ------
Total ......... 43,595 $1,547,538,089 100.00%
====== ============== ======
</TABLE>
------------
(1) Percentages may not add to 100.00% due to rounding.
32
<PAGE>
Representations, Warranties and Covenants
The Specified Leases and the related Specified Vehicles will be described
in a schedule appearing as an exhibit to the SUBI Trust Agreement, which will
identify each Specified Vehicle by vehicle identification number and set forth
as to each Specified Lease or Specified Vehicle, as the case may be, among other
things:
o the date of origination,
o the Securitization Value as of the Cutoff Date,
o the BMW FS Residual Value,
o the Monthly Payment, and
o the number of months remaining from the Cutoff Date to the month in
which the Maturity Date occurs.
Under the Servicing Agreement, the Servicer will represent and warrant as
to certain characteristics of each Specified Lease and Specified Vehicle as
described in the first paragraph under "--Characteristics --General". The
Servicer will also represent and warrant that each Specified Lease or, to the
extent applicable, the related Specified Vehicle or User-Lessee:
o was originated by BMW FS in the United States for a User-Lessee with a
U.S. address in the ordinary course of BMW FS' business and in
compliance with BMW FS' customary credit policies and practices;
o is a U.S. dollar-denominated obligation;
o provides for constant Monthly Payments to be made by the User-Lessee
over the Lease Term;
o is a Lease as to which no selection procedure aside from those
specified herein was used that was believed to be adverse to the
holders of interests in the Vehicle Trust, the SUBIs or any Other
SUBI;
o was created in compliance in all material respects with all applicable
federal and state laws, including consumer credit, truth in lending,
equal credit opportunity and applicable disclosure laws;
o as of the date assigned to the Vehicle Trust, (a) is a legal, valid
and binding payment obligation of the User-Lessee, enforceable against
the User-Lessee in accordance with its terms, as amended, (b) has not
been satisfied, subordinated, rescinded, canceled or terminated, (c)
no right of rescission, setoff, counterclaim or defense has been
asserted or threatened in writing and (d) no written default notice
has been transmitted to BMW FS;
o an executed copy of the documentation associated therewith is located
at one of BMW FS' offices;
o requires the User-Lessee to obtain physical damage and liability
insurance that names the lessor as loss payee covering the related
Specified Vehicle;
o has been validly assigned to the Vehicle Trust by the related BMW
Center and is owned by the Vehicle Trust, free of all liens,
encumbrances or rights of others other than liens relating to
administration of title and tax issues;
o 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 Vehicle Trust and
the Vehicle Trustee in connection with (i) the origination of such
Specified Lease and (ii) the execution, delivery and performance by
the Vehicle Trust of the Specified Lease have been duly obtained,
effected or given and are in full force and effect as of the date of
the origination of such Specified Lease;
o the related BMW Center, BMW FS and the Vehicle Trust have each
satisfied all obligations required to be fulfilled on its part with
respect thereto;
o the related User-Lessee has a billing address in a Trust State and is
not BMW FS, the Transferor or any of their respective affiliates;
o the related certificate of title is registered in the name of the
Vehicle Trust or the Vehicle Trustee (or a properly completed
application for such certificate of title has been submitted to the
appropriate titling authority);
33
<PAGE>
o is a closed-end lease that required all monthly payments to be made
within 60 months of the date or origination of such lease;
o is fully assignable and does not require the consent of the
User-Lessee as a condition to any transfer, sale or assignment of the
rights of the originator;
o has not been deferred or otherwise modified except in accordance with
BMW FS' normal credit and collection policies and practices;
o is not an Other SUBI Asset; and
o to the knowledge of BMW FS, the related User-Lessee is not currently
the subject of a bankruptcy proceeding and the Specified Lease
constitutes "chattel paper" for purposes of the UCC.
"Trust State" means a state in which the Vehicle Trust has all licenses
necessary to own and lease vehicles.
The Servicer will be required to deposit or cause to be deposited into the
SUBI Collection Account an amount equal to the Securitization Value of a
Specified Lease (the "Reallocation Payment") if:
o the Vehicle Trustee, the Servicer, the Trust, either Trustee or the
Transferor discovers a breach of any representation, warranty or
covenant referred to in the preceding paragraph that materially and
adversely affects the Trust's interests in a Specified Lease or
Specified Vehicle, and
o the breach is not cured in all material respects within 60 days after
the Servicer discovers the breach or is given notice of it.
The Reallocation Payment must be made by the Servicer as of the day on
which the related cure period ended. Upon such payment, the related Specified
Lease and Specified Vehicle shall no longer constitute SUBI Assets. The
foregoing payment obligation will survive any termination of BMW FS as Servicer
under the Servicing Agreement. The Servicer will be required to make a
Reallocation Payment in respect of a Specified Lease if the related User-Lessee
moves to a state that is not a Trust State.
MATURITY, PAYMENT AND YIELD CONSIDERATIONS
In general, the rate of payment of principal and the yield to maturity of
the Senior Notes will be directly related to the rate at which payments on or in
respect of the Specified Leases and the Specified Vehicles are made. A
prepayment of a Specified Lease may be in the form of:
o payments resulting from a voluntary early termination of the Specified
Lease;
o Sales Proceeds, Termination Proceeds or Recovery Proceeds following a
default by or bankruptcy of the related User-Lessee; or
o Reallocation Payments and other repurchases made by the Servicer.
The rate of prepayments on the Specified Leases may be influenced by a
variety of economic, social and other factors, including competing automobile
lessors and the conditions in the used automobile market.
BMW FS is not aware of any publicly available industry statistics setting
forth termination rates for automobile leases similar to the Specified Leases.
Neither BMW FS nor the Trust can assure that prepayments on the Specified Leases
will conform to any historical experience, nor can they predict the actual
prepayment rates that may be experienced on the Specified Leases. See "BMW FS'
Lease Financing Program--Historical Data".
In general, prepayments of Specified Leases will shorten the weighted
average lives of the Senior Notes, which is the average amount of time during
which each dollar of the principal balance of a Senior Note is outstanding. As
the rate of payment of principal on the Senior Notes will depend primarily on
the rate of payment--including prepayments--of the Specified Leases, the final
payment of principal of a class of Senior Notes could occur significantly
earlier than the final scheduled payment dates specified on the front cover of
this prospectus for each class of Senior Notes (each, a "Final Scheduled Payment
Date"). If prepayments on Specified
34
<PAGE>
Leases cause the principal of the Senior Notes to be paid earlier than
anticipated, the Senior Noteholders will bear the risk of being unable to
reinvest principal payments at interest rates at least equal to the Interest
Rate on the related Senior Notes.
The effective yield on, and average lives of, the Senior Notes will depend
on, among other things, the amount of scheduled payments on or in respect of the
Specified Leases and the Specified Vehicles and the rate at which such payments
are made to the Senior Noteholders. The timing of changes in the rate of
payments in respect of the Specified Vehicles also may affect significantly an
investor's actual yield to maturity and the average lives of the Senior Notes. A
substantial increase in the rate of payments on or in respect of the Specified
Leases and Specified Vehicles - including liquidations of the Specified Leases -
may shorten the final maturities of, and may significantly affect the yields on,
the Senior Notes.
An investor's expected yield will be affected by:
o the price paid for the Senior Notes,
o the rate of prepayments of the Specified Leases, and
o the investor's assumed reinvestment rate.
These factors do not operate independently, but are interrelated. For example,
if prepayments on the Specified Leases are slower than anticipated, an
investor's yield may be lower if interest rates are higher than anticipated and
higher if interest rates are lower than anticipated. Conversely, if prepayments
on the Specified Leases are faster than anticipated, an investor's yield may be
higher if interest rates are higher than anticipated and lower if interest rates
are lower than anticipated.
The following information is provided solely to illustrate the effect of
prepayments of the Specified Leases on the unpaid principal amounts of the
Senior Notes and the weighted average life of the Senior Notes under the
assumptions stated below, and is not a prediction of the prepayment rates that
might actually be experienced with respect to the Specified Leases.
Prepayments on motor vehicle lease contracts may be measured by a
prepayment standard or model. The prepayment model used in this prospectus is
based on a prepayment assumption (the "Prepayment Assumption") expressed in
terms of percentages of ABS. "ABS" refers to a prepayment model that assumes a
constant percentage of the original number of lease contracts in a pool prepay
each month. However, as used in this prospectus, a 100% Prepayment Assumption
assumes that, based on the assumptions below, the Initial Lease Balance of a
contract will prepay as follows; (1) 0.25% ABS for the first six months of the
life of the lease contract and then an additional 0.02777% (precisely 0.5%/18)
ABS each month from the seventh through twenty fourth month of the life of the
lease contract ending at 0.75% ABS at the twenty fourth month; (2) 0.75% ABS for
the twenty-fifth through thirtieth month of the life of the lease contract and
then an additional 0.25% ABS each month from the thirty-first month through the
thirty-fifth month of the life of the lease contract ending at 2.00% ABS (3)
2.00% ABS following the thirty-fifth month of the life of the lease contract
until the Initial Lease Balance of the lease contract has been paid in full.
Neither ABS nor the Prepayment Assumption purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of lease contracts, including the contracts. There can be no
assurance that the contracts will prepay at the indicated levels of the
Prepayment Assumption or at any other rate.
The tables below were prepared on the basis of certain assumptions,
including that:
o all Monthly Payments are timely received and no Specified Lease is
ever delinquent;
o no Reallocation Payment is made in respect of any Specified Lease;
o there are no losses in respect of the Specified Leases;
o distributions of principal of and interest on the Senior Notes are
made on the 25th of each month, whether or not the day is a Business
Day;
o all payments in respect of the Subordinated Notes are deposited to the
Reserve Fund;
35
<PAGE>
o the Servicing Fee is 1.00% per annum;
o all Program Operating Lease Payments are made on a timely basis;
o the Transferor does not cause an Optional Purchase to occur;
o the Reserve Fund is funded with an amount equal to the Initial
Deposit; and
o all prepayments are prepayments in full.
No representation is made as to what the actual levels of losses and
delinquencies on the Specified Leases will be. Because payments on the Specified
Leases will differ from those used in preparing the following tables,
distributions of principal of the Senior Notes may be made earlier or later than
as set forth in the tables. Investors are urged to make their investment
decisions on a basis that includes their determination as to anticipated
prepayment rates under a variety of the assumptions discussed herein.
36
<PAGE>
The following tables set forth the percentages of the unpaid principal
balance of the Senior Notes that would be outstanding after each of the dates
shown, based on a rate equal to 0%, 50%, 100%, 150% and 200% of the Prepayment
Assumption. As used in the table, "0% Prepayment Assumption" assumes no
prepayments on a Specified Lease, "50% Prepayment Assumption" assumes that a
Specified Lease will prepay at 50% of the Prepayment Assumption, and so forth.
PERCENTAGE OF CLASS A-1 SENIOR NOTE BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PAYMENT DATE PREPAYMENT ASSUMPTION
------------ --------------------------------------------------------
0% 50% 100% 150% 200%
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Closing Date .............................. 100 100 100 100 100
November 25, 2000 ......................... 96 94 92 89 86
December 25, 2000 ......................... 87 83 79 74 68
January 25, 2001 .......................... 79 73 66 58 49
February 25, 2001 ......................... 71 62 53 43 31
March 25, 2001 ............................ 62 52 40 27 12
April 25, 2001 ............................ 36 24 11 0 0
May 25, 2001 .............................. 9 0 0 0 0
June 25, 2001 ............................. 0 0 0 0 0
Weighted Average Life to Maturity (years) . 0.41 0.37 0.33 0.29 0.25
Weighted Average Life to Call (years) ..... 0.41 0.37 0.33 0.29 0.25
</TABLE>
---------------
o The weighted average life of the Class A-1 Senior Notes is determined by
(a) multiplying the amount of each distribution in reduction of principal
balance by the number of years from the Closing Date to the date indicated,
(b) adding the results and (c) dividing the sum by the aggregate
distributions in reduction of principal balance referred to in clause (a).
o The weighted average life to call assumes that an Optional Purchase occurs.
PERCENTAGE OF CLASS A-2 SENIOR NOTE BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PAYMENT DATE PREPAYMENT ASSUMPTION
------------ ------------------------------------------------------------
0% 50% 100% 150% 200%
----- ---- --- ---- ----
<S> <C> <C> <C> <C> <C>
Closing Date ............................................ 100 100 100 100 100
November 25, 2000 ....................................... 100 100 100 100 100
December 25, 2000 ....................................... 100 100 100 100 100
January 25, 2001 ........................................ 100 100 100 100 100
February 25, 2001 ....................................... 100 100 100 100 100
March 25, 2001 .......................................... 100 100 100 100 100
April 25, 2001 .......................................... 100 100 100 99 93
May 25, 2001 ............................................ 100 99 94 89 83
June 25, 2001 ........................................... 95 90 85 79 72
July 25, 2001 ........................................... 87 82 76 69 59
August 25, 2001 ......................................... 77 71 65 56 26
September 25, 2001 ...................................... 67 61 53 41 15
October 25, 2001 ........................................ 59 52 44 16 11
November 25, 2001 ....................................... 52 45 36 13 7
December 25, 2001 ....................................... 46 39 29 10 4
January 25, 2002 ........................................ 41 34 23 6 0
February 25, 2002 ....................................... 35 27 17 3 0
March 25, 2002 .......................................... 27 19 10 0 0
April 25, 2002 .......................................... 19 12 4 0 0
May 25, 2002 ............................................ 16 8 0 0 0
June 25, 2002 ........................................... 12 5 0 0 0
July 25, 2002 ........................................... 10 1 0 0 0
August 25, 2002 ......................................... 7 0 0 0 0
September 25, 2002 ...................................... 5 0 0 0 0
October 25, 2002 ........................................ 1 0 0 0 0
November 25, 2002 ....................................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ............... 1.17 1.08 0.99 0.86 0.77
Weighted Average Life to Call (years) ................... 1.17 1.08 0.99 0.86 0.77
</TABLE>
----------
o The weighted average life of the Class A-2 Senior Notes is determined by
(a) multiplying the amount of each distribution in reduction of principal
balance by the number of years from the Closing Date to the date indicated,
(b) adding the results and (c) dividing the sum by the aggregate
distributions in reduction of principal balance referred to in clause (a).
o The weighted average life to call assumes that an Optional Purchase occurs.
37
<PAGE>
PERCENTAGE OF CLASS A-3 SENIOR NOTE BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PAYMENT DATE PREPAYMENT ASSUMPTION
------------ --------------------------------------------------------------------------
0% 50% 100% 150% 200%
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Closing Date ................................ 100 100 100 100 100
November 25, 2000 ........................... 100 100 100 100 100
December 25, 2000 ........................... 100 100 100 100 100
January 25, 2001 ............................ 100 100 100 100 100
February 25, 2001 ........................... 100 100 100 100 100
March 25, 2001 .............................. 100 100 100 100 100
April 25, 2001 .............................. 100 100 100 100 100
May 25, 2001 ................................ 100 100 100 100 100
June 25, 2001 ............................... 100 100 100 100 100
July 25, 2001 ............................... 100 100 100 100 100
August 25, 2001 ............................. 100 100 100 100 100
September 25, 2001 .......................... 100 100 100 100 100
October 25, 2001 ............................ 100 100 100 100 100
November 25, 2001 ........................... 100 100 100 100 100
December 25, 2001 ........................... 100 100 100 100 100
January 25, 2002 ............................ 100 100 100 100 99
February 25, 2002 ........................... 100 100 100 100 91
March 25, 2002 .............................. 100 100 100 99 83
April 25, 2002 .............................. 100 100 100 92 74
May 25, 2002 ................................ 100 100 100 83 65
June 25, 2002 ............................... 100 100 92 74 55
July 25, 2002 ............................... 100 100 85 66 45
August 25, 2002 ............................. 100 97 78 58 36
September 25, 2002 .......................... 100 91 71 50 26
October 25, 2002 ............................ 100 82 61 37 7
November 25, 2002 ........................... 79 60 39 12 0
December 25, 2002 ........................... 54 35 14 0 0
January 25, 2003 ............................ 24 7 0 0 0
February 25, 2003 ........................... 0 0 0 0 0
Weighted Average Life to Maturity (years) ... 2.17 2.10 1.99 1.85 1.69
Weighted Average Life to Call (years) ....... 2.17 2.10 1.99 1.85 1.69
</TABLE>
-------------
o The weighted average life of the Class A-3 Senior Notes is determined by
(a) multiplying the amount of each distribution in reduction of principal
balance by the number of years from the Closing Date to the date indicated,
(b) adding the results and (c) dividing the sum by the aggregate
distributions in reduction of principal balance referred to in clause (a).
o The weighted average life to call assumes that an Optional Purchase occurs.
38
<PAGE>
PERCENTAGE OF CLASS A-4 SENIOR NOTE BALANCE OUTSTANDING
<TABLE>
<CAPTION>
PAYMENT DATE PREPAYMENT ASSUMPTION
------------ --------------------------------------------------------------------
0% 50% 100% 150% 200%
----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Closing Date ................................. 100 100 100 100 100
November 25, 2000 ............................ 100 100 100 100 100
December 25, 2000 ............................ 100 100 100 100 100
January 25, 2001 ............................. 100 100 100 100 100
February 25, 2001 ............................ 100 100 100 100 100
March 25, 2001 ............................... 100 100 100 100 100
April 25, 2001 ............................... 100 100 100 100 100
May 25, 2001 ................................. 100 100 100 100 100
June 25, 2001 ................................ 100 100 100 100 100
July 25, 2001 ................................ 100 100 100 100 100
August 25, 2001 .............................. 100 100 100 100 100
September 25, 2001 ........................... 100 100 100 100 100
October 25, 2001 ............................. 100 100 100 100 100
November 25, 2001 ............................ 100 100 100 100 100
December 25, 2001 ............................ 100 100 100 100 100
January 25, 2002 ............................. 100 100 100 100 100
February 25, 2002 ............................ 100 100 100 100 100
March 25, 2002 ............................... 100 100 100 100 100
April 25, 2002 ............................... 100 100 100 100 100
May 25, 2002 ................................. 100 100 100 100 100
June 25, 2002 ................................ 100 100 100 100 100
July 25, 2002 ................................ 100 100 100 100 100
August 25, 2002 .............................. 100 100 100 100 100
September 25, 2002 ........................... 100 100 100 100 100
October 25, 2002 ............................. 100 100 100 100 100
November 25, 2002 ............................ 100 100 100 100 51
December 25, 2002 ............................ 100 100 100 85 34
January 25, 2003 ............................. 100 100 89 38 30
February 25, 2003 ............................ 100 88 72 35 24
March 25, 2003 ............................... 79 69 55 30 0
April 25, 2003 ............................... 55 47 37 19 0
May 25, 2003 ................................. 32 25 17 0 0
June 25, 2003 ................................ 11 7 1 0 0
July 25, 2003 ................................ 0 0 0 0 0
Weighted Average Life to Maturity (years) .... 2.52 2.49 2.44 2.30 2.16
Weighted Average Life to Call (years) ........ 2.52 2.49 2.42 2.28 2.16
</TABLE>
----------------
o The weighted average life of the Class A-4 Senior Notes is determined by
(a) multiplying the amount of each distribution in reduction of principal
balance by the number of years from the Closing Date to the date indicated,
(b) adding the results and (c) dividing the sum by the aggregate
distributions in reduction of principal balance referred to in clause (a).
o The weighted average life to call assumes that an Optional Purchase occurs.
NOTE FACTORS, CERTIFICATE FACTOR AND TRADING INFORMATION
The "Note Factor" for each class of Senior Notes will be a seven-digit
decimal that the Servicer will compute for each Payment Date, which will
represent the remaining outstanding principal balance of that class of Senior
Notes as of that Payment Date, after giving effect to payments made on the
Payment Date, expressed as a fraction of the initial outstanding principal
balance of that class of Senior Notes. The Note Factor for each class of Senior
Notes will initially be 1.0000000, and will thereafter decline to reflect
reductions in the unpaid principal balance of that class of Senior Notes. A
Noteholder's portion of the principal balance of a particular class of Senior
Notes, will be the product of (a) the original denomination of that class of
Senior Notes and (b) the applicable Note Factor.
39
<PAGE>
The "Certificate Factor" for the Certificates will be a seven-digit decimal
that the Servicer will compute for each Payment Date, which will represent the
remaining outstanding principal balance of the Certificates as of that Payment
Date, after giving effect to payments made on the Payment Date, expressed as a
fraction of the initial outstanding principal balance of the Certificates. The
Certificate Factor will initially be 1.0000000, and will thereafter decline to
reflect reductions on the Certificate Balance.
On each Payment Date, the Indenture Trustee will provide to Cede & Co.
("Cede") as the nominee of The Depository Trust Company ("DTC") (unless
Definitive Notes are issued under the limited circumstances described herein),
unaudited reports concerning payments received on or in respect of the Specified
Leases and the Specified Vehicles, the Note Factors, the Certificate Factor and
various other items of information. Senior Note Owners may obtain copies of the
reports upon a request in writing to the Indenture Trustee at its Corporate
Trust Office. In addition, Senior Noteholders will be furnished information for
tax reporting purposes during each calendar year, not later than the latest date
permitted by law. For further details concerning information furnished to Senior
Noteholders, Senior Note Owners and Certificateholders, see "Additional
Information Regarding the Securities--Statements to Securityholders" and
"Description of the Senior Notes--Book-Entry Registration".
DESCRIPTION OF THE SENIOR NOTES
General
The Senior Notes will be issued under the Indenture. The Indenture,
together with the SUBI Trust Agreement, the Servicing Agreement, the Trust
Administration Agreement, the Trust Agreement, the Program Operating Lease, the
SUBI Certificate Transfer Agreement, and the Issuer SUBI Certificate Transfer
Agreement, are called the "Basic Documents". The following summaries of the
material provisions of the Basic Documents and the summaries of material
provisions included under "The SUBIs", "The Vehicle Trust", "The Specified
Leases--Characteristics", "--General" and "--Representations, Warranties and
Covenants", "Security for the Securities" and "Additional Document Provisions"
do not purport to be complete and are subject to, and qualified in their
entirety by reference to, the provisions of those documents. Where particular
provisions of or terms used in a Basic Document are referred to, the actual
provisions, including definitions of terms, are incorporated by reference as
part of those summaries. Copies of the Basic Documents may be obtained by
request to the Transferor at the address set forth under "The Transferor".
The Senior Notes will be issued in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof in book-entry form. The Senior
Notes initially will be represented by certificates registered in the name of
Cede, the nominee of DTC. No Senior Note Owner will be entitled to receive a
certificate representing that owner's Senior Note, except as set forth below.
Unless and until Senior Notes are issued in fully registered certificated form
(the "Definitive Notes") under the limited circumstances described below, all
references herein to distributions, notices, reports and statements to "Senior
Noteholders" will refer to the same actions made with respect to DTC or Cede, as
the case may be, for the benefit of Senior Note Owners in accordance with DTC
procedures. See "--Book-Entry Registration" and "Additional Information
Regarding the Securities--Definitive Notes".
Distributions in respect of the Subordinated Notes and the Certificates
will be subordinated to distributions in respect of the Senior Notes to the
extent described under "Additional Information Regarding the
Securities--Payments on the Securities".
Interest
Interest on the unpaid principal balance of the Senior Notes will be paid
in monthly installments on the 25th day of each month or, if not a Business Day,
the next succeeding Business Day, beginning November 27, 2000 (each, a "Payment
Date") to holders of record of the Senior Notes (the "Senior Noteholders") as of
the day immediately preceding the Payment Date (each such date, a "Record
Date"), with the final interest payment due on
40
<PAGE>
the earlier of (a) the Payment Date on which the principal balance of the
related class of Senior Notes is reduced to zero or (b) the related Final
Scheduled Payment Date. A "Business Day" will be any day other than a Saturday,
a Sunday or a day on which banking institutions in the states of Delaware, Ohio,
New Jersey or New York are authorized or obligated by law, executive order or
government decree to be closed.
