<PAGE>
As filed with the Securities and Exchange Commission on August 20, 1997
REGISTRATION NO. 333-26717
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
ON
FORM S-3 (WITH RESPECT TO TOYOTA MOTOR CREDIT CORPORATION ONLY) AND FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
TOYOTA AUTO LEASE TRUST 1997-A TOYOTA MOTOR CREDIT CORPORATION
(Issuer with respect to the Certificates) (Originator of Toyota Lease Trust,
transferor of SUBI to Transferor
and Issuer of TMCC Demand Notes)
TOYOTA LEASING, INC. TOYOTA LEASE TRUST
(Originator of, and Transferor of the (Issuer with respect to the SUBI)
SUBI to, the Toyota Auto Lease Trust 1997-A)
(Exact name of Registrants as specified in its charter)
CALIFORNIA 6146 33-0755530
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
----------------------
19001 SOUTH WESTERN AVENUE
TORRANCE, CALIFORNIA 90509
(310) 618-4000
(Address, including zip code, and telephone number,
including area code, of Originator's principal executive offices)
----------------------
ALAN F. COHEN, ESQ.
GENERAL COUNSEL
TOYOTA MOTOR CREDIT CORPORATION
19001 SOUTH WESTERN AVENUE
TORRANCE, CALIFORNIA 90509
(310) 787-1310
(Name, address, including zip code, and telephone number, including
area code, of agent for service with respect to the Registrant)
COPIES TO:
DAVID J. JOHNSON, JR., ESQ. AND RENWICK D. MARTIN, ESQ.
DANIEL F. PASSAGE, ESQ. BROWN & WOOD LLP
ANDREWS & KURTH L.L.P. ONE WORLD TRADE CENTER, 58TH FLOOR
601 S. FIGUEROA, SUITE 4200 NEW YORK, NEW YORK 10048
LOS ANGELES, CALIFORNIA 90017
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 134,
please check the following box. / /
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Proposed Title of Securities Amount to Offering Price Aggregate Amount of
to be Registered Be Registered Per Unit(1) Offering Price(1) Registration Fee(2)
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<S> <C> <C> <C> <C>
Automobile Lease Asset Backed Certificates, Class A-1 100%
Automobile Lease Asset Backed Certificates, Class A-2 $1,146,000,000 100% $1,146,000,000 $347,272.73
Automobile Lease Asset Backed Certificates, Class A-3 100%
Special Unit of Beneficial Interest (3) (3) (3) (3)
TMCC Demand Notes (4) (4) (4) (4)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Of which $610.08 previously has been paid.
(3) The Special Unit of Beneficial Interest (the "SUBI") issued by Toyota Lease
Trust will constitute a beneficial interest in certain specified assets of
Toyota Lease Trust, including certain lease contracts and the automobile
and light-duty trucks relating to such lease contracts. The SUBI is not
being offered to investors hereunder but will be transferred by Toyota
Motor Credit Corporation (the originator of Toyota Lease Trust) to Toyota
Leasing, Inc. (the originator of Toyota Auto Lease Trust 1997-A), and from
Toyota Leasing, Inc. to Toyota Auto Lease Trust 1997-A.
(4) The TMCC Demand Notes represent investments by the Trust of Collections in
demand notes issued from time to time by TMCC.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED AUGUST 20, 1997
TOYOTA AUTO LEASE TRUST 1997-A
$- -% AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-1
$- -% AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-2
$- -% AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-3
TOYOTA LEASING, INC.
(TRANSFEROR)
TOYOTA MOTOR CREDIT CORPORATION
(SERVICER)
----------------------
The Auto Lease Asset Backed Certificates (the "Certificates") will
represent undivided interests in the Toyota Auto Lease Trust 1997-A (the
"Trust") formed pursuant to a securitization trust agreement (the "Agreement")
between Toyota Leasing, Inc. (the "Transferor") and U.S. Bank National
Association (formerly known as First Bank National Association), as trustee (the
"Trustee"). The property of the Trust will consist of a Special Unit of
Beneficial Interest (the "SUBI"), which, in turn, will evidence a beneficial
interest in certain specified assets (the "SUBI Assets") of Toyota Lease Trust,
a Delaware business trust (the "Titling Trust"), monies on deposit in the
Reserve Fund and certain other accounts and certain other assets described more
fully herein under "The Trust and the SUBI". The assets of the Titling Trust
(the "Titling Trust Assets") will consist primarily of retail closed-end lease
contracts and the automobiles and light duty trucks relating thereto and certain
other assets described more fully herein. Toyota Motor Credit Corporation
("TMCC") will service the lease contracts included in the Titling Trust Assets.
(CONTINUED ON NEXT PAGE)
FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A CERTIFICATES, SEE "RISK FACTORS" ON PAGE 21 HEREIN.
THE CLASS A CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE TRUST AND
WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF TOYOTA MOTOR CREDIT
CORPORATION, TOYOTA MOTOR SALES, U.S.A., INC., TOYOTA LEASING, INC., TOYOTA
LEASE TRUST OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
APPLICATION WILL BE MADE TO LIST THE CLASS A CERTIFICATES ON THE LUXEMBURG
STOCK EXCHANGE AND FOR LISTING AND PERMISSION TO DEAL IN
THE CLASS A CERTIFICATES ON THE STOCK EXCHANGE OF HONG KONG LIMITED.
UNDERWRITING PROCEEDS TO THE
PRICE TO PUBLIC (1) DISCOUNTS SELLER (1)(2)
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Per Class A-1 Certificate..... -% -% -%
Per Class A-2 Certificate..... -% -% -%
Per Class A-3 Certificate..... -% -% -%
Total............... $- $- $-
(1) Plus accrued interest, if any, calculated at the related Certificate Rate
from the date of initial issuance.
(2) Before deducting expenses payable by the Transferor estimated to be $-.
----------------------
The Class A Certificates are offered subject to prior sale, when, as and if
issued to and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Class A
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company in the United States, and
Cedel Bank, societe anonyme and the Euroclear System in Europe and Asia, on or
about September -, 1997, against payment therefor in immediately available
funds.
----------------------
JOINT BOOKRUNNERS
MERRILL LYNCH & CO. LEHMAN BROTHERS MORGAN STANLEY DEAN WITTER
(GLOBAL COORDINATOR)
THE DATE OF THIS PROSPECTUS IS -, 1997.
<PAGE>
(CONTINUED FROM FRONT COVER)
From time to time until principal is first allocated or distributed to the
holders of Certificates ("Certificateholders"), as described below, Principal
Collections on or in respect of the SUBI Assets will be reinvested in additional
lease contracts originated as described herein and assigned to the Titling
Trust, together with the automobiles and light duty trucks relating thereto,
which at the time of reinvestment will become SUBI Assets. The SUBI will not
evidence a direct interest in the SUBI Assets, nor will it represent a
beneficial interest in any of the Titling Trust Assets other than the SUBI
Assets. Payments made on or in respect of the Titling Trust Assets not
represented by the SUBI will not be available to make payments on the
Certificates.
The Certificates will consist of three classes of senior certificates
(respectively, the "Class A-1 Certificates", the "Class A-2 Certificates" and
the "Class A-3 Certificates", and collectively, the "Class A Certificates") and
one class of subordinated certificates (the "Class B Certificates"). The Class
A Certificates are the only Certificates offered hereby. The Initial
Certificate Balance of the Class B Certificates will be $-, and the Class B
Certificates will be subordinated to the Class A Certificates to the extent
described herein. The Class A-1, Class A-2, Class A-3 and Class B Certificates
will initially evidence in the aggregate -%, -%,-% and -% undivided interests in
the SUBI, respectively. The Transferor will own the undivided interest in the
Trust not represented by the Certificates (the "Transferor Interest"). The
initial balance of the Transferor Interest will be $-. SEE "Description of the
Certificates".
Interest on the Certificates will accrue at the respective per annum
interest rates specified above and, except upon the occurrence of a Monthly
Payment Event, if any, or in the case of a Class of Certificates that
is not fully paid on its Targeted Maturity Date, will be distributed to
holders thereof semiannually on March 25 and September 25 of each year (or,
if such day is not a Business Day, on the next succeeding Business Day),
commencing on March 25, 1998.
The Targeted Maturity Date for the Class A-1 Certificates will be -, for
the Class A-2 Certificates will be -, for the Class A-3 Certificates will be -
and for the Class B Certificates will be -. In general, the Certificates will
be "sequential pay" certificates meaning that no principal payments will be
made on the Class A-2 Certificates until the Class A-1 Certificates have been
paid in full, no principal payments will be made on the Class A-3 Certificates
until the Class A-2 Certificates have been paid in full and no principal
payments will be made on the Class B Certificates until the Class A-3
Certificates are paid in full. Except upon the occurrence of a Monthly Payment
Event, principal in respect of a Class of Class A Certificates will not be
distributed until its respective Targeted Maturity Date. Upon the occurrence of
a Monthly Payment Event, if any, during the Amortization Period, or in the event
the full amount of principal of any Class of Class A Certificates is not
available on its Targeted Maturity Date, principal will be distributed to
holders of the related Class of Class A Certificates to the extent and in the
order of priority described herein on Certificate Payment Dates which will
thereafter be monthly on each Monthly Allocation Date. A "Monthly Allocation
Date" is the day on which Collections in respect of the Contracts and Leased
Vehicles represented by the SUBI are allocated, and shall occur on the
twenty-fifth day of each month (or, if such day is not a Business Day, on the
next succeeding Business Day) commencing on September 25, 1997. Each Class of
Class A Certificates will also have a Stated Maturity Date on or before which
payment in full is due.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A
Certificates. Such transactions may include stabilizing and the purchase of
Class A Certificates to cover syndicate short positions. For a description of
these activities, see "Underwriting".
UNTIL DECEMBER -, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN INVESTOR
WHO HAS RECEIVED AN ELECTRONIC PROSPECTUS OR A REQUEST BY SUCH INVESTOR'S
REPRESENTATIVE WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS DELIVERY
OBLIGATION, THE TRANSFEROR OR THE UNDERWRITERS WILL PROMPTLY DELIVER, OR CAUSE
TO BE DELIVERED, WITHOUT CHARGE, A PAPER COPY OF THE PROSPECTUS.
ii
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AVAILABLE INFORMATION
The Transferor, as originator of the Trust, and the Trust, as issuer of the
Certificates, have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement") of which this
Prospectus is a part, under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Class A Certificates. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement, which is available for inspection without charge at
the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the regional offices of the
Commission at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, copies of the Registration Statement and all of
the documents incorporated by reference herein (including the Titling Trust
Agreement and the Agreement) may be obtained at no charge at the offices of
Bankers Trust Luxembourg S.A., 14 Boulevard F.D. Roosevelt, L-2450, Luxembourg,
and at the offices of Lehman Brothers Inc. at One Pacific Place, 88 Queensway,
Hong Kong. The Servicer, on behalf of the Trust, will also file or cause to be
filed with the Commission such periodic reports as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. Electronic filings made through
the Electronic Data Gathering Analysis and Retrieval System are publicly
available through the Commission's Website at http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
Certain documents with respect to Toyota Motor Credit Corporation ("TMCC")
are incorporated herein. The documents incorporated by reference herein relate
solely to TMCC as a registrant on the Registration Statement on Form S-3 with
respect to the TMCC Demand Notes. The Certificates will represent beneficial
interests in the Trust and will not represent interests in or obligations of
TMCC or any of its affiliates.
TMCC is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports and other information with the Commission.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, Citibank Center, Suite 1800,
500 West Madison Street, Chicago, Illinois 60611-2511. In addition, certain of
TMCC's securities are listed on the New York Stock Exchange and the
aforementioned material may also be inspected at the offices of such exchange.
TMCC's Annual Report on Form 10-K for the year ended September 30, 1996,
and TMCC's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1996, March 31, 1997, and June 30, 1997, have been filed with the
Commission and are made a part of this Registration Statement. All reports
filed by TMCC pursuant to Sections 13(a) or 15(d) of the Exchange Act
subsequent to the date of the Registration Statement and prior to the
termination of the offering of the Certificates and all supplements to the
Registration Statement filed from time to time shall be deemed to be
incorporated by reference into the Registration Statement to be a part hereof
from the date of filing such documents.
Any statement contained herein or made a part hereof, or contained in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein, shall be deemed to be modified or superseded for the
purposes of the Registration Statement to the extent that a statement contained
therein (or in any subsequently filed document which is also incorporated or
deemed to be incorporated by reference herein) modifies
iii
<PAGE>
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement.
REPORTS TO CERTIFICATEHOLDERS
U.S. Bank National Association, as Trustee, will provide to
Certificateholders (which shall be Cede & Co. as the nominee of DTC unless
Definitive Certificates are issued under the limited circumstances described
herein) unaudited monthly and annual reports concerning the Contracts and
Leased Vehicles. SEE "Description of the Certificates--Reports to
Certificateholders". For so long as the Class A Certificates are outstanding,
each such report (including a statement of the Class Certificate Balance of
each Class of Certificates) also shall be delivered to the Luxembourg Stock
Exchange and The Stock Exchange of Hong Kong Limited on the related date for
delivery to Certificateholders. Copies of such reports may be obtained at no
charge at the offices of Bankers Trust Luxembourg S.A., 14 Boulevard F.D.
Roosevelt, L-2450, Luxembourg, and at the offices of Lehman Brothers Inc. at
One Pacific Place, 88 Queensway, Hong Kong.
iv
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OVERVIEW OF TRANSACTION
[FLOW CHART]
v
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS ON THE
PAGES INDICATED IN THE "INDEX OF TERMS" BEGINNING ON PAGE 101 HEREOF.
OVERVIEW . . . . . Certain motor vehicle dealers ("Dealers") whose
dealerships are located in California, Florida,
Michigan, Pennsylvania and Ohio (the "Trust States")
have assigned and will assign closed-end retail
automobile and light-duty truck leases to the Titling
Trust pursuant to their dealer agreements with the
Titling Trust. The Titling Trust was created in
October 1996 to avoid the administrative difficulty and
expense associated with retitling leased vehicles in
connection with the securitization of automobile and
light duty truck leases. The Titling Trust has issued
to TMCC an Undivided Trust Interest (the "UTI")
representing the entire beneficial interest in the
unallocated Titling Trust Assets. SEE "The Trust and
the SUBI--The Trust".
TMCC will instruct the trustee of the Titling Trust to
allocate a separate portfolio of leases and leased
vehicles from and among the Titling Trust Assets
represented by the UTI and create a special unit of
beneficial interest (the "SUBI") which will represent
the entire beneficial interest in such portfolio.
Titling Trust Assets allocated to the SUBI will no
longer be represented by the UTI. TMCC will sell the
SUBI to the Transferor and the Transferor will
contribute substantially all of the SUBI (excluding the
related rights to proceeds of the Residual Value
Insurance Policy described herein) to the Trust. In
return, the Trust will issue the Class A Certificates
offered hereby and the Class B Certificates, and will
create the Transferor Interest for the benefit of the
Transferor. The "Transferor Interest" is the undivided
interest in the Trust not evidenced by the Certificates
and will be permanently retained by the Transferor.
TMCC, from time to time in the future, may cause the
Titling Trust to allocate additional separate
portfolios of leases and leased vehicles and to create
additional special units of beneficial interest similar
to the SUBI relating to such portfolios ("Other SUBIs")
which may be sold to the Transferor or one or more
other entities. The Trust and the Certificateholders
will have no interest in the UTI, any Other SUBI or any
Titling Trust Assets evidenced by the UTI or any Other
SUBI.
THE TRUST. . . . . The Trust will be formed pursuant to the Agreement
between the Transferor and U.S. Bank National
Association (formerly known as First Bank National
Association, "U.S. Bank"), as Trustee. The property of
the Trust will consist primarily of the
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SUBI and monies on deposit in certain accounts
established as described herein.
THE TITLING TRUST. The Titling Trust is a Delaware business trust formed
pursuant to the Titling Trust Agreement. The primary
business purpose of the Titling Trust is to take
assignments of and serve as holder of title to
substantially all of the lease contracts and the
related leased vehicles originated by the Dealers
beginning on dates prior to the execution of the SUBI
Supplement. Pursuant to the Servicing Agreement, TMCC
will service the lease contracts included in the
Titling Trust Assets, including the Contracts. SEE
"Additional Document Provisions--The Trust Agreement"
and "--The Servicing Agreement" and "Certain Legal
Aspects of the Titling Trust--The Titling Trust".
The Titling Trust is governed by an Amended and
Restated Trust and Servicing Agreement (the "Titling
Trust Agreement") among TMCC, as grantor, initial
beneficiary and Servicer, TMTT, Inc., as trustee (the
"Titling Trustee") and U.S. Bank, as trust agent (the
"Trust Agent"). TMTT, Inc. is a Delaware corporation
and a wholly owned, special purpose subsidiary of U.S.
Bank that was organized solely for the purpose of
acting as Titling Trustee. TMTT, Inc. is not
affiliated with TMCC or any affiliate thereof. SEE
"The Titling Trust--The Titling Trustee".
TITLING TRUST ASSETS
ALLOCATED AS SUBI
ASSETS . . . . . . The Titling Trust Assets consist primarily of retail
closed-end lease contracts and the automobiles and
light duty trucks relating thereto. The SUBI will
evidence a beneficial interest in a specified portion
of the Titling Trust Assets allocated to the SUBI.
Certain lease contracts (the "Initial Contracts")
originated by the Dealers, the automobiles and light
duty trucks relating thereto (the "Initial Leased
Vehicles") and certain monies due under or payable in
respect of the Initial Contracts and the Initial Leased
Vehicles on or after August 1, 1997 (the "Cutoff Date")
will be allocated to the SUBI on the Closing Date.
During the Revolving Period, payments made on or in
respect of the SUBI Assets allocable to the Discounted
Principal Balance thereof will be reinvested in
additional retail closed-end lease contracts (the
"Subsequent Contracts" and, together with the Initial
Contracts, the "Contracts") assigned to the Titling
Trust by Dealers and the related automobiles and light
duty trucks (the "Subsequent Leased Vehicles" and,
together with the Initial Leased Vehicles, the "Leased
Vehicles"). At the time of such reinvestment, such
Subsequent Contracts and Subsequent Leased Vehicles
will be allocated to the SUBI and will no longer be UTI
Assets. All such assets, together with certain other
assets and rights, are the "SUBI Assets". SEE
"--Principal--The Revolving Period" and "The Trust and
the SUBI--The SUBI".
2
<PAGE>
The SUBI will evidence an indirect beneficial interest,
rather than a direct legal interest, in the SUBI
Assets. The SUBI will not represent a beneficial
interest in any Titling Trust Assets other than the
SUBI Assets. Payments made on or in respect of the
Titling Trust Assets other than the SUBI Assets will
not be available to make payments on the Certificates.
THE TRANSFEROR . . Toyota Leasing, Inc. is a California corporation which
is a wholly owned, special purpose subsidiary of TMCC.
SEE "The Transferor".
TMCC . . . . . . . TMCC is a California corporation that has 34 branches
in various locations in the United States and one
branch in the Commonwealth of Puerto Rico. TMCC's
primary business is providing retail leasing, retail
and wholesale financing and certain other financial
services to authorized Toyota and Lexus vehicle and
Toyota industrial equipment dealers and their customers
in the United States (excluding Hawaii) and Puerto
Rico. TMCC is a wholly owned subsidiary of Toyota
Motor Sales, U.S.A., Inc. ("TMS"), which is primarily
engaged in the wholesale distribution of automobiles,
light duty trucks, industrial equipment and related
replacement parts and accessories throughout the United
States (excluding Hawaii). TMS is a wholly-owned
subsidiary of Toyota Motor North America, Inc. ("TMA").
Substantially all of TMS's products are either
manufactured by its affiliates or are purchased from
Toyota Motor Corporation ("TMC"), which wholly owns
TMA, or affiliates of TMC.
Pursuant to the Agreement and the Series 1997-A SUBI
Servicing Supplement to the Titling Trust Agreement
dated as of August 1, 1997, among TMCC, the Titling
Trustee and the Transferor (the "Servicing Supplement"
and together with the Titling Trust Agreement, the
"Servicing Agreement"), TMCC will act as the initial
servicer of the Titling Trust Assets, including the
SUBI Assets (in such capacity, the "Servicer").
Pursuant to the terms of the Servicing Agreement, the
Trustee is a third party beneficiary thereof.
SECURITIES OFFERED
a. GENERAL . . . The Certificates will represent fractional undivided
beneficial interests in the Trust. The Certificates
will consist of three classes of senior certificates
(the Class A-1, Class A-2 and Class A-3 Certificates)
and one class of subordinated certificates (the Class B
Certificates). Only the Class A Certificates are being
offered hereby.
Each Certificate will represent the right to receive
semiannual payments of interest at the related
Certificate Rate and, to the extent described herein,
payments of principal during the
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<PAGE>
Amortization Period. It is expected that repayment of
principal on each Class of Certificates will be made on
the related Targeted Maturity Date.
Payments on the Certificates will be funded from
payments received by the Trust on or in respect of the
SUBI and, in certain circumstances, from monies on
deposit in the Reserve Fund, from earnings in respect
of monies, if any, on deposit in the
Certificateholders' Account, and monies that otherwise
would be distributable in respect of the Transferor
Interest. Interests in the assets of the Trust will be
allocated among the Class A-1 Certificateholders, the
Class A-2 Certificateholders, the Class A-3
Certificateholders and the Class B Certificateholders
(collectively, the "Investor Interest") and the
Transferor Interest.
In general, the Certificates will be "sequential pay"
certificates, meaning that no principal payments will
be made on the Class A-2 Certificates until the Class
A-1 Certificates have been paid in full, no principal
payments will be made on the Class A-3 Certificates
until the Class A-2 Certificates have been paid in full
and no principal payments will be made on the Class B
Certificates until the Class A-3 Certificates are paid
in full. The Class B Certificates will be subordinated
to the Class A Certificates to the extent described
herein. SEE "Description of the
Certificates--Distributions on the Certificates". The
Transferor Interest also will be subordinated to the
Certificates, as described herein.
Payments will be made to Certificateholders of record
as of the day immediately preceding each relevant
Certificate Payment Date or, if Definitive Certificates
are issued, as of the last Business Day of the
preceding month (each, a "Record Date"). A "Business
Day" is a day other than a Saturday, a Sunday or a day
on which banking institutions in New York, New York,
Chicago, Illinois, or Los Angeles, California are
authorized or obligated by law, regulation, executive
order or decree to be closed; provided that, solely for
purposes of identifying any Certificate Payment Date
with respect to the making of payments on the
Certificates of any Class in Luxembourg or Hong Kong by
a paying agent there located, "Business Day" shall also
exclude any day on which banking institutions located
in that jurisdiction are authorized by law, regulation,
governmental order or decree to be closed, whether or
not payments are made with respect to such Certificates
in any other jurisdiction on such date, but such
definition shall not be used for making any other
calculation.
On the date of initial issuance of the Certificates
(the "Closing Date"), the Trust will issue $- aggregate
initial Certificate Balance of Class A-1 Certificates
(the "Initial Class A-1 Certificate Balance"), $-
aggregate initial Certificate Balance of
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Class A-2 Certificates (the "Initial Class A-2
Certificate Balance"), $- aggregate initial
Certificate Balance of Class A-3 Certificates (the
"Initial Class A-3 Certificate Balance") and $-
aggregate initial Certificate Balance of Class B
Certificates (the "Initial Class B Certificate Balance"
and, together with the Initial Class A Certificate
Balance, the "Initial Certificate Balance"). Except as
described below, such Class Certificate Balances will
remain fixed at the indicated Initial Certificate
Balances during the Revolving Period and until the
related Targeted Maturity Date except that such Class
Certificate Balances may decline during the
Amortization Period in connection with the allocation
of Loss Amounts thereto or, commencing upon the
occurrence of a Monthly Payment Event, in connection
with distributions thereto in respect of principal to
the extent described herein.
The "Class Certificate Balance" of any Class of
Certificates on any day will equal the Initial
Certificate Balance thereof, reduced by the sum of all
distributions made in respect of principal of such
class (including any distributions in respect of Loss
Amounts and Certificate Principal Loss Amounts
allocable to such Class) on or prior to such day and
any unreimbursed Certificate Principal Loss Amounts in
respect of such Class (and in the case of the Class B
Certificates, minus the aggregate amount of
unreimbursed Class B Available Principal applied to
cover interest shortfalls and reimburse Loss Amounts
and Certificate Principal Loss Amounts allocated to the
Class A Certificates), as described herein. The "Class
A Certificate Balance" will mean the sum of the Class
A-1, Class A-2 and Class A-3 Certificate Balances. The
"Certificate Balance" with respect to the Certificates
will mean the sum of the Class A Certificate Balance
and the Class B Certificate Balance.
The Transferor Interest will represent the interest in
the Trust not represented by the Investor Interest.
The Transferor Interest will initially equal $- ([-]%
of the Aggregate Net Investment Value as of the Cutoff
Date) and on any day will equal the difference between
the Aggregate Net Investment Value and the Adjusted
Certificate Balance, calculated as described below. SEE
"Summary--The SUBI--The Contracts". As more fully
described herein, the Aggregate Net Investment Value
can change daily and the Transferor Interest can
decrease daily as the Aggregate Net Investment Value
decreases. The Transferor Interest may increase on a
Monthly Allocation Date as the Certificate Balance
declines. SEE "Description of the
Certificates--General".
b. DISTRIBUTIONS. INTEREST. Payments of interest on each Class of
Certificates will be made, to the extent funds are
allocated and are available therefor as described
herein, on each Monthly Allocation Date in March and
September, commencing in March 1998, as well as on the
Targeted Maturity Date and any subsequent Certificate
Payment Date. In addition, after the occurrence of any
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<PAGE>
Monthly Payment Event, payments of interest on each
Class of Certificates will be made monthly, to the
extent funds are allocated and are available therefor
as described herein, on each Monthly Allocation Date
(and each such subsequent Monthly Allocation Date will
be a Certificate Payment Date).
PRINCIPAL. Principal of each Class of Certificates
will be payable in full on the related Targeted
Maturity Date. If Principal Collections during the
Collection Periods preceding such date (but commencing
after the end of the Revolving Period) that are
allocable to such Class of Certificates, together with
amounts allocated thereto from amounts on deposit in
the Reserve Fund, through subordination or from any
related Maturity Advance, are insufficient to make such
payment in full, all such amounts available will be
paid to the related Certificateholders on the related
Targeted Maturity Date and, thereafter, payment of all
Principal Collections in respect of the related
Collection Period allocable to the Investor Interest
will be paid on each related Certificate Payment Date
on a monthly basis until such Class of Class A
Certificates has been paid in full. After the
occurrence of any Monthly Payment Event, payments of
principal of each Class of Certificates will be made
monthly, to the extent funds are allocated and are
available therefor as described herein, on each
Certificate Payment Date (and each such subsequent
Monthly Allocation Date will be a Certificate Payment
Date).
Each Monthly Allocation Date on which any such
distribution of interest or principal is required to be
made with respect to any Class of Certificates is a
"Certificate Payment Date" with respect to such Class.
The Targeted Maturity Date for each Class of
Certificates is as follows:
CLASS TARGETED MATURITY DATE
----- ----------------------
Class A-1
Class A-2
Class A-3
Class B
The Stated Maturity Date for each Class of Certificates
(the date on which ultimate payment thereof in full is
due) is as follows:
CLASS STATED MATURITY DATE
----- --------------------
Class A-1
Class A-2
Class A-3
Class B
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7
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c. INTEREST . . . Interest will accrue on the Certificates at the
following rates (the "Certificate Rates"): (i) Class
A-1 Certificates, -% per annum (the "Class A-1 Rate"),
(ii) Class A-2 Certificates, -% per annum (the "Class
A-2 Rate"), (iii) Class A-3 Certificates, -% per annum
(the "Class A-3 Rate") and (iv) Class B Certificates -%
per annum (the "Class B Rate"). Interest will accrue
on the Certificate Balance of each Class of
Certificates and on Certificate Principal Loss
Amounts allocated thereto at the applicable Certificate
Rate during each Interest Period. The "Interest
Period" with respect to each related Certificate
Payment Date for a Class of Certificates will be the
period from and including the preceding Certificate
Payment Date, to but excluding such Certificate Payment
Date. However, the first Interest Period for any Class
of Certificates will be the period from and including
the Closing Date, to but excluding the related first
Certificate Payment Date. Interest will be calculated
on the basis of a 360-day year consisting of twelve
30-day months.
Interest allocations and payments to all Classes of
Class A Certificates will have the same priority. Under
certain circumstances, the amount available for
interest allocations or distributions could be less
than the amount of interest allocable to or
distributable on the Certificates on any Monthly
Allocation Date, in which case each Class of
Certificates will be allocated or paid its ratable
share (based upon the aggregate amount of interest due
thereon) of the aggregate amount available to be
allocated or paid in respect of interest on the
Certificates.
d. PRINCIPAL,
REVOLVING PERIOD
AND AMORTIZATION
PERIOD . . . . Unless a Monthly Payment Event has occurred, principal
will be paid to the holders of each Class of
Certificates on the related Targeted Maturity Date in
an amount equal to the lesser of (i) the related Class
Certificate Balance, and (ii) the sum of (x) all
amounts allocated for distributions in respect of
principal of the Certificates then on deposit in the
Certificateholders' Account and (y) any Maturity
Advance. SEE "--Maturity Advances".
To the extent that the entire Class Certificate
Balance is not paid on the related Targeted Maturity
Date, distributions of principal in respect of the
related Class of Certificates will be made on each
Certificate Payment Date commencing in the month
immediately following such Targeted Maturity Date, and
shall continue on a monthly basis until such Class is
paid in full. Interest at the related Interest Rate
will continue to accrue on the outstanding Certificate
Balance of each Class of Certificates and will
be distributable on each such Certificate Payment Date.
SEE "-Interest".
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Failure to pay the entire Class Certificate Balance of
any Class of Certificates on its Targeted Maturity Date
because Collections and other amounts allocable thereto
are insufficient therefor will not constitute an event
of default or an Event of Servicing Termination.
However, failure to make any scheduled interest payment
on or within three Business Days of a relevant
Certificate Payment Date, or failure to pay in full any
Class of Certificates on or before its Stated Maturity
Date, will constitute an Event of Servicing
Termination. SEE "Additional Document Provisions--The
Servicing Agreement--Events of Servicing Termination"
and "--Rights Upon Event of Servicing Termination."
THE REVOLVING PERIOD. No principal will be allocable or
distributable on the Certificates until the Monthly
Allocation Date (the "First Principal Monthly
Allocation Date") in the month commencing after the
earlier to occur of -, 1998 (the "Amortization Date")
or an Early Amortization Event. From the Closing Date
and through the Business Day preceding the commencement
of the Amortization Period (I.E., the earlier of
September 1, 1998, or the date of an Early Amortization
Event) (the "Revolving Period"), all Principal
Collections and amounts otherwise distributable to
Certificateholders as reimbursements of Loss Amounts
will be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles so as to maintain the
Certificate Balance at a constant level during the
Revolving Period; provided that during the Revolving
Period the Certificate Balance of a Class of
Certificates will decrease to the extent Certificate
Principal Loss Amounts are allocated thereto and not
reimbursed. Early Amortization Events are described
under "Description of the Certificates--Early
Amortization Events". While any Early Amortization
Event will terminate the Revolving Period, only certain
Early Amortizaton Events (which are Monthly Payment
Events) will cause monthly distributions in respect of
principal to commence.
During the Revolving Period, on one or more Business
Days selected by the Servicer (each, a "Transfer
Date"), the Servicer will direct the Titling Trustee to
reinvest Principal Collections and certain reimbursed
Loss Amounts in Subsequent Contracts and Subsequent
Leased Vehicles. Upon such reinvestment, such
Subsequent Contracts and Subsequent Leased Vehicles
will become SUBI Assets. If on the last Business Day
of any month during the Revolving Period commencing in
October 1997 the Servicer determines that the amount of
Principal Collections not reinvested in Subsequent
Contracts and Subsequent Leased Vehicles during the
preceding calendar month exceeds $-, an Early
Amortization Event will be deemed to have occurred, the
Revolving Period will terminate as of such day and all
Principal Collections and reimbursed Loss Amounts not
reinvested as of
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<PAGE>
such day will then be allocable or distributable to
Certificateholders on the succeeding Monthly Allocation
Date. SEE "Description of the Certificates
--Distributions on the Certificates--Application and
Distributions of Principal--Revolving Period".
During the Revolving Period, Subsequent Contracts and
Subsequent Leased Vehicles will be selected from the
Titling Trust's portfolio of lease contracts and
related vehicles not allocated to any Other SUBI, based
on the criteria specified in the Titling Trust
Agreement and SUBI Supplement as described under the
"The Contracts--Representations, Warranties and
Covenants". Reinvestment of Principal Collections and
reimbursed Loss Amounts will be in the lease contracts
having the earliest origination dates and the related
vehicles and Titling Trust Assets (excluding those
previously allocated to any Other SUBI). If any Other
SUBI is created and allocations are being made in
respect of such Other SUBI at the same time out of the
Titling Trust's general pool of unallocated lease
contracts, reinvestment in respect of the SUBI will be
given priority. SEE "The Contracts".
"Principal Collections" will mean, with respect to any
Collection Period, all Collections allocable to the
principal component of any Contract (including any
payment in respect of the related Leased Vehicle, other
than any payment as to which a Loss Amount has been
realized and allocated during any prior Collection
Period), discounted to the extent described below, less
the portions of Advances reimbursable to the Servicer
with respect to payments received on the related
Contracts. With respect to any Monthly Allocation
Date, the related "Collection Period" will be the
preceding calendar month. For purposes of determining
Principal Collections, the principal component of all
payments made on or in respect of a Contract (or the
related Leased Vehicle) with a Lease Rate less than
9.75% per annum (each, a "Discounted Contract") will be
discounted at a per annum rate of 9.75%, thereby
effectively reallocating a portion of the payments
received in respect of the principal component of the
Contracts to Interest Collections and providing
additional credit enhancement for the benefit of the
Certificateholders. With respect to any Collection
Period, "Collections" will include all net collections
received in respect of the Contracts and Leased
Vehicles during such Collection Period, such as Monthly
Payments (including Payments Ahead that represent
Monthly Payments due during such Collection Period),
Prepayments, Advances, Net Matured Leased Vehicle
Proceeds, Net Repossessed Vehicle Proceeds and other
Net Liquidation Proceeds, less (i) amounts representing
Payments Ahead with respect to future Collection
Periods, (ii) amounts retained by or paid to the
Servicer in respect of outstanding Advances and (iii)
Additional Loss Amounts in
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<PAGE>
respect of such Collection Period. In addition, for
each Collection Period during the Revolving Period,
amounts otherwise allocable or distributable to the
Certificateholders on the related Monthly Allocation
Date as reimbursement of Loss Amounts allocable to the
Investor Interest will be treated as Principal
Collections and reinvested in Subsequent Contracts and
Subsequent Leased Vehicles. SEE "Description of the
Certificates--Allocations and Distributions on the
Certificates--Distributions of Collections".
With respect to any Collection Period "Interest
Collections" generally will equal the amount by which
Collections exceed Principal Collections, less the
interest portions of Advances reimbursable to the
Servicer with respect to payments received on the
related Contracts. "Net Repossessed Vehicle Proceeds"
will equal Repossessed Vehicle Proceeds net of
Repossessed Vehicle Expenses, and "Net Liquidation
Proceeds" will equal Liquidation Proceeds net of
Liquidation Expenses.
AMORTIZATION PERIOD. The "Amortization Period" shall
commence on the earlier of the Amortization Date or the
day on which an Early Amortization Event occurs, and
will end when (i) each Class of Certificates has been
paid in full and all Certificate Principal Loss Amounts
have been reimbursed, together with accrued interest
thereon, or (ii) the Trust otherwise terminates.
During the Amortization Period, Principal Collections
and reimbursed Loss Amounts will no longer be
reinvested in Subsequent Contracts and Subsequent
Leased Vehicles.
During the Amortization Period, the amount of Principal
Collections allocable to the Investor Interest in
respect of a Collection Period (the "Principal
Allocation") generally will mean the Principal
Collections in respect of such Collection Period
allocable to the SUBI Interest multiplied by the
Investor Percentage for such Principal Collections.
The "Investor Percentage" for purposes of the Principal
Allocation will equal the percentage equivalent of a
fraction (not to exceed 100%), the numerator of which
is the Adjusted Certificate Balance and the denominator
of which is the Aggregate Net Investment Value,
calculated as of the last day of the Collection Period
(i) preceding the Amortization Date or (ii) preceding
the month, if any, during which an Early Amortization
Event occurs. The "Adjusted Certificate Balance" for
any Class of Certificates is the Initial Certificate
Balance thereof reduced by the sum of all amounts
departed into the Certificateholders' Account in
respect of prinipal of such class, plus the amount of
all unreimbursed Loss Amounts and Certificate
Principal Loss Amounts allocated to such class (and in
the case of the Class B Certificates, also reduced by
the aggregate amount of unreimbursed Class B
Available Principal applied to cover interest
shortfalls and reimburse Loss Amounts and Certificate
Principal Loss Amounts allocated to the Class A
Certificates). SEE "Description of the
Certificates--Calculation of Investor Percentage and
Transferor Percentage."
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<PAGE>
Allocations based upon the Principal Allocation may
result in allocations or distributions to
Certificateholders of Principal Collections with
respect to Collection Periods during the Amortization
Period in amounts that are greater relative to the
declining Certificate Balances than would be the case
if no fixed Investor Percentage were used. To the
extent that on any Monthly Allocation Date during the
Amortization Period any portion of the Investor
Percentage of Interest Collections in respect of the
related Collection Period remains after required
distributions have been made, such excess interest will
be deposited into the Reserve Fund until the amount on
deposit therein equals the Specified Reserve Fund
Balance. Any remaining excess interest, up to but not
exceeding the product of (i) one-twelfth of [-]% and
(ii) the Aggregate Net Investment Value as of the last
day of such Collection Period will constitute the
"Accelerated Principal Distribution Amount". The
Accelerated Principal Distribution Amount will be
allocable or distributable to the Certificateholders
(or for reimbursements of Maturity Advances) in
addition to (and in the same manner and priority as)
ordinary allocations and distributions of principal in
respect of the Certificates. SEE "Description of the
Certificates-- Allocations and Distributions on the
Certificates--Allocations and Distributions of
Collections" and "Assets of the Trust--The Accounts;
Collections--The SUBI Collection Account--Certain
Withdrawals from the SUBI Collection Account".
The "Aggregate Net Investment Value" as of any date
will equal the sum of (i) the Discounted Principal
Balance of all Contracts other than Charged-off,
Liquidated, Matured and Additional Loss Contracts, (ii)
the aggregate Residual Value of all Leased Vehicles to
the extent that the related Contracts have reached
their scheduled maturities (each, a "Matured Contract")
within the three immediately preceding Collection
Periods but which Leased Vehicles as of the last day of
the most recent Collection Period have remained unsold
and not otherwise disposed of by the Servicer for no
more than three full Collection Periods (the "Matured
Leased Vehicle Inventory") plus certain related charges
and (iii) during the Revolving Period, the amount of
unreinvested Principal Collections and reimbursed Loss
Amounts. The "Discounted Principal Balance" for each
Contract with a Lease Rate less than 9.75% will be its
Outstanding Principal Balance discounted by 9.75% (each
such Contract, a "Discounted Contract"), and for each
Contract with a Lease Rate at least equal to 9.75%
will be its Outstanding Principal Balance. As of the
Cutoff Date, the Aggregate Net Investment Value equaled
the aggregate Discounted Principal Balance of the
Initial Contracts or $1,231,231,519.20.
e. INVESTMENT OF
COLLECTIONS PRIOR
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TO MONTHLY PAYMENT
EVENT. . . . . So long as a Monthly Payment Event has not occurred,
and so long as the Certificates of any Class are
outstanding, amounts allocated to interest on the
Certificates during the Revolving Period, and amounts
allocated to interest or principal in respect of the
Certificates during the Amortization Period, in each
case on Monthly Allocation Dates that are not relevant
Certificate Payment Dates will be deposited into the
Certificateholders' Account and invested in Permitted
Investments maturing prior to the succeeding relevant
Certificate Payment Date or Targeted Maturity Date, as
appropriate. Such Permitted Investments are expected to
include one or more demand obligations issued by TMCC
(each a "TMCC Demand Note") bearing a rate of interest
equal to the Required Rate, which rate will adjust on
each Monthly Allocation Date. See "Additional Document
Provisions--TMCC Demand Notes". From and after the
occurrence of a Monthly Payment Event, payments of
interest on and principal of each Class of Certificates
will instead be made monthly on each subsequent
relevant Certificate Payment Date
f. PRIORITY OF MONTHLY
ALLOCATIONS AND
DISTRIBUTIONS. On each Monthly Allocation Date, the Trustee will make
allocations, payments and distributions with respect to
the related Collection Period in accordance with the
priorities set forth herein. SEE "Description of the
Certificates-- Allocations and Distributions on the
Certificates".
g. OPTIONAL
PURCHASE . . . The Transferor will have an option to purchase the SUBI
Certificate on any Monthly Allocation Date on or after
the Class A-3 Targeted Maturity Date if, either before
or after giving effect to any payment of principal
required to be made on the related Certificate Payment
Date, the Adjusted Certificate Balance has been reduced
to an amount less than or equal to $123,123,151.92 (10%
of the Aggregate Net Investment Value as of the Cutoff
Date) or amounts sufficient to effectively reduce the
Certificate Balance to such amount have been deposited
in the Collection Account on such date. Such a
purchase would result in the retirement of the
Certificates of each Class. SEE "Description of the
Certificates--Termination of the Trust; Retirement of
the Certificates".
h. FORM, DENOMINATIONS
AND REGISTRATION OF
THE CLASS A
CERTIFICATES . Except under limited circumstances, the Class A
Certificates will be available only in book-entry form
in minimum denominations of $1,000. Persons acquiring
beneficial ownership interests in the Class A
Certificates ("Certificate Owners") will hold their
Certificates through The Depository Trust Company
("DTC"), in the United States, or Cedel Bank, societe
anonyme ("Cedel Bank") or the Euroclear System
("Euroclear") in Europe or Asia. SEE "Description of
the Certificates--Book-Entry Registration"
13
<PAGE>
and "ANNEX I: Global Clearance, Settlement and Tax
Documentation Procedures".
i. LISTING. . . . Application will be made for listing of the Class A
Certificates on the Luxembourg Stock Exchange and for
listing of and permission to deal in the Class A
Certificates on The Stock Exchange of Hong Kong
Limited. The Trust has requested that such permission
be made effective on or before September -, 1997.