Interest will accrue on each class of Senior Notes at the interest rate
specified for each class on the front cover of this prospectus (each, an
"Interest Rate"), from and including the Closing Date, or from and including the
25th day of the month in which the preceding Payment Date occurred to but
excluding the 25th day of the month in which the current Payment Date occurs
(each, an "Accrual Period") at the applicable Interest Rate until the principal
amount of the Senior Notes has been paid in full. Interest on the Class A-1
Senior Notes will be calculated on the basis of the actual number of days
elapsed, but assuming a 360-day year. Interest on the other classes of Senior
Notes will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
As more fully described under "Additional Information Regarding the
Securities--Payments on the Securities", interest payments on the Senior Notes
on a Payment Date generally will be made from the sum of:
o Available Funds remaining after the Servicer has been paid the Payment
Date Advance Reimbursement and the Servicing Fee, and
o the Reserve Fund Draw Amount, if any.
Principal
Securityholders are entitled to receive on each Payment Date an amount (the
"Principal Distribution Amount") equal to the excess of the unpaid principal
amount of the Securities (the "Securities Balance") over the Aggregate
Securitization Value as of the last day of the related Collection Period;
provided however, if the Final Scheduled Payment Date has occurred for an
outstanding class of Senior Notes, the Principal Distribution Amount will equal
the greater of (i) the Securities Balance over the Aggregate Securitization
Value and (ii) the principal balance of such class of Senior Notes.
"Aggregate Securitization Value" for any date will mean an amount
calculated as of the close of business on such date equal to the sum of the
Securitization Values of all Specified Leases (the Securitization Values of
Defaulted Leases, Early Termination Leases and Matured Leases will equal zero
for the purpose of the calculation of the Principal Distribution Amount). The
funds available to make principal distributions on a Payment Date (the
"Available Principal Distribution Amount") will equal the sum of (a) the amount
of Available Funds remaining after the Servicer has been paid the Payment Date
Advance Reimbursement and the Servicing Fee, together with any unpaid Servicing
Fees in respect of one or more prior Collection Periods, and after accrued
interest has been paid on the Securities and (b) the Reserve Fund Draw Amount
remaining after accrued interest has been paid on the Securities.
The principal amount paid to Securityholders on a Payment Date (the
"Monthly Principal Distributable Amount") will equal the lesser of (a) the
Principal Distribution Amount and (b) the Available Principal
Distribution Amount.
A "Defaulted Lease" will mean a Specified Lease terminated by the Servicer
(a) following a default by or bankruptcy of the related User-Lessee or (b)
because the related Specified Vehicle has been lost, stolen or damaged beyond
economic repair.
"Early Termination Lease" will mean a Specified Lease terminated by the
related User-Lessee prior to its Maturity Date.
41
<PAGE>
"Matured Lease" will mean a Specified Lease that has reached its Maturity
Date.
On each Payment Date, unless the maturity of the Senior Notes has been
accelerated following an Indenture Default, principal payments shall be made
sequentially so that no principal will be paid on any class of Senior Notes
until each class of Senior Notes with a lower numerical designation shall have
been paid in full. Thus no principal will be paid on the Class A-2 Senior Notes
until the principal on the Class A-1 Senior Notes shall have been paid in full.
No principal will be paid on the Class A-3 Senior Notes until the principal on
the Class A-2 Senior Notes shall have been paid in full. No principal will be
paid on the Class A-4 Senior Notes until the principal on the Class A-3 Senior
Notes shall have been paid in full. Until all principal due to the Senior Notes
is paid, no principal will be paid to the Subordinated Notes and the
Certificates. Any remaining principal payment will then be paid first to the
Subordinated Notes until they have been paid in full - which amounts will be
deposited into the Reserve Fund - and then to the Certificates.
On any Payment Date, (a) the "Senior Note Balance" and the "Certificate
Balance" will equal the Initial Senior Note Balance or the Initial Certificate
Balance, as the case may be, reduced by all payments of principal made on or
prior to the Payment Date on the Senior Notes or the Certificates, as the case
may be, and (b) the "Subordinated Note Balance" will equal the Initial
Subordinated Note Balance, reduced by all payments of principal made on or prior
to the Payment Date, whether paid to the Subordinated Noteholder or deposited in
the Reserve Fund.
On each Payment Date after the maturity of the Senior Notes has been
accelerated following an Indenture Default, principal will be allocated, first,
to the Class A-1 Senior Notes, second, pro rata among all other outstanding
classes of Senior Notes, and third, to the Subordinated Notes and the
Certificates pro rata. See "Additional Information Regarding the
Securities--Payments on the Securities" and "Additional Document Provisions--The
Indenture--Indenture Defaults".
The principal amount of each class of Senior Notes, to the extent not paid,
will be due on the related Final Scheduled Payment Date. The actual date on
which a class of Senior Note is paid may be earlier than its Final Scheduled
Payment Date based on a variety of factors, including the factors described
under "Risk Factors--The timing of principal payments is uncertain" and
"Maturity, Payment and Yield Considerations".
Optional Purchase
The Senior Notes may be redeemed in whole, but not in part, on any Payment
Date when an Optional Purchase can be exercised. The redemption price for each
class of Senior Notes will equal the Senior Note Balance for such class plus
accrued interest thereon at the applicable Interest Rate through the related
Accrual Period. See "Additional Information Regarding the Securities--Optional
Purchase".
The Indenture Trustee
The Chase Manhattan Bank will be the Indenture Trustee under the Indenture.
The Indenture Trustee is a New York banking corporation and its Corporate Trust
Office is located at 450 West 33rd Street, 14th Floor, New York, New York 10001.
The fees and expenses of the Indenture Trustee will be paid by the
Administrator. See "Additional Document Provisions--Miscellaneous
Provisions--Fees and Expenses". The Transferor, the Servicer and their
respective affiliates may maintain normal commercial banking relationships with
the Indenture Trustee and its affiliates.
Book-Entry Registration
The Senior Notes will be issued in book-entry form. DTC will act as
securities depository for the Senior Notes. The Senior Notes will be issued as
fully registered securities registered in the name of Cede, the nominee of DTC.
An investor acquiring an interest in the Senior Notes (each, a "Senior Note
Owner") may hold its interest through DTC in the United States, or Clearstream
Luxembourg ("Clearstream") or the Euroclear system ("Euroclear") in Europe,
which in turn hold through DTC. One fully registered Senior Note will be issued
with respect to each $400 million in principal amount of a class of Senior Notes
or such smaller amount as necessary. It is anticipated that the only Senior
Noteholder will be Cede, the nominee of DTC. Senior Note Owners will not be
recognized by the Indenture Trustee as "Senior Noteholders", as that term will
be used in the Indenture, and Senior Note Owners will only be permitted to
exercise the rights of Senior Noteholders indirectly through DTC and its
Participants, as further described below.
42
<PAGE>
DTC was created to hold securities for its participating members (the
"Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. DTC is:
o a limited-purpose trust company organized under the laws of the State
of New York,
o a "banking organization" within the meaning of the New York Banking
Law,
o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the Uniform Commercial
Code (the "UCC") in effect in the State of New York, and
o a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly (the
"Indirect Participants"). Transfers between Participants in DTC will occur in
accordance with DTC rules. The rules applicable to DTC and its Participants are
on file with the SEC.
Clearstream and the Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in the Depositaries
which will in turn will hold such positions in customers' securities accounts in
DTC through Citibank, N.A. or Morgan Guaranty Trust Company of New York, the
relevant depositaries (collectively, the "Depositaries") of Clearstream or
Euroclear, respectively, and each a participating member of DTC. Transfers
between Participants in Clearstream ("Clearstream Participants") and
Participants in Euroclear ("Euroclear Participants") will occur in accordance
with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of Clearstream or Euroclear by its
Depositary. However, each such cross-market transaction will require delivery of
instructions to Clearstream or Euroclear by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). Clearstream or Euroclear will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf of delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Clearstream Participants and
Euroclear Participants may not deliver instructions directly to the related
Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream 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 securities settled during such processing will be reported to the
relevant Clearstream Participants or Euroclear Participants on such business
day. Cash received in Clearstream or Euroclear as a result of sales of Senior
Notes by or through a Clearstream Participant or Euroclear Participant to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
Senior Note Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Senior Notes may do so only through Participants and Indirect Participants.
Participants will receive a credit for the Senior Notes on DTC's records. The
ownership interest of each Senior Note Owner will in turn be recorded on the
respective records of Participants and Indirect Participants. Senior Note Owners
will not receive written confirmation from DTC of their purchase of Senior
Notes, but Senior Note Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the Senior
Note Owner entered into the transaction. Transfers of ownership interests in the
Senior Notes will be accomplished by entries made on the books of Participants
acting on behalf of Senior Note Owners.
43
<PAGE>
To facilitate subsequent transfers, all Senior Notes deposited by
Participants with DTC will be registered in the name of Cede, the nominee of
DTC. The deposit of Senior Notes with DTC and their registration in the name of
Cede will not change the beneficial ownership of the Senior Notes. DTC will have
no knowledge of the actual Senior Note Owners and its records will reflect only
the Participants to whose accounts those Senior Notes are credited, which may or
may not be the Senior Note Owners. Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Senior Note Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC's practice is to credit Participants' accounts on each Payment Date in
accordance with their respective holdings of Senior Notes shown on DTC's records
unless DTC has reason to believe that it will not receive payment on that
Payment Date. Payments by Participants and Indirect Participants to Senior Note
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". These payments will be the responsibility of the
Participants and not of DTC, the Indenture Trustee or the Transferor, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal of and interest on the Senior Notes to DTC will be the
responsibility of the Indenture Trustee, disbursement of the payments to
Participants will be the responsibility of DTC and disbursement of the payments
to Senior Note Owners will be the responsibility of Participants and Indirect
Participants. As a result, under the book-entry format, Senior Note Owners may
experience some delay in their receipt of payments. DTC will forward the
payments to its Participants, which will then forward them to Indirect
Participants or Senior Note Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Senior Note
Owner to pledge Senior Notes to persons or entities that do not participate in
the DTC system, or otherwise take actions with respect to the Senior Notes, may
be limited due to the lack of a physical certificate for the Senior Notes.
Neither DTC nor Cede will consent or vote with respect to the Senior Notes.
Under its usual procedures, DTC will mail an omnibus proxy to the Indenture
Trustee as soon as possible after each applicable record date for such a consent
or vote. The omnibus proxy will assign Cede's consenting or voting rights to
those Participants who have Notes credited to their accounts with the
Participants on that record date. These Participants will be identified in a
listing attached to the omnibus proxy.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for Clearstream Participants and
facilitates the clearance and settlement of securities transactions between
Clearstream Participants through electronic book-entry changes in accounts of
Clearstream Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 34
currencies, including United States dollars. Clearstream provides to Clearsteam
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream interfaces with domestic markets in several
countries. As a professional depositary, Clearstream is subject to regulation by
the Luxembourg Monetary Institute. Clearstream Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporation and certain
other organizations. Indirect access to Clearstream is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream Participant, either
directly or indirectly.
Euroclear was created in 1968 to hold securities for 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 34 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in more than 25 countries generally similar to
the arrangements for cross-market transfers with DTC described above. Euroclear
is operated by the Brussels, Belgium office of Morgan Guaranty Trust Companyof
New York (the "Euroclear Operator"), under contract with Euroclear Clearance
System S.C., a Belgian
44
<PAGE>
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 Board establishes policy for the Euroclear System.
Euroclear Participants include banks, including central banks, securities
brokers and dealers and other professional financial intermediaries. 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 Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear 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 Senior Notes held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream 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 reporting and withholding in accordance with relevant United
States tax laws and regulations. For further information in this regard, see
"Material United States Federal Income Tax Consequences--Treatment of the Senior
Notes as Debt" herein and "Global Clearance, Settlement and Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in Annex
I hereto. Clearstream or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Senior Noteholder on behalf of a
Clearstream Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to the related Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Senior Notes among Participants
of DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform such procedures and the procedures may be discontinued at
any time.
None of the Servicer, the Transferor, the Administrator or the Indenture
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Senior Notes
held by Cede, DTC, Clearstream or Euroclear, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
45
<PAGE>
ADDITIONAL INFORMATION REGARDING THE SECURITIES
Payments on the Securities
General
As more fully described under "Summary--The Property of the Trust--Credit
Enhancement" and "--The SUBI Certificates", the SUBI Certificates will evidence
a beneficial interest in the related SUBI Assets which are comprised of
Specified Vehicles and Specified Leases.
On the 20th calendar day of each month in which a Payment Date occurs or,
if such day is not a Business Day, the immediately succeeding Business Day
(each, a "Determination Date"), the Servicer will inform the Indenture Trustee
and the Owner Trustee of, among other things, the amount of (a) Collections, (b)
Advances to be made by the Servicer and (c) the Servicing Fee payable to the
Servicer, in each case with respect to the month immediately preceding the month
in which the Payment Date occurs (the "Collection Period"). On or before each
Determination Date, the Servicer will also determine the Monthly Principal
Distributable Amount and, based on Available Funds and other amounts available
for distribution on the related Payment Date as described below, the amount to
be distributed to the Securityholders.
The Indenture Trustee and the Owner Trustee will make distributions to the
Securityholders out of amounts on deposit in the related Distribution Accounts.
The amount to be distributed to the Servicer and the Securityholders will be
determined in the manner described below.
Determination of Available Funds
The amount of funds available for distribution on a Payment Date will
generally equal the sum of Available Funds and the Reserve Fund Draw Amount.
"Available Funds" for a Payment Date and the related Collection Period will
equal the sum of the following amounts: (a) Collections, (b) Advances required
to be made by the Servicer and (c) in the case of an Optional Purchase, the
Optional Purchase Price.
The "Available Funds Shortfall Amount" for a Payment Date and the related
Collection Period will equal the amount by which the Available Funds remaining
after the distributions made pursuant to clauses (a) and (b) of the first
paragraph under "--Deposits to the Distribution Accounts; Priority of
Payments--SUBI Collection Account" is less than the amount necessary to make the
distributions in clauses (c) through (f) of the first paragraph under
"--Deposits to the Distribution Accounts; Priority of Payments--SUBI Collection
Account", except that the Principal Distribution Amount rather than the Monthly
Principal Distributable Amount will be used for purposes ofclause (f).
Deposits to the Distribution Accounts; Priority of Payments
SUBI Collection Account. On each Payment Date, the Servicer will allocate
amounts on deposit in the SUBI Collection Account with respect to the related
Collection Period as described below and will instruct the Vehicle Trustee, to
cause the following deposits and distributions to be made in the following
amounts and order of priority:
(a) to the Servicer, the Payment Date Advance Reimbursement;
(b) to the Servicer, the Servicing Fee, together with any unpaid Servicing
Fees in respect of one or more prior Collection Periods;
(c) to the Note Distribution Account, to pay interest due on the related
class of the outstanding Senior Notes on that Payment Date, and, to
the extent permitted under applicable law, interest on any overdue
interest at the related Interest Rate;
(d) to the Reserve Fund, an amount equal to the interest due on the
outstanding Subordinated Notes on that Payment Date, and, to the
extent permitted under applicable law, interest on any overdue
interest at the Subordinated Note Rate;
(e) to the Certificate Distribution Account, an amount equal to the
interest accrued on the Certificates with respect to that Payment
Date, and, to the extent permitted under applicable law, interest on
any overdue interest at the Certificate Rate;
46
<PAGE>
(f) to the related Distribution Account or, in the case of the
Subordinated Notes, to the Reserve Fund, the Monthly Principal
Distributable Amount, which will be allocated to pay principal on the
Senior Notes, the Subordinated Notes and the Certificates in the
amounts and order of priority described under "Description of the
Senior Notes--Principal"; and
(g) to the Reserve Fund, all remaining amounts (the "Excess Amounts").
Reserve Fund. On each Payment Date, after taking into account amounts
available to be distributed to Securityholders from the SUBI Collection Account,
the Servicer will allocate the Reserve Fund Draw Amount on deposit in the
Reserve Fund with respect to the related Collection Period and will instruct the
Indenture Trustee to make the following deposits and distributions in the
following amounts and order of priority:
(a) to the Note Distribution Account, to pay any remaining interest due on
the outstanding Senior Notes on that Payment Date, and, to the extent
permitted under applicable law, interest on any overdue interest at
the applicable Interest Rate;
(b) to the Reserve Fund, an amount equal to any remaining interest due on
the outstanding Subordinated Notes on that Payment Date, and, to the
extent permitted under applicable law, interest on any overdue
interest at the Subordinated Note Rate;
(c) to the Certificate Distribution Account, an amount equal to any
remaining interest accrued on the Certificates with respect to that
Payment Date, and, to the extent permitted under applicable law,
interest on any overdue interest at the Certificate Rate; and
(d) to the related Distribution Account--or, in the case of the
Subordinated Notes, to the Reserve Fund, the remaining Monthly
Principal Distributable Amount, which will be allocated to pay
principal on the Senior Notes, Subordinated Notes and the
Certificates, as the case may be, in the amounts and order of priority
described under "Description of the Senior Notes--Principal".
On each Payment Date, if, after the giving effect to the distributions set
forth above, the amount on deposit in the Reserve Fund exceeds the Reserve Fund
Requirement, any such excess (a) up to the amounts deposited into the Reserve
Fund on or before that Payment Date in respect of the Subordinated Notes will be
released to the Subordinated Noteholder and (b) any additional excess shall be
released to the Transferor.
The "Payment Date Advance Reimbursement" for a Payment Date will equal the
sum of all outstanding Sales Proceeds Advances and Monthly Payment Advances that
have been outstanding as of the end of that Collection Period for at least 90
days, and with respect to Specified Vehicles that have become Residual Value
Loss Vehicles during the related Collection Period, the aggregate Sale Proceeds
Advances over the aggregate Sales Proceeds and Termination Proceeds.
"Residual Value Loss Vehicle" will mean a Specified Vehicle that has been
sold and for which (i) the Servicer has made a Sales Proceeds Advance and (ii)
the Sales Proceeds Advance exceeds the Sales Proceeds or Termination Proceeds,
as the case may be.
Amounts deposited in the Reserve Fund in accordance with clauses (d) and
(f) in the first paragraph under "--Deposits to the Distribution Accounts;
Priority of Payments--SUBI Collection Account" and clauses (b) and (d) in the
first paragraph under "--Deposits to the Distribution Accounts; Priority of
Payments--Reserve Fund" will be deemed to have been distributed to the
Subordinated Noteholder as payments in respect of interest and principal,
respectively, including overdue interest, and the Subordinated Noteholder will
not be entitled to any further interest on such amounts after the related
Payment Date.
The final distribution to any Senior Noteholder will be made only upon
surrender and cancellation of the certificate representing its Senior Notes at
an office or agency of the Trust specified in the notice of termination. Any
funds remaining in the Trust, after the related Trustee has taken certain
measures to locate the related Senior Noteholders and those measures have
failed, will be distributed to the Transferor.
Amounts properly distributed to any Securityholder or the Servicer will not
have to be refunded.
47
<PAGE>
Optional Purchase
In order to avoid excessive administrative expenses, the Transferor will be
permitted at its option to purchase from the Trust the Vehicle SUBI Certificate,
and to terminate the pledge of the Lease SUBI Certificate, on any Payment Date
if, either before or after giving effect to any payment of principal required to
be made on that Payment Date, the Securities Balance is less than or equal to
10% of the sum of the Initial Senior Note Balance, the Initial Certificate
Balance and the Initial Subordinated Note Balance. The exercise of that option
by the Transferor is referred to in this prospectus as an "Optional Purchase".
The purchase price for the Vehicle SUBI Certificate and the termination of the
pledge of the Lease SUBI will equal the Securities Balance, together with
accrued interest thereon to the date fixed for redemption (the "Optional
Purchase Price"), which will be deposited by the Transferor into the SUBI
Collection Account on the Deposit Date related to the Payment Date fixed for
redemption. In connection with an Optional Purchase, the Senior Notes will be
redeemed on that Payment Date in whole, but not in part, for the Redemption
Price. The "Redemption Price" for a class of Senior Notes will equal the Senior
Note Balance for the related class, plus accrued and unpaid interest thereon at
the related Interest Rate, to but not including the Payment Date fixed for
redemption. The Administrator or the Trust will provide at least 20 days' prior
notice of the redemption of the Senior Notes to the Indenture Trustee, which
will provide at least 10 days' notice to the Senior Noteholders. On the Payment
Date fixed for redemption, the Senior Notes will be due and payable at the
Redemption Price, and no interest will accrue on the Senior Notes after the
Payment Date.
Statements to Securityholders
On each Payment Date, the Indenture Trustee or the Owner Trustee, as the
case may be, will include with each distribution to each Senior Noteholder and
Certificateholder of record, as of the close of business on the related Record
Date--which, in the case of the Senior Notes, shall be Cede as the nominee of
DTC unless Definitive Notes are issued under the limited circumstances described
in this prospectus--and each Rating Agency, a statement, setting forth with
respect to that Payment Date or the related Deposit Date or Collection Period,
as the case may be, among other things, the following:
(a) the amount of Collections allocable to each SUBI Certificate for that
Collection Period;
(b) the amount being distributed to the Senior Noteholders (the "Senior
Note Distribution Amount");
(c) the amount of interest accrued with respect to each class of Senior
Notes, the Subordinated Notes and the Certificates;
(d) the amount of the Senior Note Distribution Amount allocable to
interest on and principal of each class of the Senior Notes, the
Subordinated Note Distribution Amount and the Certificate Distribution
Amount for each class of Senior Notes, the Subordinated Notes and the
Certificates, respectively;
(e) the amount of Available Funds for that Collection Period;
(f) the amount of Sales Proceeds Advances and Monthly Payment Advances
included in Available Funds;
(g) the amount, if any, by which the aggregate net proceeds from the sale
of Matured Vehicles are less than the aggregate BMW FS Residual Values
of the related Specified Leases ("Residual Value Losses");
(h) the Reserve Fund Draw Amount, if any, the balance on deposit in the
Reserve Fund on that Payment Date after giving effect to withdrawals
therefrom and deposits thereto in respect of that Payment Date and the
change in that balance from the immediately preceding Payment Date;
(i) the aggregate outstanding principal balance of the Senior Notes, the
Subordinated Notes and the Certificates after all distributions have
been made;
(j) the Note Factor for each class of Senior Notes after giving effect to
the distribution of the Senior Note Distribution Amount and the
Certificate Factor for the Certificates after giving effect to the
distribution of the Certificate Distribution Amount;
(k) the Payment Date Advance Reimbursement; and
(l) the Servicing Fee.
Each amount set forth pursuant to clauses (b), (d), (i) and (k) above will
be expressed in the aggregate and as a dollar amount per $1,000 of original
principal balance of a Senior Note, Subordinated Note or Certificate, as
48
<PAGE>
applicable. Copies of the statements may be obtained by Senior Noteholders or
Senior Note Owners by a request in writing addressed to the Indenture Trustee.
In addition, within the prescribed period of time for tax reporting purposes
after the end of each calendar year, the Indenture Trustee will mail to each
person who at any time during that calendar year was a Senior Noteholder a
statement containing that information as is reasonably necessary to permit the
Noteholder to prepare its state and federal income taxes.
Definitive Notes
Definitive Notes will be issued in fully registered, certificated form to
Senior Note Owners rather than to DTC only if:
o DTC is no longer willing or able to discharge its responsibilities as
depository with respect to the Senior Notes, and neither the Indenture
Trustee nor the Transferor is able to locate a qualified successor,
o the Transferor, at its option, elects to terminate the book-entry
system through DTC, or
o after an Indenture Default, Senior Note Owners representing in the
aggregate not less than 51% of the aggregate principal amount of the
Senior Notes advise the Indenture Trustee through DTC and its
Participants in writing that the continuation of a book-entry system
through DTC or its successor is no longer in the best interest of
Senior Note Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all Senior
Note Owners, through Participants, of the availability through DTC of Definitive
Notes. Upon surrender by DTC of the certificates representing all Senior Notes
and the receipt of instructions for re-registration, the Indenture Trustee will
issue Definitive Notes to Senior Note Owners, who thereupon will become Senior
Noteholders for all purposes of the Indenture.
Payments on the Definitive Notes will be made by the Indenture Trustee or
the Owner Trustee, as the case may be, directly to the holders of the Definitive
Notes in accordance with the procedures set forth in this prospectus and to be
set forth in the Indenture. Interest and principal payments on the Securities on
each Payment Date will be made to the holders in whose names the related
Definitive Notes were registered at the close of business on the Record Date
with respect to that Payment Date. Payments will be made by check mailed to the
address of such holders as they appear on the Note Register. However, the final
payment on any Definitive Notes, or if Definitive Notes have not been issued,
certificates registered in the name of Cede representing the Senior Notes, will
be made only upon presentation and surrender of the Definitive Notes at the
office or agency specified in the notice of final payment to Senior Noteholders.
The Indenture Trustee or the Owner Trustee, as the case may be, or a paying
agent will provide that notice to the registered Senior Noteholders not more
than 30 days or less than 15 days prior to the date on which the final payment
is expected to occur. Definitive Notes will be transferable and exchangeable at
the offices of the Indenture Trustee or the Note Registrar to be set forth in
the Indenture. No service charge will be imposed for any registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
SECURITY FOR THE SECURITIES
General
The property of the Trust--the Trust Estate--will consist of:
o the right to receive payments under the Program Operating Lease under
which the Trust will lease to the Transferor the Vehicle SUBI
Certificate, which is more fully described under "The SUBIs--General";
o the pledge by the Transferor of the Lease SUBI Certificate as security
for such payments;
o the right to receive the amounts realized from the sale or other
disposition of Specified Vehicles;
o certain rights to payment from the Reserve Fund; and
o the other property and assets described under "The Trust--Property of
the Trust", including available amounts on deposit in the Reserve
Fund.
49
<PAGE>
THE PROGRAM OPERATING LEASE
General
Immediately following the sale, transfer and assignment of the Vehicle SUBI
Certificate to the Trust and the pledge to the Indenture Trustee of the Trust's
interest therein as described in "The SUBIs--Transfers of the SUBI
Certificates", the Trust and the Transferor will enter into the Program
Operating Lease pursuant to which the Trust will lease the Vehicle SUBI
Certificate to the Transferor during the term of the Program Operating Lease. As
lessee, the Transferor will be entitled to receive all proceeds from the Vehicle
SUBI Certificate in respect of the Specified Vehicles during the term of the
Program Operating Lease and will be required to make Program Operating Lease
Payments to the Trust.
Program Operating Lease Terms
Under the Program Operating Lease, the Transferor will make payments to the
Trust in the amount of all Monthly Payments, Excess Mileage Payments, Excess
Wear and Use Payments, and all Early Termination Costs paid by the User-Lessees
and any other net proceeds received from the sale or other disposition of
Specified Vehicles (the "Program Operating Lease Payments").
The termination date of the Program Operating Lease (the "Program Operating
Lease Termination Date") will be 60 days after the latest Maturity Date of any
Specified Lease. Notwithstanding the Program Operating Lease Termination Date,
the Program Operating Lease will expire with respect to each Specified Lease and
the related Specified Vehicle on the earliest to occur of:
o the related Maturity Date;
o the date that the User-Lessee terminates the Specified Lease;
o the date that the Specified Lease becomes a Defaulted Lease; or
o the date the Servicer is required to purchase that Specified Lease and
Specified Vehicle pursuant to certain provisions of the Servicing
Agreement.
Program Operating Lease Defaults; Remedies
Defaults under the Program Operating Lease (each, a "Program Operating
Lease Default") will include, among other things, the failure by the Transferor
to make timely Program Operating Lease Payments to the Trust, breach of a
material representation or warranty, failure to observe or perform certain
covenants and the occurrence of an Indenture Default. Upon the occurrence of a
Program Operating Lease Default, the Indenture Trustee, as assignee of the
Trust's rights under the Program Operating Lease pursuant to the pledge of the
Trust Estate, will be entitled to terminate the Program Operating Lease and to
foreclose on the pledge of the Lease SUBI Certificate. Upon that termination,
the Trust will directly receive all distributions with respect to, or will have
the right to sell, the SUBI Certificates and to apply the funds on deposit in
the Accounts to pay interest on and principal of the Securities. Each Program
Operating Lease Default will constitute an Indenture Default, which will permit
the Senior Noteholders to accelerate the maturity of the Senior Notes and, in
some circumstances, cause the sale of the Trust Estate. See "Additional Document
Provisions--The Indenture--Indenture Defaults". If the maturity of the Senior
Notes has been accelerated following a Program Operating Lease Default, the
Indenture Trustee, as assignee of the Trust, will be entitled to demand that the
Transferor pay all previously due but as yet unpaid Program Operating Lease
Payments plus, as liquidated damages, an amount equal to the sum of:
o any interest due and unpaid on the Securities,
o the unpaid principal balance of the Securities, and
o any other amounts payable by the Transferor under the Basic Documents.
Upon payment of such amounts, the Transferor will be entitled to receive the
SUBI Certificates.
50
<PAGE>
The Subordinated Notes
Interest will accrue on the unpaid principal amount of the Subordinated
Notes during each Accrual Period at a rate per annum (the "Subordinated Note
Rate") equal to 7.00%. Interest on the Subordinated Notes will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Payments of
interest on and principal of the Subordinated Notes will be subordinated to
payments on the Senior Notes to the extent described herein.
To secure payments of principal and interest on the other Securities, the
Transferor will pledge all of its right, title and interest in the Subordinated
Notes to the Trust and deliver them to the Indenture Trustee. On each Payment
Date, payments in respect of the Subordinated Notes will be deposited into the
Reserve Fund. If, on any Payment Date, after the application of amounts required
to be paid on that Payment Date, the amount on deposit therein exceeds the
Reserve Fund Requirement, (a) any such excess up to the amounts deposited into
the Reserve Fund on or before that Payment Date in respect of the Subordinated
Notes will be released to the Transferor as the Subordinated Noteholder and (b)
any additional excess shall be released to the Transferor.
The Certificates
Payments on the Certificates will be subordinated to payments on the Senior
Notes and the Subordinated Notes to the extent described in this prospectus. The
right of the holder of the Transferor Certificate to receive distributions of
principal and interest will rank pari passu with the rights of the holders of
the other Certificates.
Interest on the Certificates will accrue during each Accrual Period at a
rate per annum (the "Certificate Rate") equal to 7.00% until the principal
amount of the Certificates has been paid in full. Interest on the Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest payments will be made to holders of the Certificates (the
"Certificateholders") in the manner and priority described under "Additional
Information Regarding the Securities--Payments on the Securities--Deposits to
the Distribution Accounts; Priority of Payments".
Principal payments will be made to Certificateholders as described under
"Description of the Senior Notes--Principal". If not paid in full prior to the
February 2005 Payment Date (the "Certificate Final Scheduled Maturity Date"),
the remaining Certificate Balance, if any, will be payable on that Payment Date.
The Certificates will be subject to prepayment in whole, but not in part,
on any Payment Date relating to an Optional Purchase. In the event of an
Optional Purchase, the Certificateholders will receive an amount in respect of
the Certificates equal to the Certificate Balance, together with accrued
interest thereon at the Certificate Rate.
The Accounts
The SUBI Collection Account
On or prior to the Closing Date, the Indenture Trustee will establish a
trust account in the name of the Vehicle Trustee for the benefit of the holders
of interests in the SUBI, into which collections on or in respect of the
Specified Leases and the Specified Vehicles will generally be deposited (the
"SUBI Collection Account").
Deposits into the SUBI Collection Account. As more fully described under
"Additional Document Provisions--The Servicing Agreement--Collections",
Collections and other amounts received on or in respect of the SUBI Assets
generally will be deposited by the Servicer into the SUBI Collection Account
within two days after receipt, unless the Monthly Remittance Condition is
satisfied. If the Monthly Remittance Condition is satisfied, such amounts
received in respect of a Collection Period will be deposited into the SUBI
Collection Account on the Business Day immediately preceding the related Payment
Date (each, a "Deposit Date"). In addition, on each Deposit Date, the following
additional amounts, if any, in respect of the related Collection Period and
Payment Date will be deposited into the SUBI Collection Account: Advances made
by the Servicer and, in the case of an Optional Purchase, the Optional Purchase
Price. See "Additional Document Provisions--The Servicing
Agreement--Collections".
Withdrawals from the SUBI Collection Account. On each Payment Date, the
Servicer shall transmit or shall cause to be transmitted all Available Funds for
the related Collection Period in the amounts, in the priority, and to
51
<PAGE>
such accounts as set forth under "Additional Information Regarding the
Securities--Payments on the Securities--Deposits to the Distribution Accounts;
Priority of Payments".
On any date the Servicer may withdraw from the SUBI Collection Account any
unreimbursed Disposition Expenses.
The Reserve Fund
On or before the Closing Date, the Indenture Trustee will establish a trust
account in the name of the Indenture Trustee for the benefit of the
Securityholders (the "Reserve Fund"). The Reserve Fund will be established to
provide additional security for payments on the Senior Notes. On each Payment
Date, amounts on deposit in the Reserve Fund, together with Available Funds,
will be available to make the distributions described under "Additional
Information Regarding the Securities--Payments on the Securities--Deposits to
the Distribution Accounts; Priority of Payments".
The Reserve Fund initially will be funded by the Transferor with a deposit
of $81,245,750 (the "Initial Deposit"), and the amounts on deposit in the
Reserve Fund will be pledged to the Trust. As described under "--The
Subordinated Notes", all payments, to the extent necessary to cause the amount
therein to equal the Reserve Fund Requirement, made on the Subordinated Notes
will be deposited in the Reserve Fund. On each Payment Date, monies on deposit
in the Reserve Fund will be supplemented by the deposit of:
o payments of interest on and principal of the Subordinated Notes,
o any Excess Amounts, and
o income received on the investment of funds on deposit in the SUBI
Collection Account and the Reserve Fund.
On each Payment Date, a withdrawal will be made from the Reserve Fund in an
amount (the "Reserve Fund Draw Amount") equal to the lesser of (a) the Available
Funds Shortfall Amount, calculated as described under "Additional Information
Regarding the Securities--Payments on the Securities--Determination of Available
Funds" for that Payment Date, and (b) the amount on deposit in the Reserve Fund
after giving effect to all deposits thereto on the related Deposit Date or that
Payment Date.
On any Payment Date on which the amount on deposit in the Reserve Fund,
after giving effect to all withdrawals therefrom and deposits thereto in respect
of that Payment Date, exceeds the Reserve Fund Requirement, any such excess (a)
up to the amounts deposited into the Reserve Fund on or before that Payment Date
in respect of the Subordinated Notes will be released to the holder of the
Subordinated Notes (in that capacity, the "Subordinated Noteholder") and (b) any
additional excess will be released to the Transferor.
On any Payment Date, the "Reserve Fund Requirement" will equal:
o 6.75% of the initial Securities Balance, or
o on any Payment Date occurring on or after the earlier to occur of the
date on which the last remaining Specified Lease terminates or the
date on which the Program Operating Lease is terminated following a
Program Operating Lease Default, zero.
The Distribution Accounts
On or before the Closing Date, (a) the Indenture Trustee will establish a
trust account in the name of the Indenture Trustee on behalf of the Senior
Noteholders, into which amounts released from the SUBI Collection Account and,
when necessary, from the Reserve Fund, for distribution to the Senior
Noteholders will be deposited and from which all distributions to the Senior
Noteholders will be made (the "Note Distribution Account") and (b) the Owner
Trustee will establish a trust account in the name of the Owner Trustee on
behalf of the Certificateholders, into which amounts released from the SUBI
Collection Account and, when necessary, from the Reserve Fund, for distribution
to the Certificateholders will be deposited and from which all distributions to
the Certificateholders will be made (the "Certificate Distribution Account" and,
together with the Note Distribution Account, the "Distribution Accounts"). For
further information regarding these deposits and payments, see "--The SUBI
Collection Account" and "--The Reserve Fund".
52
<PAGE>
Maintenance of the Accounts
The Note Distribution Account, the Reserve Fund and the SUBI Collection
Account will be maintained with the Indenture Trustee, so long as either (a) the
short-term unsecured debt obligations of the Indenture Trustee are rated in the
highest short-term rating category by each Rating Agency or (b) the Indenture
Trustee is a depository institution or trust company having a long-term
unsecured debt rating acceptable to each Rating Agency and corporate trust
powers and the related Account is maintained in the corporate trust department
of the Indenture Trustee (the "Required Deposit Rating"). Each of the foregoing
accounts will be segregated trust accounts. If the Indenture Trustee at any time
does not have the Required Deposit Rating, the Servicer shall, with the
assistance of the Indenture Trustee, as necessary, cause the related Account to
be moved to a depository institution or trust company organized under the laws
of the United States or any State that has the Required Deposit Rating.
On the Payment Date on which all Securities have been paid in full and
following payment of any remaining obligations of the Transferor under the Basic
Documents, any amounts remaining on deposit in the Accounts--after giving effect
to all withdrawals therefrom and deposits thereto in respect of that Payment
Date--will be paid to the Transferor.
Permitted Investments
When funds are deposited in (a) the SUBI Collection Account and (b) the
Reserve Fund, they will be invested at the direction of the Servicer and the
Administrator, respectively, in one or more Permitted Investments maturing no
later than the Deposit Date immediately succeeding the date of that investment.
On each Payment Date, all net income or other gain from the investment of
funds on deposit in the Reserve Fund and the SUBI Collection Account in respect
of the related Collection Period will be deposited in the Reserve Fund.
"Permitted Investments" will be specified in the SUBI Trust Agreement 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 Senior
Notes and the Certificates. Obligations of the Servicer's affiliates that
satisfy such criteria qualify as Permitted Investments.
The Contingent and Excess Liability Insurance
In addition to the personal property and liability insurance coverage
required to be obtained and maintained by the User-Lessee pursuant to the
Specified Leases, and as additional protection in the event the User-Lessee
fails to maintain the required insurance, BMW FS maintains contingent liability
insurance for the benefit of, among others, BMW FS, the Vehicle Trust, the UTI
Beneficiary, the Transferor and the Trust, which provides coverage for liability
caused by any Specified Vehicle owned by the Vehicle Trust. BMW FS also
maintains excess insurance coverage as to which the Vehicle Trustee is an
additional named insured (together with the aforementioned primary contingent
liability insurance policy, the "Contingent and Excess Liability Insurance").
These insurance policies collectively provide insurance coverage in excess of
$10 million per accident and permit multiple claims in any policy period. Claims
could be imposed against the assets of the Vehicle Trust if such coverage were
exhausted and damages were assessed against the Vehicle Trust. In that event,
investors in the Senior Notes could incur a loss on their investment. See "Risk
Factors--Vicarious tort liability may result in a loss on your investment",
"Additional Legal Aspects of the Vehicle Trust and the SUBIs--The SUBIs" and
"Additional Legal Aspects of the Specified Leases and the Specified
Vehicles--Vicarious Tort Liability" for a discussion of related risks.
With respect to damage to the Specified Vehicles, a User-Lessee is required
by the related Specified Lease to maintain comprehensive and collision
insurance. As more fully described under "BMW FS' Lease Financing
Program--Physical Damage and Liability Insurance", the Servicer will be required
to monitor the maintenance of required User-Lessee insurance. In the event that
the foregoing insurance coverage was exhausted and no third-party reimbursement
for that damage was available, investors in the Senior Notes could incur a loss
on their investment.
The Servicing Agreement will provide that for so long as any Senior Notes
or Certificates are outstanding, neither the Vehicle Trustee nor BMW FS may
terminate or cause the termination of any Contingent and Excess Liability
Insurance policy unless each Rating Agency has been notified of such termination
or any replacement insurance and each Rating Agency confirms such termination or
replacement insurance would not cause the
53
<PAGE>
then-current ratings of any class of Senior Notes or the Certificates to be
qualified, reduced or withdrawn. These obligations of BMW FS will survive any
termination of BMW FS as Servicer under the Servicing Agreement.
ADDITIONAL DOCUMENT PROVISIONS
The Indenture
Indenture Defaults. The following events (each an "Indenture Default") will
be events of default under the Indenture:
o a default for 5 days or more in the payment of interest on the Senior
Notes;
o a default in the payment of principal of a class of Senior Notes on
the related Final Scheduled Payment Date or on a Payment Date fixed
for redemption of the Senior Notes;
o the occurrence of a Program Operating Lease Default;
o a default in the observance or performance in any material respect of
any covenant or agreement, or any representation or warranty made in
the Indenture or in any certificate or writing delivered under the
Indenture proves to have been incorrect in any material respect at the
time made, and the continuation of that default for a period of 30
days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of
not less than 25% of the aggregate principal balance of the Senior
Notes; or
o certain events of bankruptcy, insolvency, receivership or liquidation
of the Trust.
Senior Noteholders holding at least a majority of the aggregate principal
balance of the Senior Notes may waive any past default or Indenture Default
prior to the declaration of the acceleration of the maturity of the Senior
Notes, except a default in the payment of principal of or interest on any of the
Senior Notes, or in respect of any covenant or provision in the Indenture that
cannot be modified or amended without unanimous consent of the Senior
Noteholders.
Remedies
If an Indenture Default occurs and is continuing, the Indenture Trustee or
the holders of a majority of the aggregate principal balance of the Senior Notes
may declare the principal of the Senior Notes to be immediately due and payable.
This declaration may be rescinded by the holders of a majority of the aggregate
principal balance of the Senior Notes before a judgment or decree for payment of
the amount due has been obtained by the Indenture Trustee if:
o the Trust has deposited with the Indenture Trustee an amount
sufficient to pay (1) all interest on and principal of the Senior
Notes as if the Indenture Default giving rise to that declaration had
not occurred and (2) all amounts advanced by the Indenture Trustee and
its costs and expenses, and
o all Indenture Defaults--other than the nonpayment of principal of the
Senior Notes that has become due solely due to that acceleration--have
been cured or waived.
If the Senior Notes have been declared due and payable following an
Indenture Default, the Indenture Trustee may institute proceedings to collect
amounts due, exercise remedies as a secured party, including foreclosure or sale
of the Trust Estate, or elect to maintain the Trust Estate and continue to apply
proceeds from the Trust Estate as if there had been no declaration of
acceleration. The Indenture Trustee may not, however, sell the Trust Estate
following an Indenture Default--other than the occurrence of an Indenture
Default described in the first two bullet points in the definition
thereof--unless:
o 100% of the Senior Noteholders consent thereto,
o the proceeds of that sale are sufficient to pay in full the principal
of and the accrued interest on all outstanding Securities, or
o the Indenture Trustee determines that the Trust Estate would not be
sufficient on an ongoing basis to make all payments on the Senior
Notes as such payments would have become due if such obligations had
not been declared due and payable, and the Indenture Trustee obtains
the consent of holders of 662/3% of the aggregate principal balance of
the Senior Notes.
54
<PAGE>
The Indenture Trustee may, but is not required to, obtain and rely upon an
opinion of an independent accountant or investment banking firm as to the
sufficiency of the Trust Estate to pay interest on and principal of the Senior
Notes on an ongoing basis. Any sale of the Trust Estate is subject to the
requirement that an opinion of counsel be delivered to the effect that such sale
will not cause the Vehicle Trust or the Trust to be classified as an
association, or a publicly traded partnership, taxable as a corporation for
federal income tax purposes.
In the event of a sale of the Trust Estate following the occurrence of an
Indenture Default under the circumstances described in the prior paragraph, at
the direction of the Indenture Trustee or the Senior Noteholders, the proceeds
of such sale, including available monies on deposit in the Reserve Fund
(including amounts deposited therein pursuant to this paragraph), will be
distributed first, to the Indenture Trustee and the Owner Trustee for amounts
due as compensation or indemnity payments pursuant to the terms of the Indenture
and the Trust Agreement respectively; second, to the Servicer for reimbursement
of all outstanding Advances; third, to the Servicer for amounts due in respect
of unpaid Servicing Fees; fourth, to the Senior Noteholders to pay due and
unpaid interest--including any overdue interest and, to the extent permitted
under applicable law, interest on any overdue interest at the related Interest
Rate; fifth, to the Reserve Fund for the payment of due and unpaid
interest--including any overdue interest and, to the extent permitted under
applicable law, interest on any overdue interest at the Subordinated Note
Rate--on the Subordinated Notes; sixth, to the Certificate Distribution Account
for the payment of due and unpaid interest--including any overdue interest and,
to the extent permitted under applicable law, interest on any overdue interest
at the Certificate Rate--on the Certificates; seventh, to the holders of the
Class A-1 Senior Notes to pay due and unpaid principal on the Class A-1 Senior
Notes, eighth, to the holders of all other classes of Senior Notes to pay due
and unpaid principal on those classes of Senior Notes, which shall be allocated
to such classes of Senior Notes on a pro rata basis; ninth, ratably to the
Subordinated Noteholder for amounts due and unpaid in accordance with the terms
of the Subordinated Notes, which amounts shall be deposited into the Reserve
Fund, and the Certificateholders for amounts due and unpaid in accordance with
the terms of the Certificates; tenth, to the Transferor, in its capacity as
Subordinated Noteholder, up to the amount deposited into the Reserve Fund in
respect of the Subordinated Notes on or before the date of the preceding
distributions; and eleventh, any remaining amounts shall be paid to the
Transferor.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Indenture Default occurs and is continuing, the
Indenture Trustee will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the Senior
Noteholders if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities that might be
incurred by it in complying with that request. Subject to such provisions for
indemnification and some limitations contained in the Indenture, the holders of
at least a majority of the aggregate principal balance of the Senior Notes will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the Indenture Trustee or exercising any trust power
conferred on the Indenture Trustee. In addition, the holders of at least a
majority of the aggregate principal balance of the Senior Notes may, in some
cases, waive any default with respect to the Indenture, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all holders of outstanding Senior Notes.
No Senior Noteholder will have the right to institute any proceeding with
respect to the Indenture unless:
o that Senior Noteholder previously has given the Indenture Trustee
written notice of a continuing Indenture Default,
o Senior Noteholders holding not less than 25% of the aggregate
principal balance of the Senior Notes have made written request of the
Indenture Trustee to institute that proceeding in its own name as
Indenture Trustee,
o the Senior Noteholder has offered the Indenture Trustee reasonable
indemnity,
o the Indenture Trustee has for 60 days failed to institute that
proceeding, and
o no direction inconsistent with that written request has been given to
the Indenture Trustee during that 60 day period by Senior Noteholders
holding a majority of the aggregate principal balance of the Senior
Notes.
55
<PAGE>
Neither the Indenture Trustee nor the Owner Trustee in their respective
individual capacities, nor any holder of a Subordinated Note or a Certificate,
nor any of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express agreement to
the contrary, be personally liable for the payment of interest on or principal
of the Senior Notes or for the agreements of the Trust or the Trustee, in its
capacity as trustee, contained in the Indenture.
Certain Covenants
Under the Indenture, the Trust will covenant that it will not:
o sell, transfer, exchange or otherwise dispose of any of its assets,
except as expressly permitted by the Indenture, the Program Operating
Lease and the other Basic Documents,
o claim any credit on or make any deduction from the principal and
interest payable in respect of the Senior Notes--other than amounts
withheld under the Code or applicable state law--or assert any claim
against any present or former Senior Noteholder because of the payment
of taxes levied or assessed upon the Trust, or
o permit (1) the validity or effectiveness of the Indenture to be
impaired, (2) any person to be released from any covenants or
obligations with respect to the Senior Notes under the Indenture
except as may be expressly permitted thereby or (3) any lien, charge,
excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the Trust's
assets or any part thereof, or any interest therein or the proceeds
therefrom.
The Trust may not engage in any activities other than financing, acquiring,
owning, leasing--subject to the lien of the Indenture--pledging and managing the
SUBI Certificates as contemplated by the Indenture and the other Basic
Documents. The Trust will not incur, assume or guarantee any indebtedness other
than indebtedness incurred pursuant to the Securities or otherwise in accordance
with the Basic Documents.
Replacement of the Indenture Trustee
The Indenture Trustee may resign at any time by so notifying the Trust, the
Servicer and each Rating Agency. Senior Noteholders holding at least a majority
of the aggregate principal balance of the Senior Notes may remove the Indenture
Trustee if the Indenture Trustee:
o ceases to be eligible to continue as the Indenture Trustee,
o is adjudged to be bankrupt or insolvent, or
o otherwise becomes incapable of acting.
Following that removal the Senior Noteholders may appoint a successor
Indenture Trustee. Any successor Indenture Trustee must at all times satisfy all
applicable requirements of the Trust Indenture Act of 1939, and in addition,
have a combined capital and surplus of at least $50,000,000 and a long-term debt
rating of "A" or better by each Rating Agency or be otherwise acceptable to each
Rating Agency. Each Rating Agency must confirm that the appointment of the
successor Indenture Trustee would not cause the then-current rating on any class
of Senior Notes or the Certificates to be qualified, reduced or withdrawn.