THE SUBI . . . . . The SUBI will be evidenced by a certificate (the "SUBI
Certificate") evidencing a 100% beneficial interest in
the SUBI Assets and will not evidence an interest in
any Titling Trust Assets other than the SUBI Assets.
Payments made on or in respect of any other Titling
Trust Assets will not be available to make payments on
the Certificates. The Titling Trust Assets evidenced
by the SUBI will primarily include the Contracts and
Leased Vehicles allocated to the SUBI. SEE "The Trust
and the SUBI" and "The Titling Trust".
1. THE CONTRACTS The Contracts will consist of retail closed-end lease
contracts originated by the Dealers in California,
Florida, Michigan, Ohio and Pennsylvania (the "Trust
States") having original terms of not more than 60
months. Each Contract will be a finance lease for
accounting purposes and will have been written for a
"capitalized cost" (which may exceed the manufacturer's
suggested retail price and may include certain
origination fees), plus a lease charge which is based
on an imputed interest rate (the "Lease Rate"). Each
Contract will provide for equal monthly payments (each,
a "Monthly Payment") that when allocated between
principal and the lease charge at the Lease Rate on a
constant yield basis, will be sufficient to amortize
the capitalized cost over the term of the lease to an
amount equal to the Residual Value. A Residual Value
is established at the origination of the lease (based
on documentation provided to the Dealers by TMCC) and
represents the estimated wholesale market value at the
end of the lease term ("Residual Value"). The amount
to which the capitalized cost of a Contract has been
amortized at any point in time is referred to herein as
its "Outstanding Principal Balance".
The Initial Contracts consist of 56,340 lease
contracts. As of the Cutoff Date, the Initial
Contracts had Lease Rates ranging from 0.254% to
13.653% and a weighted average Lease Rate of 7.655%.
As of the Cutoff Date, the Initial Contracts had an
aggregate Outstanding Principal Balance of
$1,287,004,969.02, an Aggregate Net Investment Value
of $1,231,231,519.20 (of which amount approximately
69.35% represented Residual Values), a weighted average
original term of 39.8 months and a weighted average
remaining term to scheduled maturity of 35.8 months.
SEE "The Contracts".
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2. THE LEASED
VEHICLES. . . The Leased Vehicles will be comprised of automobiles
and light duty trucks. As of the times of origination
of the Contracts, the related Leased Vehicles will
include new vehicles, including dealer demonstrator
vehicles driven fewer than 20,000 miles, or used
vehicles up to four model years old at the time of
origination of the related Contract, including
certified used vehicles and vehicles previously sold
under manufacturer's programs. Certified used vehicles
are Toyota or Lexus vehicles that are purchased by
dealers, reconditioned and certified to meet certain
Toyota/Lexus required standards and sold or leased with
an extended warranty from the manufacturer.
Manufacturer's program vehicles are Toyota or Lexus
vehicles that have been sold to rental car companies,
repurchased by the manufacturer and subsequently
purchased by the dealer to sell or lease as current
year and one year old used vehicles with 20,000 miles
or less. SEE "The Contracts--General".
The certificates of title to the Initial Leased
Vehicles are, and the certificates of title to all
Leased Vehicles will be, registered at all times prior
to liquidation in the name of the Titling Trust. The
certificates of title will not reflect the indirect
interest of the Trustee in the Leased Vehicles by
virtue of its beneficial interest in the SUBI.
Therefore, if the Class A Certificates were
recharacterized as secured loans, the Trustee would
have a perfected security interest in the SUBI
Certificate (excluding rights to proceeds of the
Residual Value Insurance Policy retained by the
Transferor), Contracts and Contract Rights but not in
the Leased Vehicles. SEE "Certain Legal Aspects of the
Titling Trust--Structural Considerations" and
"--Back-up Security Interests".
THE SUBI COLLECTION
ACCOUNT;
COLLECTIONS . . The Titling Trustee will maintain the SUBI Collection
Account for the benefit of the holders of interests in
the SUBI. Except under certain limited circumstances,
the Servicer will be permitted to deposit amounts
collected in respect of payments made on or in respect
of the Contracts or the Leased Vehicles during each
Collection Period into the SUBI Collection Account on
the Business Day preceding the related Monthly
Allocation Date (the related "Deposit Date") rather
than when received. Such payments will include, but
will not be limited to, (i) Monthly Payments, not
including Monthly Payments determined by the Servicer
to be due in one or more future Collection Periods,
which will include all partial payments (each, a
"Payment Ahead") until the Collection Period during
which such Payment Ahead is due, (ii) Prepayments,
(iii) proceeds from the sale or other disposition of
Leased Vehicles under Matured Contracts, including
payments for excess mileage and excess wear and tear
("Matured Leased Vehicle Proceeds"), (iv) proceeds
received in connection with the
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sale or other disposition of Leased Vehicles that have
been repossessed ("Repossessed Vehicle Proceeds") and
(v) other amounts received in connection with the
realization of the amounts due under any Contract
(together with Matured Leased Vehicle Proceeds and
Repossessed Vehicle Proceeds, "Liquidation Proceeds").
The Servicer will be entitled to reimbursement for
expenses incurred in connection with the realization of
Matured Leased Vehicle Proceeds ("Matured Leased
Vehicle Expenses"), Repossessed Vehicle Proceeds
("Repossessed Vehicle Expenses") and other Liquidation
Proceeds (such expenses, together with Matured Leased
Vehicle Expenses and Repossessed Vehicle Expenses,
"Liquidation Expenses"), to be netted from proceeds or
Collections in respect of such payments (including
other Liquidation Proceeds), whether or not on deposit
in the SUBI Collection Account. The Servicer also will
be entitled to reimbursement of certain payments made
and expenses and charges incurred by it in the ordinary
course of servicing the Contracts (including payments
it makes on behalf of the related lessees in connection
with the payment of taxes, vehicle registration,
clearance of parking tickets and similar items) from
Collections with respect to the related Contracts,
separate payment thereof by the related lessees or from
amounts realized upon the final disposition of the
related leased vehicle. To the extent such amounts are
reimbursed prior to or at the final disposition of the
related leased vehicle but remain unpaid by the related
lessee, such unreimbursed amounts (together with any
unpaid Monthly Payments under the related Contract)
will be treated as Matured Leased Vehicle Expenses or
Liquidation Expenses, as the case may be, and will
therefor reduce Net Matured Leased Vehicle Proceeds or
Liquidation Proceeds, as the case may be.
On each Deposit Date, the following additional amounts
also will be deposited into the SUBI Collection
Account: (i) Advances by the Servicer, (ii) any
Maturity Advances by the Transferor and (iii)
Reallocation Payments by TMCC (together with, under
certain circumstances during the Amortization Period,
Reallocation Deposit Amounts) in respect of certain
Contracts as to which an uncured breach of certain
representations and warranties or certain servicing
covenants has occurred. In addition, to the extent set
forth herein, amounts will be withdrawn from the
Reserve Fund and deposited into the SUBI Collection
Account on each Deposit Date to cover certain Loss
Amounts or shortfalls in Collections. Thereafter, the
Interest Collections (and, with respect to the Deposit
Date in any month following the month during which the
Amortization Period commences, the Principal
Collections) on deposit in the SUBI Collection Account
in respect of the related Collection Period will
16
<PAGE>
be available for allocation or distribution of required
amounts to Certificateholders and the Transferor. SEE
"Assets of the Trust--The Accounts; Collections--The
SUBI Collection Account".
The Certificateholders and the Transferor (as holder
of the Transferor Interest) are entitled on any
Monthly Allocation Date to be allocated or to receive
Matured Leased Vehicle Proceeds up to, but not in
excess of, the aggregate of the Residual Values of
Leased Vehicles sold or otherwise disposed of from
Matured Leased Vehicle Inventory during the related
Collection Period. It is possible that in any
Collection Period the Servicer could incur Matured
Lease Vehicle Expenses that, if reimbursed from
collections in respect of Matured Leased Vehicle
Proceeds, would result in Net Matured Leased Vehicle
Proceeds being less than the sum of the Residual
Values of all Leased Vehicles so sold or otherwise
disposed. Any such shortfall will result in the
realization of Residual Value Loss Amounts. On each
Deposit Date on which Matured Leased Vehicle Proceeds
received during the related Collection Period net of
related Matured Leased Vehicle Expenses incurred
during such Collection Period ("Net Matured Leased
Vehicle Proceeds") exceed the aggregate Residual
Value of the related Leased Vehicles (the "Residual
Value Surplus"), such excess will be released to the
Transferor and neither the Trust nor the
Certificateholders will have any further claim
thereto or interest therein.
THE RESERVE FUND. . . . A Reserve Fund will be maintained with the Trustee for
the benefit of the Certificateholders and the
Transferor. The Reserve Fund is designed to provide
additional funds for the benefit of the
Certificateholders in the event that on any Monthly
Allocation Date Interest and Principal Collections
allocable to the Investor Interest for the related
Collection Period are insufficient to allocate for or
make distributions in respect of, among other things,
(i) accrued interest, (ii) overdue interest (with
interest thereon at the applicable Interest Rate, to
the extent lawful) and (iii) Loss Amounts allocable to
the Investor Interest and unreimbursed Certificate
Principal Loss Amounts, together with interest thereon
at the applicable Certificate Rate (the aggregate
amount of such deficiency, the "Required Amount").
Monies on deposit in the Reserve Fund also will be
available to Certificateholders should Collections
ultimately be insufficient to pay in full any Class of
Certificates at its Stated Maturity Date. The Reserve
Fund will not be an asset of the Trust. SEE "Assets of
the Trust--The Accounts; Collections--The Reserve
Fund".
The Reserve Fund will be created with an initial
deposit (the "Initial Deposit") by the Transferor of $-
(-% of the Aggregate Net Investment Value as of the
Cutoff Date). On each Monthly Allocation Date, the
Reserve Fund will be supplemented by
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Interest Collections and Principal Collections that
would otherwise be released to the Transferor after
making all required allocations and distributions to
Certificateholders, until the amount on deposit therein
equals the applicable Specified Reserve Fund Balance.
After giving effect to all payments from the Reserve
Fund on a Monthly Allocation Date, monies on deposit
therein in excess of the Specified Reserve Fund Balance
will be paid to the Transferor, free and clear of any
interest of the Trust. SEE "Description of the
Certificates--Allocations and Distributions on the
Certificates--Allocations and Distributions of
Collections" and "Assets of the Trust--The Accounts;
Collections--The Reserve Fund--The Specified Reserve
Fund Balance".
Under certain circumstances it is possible that, as
of any Monthly Allocation Date, the amount of funds
actually on deposit in the Reserve Fund could be less
than the Specified Reserve Fund Balance. Moreover,
pursuant to the Agreement, the Specified Reserve Fund
Balance may, under certain circumstances, be reduced
on one or more Monthly Allocation Dates to the extent
approved by each Rating Agency.
SUBORDINATION. . . . The Class B Certificates will be subordinated to the
Class A Certificates so that on any Certificate Payment
Date (i) interest payments generally will not be made
in respect of the Class B Certificates until interest
on the Certificate Principal Balance of each Class of
Class A Certificates and on Certificate Principal Loss
Amounts previously allocated thereto has been paid on
such Certificate Payment Date and (ii) principal
payments generally will not be made in respect of the
Class B Certificates until all of the Class A
Certificates have been paid in full.
To provide additional credit enhancement for the
Certificates, payments will not be made to the
Transferor in respect of the Transferor Interest on
any Monthly Allocation Date until all payments
required to be made to Certificateholders on the
related Certificate Payment Date as described under
"Description of the Certificates--Allocations and
Distributions on the Certificates-- Allocations and
Distributions of Collections" have been made and the
amount on deposit in the Reserve Fund on such Monthly
Allocation Date equals the Specified Reserve Fund
Balance. SEE "Description of the
Certificates--Certain Payments to the Transferor".
ADVANCES . . . . . On each Deposit Date, the Servicer will be obligated to
make an advance with respect to each outstanding
delinquent Contract and certain Contracts as to which
payments have been deferred that have not been
reallocated to the UTI with an accompanying
Reallocation Payment as described herein, provided that
the Servicer will not be required to make any Advance
to the extent
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that it determines such Advance may not be ultimately
recoverable from Net Liquidation Proceeds or
otherwise. Each such advance will be made by deposit
into the SUBI Collection Account of an amount equal
to the aggregate amount of Monthly Payments due but
not received during the related Collection Period
(each, an "Advance"). SEE "Additional Document
Provisions--The Servicing Agreement--Collections" and
"--Advances".
MATURITY ADVANCES. . . Pursuant to the Agreement, on the Targeted Maturity
Date for any Class of Class A Certificates on which the
aggregate of amounts available to be paid as principal
thereof (including any amount of Interest Collections
or net investment income applied to cover such
shortfall on such date) are insufficient to pay in full
the related Certificate Principal Balance, the
Transferor will have the option to make an advance (a
"Maturity Advance") in any amount up to the amount of
such shortfall. All such amounts advanced by the
Transferor will be reimbursable to the Transferor from
the Investor Percentage of Principal Collections on
subsequent Monthly Allocation Dates as described
herein.
SERVICING COMPENSATION The Servicer will be entitled to receive a monthly fee
with respect to the SUBI Assets (the "Servicing Fee"),
payable on each Monthly Allocation Date, equal to
one-twelfth of 1% of the Aggregate Net Investment Value
as of the first day of the related Collection Period
(or, in the case of the first Monthly Allocation Date,
as of the Cutoff Date). The Servicer also will be
entitled to additional servicing compensation in the
form of, among other things, late fees, Deferral Fees
and other administrative fees or similar charges under
the Contracts. SEE "Additional Document
Provisions--The Servicing Agreement-- Servicing
Compensation".
TAX STATUS . . . . Andrews & Kurth L.L.P., special federal income tax
counsel to the Transferor, is of the opinion that the
Class A Certificates will be characterized as
indebtedness for federal income tax purposes. Each
Class A Certificateholder, by its acceptance of a Class
A Certificate, and each Certificate Owner by its
acquisition of an interest in the Class A Certificates,
will agree to treat the Class A Certificates as
indebtedness for federal, state and local income tax
purposes. SEE "Material Federal Income Tax
Considerations".
ERISA CONSIDERATIONS Subject to considerations described below, the Class
A-1 and Class A-2 Certificates are eligible for
purchase by employee benefit plan investors as of the
Closing Date. Under a regulation issued by the
Department of Labor, the Trust's assets would not be
deemed "plan assets" of an employee benefit plan
holding Class A-1 or Class A-2 Certificates if certain
conditions are met, including that Certificates of each
such Class must be held, upon completion of the public
offering made hereby, by at least
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100 investors who are independent of the Transferor and
of one another. Although no assurances can be given,
and no monitoring or other measures will be taken to
ensure, that such condition will be met, the
Underwriters expect that the Class A-1 and Class A-2
Certificates will be held by at least 100 independent
investors at the conclusion of the offering. The
Transferor anticipates that the other conditions of the
regulation will be met.
In the event the Requested Exemption described
herein is granted substantially in the form
(including that it is to apply retroactively to the
date of issuance of the Class A Certificates) for
which application was made to the DOL, the Transferor
intends to deregister the Class A-1 and Class A-2
Certificates under the Exchange Act as soon as
permitted by law. As a result, the Class A-1 and
Class A-2 Certificates may no longer be eligible to
be held by Benefit Plans that did not meet the
eligibility criteria for the Requested Exemption,
even if more than 100 other qualified investors
continued to hold securities of each such Class.
However, at such time the Class A-3 Certificates
would be an eligible investment for certain Benefit
Plans under the Requested Exemption even though they
are not eligible investments for such investors as of
the Closing Date. The Transferor anticipates that all
of the conditions of the Requested Exemption that are
within its control will be satisfied if and when the
Requested Exemption is granted. There can be no
assurance that the Requested Exemption will be granted,
or the date on which the Requested Exemption might be
granted.
If the Trust's assets were deemed to be "plan
assets" of an employee benefit plan investor (e.g.,
if the 100 independent investor criterion is not
satisfied and any of the conditions upon which the
Requested Exemption is contingent are not satisfied),
violations of the "prohibited transaction" rules of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), could result and generate excise tax
and other liabilities under ERISA and section 4975 of
the Internal Revenue Code of 1986, as amended (the
"Code"), unless another statutory, regulatory or
administrative exemption is available. It is
uncertain whether existing exemptions from the
"prohibited transaction" rules of ERISA would apply
to all transactions involving the Trust's assets if
such assets were treated for ERISA purposes as "plan
assets" of employee benefit plan investors. See
"ERISA Considerations".
RATINGS. . . . . . It is a condition of issuance that each of Moody's
Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's" and, together with
Moody's, the "Rating Agencies") rate each Class of
Class A Certificates in its highest rating category.
The ratings of the Class A Certificates should be
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evaluated independently from similar ratings on other
types of securities. A security rating is not a
recommendation to buy, sell or hold a security. The
ratings of each Class of Class A Certificates address
the likelihood of the payment of principal of and
interest on such Certificates in accordance with their
terms and may be subject to revision or withdrawal at
any time by the assigning Rating Agency. SEE "Ratings
of the Class A Certificates".
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<PAGE>
RISK FACTORS
RISK OF LIMITED LIQUIDITY FOR THE CLASS A CERTIFICATES; ABSENCE OF SECONDARY
MARKET FOR THE CLASS A CERTIFICATES
There is currently no market for the Class A Certificates. The
Underwriters currently intend to make a market in each Class of Class A
Certificates but are under no obligation to do so. There can be no assurance
that a secondary market for either Class of Class A Certificates will develop
or, if one does develop, that it will provide the related Certificateholders
with liquidity of investment or will continue for the life of the related Class
A Certificates.
RISK OF ABSENCE OF FUNDS FOR REIMBURSEMENT OF CERTAIN LOSSES
In the event that Loss Amounts are incurred in respect of the Contracts and
the Leased Vehicles during a Collection Period relating to a Monthly Allocation
Date during the Revolving Period, an amount equal to the Investor Percentage of
such Loss Amounts, to the extent reimbursed out of Collections available
therefor or otherwise, will be treated as Principal Collections received during
the succeeding Collection Period and will be available for reinvestment in
Subsequent Contracts and Subsequent Leased Vehicles. If the related Monthly
Allocation Date occurs during the Amortization Period, Loss Amounts will be
distributed or allocated to the Class A Certificateholders (pro rata, based on
their Certificate Principal Balances as of the last day of the related
Collection Period, in an amount equal to the Investor Percentage of such Loss
Amounts), as a distribution of principal from, to the extent available therefor,
the Investor Percentage of Interest Collections remaining after certain other
applications thereof, amounts on deposit in the Reserve Fund and Transferor
Amounts (and, in the case of the Class A Certificates, from Class B Available
Principal). Loss Amounts (including Certificate Principal Loss Amounts) will be
allocated first to the Class B Certificates and then to the Class A Certificates
on a pro rata basis as described above. Loss Amounts realized during the
Amortization Period may accelerate the rate of return of principal on the
Certificates. To the extent that Principal Collections and reimbursements of
Loss Amounts are reinvested in Subsequent Contracts during the Revolving Period,
the aggregate Residual Value of the Leased Vehicles as a percentage of the
Aggregate Net Investment Value may increase thereby increasing the exposure of
the Certificates of each Class to the risk of being allocated Residual Value
Loss Amounts. Furthermore, to the extent that Loss Amounts (including Residual
Value Loss Amounts) ultimately exceed the sources available for repayment
thereof, such Loss Amounts will be allocated to the Certificates as Certificate
Principal Loss Amounts, temporarily or permanently reducing the Class
Certificate Balances of each Class to which they are allocated. Because Loss
Amounts and Certificate Principal Loss Amounts will not be reimbursable to Class
A Certificates after the related Certificate Principal Balance is reduced to
zero, investors in the Class A Certificates of any Class may ultimately incur a
loss on their investment.