Upon the resignation or removal of the Indenture Trustee, or the failure of
the Senior Noteholders to appoint a successor Indenture Trustee following the
removal without cause of the Indenture Trustee, the Trust will be required
promptly to appoint a successor Indenture Trustee.
Duties of Indenture Trustee
Except during the continuance of an Indenture Default, the Indenture
Trustee will:
o perform such duties and only such duties as are specifically set forth
in the Indenture,
o rely, as to the truth of the statements and the correctness of the
opinions expressed therein, on certificates or opinions furnished to
the Indenture Trustee that conform to the requirements of the
Indenture, and
o examine any such certificates and opinions that are specifically
required to be furnished to the Indenture Trustee by the Indenture to
determine whether or not they conform to the requirements of the
Indenture.
56
<PAGE>
Upon the continuance of an Indenture Default, the Indenture Trustee will be
required to exercise the rights and powers vested in it by the Indenture and use
the same degree of care and skill in the exercise thereof as a prudent person
would exercise or use under the circumstances in the conduct of that person's
own affairs.
Compensation and Indemnity
The Administrator will:
o pay the Indenture Trustee from time to time reasonable compensation
for its services,
o reimburse the Indenture Trustee for all reasonable expenses, advances
and disbursements reasonably incurred by it in connection with the
performance of its duties as Indenture Trustee, and
o indemnify the Indenture Trustee for, and hold it harmless against, any
loss, liability or expense, including reasonable attorneys' fees and
expenses, incurred by it in connection with the performance of its
duties as Indenture Trustee.
The Indenture Trustee will not be indemnified by the Administrator against any
loss, liability or expense incurred by it through its own willful misconduct,
negligence or bad faith, except that the Indenture Trustee will not be liable:
o for any error of judgment made by it in good faith, unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts,
o with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it from the Senior Noteholders
in accordance with the terms of the Indenture, and
o for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing.
The Indenture Trustee will not be deemed to have knowledge of any event unless
an officer of the Indenture Trustee has actual knowledge of the event or has
received written notice of the event in accordance with the provisions of the
Indenture.
Access to Senior Noteholder Lists
If Definitive Notes are issued in the limited circumstances set forth in
"Additional Information Regarding the Securities--Definitive Notes", or the
Indenture Trustee is not the Senior Note Registrar, the Trust will furnish or
cause to be furnished to the Indenture Trustee a list of the names and addresses
of the Senior Noteholders (a) as of each Record Date, within five days
thereafter and (b) as of not more than ten days before the time that list is
furnished, within 30 days after receipt by the Trust of a written request for
the list.
Annual Compliance Statement
The Trust will be required to file an annual written statement with the
Indenture Trustee certifying the fulfillment of its obligations under the
Indenture.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the collateral securing
the Senior Notes upon the delivery to the Indenture Trustee for cancellation of
all of the Senior Notes or, with some limitations--including receipt of certain
opinions with respect to tax matters--upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of all of the Senior Notes, including
interest, and any fees due and payable to the Owner Trustee or the Indenture
Trustee.
The Trust Agreement
Authority and Duties of the Owner Trustee
The Owner Trustee will administer the Trust in the interest of the
Certificateholders, subject to the lien of the Indenture and the obligations of
the Trust with respect to the Notes, in accordance with the Trust Agreement and
the other Basic Documents.
57
<PAGE>
Subject to the rights of the Indenture Trustee under the Indenture, the
Transferor, as holder of the Transferor Certificate, may, by written
instruction, direct the Owner Trustee in the administration of the Trust;
provided that such instruction shall not, as evidenced by an opinion of counsel,
materially adversely affect any Senior Noteholder or Certificateholder. The
Owner Trustee will not be required to follow any such instruction if it
reasonably determines or is advised by counsel that so doing is likely to result
in liability to the Owner Trustee, contrary to the terms of the Trust Agreement
or any other Basic Document or any obligation of the Owner Trustee or the Trust,
or unlawful.
The Owner Trustee will not be required to perform any of the obligations of
the Trust under the Trust Agreement or the other Basic Documents that are
required to be performed by:
o the Servicer under the Servicing Agreement or the SUBI Trust
Agreement;
o the Administrator under the Trust Agreement, the Trust Administration
Agreement or the Indenture;
o the Transferor under the SUBI Certificate Transfer Agreement or the
Program Operating Lease; or
o the Indenture Trustee under the Indenture.
Restrictions on Actions by Owner Trustee
The Owner Trustee may not:
o initiate or settle any claim or lawsuit involving the Trust, unless
brought by the Servicer to collect amounts owed under a Specified
Lease; or
o amend any Basic Document other than the Trust Agreement if such
amendment materially adversely affects the Certificateholders;
unless (1) the Owner Trustee provides 30 days' written notice thereof to the
Certificateholders and each Rating Agency and (2) Certificateholders holding at
least 25% of the aggregate principal balance of the Certificates do not object
in writing to any such proposed amendment within 30 days of that notice.
Actions by Certificateholders and Owner Trustee with Respect to
Certain Matters
The Owner Trustee may not, except upon the occurrence of an Servicer
Default subsequent to the payment in full of the Senior Notes and in accordance
with the written directions of Certificateholders holding 662/3% of the
aggregate principal balance of the Certificates, remove the Servicer with
respect to the SUBI Assets or appoint a successor Servicer with respect thereto.
However, the Owner Trustee will not be required to follow any directions of the
Certificateholders if doing so would be contrary to any obligation of the Owner
Trustee or the Trust. The Owner Trustee may not sell the Vehicle SUBI
Certificate or assign its interest in the Lease SUBI Certificate except in the
event of the bankruptcy or dissolution of the Trust or upon an Indenture
Default--and in any event unless the Owner Trustee has properly foreclosed on
the Lease SUBI. Upon any such sale of the Vehicle SUBI Certificate or the
assignment of the Lease SUBI Certificate, the applicable Vehicle SUBI Assets and
Lease SUBI Assets will be distributed to the purchaser thereof and will no
longer constitute Vehicle Trust Assets, and the Specified Vehicles may be
retitled as directed by that purchaser.
The right of the Transferor or the Certificateholders to take any action
affecting the Trust Estate will be subject to the rights of the Indenture
Trustee under the Indenture.
Resignation and Removal of the Owner Trustee
The Owner Trustee may resign at any time upon written notice to the
Administrator, the Servicer, the Transferor, the Indenture Trustee and the
Certificateholders, whereupon the Transferor will be obligated to appoint a
successor Owner Trustee. The Transferor or Certificateholders holding at least a
majority of the aggregate principal balance of the Certificates may remove the
Owner Trustee if the Owner Trustee becomes insolvent, ceases to be eligible or
becomes legally unable to act. Upon removal of the Owner Trustee, the Transferor
will appoint a successor Owner Trustee. The Transferor will be required to
deliver written notice to each Rating Agency of any resignation or removal of
the Owner Trustee.
58
<PAGE>
The Owner Trustee and any successor thereto must at all times:
o be able to exercise corporate trust powers;
o be subject to supervision or examination by federal or state
authorities;
o have a combined capital and surplus of at least $50 million; and
o have a long-term debt rating of "A" or better by each Rating Agency or
be otherwise acceptable to each Rating Agency.
Each Rating Agency must also receive prior written notice of the appointment of
the successor Owner Trustee and confirm that such appointment would not cause
the then-current rating of any class of Senior Notes or the Certificates to be
qualified, reduced or withdrawn. Any co-trustee or separate trustee appointed
for the purpose of meeting applicable state requirements will not be required to
meet these eligibility requirements.
Termination
The Trust Agreement will terminate upon (a) the final distribution of all
funds or other property or proceeds of the Trust Estate in accordance with the
terms of the Indenture and the final distribution on the Subordinated Notes and
the Certificates pursuant to the Trust Agreement, or (b) an Optional Purchase by
the Transferor. The Indenture Trustee will apply the proceeds of that sale to
pay amounts owed to the Indenture Trustee and interest on and principal of the
Securities in accordance with the terms of the Indenture. See "--The
Indenture--Remedies".
Liabilities and Indemnification
The Transferor will indemnify the Owner Trustee for any expenses incurred
by the Owner Trustee in the performance of its duties under the Trust Agreement.
The Transferor will not be entitled to make any claim upon the Trust Estate for
the payment of any such liabilities or indemnified expenses. The Transferor will
not indemnify the Owner Trustee for expenses resulting from the willful
misconduct, bad faith or gross negligence of the Owner Trustee, or for the
inaccuracy of any representation or warranty of the Owner Trustee in the Trust
Agreement. The Owner Trustee will not be liable for:
o any error in judgment of an officer of the Owner Trustee,
o any action taken or omitted to be taken in accordance with the
instructions of any Certificateholder, the Indenture Trustee, the
Transferor or the Servicer,
o the interest on or principal of the Securities, or
o the default or misconduct of the Administrator, the Servicer, the
Transferor or the Indenture Trustee.
The Subordinated Notes
The Subordinated Notes will be issued to the Transferor pursuant to the
Trust Agreement, pledged by the Transferor to the Trust and held by the
Indenture Trustee during the term of the Indenture as part of the Trust Estate
pledged to the Indenture Trustee. The Subordinated Notes will be subordinated in
right of payment to the Senior Notes to the extent described herein. See
"Additional Information Regarding the Securities--Payments on the Securities"
and "Security for the Securities--The Subordinated Notes". If a default occurs
with respect to the Trust's obligations under the Subordinated Notes while the
Senior Notes are outstanding, the Subordinated Noteholder will not be permitted
to declare the principal balance of the Subordinated Notes to be immediately due
and payable.
59
<PAGE>
The SUBI Trust Agreement
The SUBIs, Other SUBIs and the UTI
The UTI Beneficiary is the initial beneficiary of the Vehicle Trust. The
UTI Beneficiary may from time to time assign, transfer, grant and convey, or
cause to be assigned, transferred, granted and conveyed, to the Vehicle Trustee,
in trust, Vehicle Trust Assets. The UTI Beneficiary will hold the UTI, which
represents a beneficial interest in all Vehicle Trust Assets except for (a) any
Vehicle Trust Assets allocated to Other SUBIs ("Other SUBI Assets") and (b) the
SUBI Assets (those Vehicle Trust Assets to be referred to as the "UTI Assets").
The UTI Beneficiary may in the future pledge the UTI as security for obligations
to third-party lenders and may in the future create and sell or pledge Other
SUBIs in connection with financings similar to the transaction described in this
prospectus. Each holder or pledgee of the UTI will be required to expressly
waive any claim to the Vehicle Trust Assets other than the UTI Assets and to
fully subordinate any such claims to those other Vehicle Trust Assets in the
event that the waiver is not given full effect. Each holder or pledgee of any
Other SUBI will be required to expressly waive any claim to the Vehicle Trust
Assets, except for the related Other SUBI Assets, and to fully subordinate those
claims to the Vehicle Trust Assets or any other SUBI in the event that waiver is
not given effect. Except under the limited circumstances described under
"Additional Legal Aspects of the Vehicle Trust and the SUBIs--The SUBIs" and
"--The SUBIs, Other SUBIs and the UTI", the SUBI Assets will not be available to
make payments in respect of, or pay expenses relating to, the UTI or any Other
SUBI. Any Other SUBI Assets evidenced by any Other SUBIs will not be available
to make payments in respect of, or pay expenses relating to, the SUBIs, the UTI
or any Other SUBI.
Each Other SUBI will be created pursuant to a supplement to the Vehicle
Trust Agreement (each, an "Other SUBI Supplement"), which will amend the Vehicle
Trust Agreement only with respect to the Other SUBI or Other SUBIs to which it
relates. The SUBI Supplement will amend the Vehicle Trust Agreement only as it
relates to the SUBIs and no Other SUBI Supplement will amend the Vehicle Trust
Agreement as it relates to the SUBIs.
All Vehicle Trust Assets, including the SUBI Assets, will be owned by the
Vehicle Trustee on behalf of the beneficiaries of the Vehicle Trust. The SUBI
Assets will be segregated from the rest of the Vehicle Trust Assets on the books
and records of the Vehicle Trustee and the Servicer, and the holders of other
beneficial interests in the Vehicle Trust--including the UTI and any Other
SUBIs--will have no rights in or to the SUBI Assets. Liabilities of the Vehicle
Trust will be respectively allocated to the SUBI Assets, the UTI Assets and
Other SUBI Assets if incurred in each case with respect thereto, or will be
allocated pro rata among all Vehicle Trust Assets if incurred with respect to
the Vehicle Trust Assets generally.
Vehicle Trustee Duties and Powers; Fees and Expenses
The Vehicle Trustee may be replaced by the UTI Beneficiary, if it ceases to
be qualified in accordance with the terms of the SUBI Trust Agreement, or if
certain representations and warranties made by the Vehicle Trustee therein prove
to have been materially incorrect when made or in the event of certain events of
bankruptcy or insolvency of the Vehicle Trustee.
The Vehicle Trustee will make no representations as to the validity or
sufficiency of the SUBIs or the SUBI Certificates--other than the execution and
authentication of the SUBI Certificates--or of any Specified Lease, Specified
Vehicle or related document, will not be responsible for performing any of the
duties of the UTI Beneficiary or the Servicer and will not be accountable for
the use or application by any owners of beneficial interests in the Vehicle
Trust Assets of any funds paid in respect of the Vehicle Trust Assets or the
investment of any of such monies before such monies are deposited into the
accounts relating to the SUBIs, any Other SUBI and the UTI. The Vehicle Trustee
will not independently verify the Specified Leases or the Specified Vehicles.
The duties of the Vehicle Trustee will generally be limited to the acceptance of
assignments of Leases, the creation of the SUBIs, Other SUBIs and the UTI and
the receipt of the various certificates, reports or other instruments required
to be furnished to the Vehicle Trustee under the SUBI Trust Agreement, in which
case the Vehicle Trustee will only be required to examine them to determine
whether they conform to the requirements of the SUBI Trust Agreement.
The Vehicle Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the SUBI Trust Agreement, to make any
investigation of any matters arising thereunder or to institute, conduct or
defend any
60
<PAGE>
litigation thereunder or in relation thereto at the request, order or direction
of the UTI Beneficiary, the Servicer or the holders of a majority in interest in
the SUBIs, unless such party or parties have offered to the Vehicle Trustee
reasonable security or indemnity against any costs, expenses or liabilities that
may be incurred therein or thereby. The reasonable expenses of every such
exercise of rights or powers or examination will be paid by the party or parties
requesting such exercise or examination or, if paid by the Vehicle Trustee, will
be a reimbursable expense of the Vehicle Trustee.
The Vehicle Trustee may enter into one or more agreements with such person
or persons, including without limitation any affiliate of the Vehicle Trustee,
as are by experience and expertise qualified to act in a trustee capacity and
otherwise acceptable to the UTI Beneficiary.
Indemnity of Trustee
The Vehicle Trustee will be indemnified and held harmless out of and to the
extent of the Vehicle Trust Assets with respect to any loss, liability, claim,
damage or reasonable expense, including reasonable fees and expenses of counsel
and reasonable expenses of litigation (collectively, a "Loss"), arising out of
or incurred in connection with (a) any of the Vehicle Trust Assets, including
without limitation any Loss relating to Leases or Leased Vehicles, any personal
injury or property damage claims arising with respect to any such Leased Vehicle
or any Loss relating to any tax arising with respect to any Vehicle Trust Asset,
or (b) the Vehicle Trustee's acceptance or performance of the trusts and duties
contained in the SUBI Trust Agreement. Notwithstanding the foregoing, the
Vehicle Trustee will not be indemnified or held harmless out of the Vehicle
Trust Assets as to such a Loss:
o for which BMW FS shall be liable under the Servicing Agreement,
o incurred by reason of the Vehicle Trustee's willful misfeasance, bad
faith or negligence, or
o incurred by reason of the Vehicle Trustee's breach of its respective
representations and warranties made in the SUBI Trust Agreement or the
Servicing Agreement.
Termination
The Vehicle Trust will dissolve and the obligations and responsibilities of
the UTI Beneficiary and the Vehicle Trustee will terminate upon the later to
occur of the full payment of all amounts owed under the Vehicle Trust Agreement,
the Trust Agreement and the Indenture and under any financing in connection with
an Other SUBI.
The Servicing Agreement
General
Under the Servicing Agreement, the Servicer will perform on behalf of the
Vehicle Trust all of the obligations of BMW FS under the Specified Leases,
including, but not limited to, collecting and processing payments, responding to
inquiries of User-Lessees, investigating delinquencies, sending payment
statements, paying costs of the sale or other disposition of Matured Vehicles or
Defaulted Vehicles, overseeing the Specified Leases, commencing legal
proceedings to enforce Specified Leases and servicing the Specified Leases,
including accounting for collections, furnishing monthly and annual statements
to the Vehicle Trustee with respect to distributions and generating federal
income tax information. In this regard, the Servicer will make reasonable
efforts to collect all amounts due on or in respect of the Specified Leases and,
in a manner consistent with the Servicing Agreement, will be obligated to
service the Specified Leases generally in accordance with the customary and
usual procedures of the Servicer in respect of automobile leases serviced by it
for its own account. See "BMW FS' Lease Financing Program".
The Servicing Agreement will require the Servicer to obtain all licenses
and make all filings required to be held or filed by the Vehicle Trust in
connection with the ownership of the Specified Leases and the Specified Vehicles
and take all necessary steps to maintain evidence of the Vehicle Trust's
ownership on the certificates of title to the Specified Vehicles.
The Servicer will be required to repurchase any Specified Leases by making
Reallocation Payments if the related User-Lessee moves to a state that is not a
Trust State.
61
<PAGE>
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 qualifications to act as a business trust and
other periodic regulatory filings, registrations or approvals arising with
respect to or required of the Vehicle Trustee or the Vehicle Trust.
Custody of Lease Documents and Certificates of Title
To reduce administrative costs and ensure uniform quality in the servicing
of the Specified Leases and BMW FS' own portfolio of leases, the Vehicle Trustee
will appoint the Servicer as its agent, bailee and custodian of the Specified
Leases, the certificates of title relating to the Specified Vehicles, the
insurance policies and insurance records and other documents related to the
Specified Leases and the related User-Lessees and Specified Vehicles. Such
documents will not be physically segregated from other leases, certificates of
title, insurance policies and insurance records or other documents related to
other leases and vehicles owned or serviced by the Servicer, including Leases
and Leased Vehicles which are not part of the SUBI Assets. The accounting
records and computer systems of BMW FS will reflect the allocation of the
Specified Leases and Specified Vehicles to the SUBIs, and the interest of the
holders of the SUBI Certificates therein. UCC financing statements reflecting
certain interests in the Specified Leases will be filed as described under
"Additional Legal Aspects of the Specified Leases and the Specified
Vehicles--Back-up Security Interests".
Collections
General. Under the Servicing Agreement, except as otherwise permitted under
the Monthly Remittance Condition and described under "--Monthly Remittance
Condition", the Servicer will deposit Collections received into the SUBI
Collection Account within two Business Days of receipt. "Collections" with
respect to any Collection Period will include all net collections collected or
received in respect of the SUBI Assets during the Collection Period that are
allocable to the Program Operating Lease or the Securities, including:
o Monthly Payments made by User-Lessees, net of Daily Advance
Reimbursements;
o Reallocation Payments made by the Servicer;
o Sales Proceeds;
o Termination Proceeds;
o Recovery Proceeds; and
o payments by the Servicer of the Securitization Value of certain
Specified Leases before the Maturity Dates of such Specified Leases,
as described under "--Purchase of Specified Vehicles Before their
Maturity Dates".
Monthly Remittance Condition. The Servicing Agreement will require the
Servicer to make all deposits of Collections received on or in respect of the
Specified Leases and the Specified Vehicles to be deposited into the SUBI
Collection Account on the second Business Day following receipt thereof.
However, so long as the Monthly Remittance Condition is satisfied, the Servicer
may retain such amounts received during a Collection Period until the related
Deposit Date. The "Monthly Remittance Condition" will be satisfied if (a)(1) the
short-term debt of BMW US Capital Corp. (or the entity that is the Servicer) is
rated in the highest rating category, or is otherwise acceptable to, each Rating
Agency and (2) no Servicer Default has occurred or (b)(1) the Servicer obtains a
letter of credit, surety bond or insurance policy under which demands for
payment may be made to secure timely remittance of monthly collections to the
SUBI Collection Account and (2) the Indenture Trustee and the Owner Trustee (the
"Trustees") are provided with confirmation from each Rating Agency to the effect
that the use of such alternative remittance schedule will not result in the
qualification, reduction or withdrawal of its then-current rating on any class
of Senior Notes or the Certificates. Pending deposit into the SUBI Collection
Account, Collections may be used by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds.
Net Deposits. For so long as BMW FS is the Servicer and the Monthly
Remittance Condition is satisfied, the Servicer will be permitted to deposit
into the SUBI Collection Account only the net amount distributable to the Trust,
as holder of the Vehicle SUBI Certificate, on the related Deposit Date. The
Servicer will, however, account to the Trust, the Trustees and the Senior
Noteholders and Certificateholders as if all of the deposits and distributions
62
<PAGE>
described herein were made individually. This provision has been established for
the administrative convenience of the parties involved and will not affect
amounts required to be deposited into the Accounts for the benefit of the
Securityholders.
Sales Proceeds and Termination Proceeds
Under the Servicing Agreement, the Servicer, on behalf of the Trust, will
sell or otherwise dispose of Specified Vehicles:
o related to Specified Leases that have reached their respective
Maturity Dates (a "Matured Vehicle") or the User-Lessee has terminated
the Specified Lease,
o related to Defaulted Leases (each, a "Defaulted Vehicle"), and
o under the circumstances described under "--Purchase of Specified
Vehicles Before their Maturity Dates".
In connection with the sale or other disposition of a Matured Vehicle or a
Defaulted Vehicle, within two Business Days of receipt, the Servicer will
deposit into the SUBI Collection Account all Sales Proceeds, Termination
Proceeds and Recovery Proceeds from Specified Vehicles received during the
related Collection Period.
"Disposition Expenses" will mean expenses and other amounts reasonably
incurred by the Servicer in connection with the sale or other disposition of a
Matured Vehicle or a Defaulted Vehicle, including but not limited to sales
commissions, and expenses incurred in connection with making claims under any
Contingent and Excess Liability Insurance or other applicable insurance
policies. Disposition Expenses will be reimbursable to the Servicer as a
deduction from Sales Proceeds, Insurance Proceeds and Termination Proceeds.
"End of Lease Term Liability" will mean with respect to a Matured Vehicle
returned to the Servicer by the User-Lessee, the amount paid by such User-Lessee
including any disposition fee, unpaid Monthly Payments due, Excess Mileage
Payments, Excess Wear and Use Payments and any fees and taxes.
"Insurance Proceeds" will include recoveries or proceeds collected by the
Servicer, net of related Disposition Expenses under any insurance policy,
including any self-insurance, and also including any vehicle liability insurance
policy required to be obtained and maintained by the related User-Lessees
pursuant to the Specified Leases, any blanket or supplemental vehicle casualty
insurance policy maintained by the Servicer and any other insurance policy
relating to the Specified Leases or the related User-Lessees, in each case in
connection with damage to a Specified Vehicle or its loss, destruction or theft,
except to the extent required to be paid to a User-Lessee.
"Recovery Proceeds" will mean any Insurance Proceeds, any security deposit
applied to an amount owed by a User-Lessee, any Total Loss Payoff, Early
Termination Cost and End of Lease Term Liability received from a User-Lesse and
any other net recoveries received by the Servicer with respect to Specified
Leases that have been charged-off, minus amounts included in such items that
represent third-party charges paid or payable (such as fees, taxes and repair
costs).
"Sales Proceeds" with respect to a Specified Vehicle will mean all proceeds
received from the sale at auction of such Specified Vehicle, net of related
Disposition Expenses.
"Termination Proceeds" will mean any Purchase Option Price received upon
the purchase of a Specified Vehicle by the related User-Lessee and the price
received from the sale of a Specified Vehicle to a dealer minus amounts included
in such price that represent third-party charges paid or payable (such as fees
and taxes).
"Total Loss Payoff" will mean with respect to a Specified Vehicle that has
been lost, stolen or damaged beyond economic repair, an amount paid by the
User-Lessee generally equal to the deductible under the related insurance
policy, unpaid Monthly Payments due, and any official fees and taxes and any
other charges owed under the Specified Lease.
63
<PAGE>
Purchase of Specified Vehicles Before their Maturity Dates
The Servicer will be required to purchase or cause to be purchased a
Specified Vehicle before the Maturity Date of the related Specified Lease and
remit to the SUBI Collection Account an amount equal to the Securitization Value
of that Specified Lease as of the effective date of termination if:
o the Servicer agrees with the User-Lessee to a change in the Lease Rate
applicable to that Specified Vehicle and that change results in a
change in the Contract Residual Value and/or the Lease Term;
o that Specified Lease becomes a Defaulted Lease and the Servicer
releases the User-Lessee from its obligation to pay the Early
Termination Costs of that Specified Vehicle; or
o that Specified Lease becomes a Defaulted Lease and that Specified
Lease has been amended to eliminate the User-Lessee's obligation to
pay the Early Termination Costs.
The Servicer will be required to purchase a Specified Vehicle before the
Maturity Date of the related Specified Lease and remit to the SUBI Collection
Account a Reallocation Payment calculated as of the effective date of repurchase
if the related User-Lessee moves to a state that is not a Trust State.
Extensions
The Servicing Agreement will provide that no extensions of a Specified
Lease may be granted, except that for operational and administrative purposes,
the Servicer may, on behalf of the Trust, extend up to six months the Maturity
Date of a Specified Lease or accelerate the Maturity Date of a Specified Lease.
If any such extension of a Maturity Date exceeds six months, the Servicer will
be required to repurchase the Specified Lease by making a Reallocation Payment.
The Servicer will be required to make a Reallocation Payment for any extension
that causes the Specified Leases to mature after the Certificate Final Scheduled
Maturity Date.
Notification of Liens and Claims
The Servicer will be required to notify as soon as practicable the
Transferor, in the event that BMW FS is not acting as the Servicer, the
Indenture Trustee and the Vehicle Trustee of all liens or claims of any kind of
a third party that would materially and adversely affect the interests of, among
others, the Transferor or the Vehicle Trust in any Specified Lease or Specified
Vehicle. When the Servicer becomes aware of any such lien or claim with respect
to any Specified Lease or Specified Vehicle, it will take whatever action it
deems reasonably necessary to cause that lien or claim to be removed.
Advances
On each Deposit Date, the Servicer will be obligated to make, by deposit
into the SUBI Collection Account, a Monthly Payment Advance in respect of the
unpaid Monthly Payment of certain Specified Vehicles and a Sales Proceeds
Advance in respect of the Securitization Value of Specified Leases relating to
certain Matured Vehicles. An "Advance" refers to either a Monthly Payment
Advance or a Sales Proceeds Advance. The Servicer will be required to make an
Advance only to the extent that it determines that such Advance will be
recoverable from future payments or collections on the related Specified Lease
or Specified Vehicle or otherwise. In making Advances, the Servicer will assist
in maintaining a regular flow of scheduled payments on the Specified Leases and,
accordingly, in respect of the Program Operating Lease and the Senior Notes,
rather than guarantee or insure against losses. Accordingly, all Advances will
be reimbursable to the Servicer, without interest, as described in this
prospectus.
Monthly Payment Advances. If a User-Lessee does not make a Monthly Payment
billed to the User-Lessee for the related Collection Period, the Servicer will
advance the Monthly Payment due by the User-Lessee (a "Monthly Payment
Advance").
The Servicer will be entitled to reimbursement of all Monthly Payment
Advances. The Servicer will offset, on an ongoing basis, from amounts collected
or received in respect of the SUBI Assets, an amount to repay Monthly Payment
Advances where a Monthly Payment Advance amount has been recovered in a
subsequent payment made by the related User-Lessee of the Monthly Payment due
(the "Daily Advance Reimbursement"), or if a Monthly
64
<PAGE>
Payment Advance has been outstanding for at least 90 days after the due date of
the invoice in respect of which such Monthly Payment Advance was made, it will
be reimbursed as part of the Payment Date Advance Reimbursement.
Sales Proceeds Advances. If, during a Collection Period, the Servicer has
not sold a Specified Vehicle that became a Matured Vehicle during that
Collection Period, on the related Deposit Date the Servicer may, at its option,
advance the Securitization Value of the related Specified Lease to the Trust
(each, a "Sales Proceeds Advance").
After the Servicer makes a Sales Proceeds Advance for a Matured Vehicle,
the Trust will have no claim against or interest in that Matured Vehicle or any
Sales Proceeds or Termination Proceeds, as the case may be, resulting from its
sale or other disposition except for any Sales Proceeds or Termination Proceeds,
as the case may be, in excess of the Securitization Value. If the Servicer sells
a Matured Vehicle after making a Sales Proceeds Advance, the Trust will retain
the Sales Proceeds Advance, and the Servicer will retain the Sales Proceeds or
Termination Proceeds, as the case may be, up to the Securitization Value of the
related Specified Lease, and will deposit any Sales Proceeds or Termination
Proceeds, as the case may be, in excess of the Securitization Value into the
SUBI Collection Account.
If the Servicer has not sold a Matured Vehicle within 90 days after it has
made a Sales Proceeds Advance, it will be reimbursed for that Sales Proceeds
Advance as part of the Payment Date Advance Reinbursement. Within 30 days of
receiving that reimbursement, if the related Specified Vehicle has not been
sold, the Servicer shall cause that Specified Vehicle to be sold at auction and
shall remit the proceeds associated with the disposition of that Specified
Vehicle to the SUBI Collection Account.
Insurance on the Specified Vehicles
Each Specified Lease will indicate that the related User-Lessee will be
required to provide during the related Lease Term a comprehensive liability,
public liability, property damage liability and collision liability insurance
policy covering the actual cash value of the related Specified Vehicle and
naming the lessor as loss payee and as additional insured. Because User-Lessees
may choose their own insurers to provide the required coverage, the actual terms
and conditions of their policies may vary. If a User-Lessee fails to obtain or
maintain the required insurance, the related Specified Lease will be in default
and the Servicer may either obtain insurance on behalf of, and at the expense
of, the User-Lessee or deem the related Lease in default. In that event, it is
the practice of the Servicer to repossess the related Specified Vehicle. BMW FS
does not "force place" insurance.
BMW FS does not require User-Lessees to carry credit disability, credit
life or credit health insurance or other similar insurance coverage that
provides for payments to be made on the Specified Leases on behalf of the
User-Lessees in the event of disability or death. To the extent that this type
of insurance coverage is obtained on behalf of a User-Lessee, payments received
in respect of the coverage may be applied to payments on the related Specified
Lease only to the extent that the User-Lessee's beneficiary chooses to do so.
Realization Upon Charged-off Specified Leases
The Servicing Agreement will provide that if the Servicer decides to
repossess a Defaulted Vehicle, the Servicer will use commercially reasonable
efforts to repossess and liquidate it. Such liquidation may be effected through
repossession and disposition through sale, or the Servicer may take any other
action permitted by applicable law. The Servicer may enforce all rights of the
lessor under the related Defaulted Lease, sell that Defaulted Vehicle in
accordance with such Defaulted Lease and commence and pursue any proceedings in
connection with such Defaulted Lease. In connection with any such repossession,
the Servicer will follow such practices and procedures as are used by the
Servicer in respect of any leases serviced by it for its own account. The
Servicer will be responsible for all costs and expenses incurred in connection
with the sale or other disposition of Defaulted Vehicles, but will be entitled
to reimbursement to the extent such costs constitute Disposition Expenses or are
expenses recoverable under an applicable insurance policy. Proceeds from the
sale or other disposition of repossessed Specified Vehicles will constitute
Sales Proceeds or Termination Proceeds and will be deposited into the SUBI
Collection Account. Collections in respect of a Collection Period will include
all Sales Proceeds, Termination Proceeds and Recovery Proceeds collected during
that Collection Period.
65
<PAGE>
Servicer Records, 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 Specified Leases. Upon the occurrence and continuance of a
Servicer Default 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 Specified
Leases to a successor servicer.
The Servicer will perform some monitoring and reporting functions on behalf
of the Transferor, the Trust, the Trustees and the Senior Noteholders, including
the preparation and delivery to the Trustees, the Vehicle Trustee and each
Rating Agency, on or before each Determination Date, of a monthly certificate
setting forth all information necessary to make all distributions required in
respect of the related Collection Period, and the preparation and delivery of
monthly statements setting forth the information described under "Additional
Information Regarding the Securities--Statements to Securityholders", and an
annual officer's certificate specifying the occurrence and status of any
Servicer Default.
Evidence as to Compliance
Under the Servicing Agreement, within 120 days after the end of each fiscal
year, a firm of nationally recognized independent accountants will furnish the
Trust with a statement as to compliance by the Servicer during the preceding 12
months ended December 31--or since the Closing Date in the case of the first
such statement.
The Servicing Agreement will also provide for the delivery to the Trust, on
or before April 30 of each year, beginning April 30, 2001, of a certificate,
signed by an officer of the Servicer, stating that there has been no Servicer
Default during the preceding 12 months ended December 31--or since the Closing
Date in the case of the first such certificate--or, if there has been any
Servicer Default, describing each such default.
Copies of such statements and certificates may be obtained by Senior
Noteholders or Senior Note Owners by a request in writing addressed to the
Indenture Trustee or the Owner Trustee, as the case may be, at the related
Corporate Trust Office.
Servicing Compensation
The Servicer will be entitled to compensation for the performance of its
servicing and administrative obligations with respect to the SUBI Assets under
the Servicing Agreement. The Servicer will be entitled to receive a fee in
respect of the SUBI Assets allocable to the SUBI equal to, for each Collection
Period, one-twelfth of the product of (a) 1.00% and (b) the aggregate
Securitization Value of all Specified Leases as of the first day of that
Collection Period (the "Servicing Fee"). The Servicing Fee will be payable on
each Payment Date in respect of the related Collection Period and will be
calculated and paid based upon a 360-day year consisting of twelve 30-day
months.
The Servicer will also be entitled to additional compensation in the form
of expense reimbursement, administrative fees, disposition fees or similar
charges paid with respect to the Specified Leases, including any late payment
fees now or later in effect. The Servicer will pay all expenses incurred by it
in connection with its servicing and administration activities under the
Servicing Agreement and will not be entitled to reimbursement of such expenses,
except to the extent such expenses constitute Disposition Expenses.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Specified Leases as an agent for the Vehicle
Trust under the Servicing Agreement, including collecting and processing
payments, responding to inquiries of User-Lessees, investigating delinquencies,
sending payment statements, paying costs of the sale or other disposition of
Matured Vehicles and Defaulted Vehicles, overseeing the SUBI Assets and
administering the Specified Leases, including making Advances, accounting for
collections, furnishing monthly and annual statements to the Vehicle Trustee
with respect to distributions and generating federal income tax information.
66
<PAGE>
Servicer Agent 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 a Servicer
Default, as described under "--Servicer Defaults".
Indemnification by the Servicer
The Servicer will indemnify the Trustees and their respective agents for
any loss, liability, claim, damage or expense 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 but only to the extent such
liability arose out of the Servicer's negligence, willful misconduct, bad faith
or recklessness.
Servicer Defaults
The following are among the events the occurrence and continuation of which
would constitute "Servicer Defaults" under the Servicing Agreement:
(a) any failure by the Servicer to deliver to (1) the Vehicle Trustee for
distribution to holders of interests in the UTI, the SUBIs or any
Other SUBI, (2) the Indenture Trustee for distribution to the
Noteholders or (3) the Owner Trustee for distribution to the
Certificateholders, any required payment, which failure continues
unremedied for five Business Days after discovery thereof by an
officer of the Servicer or receipt by the Servicer of notice thereof
from the Indenture Trustee, the Owner Trustee or Senior Noteholders or
Certificateholders evidencing not less than 25% of the aggregate
principal balance of the Securities, voting together as a single
class;
(b) any failure by the Servicer to duly 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 UTI, the SUBIs or any Other SUBI or the
Senior Noteholders or Certificateholders, and which continues
unremedied for 90 days after written notice thereof is given as
described in clause (a) above;
(c) any failure by the Servicer to deliver to the Vehicle Trustee any
report required to be delivered to the Vehicle Trustee or the Trust
pursuant to the Servicing Agreement within 15 Business Days after
discovery of that failure by an officer of the Servicer or receipt by
the Servicer of written notice thereof from the Vehicle Trustee or the
Owner Trustee;
(d) any failure to deliver to the Indenture Trustee any report required to
be delivered to the Indenture Trustee or the Trust pursuant to the
Basic Documents, which failure continues for 15 Business Days after
discovery of that failure by an officer of the Servicer or receipt by
the Servicer of written notice thereof from the Indenture Trustee;
(e) any representation, warranty or statement of the Servicer made in the
Servicing Agreement, any other Basic Document to which the Servicer is
a party or by which it is bound or any certificate, report or other
writing delivered pursuant to the Servicing Agreement shall prove to
be incorrect in any material respect when made, which failure
materially and adversely affects the rights of holders of interests in
the UTI, the SUBIs or any Other SUBI or the Senior Noteholders or the
Certificateholders, and which failure continues unremedied for 30 days
after written notice thereof is given as described in clause (a)
above;
(f) any failure by the Servicer to maintain or pay when due any premium in
respect of any Contingent and Excess Liability Insurance, which
failure continues for ten Business Days after discovery of such
failure by an officer of the Servicer or receipt by the Servicer of
written notice thereof from the Vehicle Trustee or the Indenture
Trustee or from any holder of Securities; and
67
<PAGE>
(g) the occurrence of certain events of bankruptcy, insolvency,
receivership or liquidation in respect of the Servicer; provided,
however, that the occurrence of any event set forth in clauses (a)
through (f) with respect to either 2000-A SUBI will be an Servicer
Default only with respect to the SUBIs and will not be an Servicer
Default with respect to the UTI or any Other SUBI.
Notwithstanding the foregoing, a delay in or failure of performance referred to
under clause (b) for a period of 120 days, under clause (c) or (d) for a period
of 45 days or under clause (e) for a period of 60 days, will not constitute an
Servicer Default if that failure or delay was caused by force majeure or other
similar occurrence. Upon the occurrence of any such event, the Servicer will 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 will provide to the Indenture Trustee, the Vehicle
Trustee, the Transferor and the Securityholders prompt notice of such failure or
delay by it, together with a description of its efforts to so perform its
obligations.
Upon the occurrence of any Servicer Default, the sole remedy available to
the holders of the UTI, the SUBIs and any Other SUBIs will be to remove the
Servicer and appoint a successor Servicer. However, if the commencement of a
bankruptcy or similar case or proceeding were the only default, the Servicer or
its trustee-in-bankruptcy might have the power to prevent that removal. See
"--Removal or Replacement of the Servicer".
Termination
The Servicing Agreement will terminate upon the earlier to occur of (a) the
dissolution of the Vehicle Trust or (b) the discharge of the Servicer in
accordance with the terms of the Servicing Agreement, which will effect a
termination only with respect to the SUBI Assets and not with respect to any
other Vehicle Trust Assets.
Removal or Replacement of the Servicer
Upon the occurrence of an Servicer Default, the Vehicle Trustee may, to the
extent such Servicer Default relates to the SUBI Assets, upon the direction of
the holder and pledgee of the SUBI Certificates, terminate all of the rights and
obligations of the Servicer under the Servicing Agreement with respect to the
SUBI Assets. For purposes of the immediately preceding sentence, the holder and
pledgee of the SUBI Certificates will be the Indenture Trustee acting at the
direction of Senior Noteholders holding not less than 662/3% of the aggregate
principal balance of the Senior Notes, so long as any Senior Notes are
outstanding. In each case, the Vehicle Trustee will effect that termination by
delivering notice thereof to the Servicer, with a copy to each Rating Agency or
any other securities based on any Other SUBIs affected by that Servicer Default.
Upon the termination or resignation of the Servicer with respect to the
SUBI Assets, the Servicer subject to that termination or removal will continue
to perform its functions as Servicer, in the case of (a) termination, until the
earlier of the date specified in the termination notice or, if no such date is
specified therein, the date of the Servicer's receipt of such notice, and (b)
resignation, until the later of (1) 45 days after the delivery to the Vehicle
Trustee of the written resignation notice or (2) the date upon which the
resigning Servicer becomes unable to act as Servicer, as specified in the
resignation notice and accompanying opinion of counsel.
In the event of a termination of the Servicer as a result of an Servicer
Default with respect to the SUBI Assets only, the Vehicle Trustee, acting at the
direction of the holder and pledgee of the SUBI Certificates--which holder for
this purpose will be the Indenture Trustee, acting at the direction of Senior
Noteholders holding not less than 662/3% of the aggregate principal balance of
the Senior Notes--will appoint a successor Servicer. The Vehicle Trustee will
have the right to approve that successor Servicer, and that approval may not be
unreasonably withheld. If a successor Servicer is not appointed by the effective
date of the predecessor Servicer's resignation or termination, then the Vehicle
Trustee will act as successor Servicer. If the Vehicle Trustee is legally unable
to act as Servicer, then the Vehicle Trustee will be required to appoint, or
petition a court of competent jurisdiction to appoint, any established entity
the regular business of which includes the servicing of truck, tractor and
trailer leases as the successor Servicer.
Upon appointment of a successor Servicer, the successor Servicer will
assume all of the rights and obligations of the Servicer under the Servicing
Agreement; provided, however, that no successor Servicer will have any
responsibilities with respect to making Advances. Any compensation payable to a
successor Servicer may not be in
68
<PAGE>
excess of that permitted the predecessor Servicer unless the holders of the UTI,
the SUBIs and any Other SUBIs, as the case may be, bear such excess costs
exclusively. If a bankruptcy trustee or similar official has been appointed for
the Servicer, that trustee or official may have the power to prevent the
Indenture Trustee, the Owner Trustee, the Senior Noteholders or the
Certificateholders from effecting that transfer of servicing. The predecessor
Servicer will have the right to be reimbursed for any outstanding Advances made
with respect to the SUBI Assets to the extent funds are available therefore in
respect of the Advances made.
Miscellaneous Provisions
Amendment Provisions
General. For so long as any Senior Notes are outstanding, the Trust's
rights in the SUBI Certificates will be subject to the lien of the Indenture.
The Indenture Trustee will be the holder of the SUBI Certificates for purposes
of determining whether any proposed amendment to the SUBI Trust Agreement, the
Servicing Agreement or the Trust Agreement will materially adversely affect the
interests of the holders of the SUBI Certificates.
Amendment of the SUBI Trust Agreement and the Servicing Agreement. Each of
the SUBI Trust Agreement and the Servicing Agreement may be amended without the
consent of the holders of the Senior Notes, the Certificateholders, the SUBI
Certificates, the UTI Certificates or any Other SUBI Certificates, as the case
may be, provided, that any such action will not, in the good faith judgment of
the parties thereto, materially and adversely affect the interest of any of such
holders. Each of the SUBI Trust Agreement and the Servicing Agreement may also
be amended from time to time as it relates to either 2000-A SUBI, by the parties
thereto, including to change the manner in which the Reserve Fund is funded,
including the elimination of the Reserve Fund, or to change the remittance
schedule for depositing Collections and other amounts into the SUBI Collection
Account, upon receipt of the consent of Senior Noteholders holding at least a
majority of the aggregate principal balance of the Senior Notes and, to the
extent affected thereby, the consent of Certificateholders holding at least a
majority of the aggregate principal balance of the Certificates, for the purpose
of adding any provision to, or changing in any manner or eliminating any
provision of, the agreements or modifying in any manner the rights of the Senior
Notes or Certificates; provided, however, that:
o no such amendment may increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments in
respect of the SUBI or the SUBI Certificates, distributions required
to be made on the Senior Notes or the Certificates or any Interest
Rate or the Certificate Rate and
o no amendment of any type shall reduce the percentage of the aggregate
principal amount of the outstanding Senior Notes and the Certificates
required to consent to any such amendment, in each case without the
consent of all the holders or 100% of all Senior Notes or
Certificates, as the case may be.
To the extent that any such amendment also relates to or affects the UTI or any
Other SUBI, such amendment will require the consent of the holders affected
thereby. Notwithstanding the foregoing, the SUBI Trust Agreement and the
Servicing Agreement may be amended at any time by the parties thereto to the
extent reasonably necessary to assure that none of the Vehicle Trust, the Trust
or the Transferor will be classified as an association, or a publicly traded
partnership, taxable as a corporation for federal income tax purposes. An
opinion of counsel as to certain tax matters is required with respect to any
amendment to either the SUBI Trust Agreement or the Servicing Agreement.
Amendment of the Trust Agreement. The Trust Agreement may be amended by the
Transferor and the Owner Trustee without the consent of any of the Senior
Noteholders or Certificateholders to cure any ambiguity, correct or supplement
any of its provisions that may be inconsistent with any other provision in the
Trust Agreement, add any other provisions with respect to matters or questions
arising under the Trust Agreement that are not inconsistent with the provisions
of the Trust Agreement or add or amend any provision in the agreement in
connection with permitting transfers of the Subordinated Notes or the
Certificates; provided, however, that this action shall not materially adversely
affect the interests of the holders of the SUBI Certificates--which, so long as
any Senior Notes are outstanding, shall include the Indenture Trustee--or any of
the Senior Notes or Certificates.
The Trust Agreement may also be amended from time to time by the Transferor
and the Owner Trustee,
o with prior written notice to each Rating Agency and confirmation from
each Rating Agency that such amendment would not cause the
then-current rating assigned to any class of Senior Notes or the
Certificates to be qualified, reduced or withdrawn,
69
<PAGE>
o with the consent of the Senior Noteholders holding at least a majority
of the aggregate principal balance of the Senior Notes and
o to the extent affected thereby, the consent of the Holder of the
Subordinated Notes and Certificateholders holding at least a majority
of the aggregate principal balance of the Certificates,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Agreement or of modifying in any
manner the rights of the Senior Noteholders, the Certificateholders or the
holder of the Subordinated Notes. No such amendment shall, however,
o increase or reduce in any manner the amount of, or accelerate or delay
the timing of, distributions that are required to be made on the Notes
or the Certificates, or
o reduce the percentage of the Senior Noteholders, Subordinated
Noteholders or Certificateholders required to consent to any such
amendment, without the consent of the holders of 100% of all
outstanding Certificates other than the Transferor Certificate, and
provided, further that an opinion of counsel shall be furnished to the
Indenture Trustee and the Owner Trustee to the effect that such
amendment shall not (1) affect the treatment of the Senior Notes as
debt for federal income tax purposes, (2) be deemed to cause a taxable
exchange of the Senior Notes for federal income tax purposes or (3)
cause the Trust to be classified as an association, or a publicly
traded partnership, taxable as a corporation for federal income tax
purposes. Notwithstanding the foregoing, the Trust Agreement may be
amended at any time by the parties thereto to the extent reasonably
necessary to assure that none of the Vehicle Trust, the Trust or the
Transferor will be classified as an association, or a publicly traded
partnership, taxable as a corporation for federal income tax purposes.
The Trust Agreement may also be amended from time to time to approve
additional Trust activities and purposes upon the request of holders of at least
75% of the outstanding balance of the Certificates; provided however, that any
such amendment will also require:
o written notice to each Rating Agency and confirmation from each Rating
Agency that the activities and purposes would not cause its
then-current ratings of any class Senior Notes or the Certificates to
be qualified, reduced or withdrawn, and
o approval by holders of at least 75% of the outstanding balance of the
Senior Notes, or if the Senior Notes are no longer outstanding, by the
Subordinated Noteholder.
See "The Trust--Formation".
The Trust Agreement will require the Owner Trustee to give the
Certificateholders 30 days' written notice of any proposed amendment to the
Indenture which would materially adversely affect the Certificateholders if the
consent of the Senior Noteholders is not required or any other amendment or
supplement to any other Basic Document unless the Owner Trustee is furnished
with an opinion of counsel that such amendment would not materially adversely
affect the Certificateholders. The Trust Agreement provides that the Owner
Trustee will not enter into such amendment unless Certificateholders holding 50%
or more of the aggregate principal balance of the Certificates consent in
writing.