"Loss Amounts" will include Charged-off Amounts, Residual Value Loss
Amounts and Additional Loss Amounts. The "Residual Value Loss Amount" for any
Collection Period generally will represent the aggregate net losses on
dispositions of Matured Leased Vehicle Inventory, and will be equal to the sum
of (a) the aggregate of the Residual Values of all those Leased Vehicles that
were included in Matured Leased Vehicle Inventory but that had remained unsold
and not otherwise disposed of by the Servicer for at least three full Collection
Periods as of the last day of such Collection Period and (b) the excess, if any,
of (i) the aggregate of the Residual Values of all Leased Vehicles previously
included in Matured Leased Vehicle Inventory that were sold or otherwise
disposed of during such Collection Period over (ii) Net Matured Vehicle Proceeds
for such Collection Period. SEE "TMCC--Delinquency, Repossession and Loss
Data". Residual Value Loss Amounts experienced will depend on a variety of
factors, including the effect of TMCC's active encouragement of lessees under
lease contracts with remaining terms of less than one year to buy, trade in or
refinance the related vehicles, and the supply of, and
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<PAGE>
demand for, vehicles similar to the Leased Vehicles in the used car market.
Uncollected payments for excess mileage or excess wear and use also could affect
the related proceeds. No assurance can be given as to the likely Residual Value
Loss Amounts allocated to the Investor Interest over the life of the
Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS
No principal will be paid to the Certificateholders until the first
Certificate Payment Date that is a Targeted Maturity Date or, following the
occurrence of a Monthly Payment Event, a Certificate Payment Date. During the
Revolving Period, Principal Collections will be reinvested in Subsequent
Contracts and Subsequent Leased Vehicles. The continuation of the Revolving
Period will be dependent upon, among other things, the continued origination and
assignment to the Titling Trust of lease contracts and leased vehicles meeting
the eligibility criteria described herein in amounts corresponding to Principal
Collections and reimbursed Loss Amounts to be reinvested. An unexpectedly high
rate of Principal Collections (including Prepayments) received during any
Collection Period or a significant decline in the number of qualifying lease
contracts available to be assigned to the Titling Trust could result in the
occurrence of an Early Amortization Event and the commencement of the
Amortization Period prior to the Amortization Date. The retail automobile and
light duty truck leasing business in the United States or in one or more of the
Trust States may be affected by a variety of social, economic and geographic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perception of economic conditions. However, it is not
possible to determine or predict whether or to what extent economic, geographic
or social factors will affect retail automobile and light duty truck leasing in
general, or that of the Dealers in particular. As a result, there can be no
assurance that the Revolving Period will not terminate prior to the Amortization
Date, possibly shortening the final maturities and weighted average lives of and
affecting the yields on one or more Classes of Certificates. SEE "Description
of the Certificates--Early Amortization Events".
The payment, prepayment, loss and liquidation experience with respect to
the Contracts, which cannot be predicted, will affect the weighted average lives
of each Class of Certificates then outstanding if a Monthly Payment Event
occurs, and will affect the weighted average life of any Class of Certificates
as to which the related Certificate Principal Balance is not reduced to zero on
the related Targeted Maturity Date. If on any relevant Certificate Payment Date
during the Amortization Period the amount on deposit in the Reserve Fund is at
least equal to the Specified Reserve Fund Balance and the Investor Percentage of
Collections exceeds the aggregate of amounts required to be allocated or
distributed to Certificateholders as described herein, the related Accelerated
Principal Distribution Amount will be distributed as additional principal to
Certificateholders. SEE "Description of the Certificates--Allocations and
Distributions on the Certificates--Allocations and Distributions of
Collections". A substantial increase in the rate of payments on or in respect
of the Contracts and Leased Vehicles (including prepayments and liquidations of
the Contracts) during the Amortization Period (and after the occurrence of a
Monthly Payment Event) may shorten the final maturity and weighted average lives
of, and may significantly affect the yields on, each then-outstanding Class of
Certificates. The rate of payment of principal of the Certificates may also be
affected (i) during such period by payment by TMCC of Reallocation Payments
(and under certain circumstances during the Amortization Period, Reallocation
Deposit Amounts) in respect of Contracts as to which an uncured breach of
certain representations and warranties or certain servicing covenants has
occurred and (ii) by the exercise by the Transferor of its right to purchase the
SUBI Interest under certain circumstances, thereby retiring the Certificates.
SEE "Description of the Certificates--Termination of the Trust; Retirement of
the Certificates", "The Contracts--Representations, Warranties and Covenants"
and "Additional Document Provisions--The Servicing Agreement--Collections".
Each of the Contracts may be prepaid by the related lessee without penalty
in full or in part at any time. TMCC actively encourages lessees under lease
contracts with remaining terms of less than one year to either buy,
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<PAGE>
trade in or refinance the related leased vehicles prior to their scheduled
maturities. TMCC estimates that, of the retail automobile and light duty truck
lease contracts in its portfolio that were scheduled to mature during fiscal
year 1996 or during the nine-month period ended June 30, 1997, approximately 52%
and 49%, terminated prior to maturity. Such early terminations primarily were
due to voluntary prepayments. No assurance can be given that the Contracts will
experience the same rate of prepayment or default or any greater or lesser rate
than TMCC's historical rate for the retail automobile and light duty truck lease
contracts in its portfolio. SEE "Maturity, Prepayment and Yield
Considerations".
Because the Certificates have Targeted Maturity Dates prior to which
principal thereof will not be paid unless a Monthly Payment Event occurs or the
Transferor exercises its option to repurchase the SUBI, the weighted average
life of any such Class of Certificates will not be reduced by prepayments prior
to the occurrence of a Monthly Payment Event. Moreover, there can be no
assurance as to whether a Maturity Advance will be made or, if made, will be
sufficient to pay in full the related Certificate Principal Balance on the
Targeted Maturity Date with respect to any Class of Certificates and,
therefore, any such Class may mature significantly later than its Targeted
Maturity Date. In addition, earlier collections in respect of interest on, or
the Discounted Principal Balance of, the Contracts due to full or partial
prepayments may result in increased amounts of collections being held in the
Certificateholder's Account, and then invested in Permitted Investments at any
given time than would be the case in a securitization in which all securities
are entitled to monthly distributions of interest and principal. Because it is
anticipated that such investments will include one or more TMCC Demand Notes,
the effect of an increased rate of prepayment will be to expose significant
portions of the amounts allocable, payable and distributable to
Certificateholders to risk of default by TMCC on such obligations.
RISKS ASSOCIATED WITH SEQUENTIAL PAYMENT OF PRINCIPAL ON THE CERTIFICATES
In general, the Certificates will be "sequential pay" certificates meaning
that no principal payments will be made on the Class A-2 Certificates until the
Class A-1 Certificates have been paid in full, no principal payments will be
made on the Class A-3 Certificates until the Class A-2 Certificates have been
paid in full and no principal payments will be made on the Class B Certificates
until the Class A-3 Certificates are paid in full. On each Monthly Allocation
Date during the Amortization Period, all Principal Collections for the related
Collection Period that are allocable to the Investor Interest will be allocated
or distributed first to the Class A-1 Certificateholders until amounts in
respect of the Class A-1 Certificates have been allocated or paid in full, then
to the Class A-2 Certificateholders until amounts in respect of the Class A-2
Certificates have been allocated or paid in full, and then to the Class A-3
Certificateholders until amounts in respect of the Class A-3 Certificates have
been allocated or paid in full. Thereafter any such remaining Principal
Collections will be distributed as principal payments to the Class B
Certificateholders.
During the Amortization Period, Loss Amounts will be distributed or
allocated to the Class A Certificateholders (pro rata, based on their
Certificate Principal Balances as of the last day of the related Collection
Period, in an amount equal to the Investor Percentage of such Loss Amounts), as
a distribution of principal from, to the extent available therefor, the
Investor Percentage of Interest Collections remaining after certain other
applications thereof, amounts on deposit in the Reserve Fund and Transferor
Amounts (and, in the case of the Class A Certificates, from Class B Available
Principal). "Description of the Certificates--Allocations and Distributions on
the Certificates--Allocations and Distributions of Collections". Certificate
Principal Loss Amounts will be allocated first to the Class B Certificates and
then to the Class A Certificates on a pro rata basis as described above. To the
extent net proceeds of any sale or other disposition of the SUBI Interest, the
SUBI Certificate or other property of the Trust constitute Principal
Collections, which may occur under certain circumstances involving an Insolvency
Event of the Transferor (as described under "Description of the
Certificates--Early Amortization Events"), they will be distributed first, on a
pro rata basis, to the Class A
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Certificateholders based on their respective Class Certificate Balances until
the Class A Certificates have been paid in full, and second, to the Class B
Certificateholders until the Class B Certificates have been paid in full.
Sequential payment of the Certificates is also likely to cause Classes of
Certificates that pay later than other Classes to be outstanding during
periods when an increasingly large percentage of the Aggregate Net Investment
Value will be represented by Residual Values as opposed to unpaid Monthly
Payments, thereby increasing the exposure of such Certificates to the risk of
being allocated Residual Value Loss Amounts.
As a result, Class A Certificates that have lower sequential principal
payment priority may be allocated more Loss Amounts (including Residual Value
Loss Amounts) and Certificate Principal Loss Amounts than Class A Certificates
with higher payment priority as a relative percentage of their respective
Initial Certificate Balances, primarily because Loss Amounts and Certificate
Principal Loss Amounts will be allocated thereto on each Monthly Allocation Date
based on the outstanding Certificate Principal Balances thereof as of the last
day of the related Collection period, which will be relatively higher as the
Certificate Principal Balances of the higher priority Class A Certificates
decrease during the Amortization Period.
However, any portion of Principal Collections comprised of the Investor
Percentage of the net proceeds of any sale or other disposition of the SUBI
Interest, the SUBI Certificate or other property of the Trust (which may occur
under certain circumstances involving an Insolvency Event with respect to the
Transferor as described under "Description of the Certificates--Early
Amortization Events") will not be distributed to the Class A Certificateholders
sequentially, but instead will be distributed to the holders of each Class of
Class A Certificates pro rata, based on the respective Class A Certificate
Balances, until all Class A Certificates have been paid in full, and then to the
Class B Certificateholders.
RISKS ASSOCIATED WITH GEOGRAPHIC, ECONOMIC AND OTHER FACTORS
The Dealers which originated and will originate the Contracts are located
in California, Florida, Michigan, Ohio and Pennsylvania (the "Trust States") and
the Contracts and Leased Vehicles generally are and will be located in the Trust
States. However, a significant number of lessees may live in or relocate to
other states and may register, title and/or operate Leased Vehicles in other
states. For a breakdown of the percentage of Initial Contracts originated in
each of the Trust States, see "The Contracts--Characteristics of
Contracts--Distribution of the Initial Contracts by State". Due to the
geographic concentration of Contracts in the Trust States, adverse economic
conditions in one or more of the Trust States may have a significant impact on
the performance of the SUBI Assets.
Approximately 58.37% of the Initial Contracts, based on outstanding
Principal Balance as of the Cutoff Date, were originated in the State of
California. TMCC's loss experience for retail automobile and light-duty truck
lease contracts originated by branches serving California has been an average of
approximately 50% higher than TMCC's loss experience with respect to its entire
lease contract portfolio over the past five years. However, TMCC's loss
experience for lease contracts originated through branches serving all of the
Trust States considered as one pool over the same period has been only slightly
higher than its loss experience with respect to its entire lease contract
portfolio. Branches serving each Trust State also serve other states that are
not Trust States, and therefore information available and provided herein with
respect to loss experience for the Trust States is influenced by the inclusion
of contracts originated in states other than the Trust States, but serviced by a
branch that also serves the Trust States (although such contracts represent a
relatively small percentage of total contracts serviced by such branches).
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Economic factors such as unemployment, interest rates, the rate of
inflation and consumer perceptions of the economy may affect the rate of
prepayment and defaults on the Contracts and the ability to sell or otherwise
dispose of Leased Vehicles relating to Matured Contracts for an amount at least
equal to their respective Residual Values. These economic factors, as well as
other factors such as consumer perceptions of used vehicle values, also may
affect the ability to realize the Residual Values of Leased Vehicles upon sale.
RISKS ASSOCIATED WITH CONCENTRATIONS OF VEHICLE TYPES
The rate of Lexus leased vehicle returns to TMCC (as opposed to purchases
thereof by the related lessee or a dealer) at the termination of the related
lease contracts as a percentage of Lexus leased vehicles scheduled to
terminate has increased for each of the past five years, and has historically
been significantly higher than the return rates for Toyota leased vehicles.
Of the Lexus leased vehicles scheduled to terminate during the nine months
ended June 30, 1997, 41.4% were returned to TMCC. The return rate of Toyota
leased vehicles has generally decreased for each of the past five years, but
increased to 10.3% for the nine months ended June 30, 1997. SEE "TMCC's
Leasing Operations--Repossession and Loss Data". A higher rate of return at
the termination of a lease exposes the lessor to a higher risk of loss on
such vehicles since the related vehicle will not have been purchased by the
lessee and must be disposed of through methods that may result in a purchase
price which may be lower than the related residual value. Although
approximately 19.29% of the leased vehicles in TMCC's entire portfolio as of
June 30, 1997 were Lexus vehicles, only approximately 12.46% of the Initial
Contracts relate to Lexus leased vehicles, based on number of vehicles.
The used car market for any particular model type could be adversly
affected by factors not affecting other model types, such as changes in
consumer tastes or discovery of defects in respect of such model type. TMCC
tracks twenty-five model types in its lease portfolio, of which twenty-one
model types will be included as SUBI Assets. The Camry, Corolla, 4Runner and
the Tacoma pick-up represent approximately 26.4%, 15.6%, 11.1% and 8.2%,
respectively, of the Initial Leased Vehicles as compared to approximately
27.1%, 15.2%, 8.4% and 3.6%, respectively, of leased vehicles included in
TMCC's entire lease portfolio as of June 30, 1997.
RISKS ASSOCIATED WITH CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws, including the federal
Consumer Leasing Act of 1976 and Regulation M promulgated by the Board of
Governors of the Federal Reserve System, impose requirements upon lessors and
servicers of retail lease contracts such as the Contracts. Each of California
and Florida have 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 Titling Trust as the lessor under the Contracts
and may also apply to the Trust as owner of the SUBI Certificate. Failure by
the Titling Trust or the Servicer to comply with such requirements may give rise
to liabilities on the part of the Titling Trust, and enforcement of the
Contracts by the Titling Trust may be subject to set-off as a result of such
noncompliance. Many states, including each of the Trust States, have adopted
Lemon Laws that provide vehicle users certain rights in respect of substandard
vehicles. A successful claim under a Lemon Law could result in, among other
things, the termination of the Contract relating to a substandard Leased Vehicle
and/or require the refund of all or a portion of payments previously paid
thereon. TMCC will make representations and warranties that each Contract
complies with all requirements of law
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in all material respects. If any such representation and warranty proves
incorrect, has certain material adverse effects and is not timely cured, TMCC
will be required to make a Reallocation Payment (together with, under certain
circumstances during the Amortization Period, Reallocation Deposit Amounts) into
the SUBI Collection Account and reallocate the related Contract and Leased
Vehicle out of the SUBI, as described under "The Contracts--Representations,
Warranties and Covenants" and "Description of the Certificates--Reallocation
Payments and Reallocation Deposit Amounts". SEE "Certain Legal Aspects of the
Contracts and the Leased Vehicles--Consumer Protection Laws".
RISKS ASSOCIATED WITH ERISA LIABILITIES
It is possible that the Titling Trust Assets, including the SUBI Assets,
could become subject to liens in favor of the Pension Benefit Guaranty
Corporation to satisfy unpaid ERISA obligations of any member of an "affiliated
group" that includes TMCC, TMS, Toyota Leasing, Inc. and their respective
affiliates. However, the Transferor believes that the likelihood of any such
liability being asserted against the Titling Trust Assets, including the SUBI
Assets, or being successfully pursued is remote. In particular, the Transferor
believes that the Titling Trust should, as a legal matter, be treated as a
distinct entity separate and apart from such affiliated group, under ERISA's
"common control" provisions. All such plans maintained by such affiliated group
historically have had assets that significantly exceeded their liabilities.
However, no assurance can be given that any of these conditions will continue in
the future.
RISKS ASSOCIATED WITH VICARIOUS TORT LIABILITY WITH RESPECT TO LEASED VEHICLES
Although the Titling Trust will own the Leased Vehicles and the Trust will
have an interest therein, they will be controlled and operated by the related
lessees and their invitees. State laws differ as to whether anyone suffering
injury to person or property involving a leased vehicle may bring an action
against the owner of the vehicle merely by virtue of that ownership. To the
extent that applicable state law permits such an action, the Titling Trust and
the Titling Trust Assets, including the SUBI Assets, may be subject to liability
to such an injured party. However, the laws of most states, including the Trust
States, either do not permit such suits or limit the lessor's liability to the
amount of any liability insurance that the lessee was required under applicable
law to maintain (or in the case of Florida, the lessor was permitted to
maintain), but failed to maintain. Notwithstanding the foregoing, in the event
that vicarious liability is imposed on the Titling Trust as owner of a Leased
Vehicle and the coverage provided by the Contingent and Excess Liability
Insurance Policies is insufficient to cover such loss, including in certain
circumstances with respect to a leased vehicle that is an Other SUBI Asset or a
UTI Asset, investors in the Class A Certificates could incur a loss on their
investments. SEE "Certain Legal Aspects of the Contracts and the Leased
Vehicles--Vicarious Tort Liability", "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities",
"--Third-Party Liens on SUBI Assets" and "Assets of the Trust--The Contingent
and Excess Liability Insurance Policies".
All of the Contracts will contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state law. Such policies
may lapse, be terminated or otherwise not be maintained properly by a lessee.
If a lessee fails to obtain or maintain the required insurance, the related
Contract will be in default. It is the practice of TMCC not to obtain
insurance on behalf of and at the expense of the related lessee. TMCC's
central insurance tracking unit, which monitors compliance with such lease
contract provisions, will initiate follow-up procedures, including telephone
and mail contact with the related lessee, when it becomes aware any lessee
has not obtained or is not maintaining required insurance. Typically if such
default is not cured within 70 days from the date TMCC's central insurance
tracking unit is alerted to such default by the tracking system, the related
lease contract is forwarded to the appropriate TMCC branch for follow-up
handling, including possible repossession of the related Leased Vehicle if
the related lessee does not timely obtain a satisfactory replacement policy.
Moreover, the policies issued with respect to a significant
number of the Initial Contracts name TMCC rather than the Titling Trust as
additional loss payee. If a primary insurer makes payment under such a policy
to TMCC, TMCC will apply such amounts or forward such amounts to the Titling
Trust for application as appropriate. If a primary insurer failed to make
payments under a policy to the lessee and also to TMCC and the Titling Trust,
losses could be experienced by the Certificateholders. However, the Transferor
has been advised by the primary provider of the Contingent and Excess Liability
Policies described herein that such provider will
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not refuse any claim under the Contingent and Excess Liability Policies solely
because a primary policy names TMCC or an approved TMCC affiliate, rather than
the Titling Trust, as additional loss payee (although under such circumstances,
if the primary insurer denies a claim on such basis, a deductible of $250,000
(rather than the standard deductible of $125,000) will be payable by TMCC, as to
which TMCC will indemnify the Trust).
Actions by third parties might exceed the limits of the policies maintained
by lessees or claims might arise based on legal theories other than negligence,
such as a product defect or improper vehicle preparation prior to the
origination of the related lease contract that are not covered thereby. The
Titling Trust will be the beneficiary of the Contingent and Excess Liability
Insurance Policies which will cover certain claims in excess of the limits of
the lessees' policies. Such Contingent and Excess Liability Insurance Policy
will be subject to significant per occurrence deductibles in respect of which
TMCC will indemnify the Trust. SEE "Assets of the Trust--The Contingent and
Excess Liability Insurance Policies". Although the Titling Trust's insurance
coverage is for $100 million per claim, with an allowance for multiple claims in
any policy period, in the event that all such insurance coverage were exhausted
and/or TMCC did not satisfy its indemnity obligations such that damages were
assessed against the Titling Trust, various claims could be imposed against the
Titling Trust Assets, including the SUBI Assets. If any such claims are imposed
against any SUBI Assets or, in certain limited circumstances, any Other SUBI
Assets or UTI Assets, investors in the Class A Certificates could incur a loss
on their investment. SEE "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities",
"--Third-Party Liens on SUBI Assets" and "Certain Legal Aspects of the Contracts
and the Leased Vehicles--Vicarious Tort Liability".
RISKS ASSOCIATED WITH POSSIBLE FUTURE INSOLVENCY OF TMCC; SUBSTANTIVE
CONSOLIDATION WITH TMCC
The Transferor has taken steps in structuring the transactions contemplated
hereby intended to ensure that the voluntary or involuntary application for
relief under the United States Bankruptcy Code or similar applicable state laws
("Insolvency Laws") by TMCC will not result in the consolidation of the assets
and liabilities of the Transferor, the Titling Trust or the Trust with those of
TMCC. With respect to the Transferor, these steps include its creation as a
separate, special purpose finance subsidiary of TMCC pursuant to articles of
incorporation containing certain limitations (including the requirement that it
must have at all times at least one "independent director" and restrictions on
the nature of its businesses and on its ability to commence a voluntary case or
proceeding under any Insolvency Law without the affirmative vote of a majority
of its directors including the independent director).