Amendment of the Indenture. Without the consent of the Senior Noteholders
but with prior notice to each Rating Agency, the Owner Trustee, on behalf of the
Trust, and the Indenture Trustee, upon request by the Trust, may execute a
supplemental indenture for the purpose of adding to the covenants of the Trust,
curing any ambiguity, correcting or supplementing any provision that may be
inconsistent with any other provision or adding any other provision with respect
to matters or questions arising under the Indenture that will not be
inconsistent with other provisions of the Indenture.
Without the consent of the holder of each outstanding Senior Note affected
thereby, no supplemental indenture may:
o change the Final Scheduled Payment Date of, or Interest Rate on,
reduce the principal amount thereof, or the Redemption Price with
respect thereto or change any place of payment where, or the coin or
currency in which, any class of Senior Notes or the interest thereon
is payable;
o impair any right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment;
70
<PAGE>
o reduce the percentage of the aggregate principal balance of the Senior
Notes the consent of the holders of which is required for any
supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for therein;
o modify or alter the provisions of the Indenture regarding the voting
of Senior Notes held by the Transferor, the Servicer or any of their
respective affiliates or any other obligor on the Senior Notes;
o reduce the percentage of the aggregate principal balance of Senior
Notes the consent of the holders of which is required to direct the
Indenture Trustee to sell or liquidate the Trust Estate, if the
proceeds of that sale would be insufficient to pay the aggregate
principal balance and accrued but unpaid interest on the Senior Notes;
o decrease the percentage of the aggregate principal balance of Senior
Notes required to amend the sections of the Indenture that specify the
applicable percentage of the aggregate principal balance of Senior
Notes necessary to amend the Indenture or the other Basic Documents;
or
o permit the creation of any lien ranking prior to or on a parity with
the lien of the Indenture with respect to any of the collateral for
the Senior Notes or, except as otherwise permitted by or contemplated
in the Indenture, terminate the lien of the Indenture on any such
collateral or deprive the holder of any Senior Note of the security
afforded by the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, with the consent of holders of at least a majority of the aggregate
principal balance of the Senior Notes, and with written notice to each Rating
Agency, for the purpose of adding any provision to, changing in any manner or
eliminating any provision of the Indenture or for the purpose of modifying in
any manner the rights of the Senior Noteholders; provided, that:
o such action will not, (1) materially adversely affect the interests of
any Senior Noteholder and (2) as confirmed by each Rating Agency,
cause the then-current rating of any class of Senior Notes or the
Certificates to be qualified, reduced or withdrawn, and
o an opinion of counsel as to certain tax matters is delivered.
Amendment of the Program Operating Lease. The Program Operating Lease may
be amended without the consent of the Senior Noteholders or the
Certificateholders; provided, however, that:
o such amendment may not materially adversely affect the interests of
the Senior Noteholders or the Certificateholders, unless 100% of the
Senior Noteholders and Certificateholders materially adversely
affected consent thereto,
o as confirmed by each Rating Agency, that amendment will not cause the
then-current rating assigned to any class of Senior Notes or the
Certificates to be qualified, withdrawn or reduced, and
o an opinion of counsel as to certain tax matters is delivered.
Notwithstanding the foregoing, the Program Operating Lease may be amended at any
time by the parties thereto to the extent reasonably necessary to ensure that
none of Vehicle Trust, the Trust or the Transferor will be classified as an
association, or a publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Amendment of the SUBI Certificate Transfer Agreement. The SUBI Certificate
Transfer Agreement may be amended from time to time by the parties thereto.
Amendment of the Issuer SUBI Certificate Transfer Agreement. The Issuer
SUBI Certificate Transfer Agreement may be amended from time to time by the
parties thereto.
Amendments Generally. Each amendment described above shall be deemed not to
materially and adversely affect the interests of any holder of Securities, if
the Rating Agencies confirm the amendment will not result in the withdrawal,
qualification or reduction of the then-current rating of any class of Senior
Notes or Certificates (or the Certificateholders consent thereto).
Bankruptcy Provisions
The UTI Beneficiary and the Vehicle Trust. The Trustees, the UTI
Beneficiary, any Paying Agent, the Transferor, BMW FS, the Servicer, each holder
of an interest in the SUBI, any Other SUBI or the UTI, and each Securityholder,
by accepting the related Security, including each Senior Noteholder, by
accepting a beneficial
71
<PAGE>
interest in the related Senior Notes (collectively, the "Non-Petition Parties"),
will covenant that for a period of one year and one day after payment in full of
all amounts due to each holder or pledgee of an interest in the UTI, the SUBIs
or any Other SUBI, they will not institute, or join in instituting, any
bankruptcy, reorganization, insolvency or liquidation proceeding or other
similar proceeding against the UTI Beneficiary or the Vehicle Trust.
Notwithstanding the foregoing, each Securityholder, the Indenture Trustee and
the Owner Trustee may institute or join any such proceeding if 100% of the
holders of the SUBI and any Other SUBIs consent, excluding the UTI Beneficiary,
the Transferor and any of their respective affiliates. Each pledgee of the UTI,
the SUBIs or any Other SUBI must give a similar non-petition covenant.
The Transferor and the Trust. Each of the Servicer, the Transferor, the
Owner Trustee, the Indenture Trustee and each Securityholder, by accepting the
related Security, including each Senior Noteholder, by accepting a beneficial
interest in the related Senior Notes, will covenant not to institute or join in
instituting any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding, or other similar proceeding against the Transferor or
the Trust for a period of one year and one day after the Senior Notes and the
Certificates have been paid in full; provided, however, that 100% of the Senior
Noteholders, or, if no Senior Notes are then outstanding, the Subordinated
Noteholder, or, if no Notes are then outstanding, 100% of the
Certificateholders, in each case excluding the Transferor and any of its
affiliates, may at any time institute or join in instituting any bankruptcy,
reorganization, insolvency or liquidation proceeding against the Transferor or
the Trust.
Senior Notes or Certificates Owned by the Trust, Transferor, Servicer or
their Affiliates
Any Senior Notes or Certificates owned by the Trust, the Transferor, the
Servicer or any of their respective affiliates will be entitled to benefits
under the Indenture or the Trust Agreement, as the case may be, equally and
proportionately to the benefits afforded other owners of the Senior Notes or
Certificates, respectively, except that such Senior Notes or Certificates will
be deemed not to be outstanding for the purpose of determining whether the
requisite percentage of Senior Noteholders or Certificateholders, as the case
may be, have given any request, demand, authorization, direction, notice,
consent or other action under the Basic Documents.
Fees and Expenses
The Vehicle Trustee. The Vehicle Trustee will be entitled to reasonable
compensation for its services with respect to the SUBI Assets, which will be
paid by the Servicer, the amount of which will be agreed upon from time to time
by the Vehicle Trustee and the Servicer.
The Servicer. As more fully described under "--The Servicing
Agreement--Servicing Compensation", as compensation for the servicing of the
SUBI Assets and administering the distribution of funds in respect thereof, the
Servicer will be entitled to receive the Servicing Fee on each Payment Date,
together with reimbursement of fees and expenses and any late payment fees now
or later in effect or similar charges paid with respect to the Specified Leases.
The Servicer will pay all expenses incurred by it in the performance of its
duties under the Servicing Agreement, including fees and disbursements of
independent accountants, taxes imposed on the Servicer and expenses incurred in
connection with distributions and reports to the Trustees.
The Indenture Trustee. As more fully described under "Additional Document
Provisions--The Indenture--Compensation and Indemnity", the Administrator will
pay the Indenture Trustee compensation for its services and reimburse it for its
reasonable expenses relating thereto.
The Owner Trustee and Paying Agent. The Administrator will pay the Owner
Trustee and each Paying Agent such fees as have been agreed upon among the
Transferor, the Administrator and the Owner Trustee or the Paying Agent, and
will reimburse the Owner Trustee and each Paying Agent for their reasonable
expenses. The Administrator will not be entitled to be reimbursed from the Trust
Estate for the payment of such expenses.
Governing Law. The SUBI Trust Agreement and the Trust Agreement will be
governed by the laws of the State of Delaware. The Servicing Agreement, the
Indenture, the SUBI Certificate Transfer Agreement, the Issuer Administration
Agreement, the Issuer SUBI Certificate Transfer Agreement and the Program
Operating Lease will be governed by the laws of the State of New York.
72
<PAGE>
ADDITIONAL LEGAL ASPECTS OF THE VEHICLE TRUST AND THE SUBIS
The Vehicle Trust
General
The Vehicle Trust is a business trust under Delaware law. In a business
trust, the trust property is managed for the profit of the beneficiaries, as
opposed to a common law "asset preservation" trust, where the trustee is charged
with the mere maintenance of trust property. The principal requirement for the
formation of a business trust in Delaware is the execution of a trust agreement
and the filing of a Certificate of Trust with the Secretary of State of the
State of Delaware. The Vehicle Trust has been so formed. The Vehicle Trust has
also made trust filings or obtained certificates of authority to transact
business in some states where, in the judgment of the Servicer, such action may
be required.
Because the Vehicle Trust is a business trust for Delaware and other state
law purposes, it, like a corporation, may be eligible to be a debtor in its own
right under the United States Bankruptcy Code (the "Bankruptcy Code"), as
further described under "--Insolvency-Related Matters". To the extent that the
Vehicle Trust may be eligible for relief under the Bankruptcy Code or similar
applicable state laws (the "Insolvency Laws"), the Vehicle Trustee is not
authorized to commence a case or proceeding thereunder. Each of the Vehicle
Trustee, the UTI Beneficiary and the holders from time to time of the UTI, the
SUBIs and any Other SUBI have agreed not to institute a case or proceeding
against the Vehicle Trust under any Insolvency Law for a period of one year and
one day after payment in full of all distributions to holders of the UTI, the
SUBIs and any Other SUBI under the Vehicle Trust Agreement. See "Additional
Document Provisions--Miscellaneous Provisions--Bankruptcy Provisions".
Notwithstanding the foregoing, claims against Vehicle Trust Assets could
have priority over the beneficial interest in those assets represented by the
SUBIs. Additionally, claims of a third party against the Vehicle 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
Vehicle Trust, such as the indenture trustee.
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 directly own the
SUBI Assets. Instead, the Vehicle Trust will own the Vehicle Trust Assets,
including the SUBI Assets, and the Vehicle Trust will take actions with respect
thereto in the name of the Vehicle Trust on behalf of and as directed by the
beneficiaries of the Vehicle Trust (i.e., the holders of the UTI Certificate,
the SUBI Certificates and all Other SUBI Certificates). The primary asset of the
Trust will be the SUBI Certificates evidencing a 100% beneficial interest in the
SUBI Assets, and the Owner Trustee will take action with respect thereto in the
name of the Trust and on behalf of the Securityholders and the Transferor.
Beneficial interests in the Specified Leases and the Specified Vehicles
represented by the SUBI Certificates, rather than direct legal ownership are
transferred under this structure in order to avoid the administrative difficulty
and expense of retitling the Specified Vehicles in the name of the transferee.
The Servicer and/or the Vehicle Trustee will segregate the SUBI Assets from the
other Vehicle Trust Assets on the books and records each maintains for such
assets. Neither the Servicer nor any holders of other beneficial interests in
the Vehicle Trust will have rights in the SUBI Assets and, except under the
limited circumstances described under "--Allocation of Vehicle Trust
Liabilities", payments made on any Vehicle Trust Assets other than the SUBI
Assets will be unavailable to make payments on the Securities or to cover
expenses of the Vehicle Trust allocable to the SUBI Assets.
Allocation of Vehicle Trust Liabilities
The Vehicle Trust Assets are comprised of several portfolios of Other SUBI
Assets, together with the SUBI Assets and the UTI Assets. The UTI Beneficiary
may in the future pledge the UTI as security for obligations to third-party
lenders, and may in the future create and sell or pledge Other SUBIs in
connection with other financings. The Vehicle Trust Agreement will permit the
Vehicle 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. Pursuant to the Vehicle Trust Agreement, as among the beneficiaries
of the Vehicle Trust, an Vehicle Trust liability relating to a particular
portfolio of Vehicle Trust Assets will be allocated to and charged against the
portfolio of Vehicle Trust
73
<PAGE>
Assets to which it belongs. Vehicle Trust liabilities incurred with respect to
the Vehicle Trust Assets generally will be borne pro rata among all portfolios
of Vehicle Trust Assets. The Vehicle Trustee and the beneficiaries of the
Vehicle Trust, including the Trust, will be bound by that allocation. In
particular, the Vehicle Trust Agreement will require the holders from time to
time of the UTI Certificates and any Other SUBI Certificates to waive any claim
they might otherwise have with respect to the SUBI Assets and to fully
subordinate any claims to the SUBI Assets in the event that such waiver is not
given effect. Similarly, by virtue of holding Senior Notes or a beneficial
interest therein, Senior Noteholders, and Note Owners will be deemed to have
waived any claim they might otherwise have with respect to the UTI Assets or any
Other SUBI Assets. See "Additional Document Provisions--The SUBI Trust
Agreement--The SUBIs, Other SUBIs and the UTI".
The Vehicle Trust Assets are located in several states, the tax laws of
which vary. Additionally, the Vehicle Trust may in the future own Leases and
Leased Vehicles located in states other than the states in which it conducts
business as of the date of this prospectus. In the event any state or locality
imposes a tax on the Vehicle Trust at the entity level, the UTI Beneficiary has
agreed to indemnify the holders of the SUBI Certificates, and each Other SUBI
Certificate for the full amount of such taxes. Should the UTI Beneficiary fail
to fulfill its indemnification obligations, amounts otherwise distributable to
it as holder of the UTI Certificates will be applied to satisfy such
obligations. However, it is possible that Senior Noteholders could incur a loss
on their investment in the event the UTI Beneficiary did not have sufficient
assets available, including distributions in respect of the UTI, to satisfy such
state or local tax liabilities.
The Vehicle Trust Agreement provides for the UTI Beneficiary to be liable
as if the Vehicle Trust were a disregarded entity and the UTI Beneficiary was
the general partner of the partnership to the extent necessary after giving
effect to the payment of liabilities allocated severally to the holders of the
SUBI Certificates and any Other SUBI Certificates. However, it is possible that
the Senior Noteholders and Certificateholders could incur a loss on their
investment to the extent any such claim were allocable to the Trust as the
holder of the Vehicle SUBI Certificate or the pledgee of the Lease SUBI
Certificate, either because a lien arose in connection with the SUBI Assets or
in the event the UTI Beneficiary did not have sufficient assets available,
including distributions in respect of the UTI, to satisfy such claimant or
creditor in full.
The SUBIs
The SUBIs will evidence a beneficial interest in the related SUBI Assets.
The SUBIs will represent neither a direct legal interest in the related SUBI
Assets, nor an interest in any Vehicle Trust Assets other than the related SUBI
Assets. Under the allocation of Vehicle Trust liabilities described under
"Additional Document Provisions--The SUBI Trust Agreement--The SUBIs, Other
SUBIs and the UTI", payments made on or in respect of such other Vehicle Trust
Assets will not be available to make payments on the Securities or to cover
expenses of the Vehicle Trust allocable to the SUBI Assets. Any liability to
third parties arising from or in respect of a Specified Lease or a Specified
Vehicle will be borne by the holders of the related SUBI, including the Trust.
If any such liability arises from a Lease or Leased Vehicle that is an Other
SUBI Asset or a UTI Asset, the SUBI Assets will not be subject to such
liability.
Because the Trust's primary asset will be the Vehicle SUBI Certificate and
its rights as a pledgee of the Lease SUBI Certificate, the Trust, and,
accordingly, the Indenture Trustee, will have an indirect beneficial ownership
interest, rather than a security interest, in the SUBI Assets allocable to the
related SUBI. Except as otherwise described below or under "Additional Legal
Aspects of the Specified Leases and the Specified Vehicles", generally the Trust
will not have a perfected security interest in the SUBI Assets, and in no
circumstances will the Trust have a direct ownership or perfected security
interest in any Specified Vehicle.
The Trust will generally be deemed to own the Vehicle SUBI Certificate and,
through such ownership, to have an indirect beneficial ownership interest in the
Specified Vehicles. If a court of competent jurisdiction were to recharacterize
the sale of the Vehicle SUBI Certificate to the Trust, the Trust, or, during the
term of the Indenture, the Indenture Trustee, could instead be deemed to have a
perfected security interest in the Vehicle SUBI Certificate, and certain rights
susceptible of perfection under the UCC, but in no event would the Trust or the
Indenture Trustee be deemed to have a perfected security interest in the
Specified Vehicles.
74
<PAGE>
Because the Trust will not directly own the SUBI Assets, and because its
interest therein will generally be an indirect beneficial ownership interest,
perfected liens of third-party creditors of the Vehicle Trust in SUBI Assets
will take priority over the interests of the Trust and the Indenture Trustee in
the SUBI Assets. Therefore, a general creditor of the Vehicle Trust may obtain a
lien on one or more SUBI Assets, regardless of whether its claim would be
allocated to such SUBI Assets under the terms of the Vehicle Trust Agreement.
Such liens could include tax liens, liens arising under various federal and
state criminal statutes, certain liens in favor of the Pension Benefit Guaranty
Corporation and judgment liens resulting from successful claims against the
Vehicle Trust arising from the operation of the Specified Vehicles. See "Risk
Factors--If ERISA liens are placed on the assets of the trust, you could suffer
a loss on your investment" and "--Vicarious tort liability may result in a loss
on your investment" and "Additional Legal Aspects of the Specified Leases and
the Specified Vehicles--Vicarious Tort Liability" for a further discussion of
these risks.
Insolvency-Related Matters
As described under "Additional Document Provisions--The SUBI Trust
Agreement--The SUBIs, Other SUBIs and the UTI" and "--The SUBIs", each holder or
pledgee of the UTI Certificates and any Other SUBI Certificate will be required
to expressly disclaim any interest in the SUBI Assets and to fully subordinate
any claims to the SUBI Assets in the event that disclaimer is not given effect.
Although no assurances can be given, in the unlikely event of the bankruptcy of
BMW LP, the Transferor believes that the SUBI Assets would not be treated as
part of BMW LP's bankruptcy estate and that, even if they were so treated, the
subordination by the holders and pledgees of the UTI Certificates and any Other
SUBI Certificate would be enforceable. In addition, as described under "Risk
Factors--A bankruptcy of the transferor or the servicer could delay or limit
payments to you", each of BMW LP, the Vehicle Trust, or the Vehicle Trustee when
acting on its behalf, and the Transferor has taken steps in structuring the
transactions described herein and has undertaken to act throughout the life of
such transactions in a manner intended to ensure that in the event a voluntary
or involuntary case is commenced by or against BMW FS under the Insolvency Laws,
the separate legal existence of each of BMW FS, on the one hand, and the Vehicle
Trust and the Transferor, on the other hand, will be maintained such that none
of the respective assets and liabilities of the Vehicle Trust, BMW LP, the
Transferor should be consolidated with those of BMW FS.
With respect to BMW Auto Leasing LLC, these steps include its creation as a
separate limited liability company under a limited liability company agreement
containing certain limitations, including, the requirement that it must have at
all times a member that is a limited liability company with at least one
independent director, and restrictions on the nature of their businesses and
operations and on their ability to commence a voluntary case or proceeding under
any Insolvency Law without the unanimous affirmative vote of all members.
There can be no assurance, however, that the limitations on the activities
of BMW LP, the Vehicle Trust and the Transferor, as well as the restrictions on
their abilities to obtain relief under Insolvency Laws or lack of eligibility
thereunder, as described above, would prevent a court from concluding that their
assets and liabilities should be consolidated with those of BMW FS, if BMW FS
becomes the subject of a case or proceeding under any Insolvency Law. On the
Closing Date, Weil, Gotshal & Manges LLP, as special counsel to the Transferor,
will deliver an opinion based on a reasoned analysis of analogous case law -
although there is no precedent based on directly similar facts - to the effect
that, subject to certain facts, assumptions and qualifications specified in the
opinion, under present reported decisional authority and applicable statutes to
federal bankruptcy cases, if BMW FS were to become a debtor in a case under the
Bankruptcy Code, it would not be a proper exercise by a court of its equitable
discretion (a) to disregard the separate legal existence of any of the Vehicle
Trust, the Transferor from that of BMW FS and (b) to order the substantive
consolidation of the assets and liabilities of any of the Vehicle Trust, the
Transferor with the assets and liabilities of BMW FS. Among other things, that
opinion will assume that each of the Vehicle Trust, or the Vehicle Trustee when
acting on its behalf, and the Transferor will follow certain procedures in the
conduct of its affairs, including maintaining separate records and books of
account from those of BMW FS, not commingling its respective assets with those
of BMW FS, doing business in a separate office from BMW FS and not holding
itself out as having agreed to pay, or being liable for, the debts of BMW FS. In
addition, that opinion will assume that except as expressly provided by the
Vehicle Trust Agreement and the Servicing Agreement - each of which contains
terms and conditions consistent with those that would be arrived at on an arm's
length basis between unaffiliated entities in the belief of the parties thereto
- BMW FS generally will not guarantee the obligations of the Vehicle Trust, the
Transferor or the Trust to third parties, and will not conduct the day-to-day
business or activities of any thereof, other than in its capacity as Servicer
acting under and in
75
<PAGE>
accordance with the Servicing Agreement. Each of BMW FS, the Vehicle Trust and
the Transferor intends to follow and has represented that it will follow these
and other procedures related to maintaining the separate identities and legal
existences of each of the Vehicle Trust, and the Transferor. Such a legal
opinion, however, will not be binding on any court.
If a case or proceeding under any Insolvency Law were to be commenced by or
against any of BMW FS, the Vehicle Trust or the Transferor, if a court were to
order the substantive consolidation of the assets and liabilities of any of such
entities with those of BMW FS or if an attempt were made to litigate any of the
foregoing issues, delays in distributions on the SUBI Certificates, and possible
reductions in the amount of such distributions, to the Trust - either directly
or, if the Program Operating Lease remains in effect, indirectly to the extent
resulting in delayed or reduced Program Operating Lease Payments from the
Transferor to the Trust and therefore to the Senior Noteholders, could occur. In
addition, the SUBI Trust Agreement provides that if the Transferor becomes
bankrupt or insolvent or the Trust is dissolved, the SUBI will be terminated and
the SUBI Trust Agreement will terminate with respect to the SUBI. In each case,
the Vehicle Trustee will be required to distribute the SUBI Assets to the
holders of the SUBI Certificates. Because the Trust has pledged its rights in
and to the SUBI Certificates to the Indenture Trustee, such distribution would
be made to the Indenture Trustee, which would be responsible for retitling the
Specified Vehicles. The cost of that retitling would reduce amounts payable from
the SUBI Assets that are available for payments of interest on and principal of
the Senior Notes, and in that event, the Senior Noteholders could suffer a loss
on their investment.
BMW LP will treat its conveyance of the SUBI Certificates to the Transferor
as an absolute sale, transfer and assignment of all of its interest therein for
all purposes. However, if a case or proceeding under any Insolvency Law were
commenced by or against BMW LP, and BMW LP as debtor-in-possession or a
creditor, receiver or bankruptcy trustee of BMW LP were to take the position
that the sale, transfer and assignment of the SUBI Certificates by BMW LP to the
Transferor should instead be treated as a pledge of the SUBI Certificates to
secure a borrowing by BMW LP, delays in payments of proceeds of the SUBI
Certificates to the Trust, and therefore to the Senior Noteholders, could occur
or, should the court rule in favor of that position, reductions in the amount of
such payments could result. On the Closing Date, Weil, Gotshal & Manges LLP, as
special counsel to the Transferor, will deliver an opinion to the effect that,
subject to certain facts, assumptions and qualifications specified therein, in
the event that BMW LP were to become a debtor in a case under the Bankruptcy
Code subsequent to the sale, transfer and assignment of the SUBI Certificates to
the Transferor, the sale, transfer and assignment of the SUBI Certificates from
BMW LP would be characterized as an absolute sale, transfer and assignment of
the SUBI Certificates from BMW LP to the Transferor, and the SUBI Certificates
and the proceeds thereof would not be property of BMW LP's bankruptcy estate.
As indicated above, however, such a legal opinion is not binding on any court.