Reallocation Payments or deposits of Reallocation Deposit Amounts made by
TMCC and unreimbursed Advances made by TMCC, as Servicer, may be recoverable by
TMCC as debtor-in-possession or by a creditor or a trustee in bankruptcy of TMCC
as a preferential transfer from TMCC if such payments were made within one year
prior to the filing of a bankruptcy case in respect of TMCC. In addition, the
insolvency of TMCC could result in the replacement of TMCC as Servicer, which
could result in a temporary interruption of payments on the Certificates.
If prior to the Amortization Date a conservator, receiver or bankruptcy
trustee were appointed by the Transferor, or if certain other events relating to
the bankruptcy or insolvency of the Transferor were to occur (each, an
"Insolvency Event"), the Amortization Period would commence and the Trustee may,
and upon receipt of written instructions from holders of Certificates evidencing
Voting Interests of not less than 51% of the Class A Certificates (voting
together as a single class) or 51% of the Class A Certificates and the Class B
Certificates (voting together as a single class) will, attempt to sell the SUBI
Interest, the SUBI Certificate and the other property of the Trust. The
consummation of such sale would result in an early termination of the Trust and
a pro rata loss to the Class A Certificateholders if the Investor Percentage of
the net proceeds of such sale were insufficient to pay in full the
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Class A Certificate Balances, together with any unreimbursed Certificate
Principal Loss Amounts, with accrued and unpaid interest thereon at the related
Certificate Rates, respectively.
On the Closing Date, Andrews & Kurth L.L.P., special counsel to the
Transferor and TMCC, will render an opinion based on a reasoned analysis of
analogous case law (although there is no precedent based on directly similar
facts) subject to certain facts, assumptions and qualifications specified
therein, that, under applicable statutes and precedent, if TMCC were to become a
debtor in a case under the Bankruptcy Code, it would not be a proper exercise by
a federal bankruptcy court of its equitable discretion to disregard the separate
legal forms so as to substantively consolidate the assets and liabilities of the
Transferor, the Titling Trust or the Trust with those of TMCC. In addition, on
the Closing Date, Andrews & Kurth L.L.P. will render an opinion to the effect
that (i) the transfer of the SUBI Certificate by the Transferor to the Trust
constitutes a sale of the SUBI Certificate and the SUBI Assets evidenced
thereby, subject in each case to the rights of the Transferor as the holder of
the Transferor Interest, or (ii) if such transfer does not constitute a sale,
then the Agreement creates a valid perfected security interest, for the benefit
of Certificateholders, in the Transferor's right, title and interest in the SUBI
Certificate. SEE "Certain Legal Aspects of the Titling Trust--Insolvency
Related Matters".
The Titling Trust may be subject to the Insolvency Laws, and claims against
the Titling Trust Assets could have priority over the beneficial interest
therein represented by the SUBI. In addition, claims of a third party against
the Titling Trust Assets, including the SUBI Assets, to the extent such claims
are not covered by insurance, would take priority over the holders of beneficial
interests in the Titling Trust, such as the Trustee. SEE "Assets of the
Trust--The Contingent and Excess Liability Insurance Policies" and "Certain
Legal Aspects of the Contracts and Leased Vehicles--Vicarious Tort Liability".
RISKS ASSOCIATED WITH LEGAL PROCEEDINGS RELATING TO LEASED VEHICLES
The Transferor is not a party to any legal proceeding. Neither the Titling
Trust, nor the Titling Trustee on behalf of the Titling Trust, has been named as
a defendant in any material legal proceeding. TMCC is a party to, and is
vigorously defending, several legal proceedings, all of which it believes
constitute ordinary routine litigation incidental to the business and activities
conducted by TMCC. Certain of the actions naming TMCC are or purport to be class
action suits. The amount of liability on pending claims and actions as of the
date of this Prospectus were not determinable; however, in the opinion of
management of TMCC, the ultimate liability resulting therefrom should not have
a material adverse effect on TMCC's consolidated financial position or results
of operations, or on the Titling Trust Assets, the SUBI or on the Dealers' or
the Titling Trust's ability to originate sufficient new leases to satisfy
reinvestment obligations under the Titling Trust Agreements, the SUBI Supplement
and the Servicing Supplement. However, there can be no assurance in this
regard.
THE TRUST AND THE SUBI
GENERAL
The Trust and the Certificateholders will have no interest in the UTI, any
Other SUBI or any Titling Trust Assets evidenced by the UTI or any Other SUBI.
Payments made on or in respect of the Titling Trust Assets not represented by
the SUBI will not be available to make payments on the Certificates. SEE "The
Titling Trust".
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THE TRUST
Pursuant to the Agreement, the Transferor will establish the Trust by
transferring and assigning the SUBI Interest represented by the SUBI
Certificate, to the Trustee in exchange for the Certificates and a certificate
evidencing the Transferor Interest. The property of the Trust will primarily
include (i) the SUBI Interest, which evidences a beneficial interest in certain
specified Titling Trust Assets (i.e., the SUBI Assets), (ii) such amounts as
from time to time may be held in the SUBI Collection Account and the Reserve
Fund, and investments of amounts on deposit in the SUBI Collection Account and
(iii) the Trustee's rights as a third-party beneficiary to the Servicing
Agreement and the SUBI Supplement. The Trust also will have a beneficial
interest in such amounts as from time to time may be held in the SUBI Collection
Account and investments of such amounts. Because of the administrative
difficulty and expense associated with retitling leased vehicles, including
federal and state regulatory requirements to obtain odometer readings and to
pay vehicle transfer fees and taxes, the Trust will only have an interest in the
portion of the SUBI transferred to it by the Transferor, and will not have a
direct ownership interest in any Leased Vehicles.
Except for the protection provided to the Class A Certificateholders by the
Reserve Fund, the Class A Certificateholders ultimately will have to look to
payments made on or in respect of the Contracts and the Leased Vehicles
(including under certain related insurance policies) to make distributions on
the SUBI Certificate, which in turn will be distributed to the
Certificateholders. In such event, certain factors, such as the fact that the
Trust will not have a direct ownership interest in the Contracts or the Leased
Vehicles or a perfected security interest in the Leased Vehicles (which will be
titled in the name of the Titling Trust) may limit the amount realized to less
than the amount due from the related lessees. Investors in the Class A
Certificates may thus be subject to delays in payment and may incur losses on
their investment in the Class A Certificates as a result of defaults or
delinquencies by lessees and because of depreciation in the value of the related
Leased Vehicles. SEE "Certain Legal Aspects of the Titling Trust--Structural
Considerations", "Assets of the Trust--The Accounts; Collections--The Reserve
Fund", "Additional Document Provisions--The Servicing Agreement--Insurance on
Leased Vehicles" and "Certain Legal Aspects of the Contracts and the Leased
Vehicles".
THE SUBI
The SUBI will be issued pursuant to the Series 1997-A Supplement to the
Titling Trust Agreement (the "SUBI Supplement") and will evidence a beneficial
interest in certain specified Titling Trust Assets allocated to the SUBI
consisting of (i) the Contracts, the Leased Vehicles and all proceeds or
payments related thereto received or due on or after the related Cutoff Date;
(ii) certain monies in the Reserve Fund, and (iii) all other related Titling
Trust Assets allocated to the SUBI, including (A) the SUBI Collection Account,
(B) the right to receive payments made to TMCC, the Titling Trust or the Titling
Trustee under certain insurance policies relating to the Contracts, the related
lessees or the Leased Vehicles, (C) the right to receive the proceeds of any
Dealer repurchase obligations in respect of the Contracts or Leased Vehicles,
and (D) all proceeds of the foregoing. During the Revolving Period, Principal
Collections and reimbursement of Loss Amounts will be reinvested in Subsequent
Contracts and Subsequent Leased Vehicles which will become SUBI Assets at the
time of such reinvestment.
Pursuant to the SUBI Supplement, on the Closing Date the Titling Trustee
will issue the SUBI Certificate, which will evidence the SUBI Interest, to the
Transferor, and the Transferor will transfer and assign the SUBI Certificate, to
the Trustee pursuant to the Agreement.
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THE TITLING TRUST
GENERAL
The Titling Trust is a Delaware business trust formed pursuant to the
Titling Trust Agreement. The primary business purpose of the Titling Trust is
to take assignments of and serve as holder of title to substantially all of the
lease contracts and the related leased vehicles originated by the Dealers
beginning on dates prior to the execution of the SUBI Supplement. Pursuant to
the Servicing Agreement, TMCC will service the lease contracts included in the
Titling Trust Assets, including the Contracts. SEE "Additional Document
Provisions--The Trust Agreement" and "--The Servicing Agreement" and "Certain
Legal Aspects of the Titling Trust--The Titling Trust".
Except as otherwise described under "Additional Document Provisions--The
Titling Trust Agreement", pursuant to the Titling Trust Agreement the Titling
Trust has not and will not (i) issue interests therein or securities thereof
other than the SUBI Interest, the SUBI Certificate, Other SUBIs representing
divided interests in Other SUBI Assets and certificates (the "Other SUBI
Certificates") representing Other SUBIs or portions thereof, and one or more
certificates (the "UTI Certificates") representing the UTI or portions thereof;
(ii) borrow money (except from TMCC or as described in (vi) below) in connection
with funds used to acquire lease contracts and the related leased vehicles;
(iii) make loans; (iv) invest in or underwrite securities, other than Permitted
Investments or as otherwise permitted by the Titling Trust Agreement or the SUBI
Supplement; (v) offer securities in exchange for property (other than the SUBI
Certificate, the Other SUBI Certificates and the UTI Certificates); or (vi)
repurchase or otherwise reacquire its securities except in connection with
financing or refinancing the acquisition of lease contracts and the related
leased vehicles or as otherwise permitted by each such financing or refinancing.
The Titling Trust will not be permitted to acquire lease contracts other than
through the Dealers. The Titling Trust Agreement will permit the Titling Trust,
in the course of its activities, to incur certain liabilities relating to its
assets other than the SUBI Assets, or relating to its assets generally, and to
which, in certain circumstances, the SUBI Assets may be subject. SEE "Certain
Legal Aspects of the Titling Trust--Structural Considerations--Allocation of
Titling Trust Liabilities" and "--Third-Party Liens on SUBI Assets". However,
the Titling Trust Agreement will require the holders of Other SUBI Certificates
and UTI Certificates to waive any claim that they might otherwise have with
respect to the SUBI Assets and to fully subordinate any claims to the SUBI
Assets in the event that this waiver is not given effect. Similarly, by virtue
of holding Certificates or a beneficial interest in the Certificates,
Certificateholders and Certificate Owners will be deemed to have waived any
claim that they might otherwise have with respect to Other SUBI Assets and the
UTI Assets and to subordinate their interests therein.
ALLOCATION OF TITLING TRUST LIABILITIES
The Titling Trust Assets may be comprised of several portfolios of assets
other than the SUBI Assets, including portfolios of Other SUBI Assets and the
remaining portfolio of UTI Assets. The Titling Trust Agreement permits the
Titling Trust, in the course of its activities, to incur certain liabilities
relating to its assets other than the SUBI Assets, or relating to its assets
generally, and to which, in certain circumstances, the SUBI Assets may be
subject. Pursuant to the Titling Trust Agreement, as among the beneficiaries of
the Titling Trust, liabilities relating to a particular Titling Trust Asset will
be allocated to and charged against the allocated portfolio of Titling Trust
Assets to which it belongs. Titling Trust liabilities that are incurred with
respect to the Titling Trust Assets generally will be borne pro rata among all
portfolios of Titling Trust Assets in proportion to the value of the lease
contracts and vehicles in each portfolio. The Titling Trustee and the
beneficiaries of the Titling Trust (including the Trustee and the
Certificateholders) will be bound by this allocation. In particular, the
Titling Trust Agreement will require the holders from time to time of Other SUBI
Certificates and any UTI Certificates to waive any claim that they might
otherwise have with respect to the SUBI Assets and to fully subordinate any
claims to the SUBI Assets in the event that this waiver is not given effect.
Similarly, by virtue of holding Certificates or a beneficial
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interest in the Certificates, Certificateholders and Certificate Owners will be
bound by this allocation. Similarly, by virtue of holding Certificates or a
beneficial interest in the Certificates, Certificateholders and Certificate
Owners will be deemed to have waived any claim that they might otherwise have
with respect to Other SUBI Assets and the UTI Assets.
THE TITLING TRUSTEE
The Titling Trustee is a wholly owned, special purpose subsidiary of U.S.
Bank that was organized in 1996 solely for the purpose of acting as Titling
Trustee. U.S. Bank, as Trust Agent, serves as agent for the Titling Trustee to
perform certain functions of the Titling Trustee pursuant to the Titling Trust
Agreement. The Titling Trust Agreement provides that in the event that U.S.
Bank no longer can be the Trust Agent, a designee of TMCC (which may not be TMCC
or any affiliate thereof) will have the option to purchase the stock of the
Titling Trustee for a nominal amount. If TMCC's designee does not timely
exercise this option, then the Titling Trustee will appoint a new trust agent,
and that new trust agent (or its designee) will next have the option to purchase
the stock of the Titling Trustee. If none of these options is timely exercised,
U.S. Bank may sell the stock of the Titling Trustee to another party.
PROPERTY OF THE TITLING TRUST
The property of the Titling Trust consists of (i) fixed rate retail
closed-end lease contracts originated in the Trust States and assigned to the
Titling Trust by the Dealers since November 1996, all rights thereunder
including the right to receive proceeds of Dealer repurchase obligations under
the related Dealer agreement, and all monies due from lessees thereunder; (ii)
the automobiles and light duty trucks leased pursuant thereto and all proceeds
thereof; (iii) the rights to proceeds from physical damage, credit life,
disability and all other insurance policies, if any (excluding the residual
value insurance policy described herein), covering the lease contracts, the
related lessees or the leased vehicles, including, but not limited to, the
Contingent and Excess Liability Insurance Policies; (v) all security deposits
with respect to such lease contracts (to the extent applied to cover excess wear
and tear charges or treated as Liquidation Proceeds as described herein and as
provided in the contracts), and (vi) all proceeds of the foregoing
(collectively, the "Titling Trust Assets"). From time to time after the date of
this Prospectus, TMCC will cause Dealers to originate additional retail
closed-end lease contracts and assign them to the Titling Trust and, as
described below, title the related leased vehicles in the name of the Titling
Trust.
CONTRACT ORIGINATION; TITLING OF LEASED VEHICLES
All lease contracts originated by the Dealers and assigned to the Titling
Trust have been, or will be, underwritten by TMCC personnel using the
underwriting criteria described under "TMCC--Lease Contract Underwriting
Procedures". In connection with the origination of each lease contract, the
Titling Trust will be listed as the owner of the related leased vehicle on the
related certificate of title. Liens will not be placed on such certificates of
title, and new certificates of title will not be issued, to reflect the interest
of the Trustee, as holder of the SUBI Certificate, in the Leased Vehicles.
Pursuant to agreements between the Titling Trust and the Dealers, each
Dealer is obligated, after origination of lease contracts of the Titling Trust,
to repurchase such lease contracts which do not meet certain representations and
warranties made by such Dealer. These representations and warranties relate
primarily to the origination of the lease contracts and the titling of the
related leased vehicles, and do not typically relate to the creditworthiness of
the related lessees or the collectibility of such lease contracts. The Dealer
agreements do not generally provide for recourse to the Dealer for unpaid
amounts in respect of a defaulted lease contract, other than in connection with
the breach of such representations and warranties. The rights of the Titling
Trust to receive proceeds of such Dealer
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repurchase obligations will constitute Titling Trust Assets (and SUBI Assets, to
the extent they relate to the Contracts and Leased Vehicles), although the
related Dealer agreements will not constitute Titling Trust Assets.
USE OF PROCEEDS
The net proceeds from the sale of the Class A Certificates (i.e., the
proceeds of the public offering of the Class A Certificates minus expenses
relating thereto) will be applied by the Transferor to purchase the SUBI
Certificate and to make the Initial Deposit into the Reserve Fund.
THE TRANSFEROR
The Transferor is a wholly owned, special purpose finance subsidiary of
TMCC and was incorporated under the laws of California in April 1997. TMCC may
not transfer its ownership interest in the Transferor except to an affiliate of
TMCC so long as any financings involving interests in the Titling Trust
(including the transaction described herein) are outstanding. TMCC is the sole
shareholder of the Transferor. The principal office of the Transferor is
located at 19001 South Western Avenue, Torrance, California 90509 and its
telephone number is (310) 787-1310.
The Transferor was organized solely for the purpose of acquiring interests
in the SUBI and the Other SUBIs, causing the issuance of certificates similar to
the Certificates and engaging in related transactions. The certificate of
incorporation of the Transferor limits its activities to the foregoing purposes
and to any activities incidental to and necessary for such purposes.
TMCC
Toyota Motor Credit Corporation ("TMCC") was incorporated in California on
October 4, 1982, and commenced operations in May 1983. At December 31, 1996,
TMCC had 34 branches in various locations in the United States and one branch in
the Commonwealth of Puerto Rico. In addition to the Transferor, TMCC has four
wholly owned subsidiaries engaged in the insurance business, a wholly owned
subsidiary that provides retail and wholesale financing and certain other
financial services to authorized Toyota and Lexus vehicle dealers and their
customers in Puerto Rico and a wholly owned subsidiary through which TMCC
securitizes retail installment sales contracts.
TMCC's primary business is providing retail leasing, retail and wholesale
financing and certain other financial services to authorized Toyota and Lexus
vehicle and Toyota industrial equipment dealers and their customers in the
United States (excluding Hawaii) and Puerto Rico. TMCC is a wholly owned
subsidiary of TMS, which is primarily engaged in the wholesale distribution of
automobiles, light duty trucks, industrial equipment and related replacement
parts and accessories throughout the United States (excluding Hawaii).
Substantially all of TMS's products are either manufactured by its affiliates or
are purchased from TMC or its affiliates.
As of September 30, 1996, September 30, 1995 and September 30, 1994, TMCC
had approximately 624,000, 438,000 and 387,000 retail lease contracts
outstanding (including retail lease contracts that were assigned to the Titling
Trust and are still being serviced by TMCC), respectively. Aggregate net
outstanding principal balances of retail lease contracts at such dates, were
approximately $12.0 billion, $9.4 billion and $7.6 billion, respectively.
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The principal executive offices of TMCC are located at 19001 South Western
Avenue, Torrance, California and its telephone number is (310) 787-1310.
TMCC'S LEASING OPERATIONS
LEASE CONTRACT UNDERWRITING PROCEDURES
TMCC's underwriting standards are intended to evaluate a prospective
lessee's credit standing and ability to make payments. Each prospective lessee
is required by the Dealer to complete a credit application on a form prepared or
approved by TMCC. As part of the description of the applicant's financial
condition, the applicant is required to provide information demonstrating, among
other things, employment history, residential status, bank account information,
annual income and credit references. The Dealer then transmits the completed
application to the appropriate branch office. Upon receipt, income and
employment data generally are verified by a credit investigator within the
branch office and certain data is obtained through an independent credit bureau
report that is combined with data from the application and certain calculations
made by a credit analyst within the branch office. Such data is entered into a
centralized computer network (owned and maintained by TMCC) and weighted by a
statistically validated credit scoring process which "scores" the application
with the use of a scorecard. The scorecard enables TMCC to review an
application and establish the probability that the proposed lease contract will
be paid in accordance with its terms. The credit scores rank-order applications
according to credit risk, which is the likelihood that the lessee will make all
payments when due. TMCC actively monitors and regulates the volume of lease
contracts that it acquires of any given credit grade in its efforts to maintain
a portfolio it deems to contain an appropriate mix.
INSURANCE
Each lease contract requires the lessee to maintain automobile bodily
injury and property damage liability insurance which must name TMCC or, with
respect to the Contracts, the Titling Trust, as an additional insured. Each
lease contract further requires the lessee to maintain (all risks) comprehensive
and collision insurance covering damage to the leased vehicle and naming TMCC
or, with respect to the Contracts, the Titling Trust, as loss payee.
COLLECTION, REPOSSESSION AND DISPOSITION PROCEDURES
Collection efforts are performed through the applicable branch office.
TMCC considers a lease to be past due when a borrower fails to make at least 90%
of a scheduled monthly payment by the due date. TMCC automatically reviews all
past due accounts for action every three working days. Automated collection
efforts begin on the date a scheduled monthly payment is 11 days past due
(commencing on such date with the mailing of a notice letter). The account is
placed in an on-line collection system for branch office follow up (prioritized
by degree of delinquency) if payment is not received by the date such payment is
26 days past due.