As a precautionary measure, the Transferor will take the actions requisite
to obtaining a security interest in the SUBI Certificates as against BMW LP
which the Transferor will assign to the Trust and the Trust will assign to the
Indenture Trustee. The Indenture Trustee will perfect its security interest in
each SUBI Certificate, which will each be a "certificated security" or a
"general intangible" under the UCC, by possession and the filing of UCC
financing statements. Accordingly, if the conveyance of the SUBI Certificates by
BMW LP to the Transferor were not respected as an absolute sale, transfer and
assignment, the Transferor, and ultimately the Trust and the Indenture Trustee
as successors in interest, should be treated as a secured creditor of BMW LP,
although a case or proceeding under any Insolvency Law with respect to BMW LP
could result in delays or reductions in distributions on the SUBI Certificates
as indicated above, notwithstanding such perfected security interest.
In the event that the Servicer were to become subject to a case under the
Bankruptcy Code, some payments made within one year of the commencement of such
case, including Advances and Reallocation Payments, may be recoverable by the
Servicer as debtor-in-possession or by a creditor or a trustee in bankruptcy as
a preferential transfer from the Servicer. See "Risk Factors--A bankruptcy of
the transferor or the servicer could delay or limit payments to you".
76
<PAGE>
ADDITIONAL LEGAL ASPECTS OF THE SPECIFIED LEASES AND THE SPECIFIED VEHICLES
Back-up Security Interests
Because the Trust will own the Vehicle SUBI Certificate, the Trust will
have an indirect beneficial interest, rather than a security interest, in the
Vehicle SUBI Assets. The Trust also will be a pledgee of the Lease SUBI
Certificate held by the Transferor which in turn will have an indirect
beneficial interest, rather than a security interest, in the Lease SUBI Assets.
Except as otherwise described below, the Owner Trustee generally will not have a
perfected security interest in the property of the Trust or the SUBI Assets and
in no circumstances will the Owner Trustee have a perfected security interest in
any Specified Vehicle.
As described under "Additional Legal Aspects of the Vehicle Trust and the
SUBIs", the Indenture Trustee will have a security interest in the SUBI
Certificates perfected by possession.
The SUBI Assets will consist principally of the Specified Leases and the
related Specified Vehicles, subject to the rights of the User-Lessees under the
Specified Leases. To the extent that the pledge of the Lease SUBI Certificate
was to be viewed as representing a transfer of the assets of the Vehicle Trust,
the Specified Leases would be "chattel paper" as defined in the UCC. Pursuant to
the UCC, a non-possessory security interest in chattel paper may be perfected by
filing a UCC-1 financing statement with the appropriate filing office in the
state where the debtor has its chief executive office. Accordingly, as a
precaution, UCC-1 financing statements relating to the Specified Leases will be
filed naming:
o the Vehicle Trust as debtor and the Indenture Trustee as assignee
secured party;
o BMW LP as debtor and the Indenture Trustee as assignee secured party;
o the Transferor as debtor and the Indenture Trustee as assignee secured
party; and
o the Trust as debtor and the Indenture Trustee as secured party.
Perfection and the effect of perfection or non-perfection of a security interest
in the Specified Vehicles are governed by the certificate of title statutes of
the states in which such Specified Vehicles are located. Because of the
administrative burden and expense of perfecting an interest in automobiles under
the certificate of title statutes in the states in which the Specified Leases
were originated, the Indenture Trustee's interest in the Specified Vehicles will
be unperfected, and if the transfer of the Vehicle SUBI Certificate were to be
viewed as a transfer of the Vehicle SUBI Assets, the Indenture Trustee would
only have a perfected security interest in the Specified Leases. The Indenture
Trustee's security interest in the Specified Leases could be subordinate to the
interests of some other parties who take possession of the Specified Leases.
Specifically, the Trust's security interest in a Specified Lease could be
subordinate to the rights of a purchaser of that Specified Lease who takes
possession thereof without knowledge or actual notice of the Trust's security
interest. The Specified Leases will not be stamped to indicate the precautionary
security arrangements. However, the Servicing Agreement requires the Servicer to
retain custody of the Specified Leases. To the extent that a valid lien is
imposed by a third party against a Specified Vehicle, the interest of the
lienholder will be superior to the unperfected beneficial interest of the Trust
in that Specified Vehicle. Although the Servicing Agreement will require the
Servicer to contest all such liens and cause the removal of any liens that may
be imposed, if any such liens are imposed against the Specified Vehicles,
investors in the Senior Notes could incur a loss on their investment. For
further information relating to potential liens on the SUBI Assets, see
"Additional Document Provisions--The Servicing Agreement--Notification of Liens
and Claims" and "--Custody of Lease Documents and Certificates of Title" and
"Additional Legal Aspects of the Vehicle Trust and the SUBIs--The SUBIs".
As noted under "Additional Legal Aspects of the Vehicle Trust and the
SUBIs--The SUBIs", various liens could be imposed upon all or part of the SUBI
Assets that, by operation of law, would take priority over the Trust's interest
therein. Such liens would include tax liens, mechanics', repairmen's,
garagemen's and motor vehicle accident liens and some liens for personal
property taxes, in each case arising with respect to a particular Specified
Vehicle, liens arising under various state and federal criminal statutes and
some liens more fully described under "Risk Factors--If ERISA liens are placed
on the assets of the trust, you could suffer a loss on your investment" in favor
of the Pension Benefit Guaranty Corporation. Additionally, any perfected
security interest of the Trust in all or part of the property of the Trust could
also 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
77
<PAGE>
assets sold, transferred and assigned by the Transferor to the Trust pursuant to
the Agreement, as more fully described under "Risk Factors-- A bankruptcy of the
transferor or the servicer could delay or limit payments to you".
Vicarious Tort Liability
Although the Vehicle Trust will own the Specified Vehicles, they will be
operated by the related User-Lessees and their invitees. State laws differ as to
whether anyone suffering injury to person or property involving a vehicle may
bring an action against the owner of that vehicle merely by virtue of such
ownership.
Following an accident involving a Specified Vehicle, under certain
circumstances the Vehicle Trust may be the subject of an action for damages as a
result of its ownership of that Specified Vehicle. To the extent that applicable
state law permits such an action, the Vehicle Trust and the Vehicle Trust Assets
may be subject to liability. The laws of many states either do not permit such
suits or provide that BMW FS' liability is capped at the amount of any liability
insurance that the User-Lessee was required but failed to maintain. However, in
some states, such as New York, liability is joint and several and there does not
appear to be a limit on an owner's liability.
In California, where the largest concentration of Specified Leases were
originated, under 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 the
owner's liability 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.
Under New York law, the holder of title of a motor vehicle, including a
titling trust as lessor, may be considered an "owner" and thus may be held
jointly and severally liable with the lessee for the negligent use or operation
of such motor vehicle. In New York, unlike California, there does not appear to
be a limit on an owner's liability. Losses could arise if lawsuits are brought
against either the Vehicle Trust or the Servicer, as agent of the Vehicle Trust,
in connection with the negligent use or operation of any leased vehicles which
are part of the Vehicle Trust.
Although the Vehicle Trust's insurance coverage is substantial, in the
event that all applicable insurance coverage were to be exhausted and damages
were to be assessed against the Vehicle Trust, claims could be imposed against
the assets of the Vehicle Trust, including the Specified Vehicles. However, such
claims would not take priority over any SUBI Assets to the extent that the Trust
had a prior perfected security interest therein, such as would be the case, in
certain limited circumstances, with respect to the Specified Leases, as further
described under "--Back-up Security Interests". If any such claims were imposed
against the assets of the Vehicle Trust, investors in the Senior Notes could
incur a loss on their investment.
The Vehicle Trust is a party to and is vigorously defending numerous legal
proceedings, all of which are believed to constitute ordinary routine litigation
incidental to the ownership of leased vehicles and the business and the
activities of the Vehicle Trust.
Repossession of Specified Vehicles
In the event that a default by a User-Lessee has not been cured within a
certain period of time after being sent notice of that default, the Servicer
will ordinarily repossess the related Specified Vehicle. Some jurisdictions
require that a User-Lessee be notified of the default and be given a time period
within which to cure that 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 a User-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 permit repossession without notice, but only if the repossession
can be accomplished peacefully. If a breach of the peace cannot be avoided,
judicial action will be required.
After the Servicer has repossessed a Specified Vehicle, it may provide the
related User-Lessee with a period of time within which to cure the default under
the related Specified Lease. If, by the end of that period, the default has not
been cured, the Servicer will attempt to sell that Specified Vehicle.
78
<PAGE>
The Sales Proceeds or Termination Proceeds therefrom may be less than the
remaining amounts due under that Specified Lease at the time of default.
Deficiency Judgments
The proceeds of sale of a Specified 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 Specified Lease. If the proceeds from the sale do
not equal the Securitization Value of the related Specified Vehicle, the
Servicer may seek a deficiency judgment for the amount of the shortfall.
However, some states impose prohibitions or limitations on a secured party's
ability to seek a deficiency judgment. In these states a deficiency judgment may
be prohibited or reduced in amount if the User-Lessee was not given proper
notice of the resale or if the terms of resale were not commercially reasonable.
Even if a deficiency judgment is obtained, there is no guaranty that the full
amount of the judgment could be collected. Because a deficiency judgment is a
personal judgment against a defaulting User-Lessee who generally has few assets
to satisfy a judgment, the practical use of a deficiency judgment is often
limited. Therefore, in many cases, it may not be useful to seek a deficiency
judgment and even if obtained, a deficiency judgment may be settled at a
significant discount.
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 User-Lessee's
liability at the end of the lease term, the amount of any periodic payments, the
circumstances under which the User-Lessee may terminate the lease prior to the
end of the lease term and the capitalized cost of the vehicle and a warning
regarding possible charges for early termination. Each of the Trust States has
adopted Article 2A of the uniform commercial code which provides protection to
User-Lessees through certain implied warranties and the right to cancel a lease
contract relating to defective goods. In addition, California has enacted
comprehensive vehicle leasing statues that, among other things, regulate the
disclosures to be made at the time a vehicle is leased. The various federal and
state consumer protection laws would apply to the Vehicle Trust as a "co-lessor"
of the Specified Leases and may also apply to the Trust as holder of a
beneficial interest in the Specified Leases. The failure to comply with such
consumer protection laws may give rise to liabilities on the part of the
Servicer, the Vehicle Trust and the Vehicle Trustee, including liabilities for
statutory damages and attorney's fees. In addition, claims by the Servicer, the
Vehicle Trust and the Vehicle 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 User-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 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 Specified Vehicle become
subject to a Lemon Law, a User-Lessee could compel the Vehicle Trust to
terminate the related Specified Lease and refund all or a portion of payments
that previously have been paid. Although the Vehicle Trust may be able to assert
a claim against the manufacturer of any such defective Specified Vehicle, there
can be no assurance any such claim would be successful. To the extent a
User-Lessee is able to compel the Vehicle Trust to terminate the related
Specified Lease, such Specified Lease will be deemed to be a Defaulted Lease and
amounts received thereafter on such BMW lease contract will be deemed to be
Sales Proceeds, Recovery Proceeds or Termination Proceeds. As noted below, BMW
FS will represent and warrant as of the Cutoff Date that none of the Specified
Vehicles is out of compliance with any law, including any Lemon Law.
Nevertheless, there can be no assurance that one or more Specified Vehicles will
not become subject to return (and the related Specified Lease terminated) in the
future under a Lemon Law.
79
<PAGE>
Representations and warranties will be made in the SUBI Trust Agreement
that each Specified Lease complies with all requirements of law in all material
respects. If any such representation and warranty proves to be incorrect with
respect to a Specified Lease, and is not timely cured, the Servicer will be
required under the Servicing Agreement to deposit an amount equal to the
Reallocation Payment in respect of that Specified Lease into the SUBI Collection
Account. See "Additional Document Provisions--The SUBI Trust Agreement--The
SUBIs, Other SUBIs and the UTI" and "The Specified Leases--Representations,
Warranties and Covenants" for further information regarding the foregoing
representations and warranties.
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 the Servicer to enforce the rights of the Vehicle
Trust under the Specified Leases. For example, if a User-Lessee commences
bankruptcy proceedings, the receipt of that User-Lessee's payments due under the
related Specified Lease is likely to be delayed. In addition, a User-Lessee who
commences bankruptcy proceedings might be able to assign the related Specified
Lease to another party even though that Specified Lease prohibits assignment.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the material federal income
tax consequences of the ownership and disposition of the Senior Notes and is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated and proposed thereunder (the "Regulations"),
judicial decisions and published administrative rulings and pronouncements of
the Internal Revenue Service (the "IRS"), all as in effect on the date hereof.
Legislative, judicial or administrative changes or interpretations hereafter
enacted or promulgated could alter or modify the analysis and conclusions set
forth below, possibly on a retroactive basis. This summary does not purport to
address the federal income tax consequences either to special classes of
taxpayers (such as S corporations, banks, thrifts, other financial institutions,
insurance companies, mutual funds, small business investment companies, real
estate investment trusts, regulated investment companies, broker-dealers,
tax-exempt organizations and persons that hold the securities described herein
as part of a straddle, hedging or conversion transaction) or to a person or
entity holding an interest in a holder (e.g., as a stockholder, partner, or
holder of an interest as a beneficiary) or that are not holding the Senior Notes
as capital assets. The discussion is generally limited to initial purchasers of
the Senior Notes. No information is provided herein with respect to any foreign,
state or local tax consequences of the ownership and disposition of the Senior
Notes or any federal alternative minimum tax or estate and gift tax
considerations. Except for "--Non-U.S. Senior Note Owners" and "--Information
Reporting and Backup Withholding" below, the following discussion applies only
to a U.S. Senior Noteholder (defined below).
PROSPECTIVE INVESTORS ARE THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO UNITED STATES FEDERAL TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE SENIOR NOTES IN THEIR OWN PARTICULAR CIRCUMSTANCES, AS WELL AS
THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY OR
OTHER JURISDICTION TO WHICH THEY MAY BE SUBJECT.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), an estate, the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source or a trust with respect to which a court in the U.S. is able to
exercise primary authority over its administration and one or more U.S. persons
have the authority to control all of its substantial decisions. The term "U.S.
Senior Noteholder" means any U.S. Person and any other person to the extent that
the income attributable to its interest in a Senior Note is effectively
connected with that person's conduct of a U.S. trade or business. A "Non-U.S.
Senior Note Owner" means a person other than a U.S. Senior Noteholder and
persons subject to rules applicable to former citizens and residents of the
United States.
Treatment of the Senior Notes as Debt
The Trust and Senior Noteholders express in the Indenture the intent that,
for United States federal, state and local income, franchise and other tax
purposes, the Senior Notes will be indebtedness secured by the assets of the
80
<PAGE>
Trust. The Trust, by entering into the Indenture, and each Senior Noteholder, by
the acceptance of a Senior Note or a beneficial interest therein, agree to treat
the Senior Notes as indebtedness for all such tax purposes.
The determination of whether the economic substance of a transfer of an
interest in property is a loan secured by the transferred property has been made
by the IRS and the courts on the basis of 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 an analysis of such factors and although no transaction closely comparable
to that contemplated herein has been the subject of any Regulations, revenue
ruling or judicial decision, it is the opinion of Weil, Gotshal & Manges LLP
("Tax Counsel") that, under current law, assuming due execution of and
compliance with the Indenture, and subject to the assumptions set forth herein,
for federal income tax purposes the Senior Notes when issued will not constitute
an ownership interest in the Trust's assets, but properly will be characterized
as debt secured by the Trust's assets. In the further opinion of Tax Counsel,
the Trust will not constitute an association or publicly-traded partnership
taxable as a corporation for federal income tax purposes.
Possible Alternative Characterization
Although as described above, it is the opinion of Tax Counsel that the
Senior Notes properly will be characterized as debt for federal income tax
purposes, no ruling will be sought from the IRS on the characterization of the
Senior Notes for federal income tax purposes and the opinion of Tax Counsel will
not be binding on the IRS. Thus, no assurance can be given that such a
characterization will prevail. Were the IRS to contend successfully that the
Senior Notes were not debt obligations for federal income tax purposes, the
Trust would be classified for federal income tax purposes as a partnership.
If the Senior Notes (whether some or all the classes of Senior Notes) were
treated as equity interests in a partnership, the Trust would likely be treated
as a "publicly traded partnership." A publicly traded partnership is taxed in
the same manner as a corporation unless at least 90% of its gross income
consists of specified types of "qualifying income." The Trust is not expected to
qualify for the "qualifying income" exception.
If the Trust was treated as a publicly traded partnership taxable as a
corporation, the Trust would be subject to United States federal income taxes
(and state and local taxes) at corporate tax rates on its net income.
Distributions on the Senior Notes might not be deductible in computing the
Trust's taxable income, and distributions to the Senior Noteholders would
probably be treated as dividends to the extent paid out of after-tax earnings.
Such an entity-level tax could result in reduced distributions to Senior
Noteholders, or the Senior Noteholders could be liable for a share of such tax.
Because the Trust will treat the Senior Notes as indebtedness for federal
income tax purposes, it will not comply with the tax reporting requirements
applicable to the possible alternative characterizations of the Senior Notes
discussed above.
Except where indicated to the contrary, the following discussion assumes
that the Senior Notes are debt for federal income tax purposes.
Interest Income to U.S. Senior Noteholders
Interest on a Senior Note should be taxable to a U.S. Senior Noteholder as
ordinary income at the time it accrues or is received in accordance with such
Senior Noteholder's method of accounting for federal income tax purposes.
It is anticipated that the Senior Notes will be issued at par value (or at
an insubstantial discount from par value) and that, except as indicated, no
original issue discount ("OID") will arise with respect to the Senior Notes.
Under the OID regulations, a holder of a Senior Note issued with more than a de
minimis amount of OID must include such OID in income on a constant yield basis.
Were the Senior Notes treated as being issued with OID, the principal
consequence would be that Senior Noteholders using the cash basis method of
accounting would be required to report interest income from the Senior Notes on
an accrual basis. Subject to a de minimus rule, in any event, a purchaser who
buys a Senior Note for more or less than its issue price will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
81
<PAGE>
Sale or Exchange of Notes by U.S. Senior Noteholders
If a Senior Note is sold or exchanged, the seller will recognize gain or
loss equal to the difference between the amount realized upon the sale or
exchange and its adjusted basis in the Senior Note. The adjusted basis of a
Senior Note will equal its cost, increased by any unpaid OID and market discount
includible in income with respect to the Senior Note prior to its sale, and
reduced by any principal payments previously received with respect to the Senior
Note and any bond premium amortization previously applied to offset interest
income. Except to the extent of any accrued market discount not previously
included in income, the gain or loss recognized on the sale or exchange of a
Senior Note will generally be capital gain or loss if the Note was held as a
capital asset and will be long-term capital gain loss if the Senior Note was
held by the U.S. Senior Noteholder for the requisite holding period at the time
of the disposition.
Non-U.S. Senior Note Owners
As described above, Tax Counsel will render its opinion that the Senior
Notes will properly be classified as debt for federal income tax purposes. If
the Senior Notes are so treated:
(a) Interest paid to a nonresident alien or foreign corporation or
partnership would be exempt from U.S. withholding taxes (including backup
withholding taxes), provided the holder complies with applicable identification
requirements (and neither actually or constructively owns 10% or more of the
voting stock of the Transferor nor is a controlled foreign corporation with
respect to the Transferor nor is an individual who ceased being a U.S. citizen
or long-term resident for tax avoidance purposes). Applicable indemnification
requirements will be satisfied if there is delivered to a securities clearing
organization (or bank or other financial institution that holds Notes on behalf
of the customer in the ordinary course of its trade or business), (i) IRS Form
W-8BEN signed under penalty of perjury by the beneficial owner of the Notes
stating that the holder is not a U.S. person and providing such holder's name
and address, (ii) IRS Form W-8BEN signed by the beneficial owner of the Senior
Notes or such owner's agent claiming exemption from withholding under an
applicable tax treaty or (iii) IRS Form W-8ECI signed by the beneficial owner of
the Senior Notes or such owner's agent claiming exception from withholding of
tax on income connected with the conduct of a trade or business in the United
States; provided that in any such case (x) the applicable form is delivered
pursuant to applicable procedures and is properly transmitted to the United
States entity otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the holder is a U.S. person or that
any certification on the form is false;
(b) a holder of a Senior Note who is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on gain
realized on the sale, exchange or redemption of such Senior Note provided that
(i) such gain is not effectively connected to a trade or business carried on by
the holder in the United States, (ii) in the case of a holder that is an
individual, such holder neither is present in the United States for 183 days or
more during the taxable year in which such sale, exchange or redemption occurs,
nor ceased being a U.S. citizen or long-term resident for tax avoidance purposes
and (iii) in the case of gain representing accrued interest, the conditions
described in clause (a) are satisfied; and
(c) a Senior Note held by an individual who at the time of death is a
nonresident alien will not be subject to United States federal estate tax as a
result of such individual's death if, immediately before his death (i) the
individual did not actually or constructively own 10% or more of the voting
stock of the Transferor, (ii) the holding of such Senior Note was not
effectively connected with the conduct by the decedent of a trade or business in
the United States and (iii) the individual did not cease being a U.S. citizen or
long-term resident for tax avoidance purposes.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the certification requirement
described above. The New Regulations would require, in the case of Senior Notes
held by a foreign partnership, that (x) the certification described in clause
(a) above be provided by the partners rather than by the foreign partnership and
(y) the partnership provide certain information. A look-through rule would apply
in the case of tiered partnerships. NON-U.S. SENIOR NOTE OWNERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF THE CERTIFICATION
REQUIREMENTS IN THE NEW REGULATIONS.
If the IRS were to contend successfully that some or all of the Senior
Notes were equity interests in a partnership (not taxable as a corporation), a
holder of such a Senior Note that is a nonresident alien or foreign
82
<PAGE>
corporation might be required to file a U.S. individual or corporate income tax
return and pay tax on its share of partnership income at regular U.S. rates,
including in the case of a corporation the branch profits tax (and would be
subject to withholding tax on its share of partnership income). In addition, if
the Senior Notes are equity interests in a partnership, an individual holder
that is a nonresident alien at death may be required to include the value of the
Senior Notes in such holder's gross estate (unless otherwise provided in an
applicable treaty). If some or all of the Senior Notes are recharacterized as
equity interests in a "publicly traded partnership" taxable as a corporation, to
the extent distributions of such Senior Notes were treated as dividends, a
nonresident alien individual or foreign corporation generally would be taxed on
the gross amount of such dividends (and subject to withholding) at a rate of 30%
unless such rate were reduced by an applicable treaty. In addition, an
individual holder that is a nonresident alien at death would be required to
include the value of such Senior Note in such holder's gross estate (unless
otherwise provided in an applicable treaty).
Information Reporting and Backup Withholding
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Senior Note to a registered owner who is
not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made in
respect of a U.S. Senior Noteholder must be reported to the IRS, unless the U.S.
Senior Noteholder is an exempt recipient or otherwise establishes an exemption.
Compliance with the identification procedures (described in the preceding
section) would establish an exemption from backup withholding for a Non-U.S.
Senior Note Owner who is not an exempt recipient.
In addition, upon the sale of a Senior Note to (or through) a "broker," the
broker must withhold 31 percent of the entire purchase price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides certain identifying information in the required
manner, and in the case of a Non-U.S. Senior Note Owner certifies that the
seller is a Non-U.S. Senior Note Owner (and certain other conditions are met).
Such a sale must also be reported by the broker to the IRS, unless either (i)
the broker determines that the seller is an exempt recipient or (ii) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status normally would be made
on Form W-8BEN under penalty of perjury, although in certain cases it may be
possible to submit other documentary evidence. As defined by Treasury
regulations, the term "broker" includes all persons who stand ready to effect
sales made by others in the ordinary course of a trade or business, as well as
brokers and dealers registered as such under the laws of the United States or a
state. These requirements generally will apply to a U.S. office of a broker, and
the information reporting requirements generally will apply to a foreign office
of a U.S. broker as well as to a foreign office of a foreign broker (i) that is
a controlled foreign corporation within the meaning of Section 957(a) of the
Code or (ii) 50 percent or more of whose gross income from all sources for the
three year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the foreign broker has been in
existence) was effectively connected with the conduct of a trade or business
within the United States.
Any amounts withheld under the backup withholding rules from a payment to a
Senior Noteholder would be allowed as a refund or a credit against such Senior
Noteholder's U.S. federal income tax, provided that the required information is
furnished to the IRS.
Recently issued final Treasury regulations will revise some of the
foregoing information reporting and backup withholding procedures generally
beginning January 1, 2001. Senior Noteholders should consult their tax advisers
concerning the impact to them, if any, of such revised procedures.
State and Local Tax Considerations
Potential Senior Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Senior Notes.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, potential Noteholders
should consult their own tax advisors with respect to the various state and
local tax consequences of an investment in the Senior Notes.
83
<PAGE>
CERTAIN 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
and other employee benefit plans, as well as individual retirement accounts and
certain types of Keogh Plans (each a "Benefit Plan") 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 Plan. Title I
of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA make
investments that are prudent, diversified (except if prudent not to do so) and
in accordance with governing plan documents. 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 and fiduciary requirements may result in
liability under ERISA and the Code for such persons.
Prohibited Transactions
The prohibited transaction provisions of ERISA and Section 4975 of the
United States Internal Revenue Code generally restrict a broad range of
transactions ("Prohibited Transactions") directly or indirectly involving any
Benefit Plan or any entity which may be deemed to hold assets of any such
Benefit Plans (collectively, "Plans"), and any "party in interest" or
"disqualified person" (as those terms are defined in ERISA or Section 4975 of
the Code, respectively) with respect to such Plans. In particular, a sale or
exchange of property or an extension of credit between a Plan and a party in
interest or disqualified person with respect to such Plan might constitute a
Prohibited Transaction unless an exemption applies. In the case of indebtedness,
the prohibited transaction provisions continually apply throughout the term of
such indebtedness (and not only on the date of the initial borrowing). An excise
tax is imposed under Section 4975 of the Code upon any disqualified person which
engages in a non-exempt Prohibited Transaction, and penalties or other
liabilities may be imposed under ERISA upon any fiduciary which causes a Plan to
engage in a transaction that the fiduciary knows or should know constitutes a
Prohibited Transaction or upon certain other persons who were involved in the
Prohibited Transaction.
"Look-through" Rule under the Plan Assets Regulation
The United States Department of Labor (the "DOL") has issued a regulation
(the "Plan Assets Regulation") describing what constitutes the assets of a Plan
when the Plan acquires an equity interest in another entity. Under a
"look-through" rule set forth in the Plan Assets Regulation, the underlying
assets owned by an entity (such as an Issuer) in which a Plan has an equity
interest might be treated as if they were plan assets of such Plan. However, the
"look-through" rule does not, by its terms, apply to an entity in which a Plan
only owns debt of such entity and not an equity interest. The Plan Assets
Regulation provides that an instrument constituting debt under applicable local
law and lacking substantial equity features is not treated as an equity interest
for purposes of such Regulation.
Treatment of Senior Notes as Debt
The Senior Notes generally are expected to provide for a fixed principal
amount and a rate of interest. Moreover, the Senior Notes are not expected, by
their terms, to specifically provide for payments other than payments designated
as principal or interest to Noteholders. In those situations, the terms of the
Senior Notes do not appear to include any substantial equity features for
purposes of the Plan Assets Regulation. However, it is possible that the
aggregate beneficial interest in the Trust might have a nominal value in
relation to the principal amount of Senior Notes issued by the Trust and,
notwithstanding the terms of the Senior Notes, the Senior Notes might be treated
as possessing substantial equity features. If a class of Senior Notes is treated
as equity interests for purposes of the Plan Assets Regulation, the assets of
the Trust might be treated as "plan assets" of Plans that acquire or hold such
Senior Notes unless an exception to the look-through rule under the Plan Assets
Regulation applies. Although there is no guidance under ERISA on how this
definition applies generally, and in particular to a security such as the Senior
Notes, the Transferor believes that the Senior Notes should be treated as
indebtedness without substantial equity features for purposes of the Regulation.
This determination is based upon the traditional debt features of the Senior
Notes, including the reasonable expectation that the Senior Notes will be repaid
when due, as well as the absence of conversion rights, warrants and other
typical equity features. The debt treatment of the Senior Notes for ERISA
purposes could change if the Trust incurred losses.
84
<PAGE>
However, without regard to whether the Senior Notes are treated as an
equity interest for purposes of the Regulation, the acquisition or holding of
the Senior Notes by or on behalf of a Plan could be considered to give rise to a
Prohibited Transaction if the Trust or the Trustee is or becomes a party in
interest or a disqualified person with respect to such Plan. Certain exemptions
from the prohibited transaction rules could be applicable to the purchase and
holding of the Senior Notes by a Plan depending on the type and circumstances of
the plan fiduciary making the decision to acquire such Senior Notes. Included
among these exemptions are: Prohibited Transaction Class Exemption ("PTCE")
96-23, regarding transactions effected by "in-house asset managers"; PTCE 95-60,
regarding investments by insurance company general accounts; PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 84-14, regarding
transactions effected by "qualified professional asset managers"; and PTCE 75-1
regarding transactions effected by broker-dealers. By acquiring a Senior Note,
each purchaser will be deemed to represent that (A) either (i) it is not
acquiring the Senior Notes with the assets of a Plan; or (ii) the acquisition
and holding of the Senior Notes are eligible for exemptive relief from the
prohibited transaction provisions of Section 406 of ERISA or Section 4975 of the
Code, under one of the above PTCE's and (B) it will not transfer any Senior
Notes to a Plan unless the acquisition and holding of such Senior Notes by the
transferee does not result in a prohibited transaction by reason of one of the
above PTCEs.
In the event that the Trust becomes 50% owned by a disqualified person or
party in interest with respect to a Plan, the Trust itself, as an entity owned
by a party in interest, may be deemed a party in interest with respect to the
Plan and a Prohibited Transaction may be deemed to occur by reason of the
extension of credit by a particular Plan to a party in interest, among other
things. The Transferor can make no assurances that equity interests in the Trust
will not be purchased by a party in interest to any particular Plan.
Because the Trust, the Servicer, the Transferor, the Trustees, BMW LP, the
Underwriters, Financial Services Vehicle Trust or any of their affiliates may
receive certain benefits in connection with the sale of the Senior Notes, the
purchase of Senior Notes using Plan Assets over which any of such parties has
investment authority may be deemed to be a violation of the prohibited
transaction rules of ERISA or Section 4975 of the Code for which no exemption
may be available. Accordingly, any investor considering a purchase of Senior
Notes using Plan Assets should consult with its counsel if the Trust, the
Servicer, the Transferor, any Trustee, any Underwriter, BMW LP, Financial
Service Vehicle Trust or any of their affiliates has investment authority with
respect to such assets.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements; however, governmental plans may be
subject to comparable state law restrictions.
RATINGS OF THE SENIOR NOTES
The Senior Notes will be issued only if the Class A-1 Notes are rated in
the highest short-term rating category and the other Senior Notes are rated in
the highest long-term category by each Rating Agency. The ratings of the Senior
Notes will be based primarily upon the value of the Specified Leases and the
Specified Vehicles, the Reserve Fund and the terms of the Subordinated Notes and
the Certificates. There can be 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 the Senior
Notes is qualified, reduced or withdrawn, no person or entity will be obligated
to provide any additional credit enhancement with respect to the Senior Notes.
The rating of the Senior Notes should be evaluated independently from
similar ratings on other types of securities. A rating is not a recommendation
to buy, sell or hold the Senior Notes, inasmuch as such a rating does not
comment as to market price or suitability for a particular investor. The ratings
of the Senior Notes address the likelihood of the payment of principal of and
interest on the Senior Notes pursuant to their terms.
There can be no assurance as to whether any agency other than the assigning
Rating Agency will rate the Senior Notes or, if one does, what rating will be
assigned by such other rating agency. A rating on the Senior Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Senior Notes by the assigning Rating Agency.
85
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Senior Notes (the "Underwriting Agreement"), the Transferor has
agreed to sell to the underwriters named below (the "Underwriters"), for whom
Salomon Smith Barney Inc. is acting as representative (the "Representative"),
and the Underwriters have agreed to purchase, severally but not jointly, the
following principal amounts of the Senior Notes.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITER SENIOR NOTES SENIOR NOTES SENIOR NOTES SENIOR NOTES
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Salomon Smith Barney Inc. .............. $144,000,000 $480,000,000 $240,000,000 $311,660,000
Banc of America Securities LLC ......... 12,000,000 40,000,000 20,000,000 26,000,000
Banc One Capital Markets, Inc. ......... 12,000,000 40,000,000 20,000,000 26,000,000
Chase Securities Inc. .................. 12,000,000 40,000,000 20,000,000 26,000,000
------------ ------------ ------------ ------------
Total ................................ $180,000,000 $600,000,000 $300,000,000 $389,660,000
</TABLE>
The Underwriting Agreement provides, subject to conditions precedent, that
the Underwriters will be obligated to purchase all the Senior Notes if any are
purchased. The Underwriting Agreement provides that if there is an event of
default by an Underwriter, in some circumstances the purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Transferor has been advised by the Representative that the Underwriters
propose initially to offer the Senior Notes to the public at the respective
offering prices set forth on the cover hereof and to certain dealers at such
prices less a selling concession not to exceed the percentage of the principal
amount of the Senior Notes set forth below, and that the Underwriters may allow
and such dealers may reallow a reallowance discount not to exceed the percentage
of the principal amount of the Senior Notes set forth below.
CLASS OF SENIOR NOTES SELLING CONCESSION REALLOWANCE DISCOUNT
--------------------- ------------------ --------------------
Class A-1 .................. 0.050% 0.030%
Class A-2 .................. 0.090% 0.055%
Class A-3 .................. 0.100% 0.060%
Class A-4 .................. 0.115% 0.070%
The Transferor and BMW FS have jointly and severally agreed to indemnify
the Underwriters against certain liabilities, including civil liabilities under
the Securities Act of 1933, or contribute to payments which the Underwriters may
be required to make in respect thereof.
Upon receipt of a request by an investor who has received an electronic
prospectus from the Transferor, its affiliates or an Underwriter, or of 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.
Until the distribution of the Senior Notes is completed, the rules of the
SEC may limit the ability of the Underwriters and certain selling group members
to bid for and purchase Senior Notes. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize the
price of the Senior Notes. Such transactions may consist of bids and purchases
for the purpose of pegging, fixing or maintaining the price of such classes of
Senior Notes.
Neither the Transferor nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Senior Notes. In addition, neither
the Transferor nor the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Transferor has been advised by the Representative that the Underwriters
presently intend to make a market in the Senior Notes; however, they are not
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for the Senior Notes will
develop.
86
<PAGE>
LEGAL MATTERS
Weil, Gotshal & Manges LLP will pass on the legality of the Senior Notes
for the Transferor. The Transferor is also being advised on various other legal
matters, including federal income tax matters relating to the Senior Notes, by
Weil, Gotshal & Manges LLP. Richards, Layton & Finger P.A., Wilmington,
Delaware, will act as Delaware counsel to the Transferor. Various legal matters
with respect to insolvency issues relating to the Senior Notes will be passed
upon for the Transferor by Weil, Gotshal & Manges LLP. Brown & Wood LLP, San
Francisco, California will act as counsel for the Underwriters.
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, BMW LP, as beneficiary of the
Vehicle Trust, the Vehicle Trust, as issuer of the SUBIs, and the Trust, as
issuer of the Notes, have filed with the SEC a Registration Statement on Form
S-1 (together with all amendment and exhibits thereto, the "Registration
Statement"), of which this prospectus is a part, under the Securities Act of
1933, with respect to the Senior Notes being offered by this prospectus. This
prospectus does not contain all of the information set forth in the Registration
Statement, some parts of which have been omitted in accordance with the rules
and regulations of the SEC. For further information, reference is made to the
Registration Statement, which is available for inspection without charge at the
public reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the SEC 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 SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC at
http://www.sec.gov. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the SEC such periodic reports as are required under the
Exchange Act, and the rules and regulations of the SEC thereunder.
87
<PAGE>
INDEX OF PRINCIPAL TERMS
Set forth below is a list of capitalized terms used in this Prospectus and
the pages on which the definitions of those terms may be found.
TERM PAGE(S)
---- -------
0% Prepayment Assumption .......................................... 37
2000-A SUBI ....................................................... 15
50% Prepayment Assumption ......................................... 37
ABS ............................................................... 35
Accrual Period .................................................... 41
Actuarial Payoff .................................................. 29
Administrator ..................................................... 16
Advance ........................................................... 64
Aggregate Securitization Value .................................... 41
Available Funds ................................................... 46
Available Funds Shortfall Amount .................................. 46
Available Principal Distribution Amount ........................... 41
Bankruptcy Code ................................................... 73
Basic Documents ................................................... 40
Benefit Plan ...................................................... 84
BMW AG ............................................................ 22
BMW Centers ....................................................... 15
BMW Facility Partners ............................................. 19
BMW FS ............................................................ 22
BMW FS Residual Value ............................................. 26
BMW lease contracts ............................................... 22
BMW LP ............................................................ 15
BMW NA ............................................................ 22
Business Day ...................................................... 41
Cede .............................................................. 40
Certificate Balance ............................................... 42
Certificate Distribution Account .................................. 52
Certificate Factor ................................................ 40
Certificate Final Scheduled Maturity Date ......................... 51
Certificate Rate .................................................. 51
Certificateholders ................................................ 51
Certificates ...................................................... 15
Clearstream ....................................................... 42
Clearstream Participants .......................................... 43
Closing Date ...................................................... 16
Code .............................................................. 80
Collection Period ................................................. 46
Collections ....................................................... 62
Contingent and Excess Liability Insurance ......................... 53
Contract Residual Value ........................................... 26
Cooperative ....................................................... 45
CPO ............................................................... 25
Cutoff Date ....................................................... 20
Daily Advance Reimbursement ....................................... 64
Dealer Agreement .................................................. 22
Defaulted Lease ................................................... 41
Defaulted Vehicle ................................................. 63
Definitive Notes .................................................. 40
Deposit Date ...................................................... 51
TERM PAGE(S)
---- -------
Depositaries ...................................................... 43
Determination Date ................................................ 46
Disposition Expenses .............................................. 63
Distribution Accounts ............................................. 52
DOL ............................................................... 84
DTC ............................................................... 40
Due Date .......................................................... 24
Early Termination Cost ............................................ 29
Early Termination Lease ........................................... 41
Early Termination Liability ....................................... 30
End of Lease Term Liability ....................................... 63
ERISA ............................................................. 84
Euroclear ......................................................... 42
Euroclear Operator ................................................ 44
Euroclear Participants ............................................ 43
Excess Amounts .................................................... 47
Excess Wear and Use Payments ...................................... 24
Exchange Act ...................................................... 43
Final Scheduled Payment Date ...................................... 34
Full Circle Agreements ............................................ 25
Indenture ......................................................... 16
Indenture Default ................................................. 54
Indenture Trustee ................................................. 16
Indirect Participants ............................................. 43
Initial Certificate Balance ....................................... 15
Initial Deposit ................................................... 52
Initial Lease Balance ............................................. 29
Initial Senior Note Balance ....................................... 15
Initial Subordinated Note Balance ................................. 15
Insolvency Laws ................................................... 73
Insurance Proceeds ................................................ 63
Interest Rate ..................................................... 41
IRS ............................................................... 80
Issuer SUBI Certificate Transfer Agreement ........................ 21
Lease Balance ..................................................... 29
Lease Default ..................................................... 30
Lease SUBI ........................................................ 15
Lease SUBI Assets ................................................. 20
Lease SUBI Certificate ............................................ 15
Lease Rate ........................................................ 29
Leased Vehicles ................................................... 18
Leases ............................................................ 18
Lemon Law ......................................................... 79
Loss .............................................................. 61
Matured Lease ..................................................... 42
Matured Vehicle ................................................... 63
Maturity Date ..................................................... 29
Monthly Payment ................................................... 26
Monthly Payment Advance ........................................... 64
<PAGE>
TERM PAGE(S)
---- -------
Monthly Principal Distributable Amount ............................ 41
Monthly Remittance Condition ...................................... 62
MSRP .............................................................. 23
New Lease Incentives .............................................. 25
New Regulations ................................................... 82
Non-Petition Parties .............................................. 72
Non-U.S. Senior Note Owner ........................................ 80
Note Distribution Account ......................................... 52
Note Factor ....................................................... 39
Notes ............................................................. 15
OID ............................................................... 81
Optional Purchase ................................................. 48
Optional Purchase Price ........................................... 48
Other SUBI ........................................................ 15
Other SUBI Assets ................................................. 60
Other SUBI Certificates ........................................... 19
Other SUBI Supplement ............................................. 60
Owner Trustee ..................................................... 17
Participants ...................................................... 43
Payment Date ...................................................... 40
Payment Date Advance Reimbursement ................................ 47
Permitted Investments ............................................. 53
Plan Assets Regulation ............................................ 84
Plans ............................................................. 84
Prepayment Assumption ............................................. 35
Principal Distribution Amount ..................................... 41
Program Operating Lease ........................................... 16
Program Operating Lease Default ................................... 50
Program Operating Lease Payments .................................. 50
Program Operating Lease Termination Date .......................... 50
Prohibited Transactions ........................................... 84
PTCE .............................................................. 85
Purchase Option Price ............................................. 29
Rating Agency ..................................................... 16
Reallocation Payment .............................................. 34
Record Date ....................................................... 40
Recovery Proceeds ................................................. 63
Redemption Price .................................................. 48
Registration Statement ............................................ 87
Regulations ....................................................... 80
Rent Charge ....................................................... 29
Representative .................................................... 86
Required Deposit Rating ........................................... 53
Reserve Fund ...................................................... 52
Reserve Fund Draw Amount .......................................... 52
Reserve Fund Requirement .......................................... 52
Residual Value Loss Vehicle ....................................... 47
Residual Value Losses ............................................. 48
Sales Proceeds .................................................... 63
Sales Proceeds Advance ............................................ 65
Securities ........................................................ 15
Securities Balance ................................................ 41
Securitization Rate ............................................... 26
TERM (PAGES)
---- -----
Securitization Value .............................................. 26
Securityholders ................................................... 15
Senior Note Balance ............................................... 42
Senior Note Distribution Amount ................................... 48
Senior Note Owner ................................................. 42
Senior Noteholders ................................................ 40
Senior Notes ...................................................... 15
Servicer .......................................................... 18
Servicer Defaults ................................................. 67
Servicing Agreement ............................................... 18
Servicing Fee ..................................................... 66
Specified Leases .................................................. 15
Specified Vehicles ................................................ 15
SUBI Assets ....................................................... 15
SUBI Certificate Transfer Agreement ............................... 21
SUBI Certificates ................................................. 15
SUBI Collection Account ........................................... 51
SUBI Supplement ................................................... 20
SUBI Trust Agreement .............................................. 20
SUBIs ............................................................. 15
Subordinated Note Balance ......................................... 42
Subordinated Note Rate ............................................ 51
Subordinated Noteholder ........................................... 52
Subordinated Notes ................................................ 15
Tax Counsel ....................................................... 81
Termination Proceeds .............................................. 63
Terms and Conditions .............................................. 45
Total Loss Payoff ................................................. 63
Transferor ........................................................ 15
Transferor Certificate ............................................ 17
Trust ............................................................. 15
Trust Administration Agreement .................................... 16
Trust Agreement ................................................... 16
Trust Estate ...................................................... 17
Trust State ....................................................... 34
Trustees .......................................................... 62
U.S. Person ....................................................... 80
U.S. Senior Noteholder ............................................ 80
UCC ............................................................... 43
Underwriters ...................................................... 86
Underwriting Agreement ............................................ 86
User-Lessee ....................................................... 18
UTI ............................................................... 15
UTI Assets ........................................................ 60
UTI Beneficiary ................................................... 15
UTI Certificates .................................................. 19
Vehicle SUBI ...................................................... 15
Vehicle SUBI Assets ............................................... 17
Vehicle SUBI Certificate .......................................... 15
Vehicle Trust ..................................................... 15
Vehicle Trust Agreement ........................................... 18
Vehicle Trust Assets .............................................. 18
Vehicle Trustee ................................................... 18
89
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the globally offered Senior Notes
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Clearstream 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 Clearstream 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, including seven calendar day settlement.
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Senior Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Clearstream and Euroclear, in that
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, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on theirbehalf as direct and
indirect Participants in DTC. As a result, Clearstream and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. 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 Clearstream 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 the
securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the tradewhere 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 U.S. corporate
debt obligations in same-day funds.
Trading between Clearstream and/or Euroclear Participants. Secondary market
trading between Clearstream Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
A-1
<PAGE>
Trading between DTC seller and Clearstream or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Clearstream Participant or a Euroclear Participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream 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, on the basis of
actual days elapsed and a 360-day year. 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 Clearstream Participant's or
Euroclear Participant's account. The Global Securities credit will appear the
next day, European time, and the cash debit 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 Clearstream or
Euroclear cash debit will be valued instead as of the actual settlement date.
Clearstream 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 Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon to finance the
settlement. Under this procedure, Clearstream Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
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 Clearstream Participant's 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 Depositary for the benefit of Clearstream Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participant a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing systems,
through the respective Depositaries, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct the respective Depositaries, 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 date to and excluding the settlement
date on the basis of actual days elapsed and a 360-day year. The payment will
then be reflected in the account of the Clearstream Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
Clearstream 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 Clearstream 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 charges 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 Clearstream Participant's
or Euroclear Participant's account would instead be value as of the actual
settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Clearstream Participants
or Euroclear Participants should note that these trades would
A-2
<PAGE>
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
o borrowing through Clearstream or Euroclear for one day - until the
purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts - in accordance with the clearing system's
customary procedures;
o 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 Clearstream or
Euroclear account in order to settle the sale side of the trade; or
o 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 Clearstream
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through Clearstream 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:
o 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 that beneficial owner and the
U.S. entity required to withhold tax complies with applicable
certification requirements, and
o that beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate.
Exemption for non-U.S. Persons--Form W-8BEN. Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Certificate of Foreign Status on Form W-8. If
the information shown on Form W-8BEN or the Tax Certificate changes, a new Form
W-8BEN or Tax Certificate, as the case may be, must be filed within 30 days of
that change.
Exemption for non-U.S. Person with effectively connected income--Form
W-8ECI. 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 a certificate of Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States on Form W-8ECI.
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries--Form W-8BEN. Non-U.S. Persons that are beneficial owners of Global
Securities 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 an Ownership, Exemption or Reduced Rate Certificate on Form W-8BEN. If
the treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8BEN. Form W-8BEN may be
filed by the Senior Note Owner or his agent.
Exemption for U.S. Persons--Form W-9. U.S. Persons can obtain a complete
exemption from the withholding tax by filing a Payer's Request for Taxpayer
Identification Number and Certification on Form W-9.
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or, in the case of a Form W-8BEN or a Form W-8ECI filer, his
agent, files by submitting the appropriate form to the person through whom it
holds - the clearing agency, in the case of persons holding directly on the
books of the clearing agency. Form W-8BEN is effective for three calendar years
and Form W-8ECI is effective for one calendar year.
A-3
<PAGE>
The term "U.S. Person" means:
o a citizen or resident of the United States,
o a corporation, partnership or other entity organized in or under the
laws of the United States or any state or political subdivision
thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations),
o an estate whose income is subject to United States federal income tax,
regardless of its source, or
o a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons
who have authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in regulations,
some trusts in existence onAugust 20, 1996 and treated as United States persons
prior to such date that elect to continue to be so treated also shall be
considered U.S. Persons.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
A-4
<PAGE>
================================================================================
$1,469,660,000
BMW Vehicle Lease Trust 2000-A
Issuer
BMW Auto Leasing LLC
Transferor
BMW Financial Services NA, LLC
Servicer
Asset Backed Senior Notes
$180,000,000 6.67375% Class A-1 Notes
$600,000,000 6.65% Class A-2 Notes
$300,000,000 6.64% Class A-3 Notes
$389,660,000 6.67% Class A-4 Notes
----------
PROSPECTUS
----------
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
CHASE SECURITIES INC.
--------------------
You should rely only the information contained in this prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Senior Notes in any state where the offer is not
permitted.
================================================================================