Occasionally, situations occur in the collection process when a lessee has
become delinquent and is willing but unable to bring the related account current
(i.e., where a deferred payment is deemed reasonably likely to be followed by
subsequent performance). In this situation, at the discretion of collection
department management, but subject to extensive guidelines, one or more payments
under the lease contract may be deferred, provided that the lessee pays a
deferral fee (each, a "Deferral Fee"). Deferral Fees relating to the Contracts
will not be deposited into the SUBI Collection Account, but will be treated as
additional servicing compensation. The Servicing Agreement will provide that a
Contract may not be deferred more than four times in the aggregate, and that the
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Servicer will be required to make Advances with respect to the related Contracts
as set forth herein. Deferral of payments has the practical effect of extending
the maturity date of a lease contract.
Occasionally a lessee requests an extension of a lease contract for one
or more months during the period of time between the original specified
maturity of such lease and the time such lessee negotiates a new lease
contract or sales contract with respect to a different vehicle. Any such
extension is effected by the modification of the related lease contract to
provide for an additional number of Monthly Payments with a continuation of
the appropriate lease charge and a corresponding reduction in the related
Residual Value to reflect receipt of additional amortizing payments. The
Servicing Agreement will require that Contracts not be extended by more than
twelve months in the aggregate or to a date later than the last day of the
month immediately preceding the month in which the Stated Maturity Date in
respect of the Class B Certificates occurs. The Servicing Agreement will
provide that Advances be made with respect to Contracts as to which payments
are deferred to the extent such deferrals would diminish the amount of
Collections received in connection therewith relative to the originally
scheduled Monthly Payments. The Servicing Agreement will also provide for
the reallocation to the UTI from the SUBI (accompanied by an appropriate
Reallocation Payment by TMCC) of each Contract as to which more than four
deferrals are made or as to which, through deferrals or extensions, the
maturity date is extended beyond the last day of the Collection Period
relating to the Stated Maturity Date in respect of the Class B Certificates.
Upon any such reallocation, such Contract and the related Leased Vehicle and
other related assets and rights will be UTI Assets and will no longer
constitute SUBI Assets. SEE "Additional Document Provisions--The Servicing
Agreement--Collections".
Generally, TMCC collectors make every effort to preserve a lease as a
performing lease. However, if a delinquency cannot be satisfactorily resolved
through deferrals or otherwise, the decision to repossess a leased vehicle will
be made before a payment is more than 60 days past due. Lessees are typically
notified on the day of or within two days after repossession of any right they
may have under applicable state law to redeem their vehicles. TMCC attempts to
sell all repossessed vehicles within 30 days of repossession. TMCC disposes of
off-lease and repossessed vehicles not purchased by the related lessee or the
dealer to whom the vehicle is returned through regional automobile auctions.
DELINQUENCY, REPOSSESSION AND LOSS DATA
The following tables set forth certain delinquency, repossession and loss
data with respect to TMCC's entire retail automobile and light duty truck lease
contract portfolio, including those Contracts originated in the Trust States
during the periods shown, as of and for the periods shown.
The data presented in the following tables are for illustrative purposes
only. Delinquency, repossession and loss experience may be influenced by a
variety of economic, social, geographic and other factors. There is no
assurance that the Trust's delinquency, repossession and loss experience with
respect to its retail automobile and light duty truck lease contracts and the
related leased vehicles in the future, or the experience with respect to the
Contracts and the Leased Vehicles, will be similar to that set forth below.
35
<PAGE>
ENTIRE PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At or for the Nine At or for the Fiscal Year Ended September 30
Months Ended ---------------------------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
--------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease
Contracts (1) $ 12,579,533 $ 12,358,716 $ 9,692,671 $ 7,934,817 $ 5,017,258 $ 3,542,506
Ending Number of Lease
Contracts 637,966 624,184 483,178 387,066 243,742 173,667
Number of Delinquent
Lease Contracts (2)(3)
31-60 Days 7,870 7,000 3,865 1,880 1,238 883
61-90 Days 635 497 199 113 75 78
91 Days or More 182 134 66 41 29 20
TOTAL 9,659 7,631 4,130 2,034 1,342 981
</TABLE>
- ---------------------------
(1) Based on the sum of all principal amounts outstanding under finance lease
contracts and net investment in leased assets under operating lease
contracts originated by TMCC in the United States (inclusive of the
residual values of the related leased vehicles).
(2) Excludes lease contracts the related lessees of which are bankrupt or have
commenced bankruptcy proceedings. As of July 24, 1997, approximately 184
lease contracts involving bankrupt lessees were delinquent for at least 60
days.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
36
<PAGE>
ENTIRE PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
At or for the Nine At or for the Fiscal Year Ended September 30
Months Ended --------------------------------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ending Number of Lease
Contracts Outstanding 637,966 624,184 483,178 387,066 243,742 173,667
Average Number of Lease 631,075 553,681 435,122 315,404 208,705 146,092
Contracts Outstanding
Repossessions:
Number of Repossessions 8,968 8,440 6,149 3,758 3,236 2,683
Number of Repossessions as a
Percentage of Lease Contracts
Outstanding 1.87%(4) 1.35% 1.27% 0.97% 1.33% 1.54%
Number of Repossessions as a
Percentage of Average Lease
Contracts Outstanding 1.89%(4) 1.52% 1.41% 1.19% 1.55% 1.84%
Losses:
Dollar Amount of Lease $12,579,533 $ 12,358,716 $ 9,692,671 $ 7,934,817 $ 5,017,258 $ 3,542,506
Contracts Outstanding (1)
Average Dollar Amount of Lease $12,301,363 $ 10,702,924 $ 8,489,863 $ 6,106,568 $ 3,880,876 $ 2,515,159
Contracts Outstanding
Net Repossession Losses (2) $ 41,246 $ 34,389 $ 23,592 $ 13,103 $ 11,132 $ 10,118
Average Net Repossession Loss
per Liquidated Contract (1)(3) $ 4,599 $ 4,075 $ 3,837 $ 3,487 $ 3,440 $ 3,771
Net Repossession Losses as a
Percentage of Average Net
Receivables 0.45%(4) 0.32% 0.28% 0.21% 0.29% 0.40%
</TABLE>
- -------------------------
(1) Based on the sum of all principal amounts outstanding under finance lease
contracts and net investment in leased assets under operating lease
contracts originated by TMCC in the United States (inclusive of the
residual values of the related leased vehicles).
(2) Losses include expenses incurred to dispose of vehicles.
(3) Dollars not in thousands.
(4) Annualized.
37
<PAGE>
ENTIRE PORTFOLIO
RESIDUAL VALUE LOSS EXPERIENCE (1)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
At or for the Nine At or for the Fiscal Year Ended September 30
Months Ended ------------------------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Number of Leased Vehicles
Scheduled to Terminate 180,643 95,401 54,258 34,298 27,762 13,785
Number of Leased Vehicles
Returned to TMCC 28,900 13,162 5,787 3,950 4,086 2,229
Full Term Ratio (2) 16.0% 13.8% 10.7% 11.5% 14.7% 16.2%
Total Losses on Vehicles that
Reached Scheduled Term $ 53,461 $29,368 $ 9,492 $ 2,005 $ 2,137 $ 1,526
Average Loss Per
Returned Unit (3) $ 1,850 $ 2,231 $ 1,640 $ 508 $ 523 $ 685
</TABLE>
- -----------------------
(1) Because the terms of the retail closed-end lease contracts originated by
TMCC have gradually shifted from five years to three years since 1991, the
residual value loss experience for the periods in the table may not be
fully comparable.
(2) The ratio of line 2 over line 1 expressed as a percentage.
(3) Dollars not in thousands.
THE CONTRACTS
GENERAL
The Initial Contracts will consist of a pool of 56,340 closed-end retail
lease contracts, having an aggregate Outstanding Principal Balance as of the
Cutoff Date of $1,287,004,969.02, and an aggregate Discounted Principal Balance
as of such date of $1,231,231,519.20, selected from the Titling Trust's
portfolio of retail closed-end automobile and light duty truck lease contracts.
During the Revolving Period, Principal Collections (and reimbursements of Loss
Amounts) will be reinvested in Subsequent Contracts and Subsequent Leased
Vehicles, which at the time of such reinvestment will become SUBI Assets. SEE
"Description of the Certificates--Distributions on the Certificates--Application
and Distributions of Principal--Revolving Period". The Initial Contracts were,
and the Subsequent Contracts will be, originated by the Dealers in the Trust
States and assigned to the Titling Trust in accordance with TMCC's underwriting
procedures and underwriting criteria. The Initial Contracts have been selected,
and the Subsequent Contracts will be selected, based upon the criteria
specified in the Titling Trust Agreement and SUBI Supplement. SEE "The
Contracts--Characteristics of the Contracts--General" and "--Representations,
Warranties and Covenants". Subsequent Contracts may be originated by TMCC using
different underwriting criteria than those which were applied to the Initial
Contracts (but which criteria will be those that TMCC then applies to the
origination of lease contracts for its own account) which may cause the
characteristics of the Subsequent Contracts to vary from those of the Initial
Contracts, and will be selected from among Titling Trust Assets not allocated or
reserved for allocation to any Other SUBI. Principal Collections (and
reimbursements of Loss Amounts) will first be reinvested in the eligible lease
contract with the earliest origination date, then with the eligible lease
contract with the next earliest origination date and so forth. To the extent
that reinvestment of such amounts from the SUBI are being made out of the
Titling Trust's
38
<PAGE>
general pool of available lease contracts at any time after the creation of one
or more Other SUBIs, such reinvestment will first be made with respect to the
SUBI. TMCC will represent and warrant that no adverse selection procedures were
employed or will be employed in selecting the Initial Contracts or the
Subsequent Contracts for inclusion in the SUBI Assets and that it is not aware
of any bias in the selection of such Contracts that would cause the
delinquencies or losses on such Contracts to be worse than other retail
closed-end automobile and light duty truck lease contracts held in the Titling
Trust's portfolio, although there can be no assurance in this regard.
Each Contract will have been written for an original term of not more than
60 months, and will have been written for a "capitalized cost" (which may exceed
the manufacturer's suggested retail price), plus a lease charge which is based
on the imputed Lease Rate. Each Contract will provide for equal monthly
payments that when allocated between principal and the lease charge at the Lease
Rate on a constant yield basis, will be sufficient to amortize the capitalized
cost over the term of the lease to an amount equal to the Residual Value. Each
Residual Value is established at the origination of the lease (based on
documentation provided to the Dealers by TMCC) and represents the estimated
wholesale market value at the end of the lease term.
At the times of origination of the related Contracts, the Leased
Vehicles were, in the case of the Initial Contracts, or will be, in the case
of the Subsequent Contracts, new vehicles, including dealer demonstrator
vehicles driven fewer than 20,000 miles, or used vehicles up to four model
years old at the time of origination of the related Contract, including
certified used vehicles and vehicles previously sold under manufacturer's
programs. Certified used vehicles are Toyota or Lexus vehicles that are
purchased by dealers, reconditioned and certified to meet certain
Toyota/Lexus required standards and sold or leased with an extended warranty
from the manufacturer. Manufacturer's program vehicles are Toyota or Lexus
vehicles that have been sold to rental car companies, repurchased by the
manufacturer and subsequently purchased by the dealer to sell or lease as
current year and one year old used vehicles with 20,000 miles or less.
Although there will be no limit on the number of used Leased Vehicles
included at SUBI Assets, TMCC will represent and warrant that no adverse
selection procedures were employed or will be employed in selecting the
Initial Contracts or the Subsequent Contracts for inclusion in the SUBI
Assets and that it is not aware of any bias in the selection of such
Contracts that would cause the delinquencies or losses on such Contracts to
be worse than other retail closed-end automobile and light duty truck lease
contracts held in the Titling Trust's portfolio, although there can be no
assurance in this regard.
All of the Contracts will be closed-end leases. Under a "closed-end
lease", at the end of its term, if the lessee does not elect to purchase the
related leased vehicle by exercise of the purchase option contained in such
lease contract, the lessee is required to return the leased vehicle to or upon
the order of the lessor, at which time the lessee will then owe only incidental
charges for excess mileage, excessive wear and use and other items as may be due
under such lease. In contrast, under an "open-end lease", the lessee is also
obligated to pay at the end of the lease term any deficit between the fair
market value of the leased vehicle at that time and the residual value
established at the time of origination of such lease.
Each lessee will be permitted to purchase the Leased Vehicle at the end of
the term of the related Contract. The purchase price will be a fixed dollar
amount equal to the Residual Value plus any applicable taxes and all other
incidental charges which may be due under the Contract. In addition, each
Contract will allow the related lessee voluntarily to terminate such Contract by
paying certain miscellaneous charges and the Payoff Amount described below.
Each Contract will provide that the lessor may terminate such Contract and
repossess the Leased Vehicle in the event of a default by the lessee. Events of
default under the Contracts will include, but will not be limited to, failure to
make payment when due, certain events of bankruptcy or insolvency, failure to
maintain the insurance required by the Contract, failure to maintain or repair
the Leased Vehicle as required or to comply with any other term or condition of
the Contract and the making of a material misrepresentation by the lessee in
the lease application. TMCC regularly tracks lessees' compliance with their
payment obligations and monitors the related leases for noncompliance. SEE
"TMCC--Insurance" and "--Collection, Repossession and Disposition Procedures".
39
<PAGE>
In the forms of contract used to originate Contracts, upon termination at
or before maturity where the lessee is not in default and does not exercise its
option to purchase the Leased Vehicle, the amount owed by the lessee (the
"Payoff Amount") will be determined by adding (i) unpaid Monthly Payments and
any incidental charges owing under the Contract, less unearned lease charges and
(ii) the Residual Value, subtracting the "Realized Value" (as described below),
from the sale or other disposition of the related Leased Vehicle and applying
the Security Deposit, if any, to reduce any deficiency. In calculating the
amount of unearned lease charges under clause (i) above, the Contracts will
provide that the constant yield method will be used, in which lease charges are
earned on a daily basis through the payment date immediately following the date
of early termination. If, instead, there is an early termination and the lessee
is in default, the amount owed by a lessee in default will be determined by
adding (i) the Payoff Amount, (ii) payments accrued under the Contract through
the date of termination, (iii) collection, repossession, storage, preparation
and sale expenses and (iv) attorneys' fees and disbursements incurred after
default.
The "Realized Value" of a Leased Vehicle is the actual wholesale price or
the wholesale price otherwise determined by TMCC in a commercially reasonable
manner. However, each Contract provides that the lessee has the right to obtain
from an independent third party acceptable to the lessor a professional
appraisal of the wholesale value of the Leased Vehicle that could be realized at
sale. This appraised value then would be used as the wholesale value for
purposes of calculating sums due from the lessee.
In the event of early termination of a Contract where the lessee is in
default, the amounts collected with respect to such Contract and the related
Leased Vehicle (after deducting the costs and other sums retained by the
Servicer in connection therewith) may be less than the Outstanding Principal
Balance (and therefore less than the outstanding Discounted Principal Balance)
of such Contract. In the event that a Contract reaches the date on which the
last Monthly Payment is due, as such date may have been extended (the "Maturity
Date"), but the related Leased Vehicle cannot be sold or otherwise disposed of
for a net amount at least equal to its Residual Value, there may be an
additional shortfall in amounts otherwise expected to be received in respect of
the SUBI Interest. In the event that any such shortfalls allocable to the
Certificates are not covered by the Investor Percentage of certain excess
Interest Collections, available monies on deposit in the Reserve Fund, Net
Insurance Proceeds or Net Liquidation Proceeds, amounts otherwise payable to the
Transferor in respect of the Transferor Interest (or as Excess Amounts) and the
subordination of interest payments otherwise payable to the Class B
Certificateholders, in each case to the extent described herein, investors in
the Class A Certificates could suffer a loss on their investments.
CHARACTERISTICS OF THE CONTRACTS
GENERAL
The Initial Contracts were, and the Subsequent Contracts will be, selected
by reference to several criteria, including, as of the related Cutoff Date, that
each Contract (i) is written with respect to a Leased Vehicle that was at the
time of the origination of the related lease contract a new or used vehicle,
(ii) was originated in the United States, after October 31, 1996 in the case of
the Initial Contracts, and on or before -, 1997 in the case of the Subsequent
Contracts; (iii) has a Maturity Date on or after January 31, 1998 and no later
than July 31, 2002 in the case of the Initial Contracts, and on or after - and
no later than - in the case of the Subsequent Contracts; (iv) fully amortizes to
an amount equal to the Residual Value of the related Leased Vehicle based on a
fixed Lease Rate calculated on a constant yield basis and provides for level
payments over its term (except for payment of the Residual Value); (v) was not
more than 60 days past due as of the Cutoff Date or the related Transfer Date,
as the case may be; and (vi) has not been deferred more than four times or
extended by more than twelve months in the aggregate.
40
<PAGE>
COMPOSITION OF INITIAL CONTRACTS
<TABLE>
<CAPTION>
<S> <C>
Aggregate Outstanding Principal Balance as of Cutoff Date. . . . . . . $1,287,004,969.02
Aggregate Discounted Principal Balance as of Cutoff Date . . . . . . . $1,231,231,519.20
Aggregate Net Investment Value as of Cutoff Date . . . . . . . . . . . $1,231,231,519.20
Number of Initial Contracts. . . . . . . . . . . . . . . . . . . . . . 56,340
Average Outstanding Principal Balance as of Cutoff Date(2) . . . . . . $22,843.54
Average Discounted Principal Balance as of Cutoff Date . . . . . . . . $21,853.59
Range of Original Principal Balances of Initial Contracts(2) . . . . . $8,339.00 to $69,476.03
Weighted Average Lease Rate(1) . . . . . . . . . . . . . . . . . . . . 7.655%
Range of Lease Rates(2). . . . . . . . . . . . . . . . . . . . . . . . 0.254% to 13.653%
Weighted Average Original Number of Monthly
Payments(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.8 months
Range of Original Number of Monthly Payments . . . . . . . . . . . . . 12 months to 60 months
Weighted Average Remaining Number of Monthly
Payments(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.8 months
Range of Remaining Number of Monthly Payments. . . . . . . . . . . . . 5 months to 59 months
Weighted Average Original Residual Value(2). . . . . . . . . . . . . . $17,227.69
Range of Original Residual Values(2) . . . . . . . . . . . . . . . . . $1,277.25 to $42,382.00
Aggregate of Residual Values as a Percentage of Aggregate
Net Investment Value as of Cutoff Date . . . . . . . . . . . . . . . 69.35%
Percentage of Lease Contracts for New Vehicles
(by Outstanding Principal Balance)(2). . . . . . . . . . . . . . . . 96.95%
Percentage of Lease Contracts for Used Vehicles
(by Outstanding Principal Balance)(2). . . . . . . . . . . . . . . . 3.05%
</TABLE>
----------
(1) Weighted by Outstanding Principal Balance as of the Cutoff Date.
(2) Without giving effect to discounting for calculation of Discounted
Principal Balances.
INITIAL CONTRACTS
<TABLE>
<CAPTION>
AVERAGE MINIMUM MAXIMUM
<S> <C> <C> <C>
Original Principal Balance $ 23,608.29 $ 8,339.00 $ 69,476.03
Outstanding Principal Balance(1) $ 22,843.54 $ 8,157.24 $ 69,296.80
Residual Value $ 17,227.69 $ 1,277.25 $ 42,382.00
Lease Rate(1)(2) 7.655% 0.254% 13.653%
Seasoning (months)(1)(3) 3.96 0 9
Remaining Term (months)(1) 35.79 5 59
</TABLE>
- ---------------
(1) As of the Cutoff Date.
(2) Without giving effect to discounting for calculation of Discounted
Principal Balances.
(3) Weighted by Outstanding Principal Balance as of the Cutoff Date.
41
<PAGE>
DISTRIBUTION OF THE INITIAL CONTRACTS BY LEASE RATE
The distribution of the Initial Contracts as of the Cutoff Date by Lease
Rate was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF INITIAL CUTOFF DATE AGGREGATE CUTOFF
LEASE RATE INITIAL NUMBER OF OUTSTANDING DATE OUTSTANDING
RANGE CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
less than 2.00% 21 0.04% $ 732,294.45 0.06%
2.00% to 2.99% 189 0.34 4,652,479.21 0.36
3.00% to 3.99% 735 1.30 20,041,121.32 1.56
4.00% to 4.99% 3,792 6.73 66,575,084.03 5.17
5.00% to 5.99% 6,036 10.71 132,994,786.81 10.33
6.00% to 6.99% 1,880 3.34 50,446,770.99 3.92
7.00% to 7.99% 12,621 22.40 329,367,995.06 25.59
8.00% to 8.99% 27,744 49.24 607,537,073.77 47.21
9.00% to 9.99% 1,432 2.54 32,998,762.77 2.56
10.00% to 10.99% 750 1.33 16,878,442.99 1.31
11.00% to 11.99% 451 0.80 10,114,477.40 0.79
12.00% to 12.99% 387 0.69 8,189,007.78 0.64
13.00% to 13.99% 302 0.54 6,476,672.44 0.50
------ ------ ----------------- ------
Total . . . . 56,340 100.00% $1,287,004,969.02 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL CONTRACTS BY MATURITY
The distribution of the Initial Contracts as of the Cutoff Date by year of
maturity was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF CUTOFF DATE AGGREGATE CUTOFF
YEARS OF INITIAL NUMBER OF OUTSTANDING DATE OUTSTANDING
MATURITY CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
1998 323 0.57% $ 6,136,293.06 0.48%
1999 9,145 16.23 178,137,161.35 13.84
2000 33,927 60.22 778,534,934.93 60.49
2001 5,073 9.00 129,203,254.65 10.04
2002 7,872 13.97 194,993,325.03 15.15
------- -----------------
Total 56,340 100.00% $1,287,004,969.02 100.00%
</TABLE>
42
<PAGE>
DISTRIBUTION OF THE INITIAL CONTRACTS BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF PERCENTAGE OF CUTOFF DATE AGGREGATE CUTOFF
STATE OF INITIAL NUMBER OF OUTSTANDING DATE OUTSTANDING
ORIGINATION(1) CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
California 32,422 57.55% $ 751,267,173.73 58.37%
Ohio 9,128 16.20 185,627,593.15 14.42
Pennsylvania 6,874 12.20 145,319,401.76 11.29
Michigan 5,875 10.43 125,963,096.95 9.79
Florida 2,041 3.62 78,827,703.43 6.13
------ ------ ----------------- -------
Total 56,340 100.00% $1,287,004,969.02 100.00%
</TABLE>
- ------------
(1) by Dealer location.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Initial Contracts and Initial Leased Vehicles will be described in a
schedule appearing as an exhibit to the SUBI Supplement, which schedule will be
amended from time to time as Subsequent Contracts and Subsequent Leased Vehicles
become SUBI Assets during the Revolving Period (collectively, the "Schedule of
Contracts and Leased Vehicles").
The Schedule of Contracts and Leased Vehicles will identify each Contract
by identification number, will identify each Leased Vehicle by its vehicle
identification number and will set forth as to each such Contract, among other
things, its: (i) date of origination; (ii) Maturity Date; (iii) Monthly Payment;
(iv) original capitalized cost; (v) Outstanding Principal Balance and Discounted
Principal Balance as of the related Cutoff Date; and (vi) Residual Value. In
the Servicing Agreement, representations and warranties will be made with
respect to each Contract and Leased Vehicle to the effect described under "The
Contracts--Characteristics of the Contracts--General", and that, among other
things, each such Contract, and, to the extent applicable, the related Leased
Vehicle or lessee: (a) was originated by a Dealer located in the United States
in the ordinary course of its business and in compliance with TMCC's normal
credit and underwriting policies and practices; (b) is owned by the Titling
Trust, free of all liens, encumbrances or rights of others; (c) was originated
in compliance with, and complies with, all material applicable legal
requirements; (d) all material consents, licenses, approvals or authorizations
of, or registrations or declarations with, any governmental authority required
to be obtained, effected or given by the originator of such Contract and the
Titling Trustee in connection with (i) the origination of such Contract, (ii)
the execution, delivery and performance by such originator of the Contract and
(iii) the acquisition by the Titling Trust of such Contract and Leased Vehicle,
have been duly obtained, effected or given and are in full force and effect as
of such date of creation or acquisition; (e) is the legal, valid and binding
obligation of the lessee; (f) to the knowledge of TMCC, is not subject to any
right of rescission, setoff, counterclaim or any other defense of the related
lessee to pay the Outstanding Principal Balance due under such Contract and no
such right of rescission, setoff, counterclaim or other defense has been
asserted or threatened; (g) the related Dealer, the Servicer and the Titling
Trust have each satisfied all obligations required to be fulfilled on its part
with respect thereto; (h) is payable solely in United States dollars in the
United States; (i) the lessee thereunder is located in the United States and is
not TMCC, the Transferor or any of their respective affiliates; (j) requires the
lessee to maintain insurance against loss or damage to the related Leased
Vehicle under an insurance policy that names the Titling Trust as loss payee;
(k) the related certificate of title is registered in the name of the Titling
Trust (or a properly completed application for such title has been submitted to
the appropriate titling authority); (l) is a closed-end lease that requires
equal monthly payments to be
43
<PAGE>
made within 60 months of the date of origination of such Contract; (m) is fully
assignable and does not require the consent of the lessee as a condition to any
transfer, sale or assignment of the rights of the originator; (n) has a Residual
Value that does not exceed an amount reasonably established by the Servicer
consistent with its policies and practices; (o) has not been deferred more than
four times or extended by more than twelve months in the aggregate or otherwise
modified except in accordance with TMCC's normal credit and collection policies
and practices; (p) is not an Other SUBI Asset; (q) to the knowledge of TMCC, the
lessee thereunder is not bankrupt or currently the subject of a bankruptcy
proceeding; (r) is not more than 60 days past due; (s) is a finance lease for
accounting purposes; and (t) is a "true lease" for applicable state law purposes
relating to the perfection of security interests.
The Servicing Agreement will provide that the reinvestment of Principal
Collections (and Loss Amounts otherwise reimbursable to Certificateholders) in
Subsequent Contracts and Subsequent Leased Vehicles during the Revolving Period
will be subject to the satisfaction of certain conditions precedent including,
among other things, that after giving effect to such reinvestment, (i) each
Subsequent Contract will be allocated as a SUBI Asset based upon its Discounted
Principal Balance as of the relevant Transfer Date, (ii) the weighted average
remaining term of the Contracts (including the Subsequent Contracts) is not
greater than - months and (iii) the weighted average Residual Value of the
Leased Vehicles relating to the Contracts (including the Subsequent Contracts),
as a percentage of the aggregate Outstanding Principal Balance of the Contracts
(including the Subsequent Contracts), in each case as of the related dates of
origination, is not greater than -%. The foregoing criteria may be changed
without the consent of any Certificateholder if the Trustee receives notice from
each Rating Agency to the effect that the use of such changed criteria will not
result in the reduction, withdrawal or qualification of its then current rating
of any Certificates.
The Servicing Agreement will provide that upon the discovery by the Titling
Trustee, TMCC, the Trustee or the Transferor of a breach of any representation,
warranty or covenant referred to in the second preceding paragraph that
materially and adversely affects the owners of interests in the SUBI or the
Certificateholders in the related Contract or Leased Vehicle, which breach is
not cured in all material respects within 60 days after TMCC discovers such
breach or is given notice thereof, such Contract and Leased Vehicle (and the
related SUBI Assets) will be reallocated to the UTI and TMCC will be required to
deposit (or cause to be deposited) into the SUBI Collection Account an amount
(the "Reallocation Payment") equal to the Discounted Principal Balance of such
Contract as of the last day of the Collection Period during which the related
cure period ended, plus an amount equal to any imputed lease charge on such
Contract at the related Lease Rate that was delinquent as of the end of such
Collection Period. The foregoing payment obligation will survive any
termination of TMCC as Servicer under the Servicing Agreement.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
All of the Contracts will be prepayable, in whole or in part, at any time
without penalty. The prepayment experience with respect to the Contracts will
affect the weighted average lives of each Class of Certificates then outstanding
if a Monthly Payment Event occurs, and will affect the weighted average life of
any Class of Certificates as to which the related Certificate Principal Balance
is not reduced to zero on the related Targeted Maturity Date.
In general, the rate of prepayments on the Contracts may be influenced by a
variety of economic, social, geographic and other factors. The Titling Trust
was formed and began to accept assignments of lease contracts in November 1996.
All of the lease contracts assigned to the Titling Trust since that time have
been, and all of the lease contracts to be assigned to the Titling Trust will
be, assigned by Dealers using TMCC's underwriting standards. TMCC actively
encourages lessees under lease contracts with remaining terms of less than one
year to
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either buy, trade in or refinance the related leased vehicles prior to the
related scheduled maturities of such lease contracts. TMCC estimates that, of
the retail automobile and light duty truck lease contracts in its portfolio that
were scheduled to mature during fiscal year 1996 or during the nine-month period
ended June 30, 1997, approximately 52% and 49%, terminated prior to maturity,
either because of voluntary prepayments or repossession of the leased vehicles
due to default by the lessees under the related lease contracts. No assurance
can be given that the Contracts will experience the same rate of prepayment or
default or any greater or lesser rate than TMCC's historical rate, or that the
Residual Value experience of Leased Vehicles related to Contracts that have
reached their Maturity Dates will be the same as or higher or lower than from
TMCC's historical residual value loss experience with respect to lease contracts
in its portfolio. Moreover, there can be no assurance as to whether a Maturity
Advance will be made or, if made, will be sufficient to reduce the Certificate
Principal Balance of any Class to zero on the related Targeted Maturity Date
and, therefore, any Class may mature significantly later than its Targeted
Maturity Date.
The effective yield on, and weighted average life of, each Class of
Certificates will depend upon, among other things, whether or not an Early
Amortization Event occurs, whether or not a Monthly Payment Event occurs,
whether or not a Maturity Advance sufficient to pay in full the related
Certificate Principal Balance is made, the amount of scheduled and
unscheduled payments on or in respect of the Contracts and the Leased
Vehicles and the rate at which such payments are paid through to the
Certificateholders pursuant to the payment priorities described herein. In
the event of prepayments of the Contracts (including liquidations of the
Contracts and payment of the Residual Value of the related Leased Vehicles)
or payment of any Accelerated Principal Distribution Amount during the
Amortization Period, Certificateholders who receive such amounts may not be
able to reinvest the related payments of principal received on the
Certificates at yields as high as the related Certificate Rate. Under such
circumstances, the timing of changes in the rate of prepayments on the
Contracts and payments in respect of the Leased Vehicles may also affect
significantly an investor's actual yield to maturity and the weighted average
life of the related Class of Certificates. In the Event of a Monthly Payment
Event or for any class not paid in full on its Targeted Maturity Date, a
substantial increase in the rate of payments on or in respect of the
Contracts and Leased Vehicles during the Amortization Period may shorten the
final maturity and weighted average lives of the Certificates. In the case
of Certificates purchased at a discount to their principal amounts, a slower
than anticipated rate of principal payments is likely to result in a lower
than anticipated yield to the investor. In the case of Certificates
purchased at a premium to their principal amounts, a faster than anticipated
rate of principal payments is likely to result in a lower than anticipated
yield to the investor.
Additionally, although monies on deposit in the Accounts and Principal
Collections (and reimbursed Loss Amounts) that have not been reinvested in
Subsequent Contracts and Subsequent Leased Vehicles during the Revolving Period
will be invested in Permitted Investments, and all gain or other income from
such investments will be available for making distributions on the Certificates,
no assurance can be made as to the rate of return that will be realized on such
Permitted Investments. Any reinvestment risk resulting from the rate of
prepayment of the Contracts (and payment of the Residual Value of the related
Leased Vehicles) and the making of the foregoing investments will be borne by
the Certificateholders.
The Investor Percentage of Loss Amounts as to which no funds are
available for reimbursement on any Monthly Allocation Date during the
Amortization Period (I.E. Certificate Principal Loss Amounts) will be
allocated first to the Class B Certificates and then among the Class A
Certificateholders on a pro rata basis, based on the outstanding Class A
Certificate Balances thereof as of the last day of the related Collection
Period, and then reimbursed out of funds available therefor in the amounts
and order of priority described in "Description of the
Certificates--Allocations and Distributions on the Certificates--Allocations
and Distributions of Collections". In addition, the Investor Percentage of
the net proceeds of any sale or other disposition of the SUBI Interest, the
SUBI Certificate and other property of the Trust, which may occur under
certain circumstances involving an Insolvency Event with respect to the
Transferor, to the extent constituting Principal Collections, will be
distributed
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first, on a pro rata basis, to the Class A Certificateholders based on their
respective Class Certificate Balances until the Class A Certificates have been
paid in full, and second, to the Class B Certificateholders.
CLASS A CERTIFICATE FACTORS AND TRADING INFORMATION;
REPORTS TO CLASS A CERTIFICATEHOLDERS
The "Certificate Factor" for each Class of Certificates will be a
seven-digit decimal that the Servicer will compute each month indicating the
related Class Certificate Balance, as the case may be, as of the close of
business on the Monthly Allocation Date in such month as a fraction of the
Initial Certificate Balance of the related Class of Class A Certificates. Each
Certificate Factor will initially be 1.0000000 and will remain unchanged during
the Revolving Period, except in certain limited circumstances where there are
unreimbursed Certificate Principal Loss Amounts allocated to such Class, and
during the Amortization Period until the related Targeted Maturity Date or the
occurrence of a Monthly Payment Event, after which each Certificate Factor will
decline to reflect reductions in the related Certificate Balance resulting from
distributions of principal and such previously unreimbursed Certificate
Principal Loss Amounts, if any. The portion of the Class A Certificate Balance
for a given month allocable to a Class A Certificateholder can be determined by
multiplying the original denomination of the holder's Class A Certificate by the
related Certificate Factor for that month.
Pursuant to the Agreement, U.S. Bank, as Trustee, will provide to the Class
A Certificateholders (which shall be Cede & Co. as the nominee of DTC unless
Definitive Certificates are issued under the limited circumstances described
herein) unaudited monthly reports concerning payments received on or in respect
of the Contracts and the Leased Vehicles, the Aggregate Net Investment Value,
the Investor Percentage, the Certificate Factors for each Class and various
other items of information. Certificate Owners may obtain copies of such
reports upon a request in writing to the Trustee. In addition, Class A
Certificateholders during each calendar year will be furnished information for
tax reporting purposes not later than the latest date permitted by law. SEE
"Description of the Certificates--Statements to Certificateholders" and
"--Book-Entry Registration".
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement which, together
with the Titling Trust Agreement, the SUBI Supplement and the Servicing
Supplement, have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summaries of material provisions of
the foregoing documents as well as the summaries included elsewhere in this
Prospectus do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the actual provisions of such documents.
GENERAL
The Class A Certificates will be issued in minimum denominations of $1,000
and integral multiples thereof in book-entry form. The Class A Certificates
will initially be represented by global certificates registered in the name of
Cede & Co., the nominee of DTC. No Certificate Owner will be entitled to
receive a certificate representing such owner's Certificate, except as set forth
below. Unless and until Definitive Class A Certificates are issued under the
limited circumstances described below, all references herein to distributions,
notices, reports and statements to Class A Certificateholders will refer to the
same actions made with respect to DTC or Cede & Co., as the case may be, for the
benefit of Certificate Owners in accordance with DTC procedures. SEE
"Description of the Certificates--Book-Entry Registration" and "--Definitive
Certificates".
Each Certificate will represent the right to receive semi-annual payments
of interest at the related Interest Rate and, to the extent described herein,
payments in respect of principal thereof during the Amortization Period
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funded from the Investor Percentage of distributions to the Trust of Interest
Collections and Principal Collections allocable to the SUBI Interest,
Accelerated Principal Distribution Amounts allocable to Certificates of the
related Class, amounts on deposit in the Reserve Fund, amounts otherwise payable
to the Transferor in respect of the Transferor Interest and, in the case of the
Class A Certificates, Class B Available Principal, in each case to the extent
described herein. Distributions of interest and principal on the Class B
Certificates will be subordinated to the right of the Class A Certificates to
receive such payments to the extent provided herein. SEE "Description of the
Certificates--Distributions on the Certificates".
The Transferor will permanently retain the Transferor Interest, which will
represent the interest in the Trust not represented by the Certificates,
including the right to receive the Transferor Percentage of Interest Collections
and Principal Collections. SEE "Description of the Certificates--Calculation of
Investor Percentage and Transferor Percentage". The Transferor Interest will be
subordinated to the Certificates to the extent described herein, and on any day
will equal the difference between the Aggregate Net Investment Value and the
Certificate Balance. SEE "Description of the Certificates--Certain Payments to
the Transferor".
The Certificate Balance of the Class A Certificates will remain
constant, except to the extent there are unreimbursed Certificate Principal
Loss Amounts or Class B Available Principal Amounts applied to fund interest
shortfalls, Loss Amounts or Certificate Principal Loss Amounts with respect
to the Class A Certificates, until the earlier of its Targeted Maturity Date
or the occurance, if any, of a Monthly Payment Event. However, during the
Amortization Period, the Certificate Balance will decline, to the extent
described herein, as the Investor Percentage of Principal Collections
allocable to the SUBI Interest and Accelerated Principal Distribution Amounts
are deposited into the Certificateholders' Account and as (a) Certificate
Principal Loss Amounts are incurred and not reimbursed or (b) Class B
Available Principal Amounts are applied to cover interest shortfalls, Loss
Amounts and Certificate Principal Loss Amounts allocable to the Class A
Certificates and not previously reimbursed.
TRANSFER OF THE SUBI INTEREST
On the Closing Date, the Transferor will deliver the SUBI Certificate to
the Trustee and transfer and assign to the Trustee, without recourse, all of its
right, title and interest in and to the SUBI Interest (excluding the right to
proceeds of any residual value insurance policy represented thereby).
Concurrently therewith, the Trustee will execute, authenticate and deliver the
Certificates to or upon the order of the Transferor. Pursuant to the Agreement,
the Transferor will represent and warrant that, immediately prior to the
transfer and assignment of the SUBI Certificate to the Trustee, it had good
title to and was the sole legal and beneficial owner of the SUBI Certificate,
free and clear of liens and claims.
REALLOCATION PAYMENTS AND REALLOCATION DEPOSIT AMOUNTS
Under certain circumstances TMCC will be required to make Reallocation
Payments in respect of certain Contracts (and the related Leased Vehicles)
discovered not to be in compliance with TMCC's representations or warranties or
Contracts as to which certain servicing procedures have not been followed, in
either case that materially and adversely affects the interests of the
Transferor or the Certificateholders in the related Contract or Leased Vehicle.
Upon any such payment during the Amortization Period (but not during the
Revolving Period), the Aggregate Net Investment Value will decline by an amount
equal to the Discounted Principal Balance of such Contract, thereby reducing the
amount of the Transferor Interest by the same amount, and such Contract and the
related Leased Vehicle will no longer constitute SUBI Assets as they will be
reallocated and become UTI Assets. If such deduction would cause the Transferor
Interest to become less than zero, TMCC will be required to deposit
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(or cause to be deposited) in the SUBI Collection Account the amount (the
"Reallocation Deposit Amount") by which the Transferor Interest would be reduced
to less than zero. Notwithstanding the foregoing, in the event a Reallocation
Deposit Amount is required to be made, reallocation of the related Contract (and
the related Leased Vehicle) will not be considered to have occurred unless such
deposit is actually made. SEE "The Contracts--Representations, Warranties and
Covenants" and "Additional Document Provisions--The Servicing
Agreement--Collections"
CALCULATION OF INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
Pursuant to the Servicing Agreement, to the extent allocable to the SUBI
Interest, the Servicer will allocate between the Investor Interest and the
Transferor Interest, based on the applicable Investor Percentage and the
Transferor Percentage for the related Collection Period, all Interest
Collections and (during the Amortization Period) Principal Collections collected
or received in respect of the related Collection Period. In addition, similar
allocations will be made by the Servicer at the end of each Collection Period in
respect of (i) an amount equal to the Discounted Principal Balance of any
Contract that became a Charged-off Contract during such Collection Period (the
aggregate of such amounts in any Collection Period, the "Charged-off Amount"),
(ii) the Residual Value Loss Amount for such Collection Period and (iii) any
Additional Loss Amounts incurred during such Collection Period. A "Charged-off
Contract" will be a Contract (a) with respect to which the related Leased
Vehicle has been repossessed and sold or otherwise disposed of or (b) which has
been written off by the Servicer in accordance with its normal policies for
writing off lease contracts other than with respect to repossession.
The Investor Percentage in respect of any Collection Period will mean,
with respect to (i) Charged-off Amounts, Residual Value Loss Amounts and
Additional Loss Amounts (collectively, "Loss Amounts") and Interest
Collections, in each case that are allocable to the SUBI Interest, the
percentage equivalent of a fraction (not to exceed 100%) the numerator of
which is the Adjusted Certificate Balance on the last day of the immediately
preceding Collection Period (or, in the case of the first Collection Period,
the Initial Certificate Balance) and the denominator of which is the
Aggregate Net Investment Value on the last day of the immediately preceding
Collection Period (or, in the case of the first Collection Period, as of the
Cutoff Date) and (ii) Principal Collections during the Amortization Period,
the percentage equivalent of a fraction (not to exceed 100%) the numerator of
which is the Adjusted Certificate Balance and the denominator of which is the
Aggregate Net Investment Value, in each case as of the last day of the last
Collection Period preceding (a) the Amortization Date or (b) the date on
which an Early Amortization Event occurs. The "Transferor Percentage" will
in all cases, be equal to 100% minus the applicable Investor Percentage.
As a result of the calculations described above, Interest Collections
allocable to the SUBI Interest in each Collection Period will be allocated to
the Certificateholders based on the relationship of the Certificate Balance to
the Aggregate Net Investment Value (which may change from Collection Period to
Collection Period). As described above, the Investor Percentage applied when
allocating Principal Collections allocable to the SUBI Interest may vary monthly
during the Revolving Period, because the Certificate Balance as a percentage of
the Aggregate Net Investment Value may fluctuate monthly. During the
Amortization Period, however, the Principal Allocation will be determined by
reference to a fixed percentage which will equal the Investor Percentage with
respect to Principal Collections allocable to the SUBI Interest as of the last
day of the Revolving Period.
CERTAIN PAYMENTS TO THE TRANSFEROR
On each Monthly Allocation Date, the Trustee will pay to the Transferor,
from amounts on deposit in the SUBI Collection Account in respect of the related
Collection Period that are allocable to the SUBI Interest, the following amounts
(the "Transferor Amounts"): (i) if such Monthly Allocation Date is prior to the
First Principal Monthly Allocation Date, the Transferor Percentage of Interest
Collections and (ii) if such Monthly Allocation Date
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is on or after the First Principal Monthly Allocation Date, the Transferor
Percentage of Interest Collections and, to the extent that the Transferor
Interest is equal to or greater than zero, the Transferor Percentage of
Principal Collections. Amounts to be released to the Transferor pursuant to
clause (13) under "--Allocations and Distributions on the
Certificates--ALLOCATIONS AND DISTRIBUTIONS OF COLLECTIONS" will also be
considered Transferor Amounts, but will not offset or reduce amounts allocable
to the Transferor Interest as described in the preceding sentence.
Notwithstanding the foregoing, no Transferor Amounts will be paid to the
Transferor on a Monthly Allocation Date unless (i) the amounts required to be
allocated or distributed to Certificateholders as described under "Description
of the Certificates--Allocations" have been allocated or distributed in full and
(ii) the amount on deposit in the Reserve Fund, after giving effect to all
withdrawals therefrom and other deposits thereto on such Monthly Allocation
Date, is at least equal to the Specified Reserve Fund Balance. The principal
portion of any Transferor Amounts not paid to the Transferor because the
Transferor Interest is less than or equal to zero ("Unallocated Principal
Collections") will be retained in the SUBI Collection Account until (a) applied
to cover interest shortfalls, Loss Amounts or Certificate Principal Loss Amounts
allocable to the Certificates, (b) the Certificates are paid in full (in which
case such amounts will be released to the Transferor) or (c) the Transferor
Interest again exceeds zero (in which case such amounts will again be releasable
as Transferor Amounts).
ALLOCATIONS AND DISTRIBUTIONS ON THE CERTIFICATES
GENERAL
On the second Business Day prior to each Monthly Allocation Date (each, a
"Determination Date"), the Servicer will inform the Trustee of, among other
things, the amount of Interest Collections and Principal Collections allocable
to the SUBI Interest, the Investor Percentage, the Transferor Percentage, the
Certificate Factor for each Class, the amount of Advances (including Maturity
Advances) to be made by or reimbursed to the Servicer, the aggregate amount, if
any, to be withdrawn from the Reserve Fund and the Servicing Fee and other
servicing compensation payable to the Servicer with respect to the related
Collection Period. On or prior to each Determination Date, the Servicer shall
also determine the Specified Reserve Fund Balance and the amounts to be
distributed to the Certificateholders and to the Transferor in respect of the
Transferor Interest and in respect of other amounts released from the Trust.
ALLOCATIONS AND DISTRIBUTIONS OF COLLECTIONS
On each Monthly Allocation Date, the Trustee will make the following
allocations, payments and distributions in accordance with the following
priorities from Available Interest (to the extent sufficient therefor):
(1) in the event of an Early Amortization Event involving an Insolvency
Event as a result of the Trustee having received written instructions from
holders of Certificates evidencing Voting Interests of not less than 51% of the
Class A Certificates (voting together as a single class) or 51% of the Class A
Certificates and Class B Certificates (voting together as a single class) to
sell or dispose of the SUBI Interest, to the Trustee, the Investor Percentage of
Capped Trust Administrative Expenses;
(2) to or for the benefit of the Class A Certificateholders, the amount
of interest accrued on the Class A Certificate Balance and unreimbursed
Certificate Principal Loss Amounts previously allocated thereto during the
period from and including the immediately preceding Monthly Allocation Date
to but excluding the related Monthly Allocation Date at the related Class A
Rates, plus any Class A Interest Carryover Shortfall;
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(3) to or for the benefit of the Class B Certificateholders, the
amount of interest accrued on the Class B Certificate Balance during the period
from and including the immediately preceding Monthly Allocation Date to but
excluding the related Monthly Allocation Date, plus any Class B Interest
Carryover Shortfall;
(4) to the Servicer, the Investor Percentage of the Servicing Fee for
such Collection Period and the aggregate of the Investor Percentage of accrued
but unpaid Servicing Fees in respect of prior Collection Periods;
(5) to the Servicer, the Investor Percentage of Capped Contingent and
Excess Liability Premiums that have not yet been reimbursed to the Servicer;
(6) to the Titling Trustee, the Investor Percentage of Capped Titling
Trust Administration Expenses;
(7) in circumstances other than as set forth in clause (1) above, to the
Trustee, the Investor Percentage of Capped Trust Administration Expenses;
(8) to or for the benefit of the Class A Certificateholders the aggregate
amount of Loss Amounts allocable to the Class A Certificateholders on such
Monthly Allocation Date as described below plus the aggregate amount of
Certificate Principal Loss Amounts allocated thereto on any prior Monthly
Allocation Date (pro rata, based on the Loss Amounts and Certificate Principal
Loss Amounts so allocated to each such Class), in each case to the extent not
previously reimbursed pursuant to this clause or through the application of
amounts withdrawn from the Reserve Fund, Transferor Amounts and Class B
Available Principal;
(9) to or for the benefit of the Class B Certificateholders, (a) the
amount, if any, of (i) interest accrued during the period from and including the
immediately preceding Monthly Allocation Date to but excluding the related
Monthly Allocation Date at the Class B Rate on any Certificate Principal Loss
Amounts previously allocated thereto and then (ii) to reimburse the aggregate
amount of Loss Amounts allocable to the Class B Certificateholders on such
Monthly Allocation Date as described below plus the aggregate amount of
Certificate Principal Loss Amounts allocated thereto on any prior Monthly
Allocation Date, in each case to the extent not previously reimbursed pursuant
to this clause or through the application of amounts withdrawn from the Reserve
Fund and Transferor Amounts, and (b) the amount, if any, of Class B Available
Principal applied to fund interest or Loss Amounts allocated to the Class A
Certificates on any Monthly Allocation Date that has not been previously
reimbursed pursuant to this clause;
(10) for deposit into the Reserve Fund, until the amount on deposit
therein equals the Specified Reserve Fund Balance;
(11) to the Titling Trustee, the Investor Percentage of Uncapped Titling
Trust Administration Expenses;
(12) to the Trustee, the Investor Percentage of Uncapped Trust
Administration Expenses; and
(13) except as described below, to the Transferor, all remaining Interest
Collections, which shall for all purposes thereupon be deemed to have been
released from the Trust.
Payments of interest on each Class of Certificates will be made, to the
extent funds are allocated and are available therefor as described above, (i)
on each Monthly Allocation Date in March and September, commencing in March
1998, as well as on the Targeted Maturity Date and (ii) for any Class of
Certificates not paid in full on the related Targeted Maturity Date, on any
subsequent Certificate
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Payment Date. In addition, after the occurrence of any Monthly Payment Event,
payments of interest on each Class of Certificates will be made monthly, to the
extent funds are allocated and are available therefor as described above, on
each Monthly Allocation Date (and each such subsequent Monthly Allocation Date
will be a Certificate Payment Date). Interest amounts allocable or
distributable to Holders of Class A Certificates will be allocated or
distributed on a pro rata basis, based on the interest accrued thereon during
the related Interest Period plus the aggregate amount of unreimbursed Class A
Interest Carryover Shortfalls allocated thereto on all prior Monthly Allocation
Dates.
If a Monthly Allocation Date is not a Certificate Payment Date on which
such amounts are distributable to the related Class of Certificateholders, then
the amounts described in clauses (2), (3), (8) and (9) will (a) be retained in
the Certificateholders' Account from the net investment income portion of
Available Interest and (b) to the extent such portion is insufficient therefor,
deposited into such account from the Interest Collections portion of Available
Interest. On each Monthly Allocation Date, the Interest Collections portion of
Available Interest will be applied to make all other distributions and then, to
the extent necessary, amounts on deposit in the Certificateholders' Account in
respect of the net investment income portion of Available Interest not already
applied as described in a preceding clause will be withdrawn from such account
to make any distribution of amounts described in any of the foregoing clauses.
To the extent Available Interest is insufficient therefor, the amount of
any deficiency in amounts allocable or distributable pursuant to clauses (1)
through (9) will be covered, first, from amounts withdrawn from the Reserve Fund
and deposited in the Collection Account and, second, from Transferor Amounts.
If any Transferor Amounts are required to be applied to make any of the
allocations or distributions described in clauses (1) through (10) above, the
Interest Collections that are part of the Transferor Amounts will be applied
before any Principal Collections that are part of the Transferor Amounts are so
applied. To the extent a deficiency in the amounts to be allocated or
distributed pursuant to clause (2) or clause (8) remains after application of
all of the foregoing amounts, such deficiency will be covered by application of
Class B Available Principal, if any.
The amount of funds to be withdrawn from the Reserve Fund on a Monthly
Allocation Date and applied to payments to be made as described above will equal
the lesser of (i) the amount on deposit in the Reserve Fund on the related
Deposit Date and (ii) the amount, if any, by which the aggregate of amounts
allocable or distributable pursuant to clauses (2), (3), (8) or (9) exceeds the
amount of Available Interest available to make such allocation or distribution
based on the foregoing priorities. SEE "Assets of the Trust--The Accounts;
Collections--The Reserve Fund".
Notwithstanding the foregoing, Available Interest and Class B Available
Principal allocated to Certificateholders to reimburse Loss Amounts or
Certificate Principal Loss Amounts pursuant to clauses (8) and (9) above on a
Monthly Allocation Date that is during the Revolving Period will be treated as
Principal Collections for the Collection Period in which such Monthly Allocation
Date occurs and, unless an Early Amortization Event happens prior to the related
Transfer Date, are to be available to be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles.
The Investor Percentage of Loss Amounts will be allocable to the
Certificates. Loss Amounts allocated to the Certificates on any Monthly
Allocation Date will be allocated first to the Class B Certificates and then, on
any Monthly Allocation Date on which the Class B Certificate Balance is reduced
to zero, to the Class A Certificates. A "Certificate Principal Loss Amount"
with respect to any Monthly Allocation Date and Class of Certificates will equal
the Loss Amounts allocated to such Class of Certificates on such date less any
reimbursement thereof from amounts on deposit in the Reserve Fund, Transferor
Amounts, Class B Available Principal (in the case of the Class A Certificates
only) and Available Interest available to cover
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such Loss Amounts as described above. Loss Amounts allocated to the Class A
Certificates will be allocated thereto on a pro rata basis, based on their
respective outstanding Certificate Principal Balances as of the end of the
related Collection Period. Loss Amounts and Certificate Principal Loss
Amounts allocated to the Class A Certificates will be reimbursable thereto on
a pro rata basis, based on the aggregate amount of all unreimbursed Loss
Amounts and Certificate Principal Loss Amounts allocated thereto on such
Monthly Allocation Date and all prior Monthly Allocation Dates; provided,
however, that no such reimbursements will be made to any Class of Class A
Certificates after the Certificate Payment Date on which the related Class
Certificate Balance is reduced to zero. Loss Amounts and Certificate
Principal Loss Amounts allocated to the Class B Certificates will be
reimbursable as described above until the Monthly Allocation Date on which
the Class B Certificate Balance has been reduced to zero. Certificate
Principal Loss Amounts allocable to a Class of Certificates which are not
reimbursed as provided herein will reduce the Certificate Balance of such
Class of Certificates, but will bear interest at the related Certificate Rate
until reimbursed.
On each Monthly Allocation Date, Principal Collections (and if Principal
Collections are insufficient therefor, Interest Collections) will be applied to
reimburse the Servicer for the principal portion of unreimbursed Advances and
Nonrecoverable Advances. Thereafter, the Investor Percentage of remaining
Principal Collections plus any Accelerated Principal Distribution Amount will be
applied first to reimburse the Transferor for unreimbursed Maturity Advances and
second, for deposit into the Certificateholders' Account in respect of principal
on the Certificates or, on any Monthly Allocation Date on which principal is
distributable to the Holders of any Class of Certificates, as described below,
for distribution to such Holders until the Class Certificate Balance of the
related Class has been reduced to zero.
On each Monthly Allocation Date that coincides with or follows a
Targeted Maturity Date, the Trustee will distribute all amounts on deposit in
the Collection Account and the Certificateholders' Account in respect of
principal (after giving effect to any application of amounts withdrawn from
the Reserve Fund and Transferor Amounts described above) to the Holders of
the related Class of Class A Certificates until the Class Certificate Balance
thereof is reduced to zero. To the extent such amounts are insufficient to
reduce the related Class Certificate Balance to zero, the Transferor will
have the option to make a Maturity Advance in any amount up to the amount of
such deficiency. On each Monthly Allocation Date that follows a Monthly
Payment Event, the Trustee will distribute all amounts on deposit in the
Collection Account and the Certificateholders' Account in respect of
principal (after giving effect to any application of amounts withdrawn from
the Reserve Fund and Transferor Amounts described above) to the Holders of
each outstanding Class of Class A Certificates sequentially until the related
Class Certificate Balance is reduced to zero, and then to the Class B
Certificateholders until the Class B Certificate Balance is reduced to zero.
"Available Interest" with respect to any Monthly Allocation Date is an
amount equal to the sum of (i) the Investor Percentage of Interest Collections
for the related Collection Period less any portion of such Interest Collections
used to reimburse Advances and any Nonrecoverable Advances plus (ii) investment
income (net of investment losses) on Permitted Investments of amounts in the
Certificateholders' Account from the prior Monthly Allocation Date through the
current Monthly Allocation Date.
The "Class A Interest Carryover Shortfall" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the aggregate amount of
interest accrued on the Class A Certificate Balances and unreimbursed
Certificate Principal Loss Amounts previously allocated thereto at the
related Certificate Rates during the period from the prior Monthly Allocation
Date to but not including the current Monthly Allocation Date, plus any
outstanding Class A Interest Carryover Shortfall from the immediately
preceding Monthly Allocation Date, plus interest on such outstanding Class A
Interest Carryover Shortfall, to the extent permitted by law, at the weighted
average of the Class A Certificate Rates for such period, over (y) the sum of
the Interest Collections
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deposited into or net investment income retained in the Certificateholders'
Account and/or distributed to Class A Certificateholders in respect of interest
on such Monthly Allocation Date.
The "Class B Interest Carryover Shortfall" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the aggregate amount of
interest accrued on the Class B Certificates at the Class B Rate during the
during the period from the prior Monthly Allocation Date to but not including
the current Monthly Allocation Date, plus any outstanding Class B Interest
Carryover Shortfall from the immediately preceding Monthly Allocation Date, plus
interest on such outstanding Class B Interest Carryover Shortfall, to the extent
permitted by law, at the Class B Rate for such period, over (y) the sum of the
Interest Collections deposited into or net investment income retained in the
Certificateholders' Account or distributed to Class B Certificateholders in
respect of interest on such Monthly Allocation Date.
"Capped Titling Trust Administrative Expenses" with respect to any
Monthly Allocation Date will equal one twelfth of the aggregate amounts
sufficient to pay specified administrative costs and expenses of the Titling
Trust that are allocable to the SUBI Interest up to but not exceeding $75,000
in any calendar year. "Uncapped Titling Trust Administrative Expenses" with
respect to any Monthly Allocation Date will equal one twelfth of the
aggregate amounts sufficient to pay specified administrative costs and
expenses of the Titling Trust that are allocable to the SUBI Interest not
subject to the limitations set forth in the preceding sentence.
"Capped Trust Administrative Expenses" will equal the amounts
sufficient to pay specified administrative costs and expenses associated with
the Certificates such as the Trustee's compensation, the reasonable fees and
disbursements of the Transferor's accountants and attorneys up to but not
exceeding $75,000 in any calendar year (or $100,000 in a calendar year in
which an Early Amortization Event occurs with respect to which the Trustee
sells or otherwise disposes of the SUBI Interest). "Uncapped Trust
Administrative Expenses" will equal the amounts sufficient to pay specified
administrative costs and expenses associated with the Certificates such as
the Trustee's compensation, the reasonable fees and disbursements of the
Transferor's accountants and attorneys not subject to the limitations set
forth in the preceding sentence.
"Capped Contingent and Excess Liability Premiums" with respect to any
Monthly Allocation Date will equal the amounts sufficient to pay or reserve for
payment one-twelfth of the portion of the annual premium payable on the
Contingent and Excess Liability Insurance Policies allocable to the SUBI
Interest, up to but not exceeding $200,000 in any calendar year.
"Class B Available Principal" with respect to any Monthly Allocation
Date means the portion of Principal Collections derived by multiplying (i) a
fraction, the numerator of which is the Class B Certificate Balance, and the
denominator of which is the Adjusted Certificate Balance as of such Monthly
Allocation Date, by (ii) the Investor Percentage, and by (iii) Principal
Collections plus any Accelerated Principal Distribution Amount for such
Monthly Allocation Date.
"Excess Amounts" with respect to any Monthly Allocation Date are the sum of
the Interest Collections distributable to the Transferor pursuant to clause (13)
above.
REVOLVING PERIOD
No principal will be allocable or distributable on the Certificates until
the First Principal Monthly Allocation Date. On each Transfer Date, the
Servicer will identify lease contracts and the related leased vehicles of the
Titling Trust that meet the eligibility criteria described under "The Contracts"
and are not evidenced by the SUBI or any Other SUBI and, on behalf of the
Titling Trustee, will allocate lease contracts and related leased vehicles
having an aggregate Discounted Principal Balance as of the related Transfer Date
approximately equal to,
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but not greater than, all Principal Collections collected or received since the
Cutoff Date (together with amounts used to fund or reimburse Loss Amounts
allocated to any Certificates) that have not yet been so reinvested. Upon such
allocation, the related lease contracts and leased vehicles will become
Subsequent Contracts and Subsequent Leased Vehicles and accordingly will become
SUBI Assets. No partial interest in lease contracts (and the related leased
vehicles) will be so allocated. Coincident with such allocation, the Servicer,
acting on behalf of the Titling Trustee, will withdraw from the SUBI Collection
Account (or apply from its own funds if the Servicer is not then subject to the
requirement to make deposits therein prior to the Deposit Date) an amount of
unreinvested Principal Collections (together with amounts applied to reimburse
Loss Amounts) equal to the aggregate Discounted Principal Balance of such
Subsequent Contracts to make such reinvestment.
Principal Collections and reimbursements of Loss Amounts allocated to
Certificates and not previously reinvested may be reinvested in additional
Subsequent Contracts and Subsequent Leased Vehicles on one or more subsequent
Transfer Dates prior to the end of the Revolving Period. During the Revolving
Period, if the Servicer determines on the last day of any calendar month
commencing in October 1997 that the amount of Principal Collections that have
not been reinvested in Subsequent Contracts and Subsequent Leased Vehicles as of
the last day of the preceding calendar month exceeds $-, an Early Amortization
Event will occur, the Revolving Period will terminate and all unreinvested
Principal Collections and reimbursements of Loss Amounts will be allocated or
distributed as principal to the Trust and then to Certificateholders on
succeeding Monthly Allocation Dates. SEE "--Early Amortization Events" below.
AMORTIZATION PERIOD
On each Monthly Allocation Date beginning with the First Principal Monthly
Allocation Date and ending on the Monthly Allocation Date on which the
Certificate Principal Balances of all Certificates have been reduced to zero (or
monies sufficient to pay each outstanding Class of Certificates in full and
reimburse Certificate Principal Loss Amounts have been allocated as principal
and deposited into the Certificateholders' Account), the Trustee will deposit
into the Certificateholders' Account and/or distribute to the Certificateholders
then entitled to receive distributions in respect of principal, an amount equal
to the Investor Percentage of all Principal Collections collected or received in
respect of the related Collection Period, less amounts applied in reimbursement
of Advances, Nonrecoverable Advances or Maturity Advances, together with any
portion of Available Interest, amounts withdrawn from the Reserve Fund,
Transferor Amounts or Class B Available Principal allocable or distributable in
respect of principal on such Monthly Allocation Date, rather than reinvesting
such amounts in Subsequent Contracts and Subsequent Leased Vehicles. On the
First Principal Monthly Allocation Date, the Trustee will also allocate or
distribute to Certificateholders as a portion of Principal Collections,
following the priorities described above, the Investor Percentage of any
Principal Collections and reimbursements of Loss Amounts allocable to the SUBI
Interest that were not reinvested in Subsequent Contracts and Subsequent Leased
Vehicles as of the end of the Revolving Period. The aggregate distributions of
principal to the Holders of Certificates of any Class will not exceed the
related Initial Certificate Balance thereof.
The Class Certificate Balance of each Class of Certificates will be
payable in full on the related Targeted Maturity Date. If the aggregate of
amounts allocated to cover such principal payment during the Collection
Periods from the end of the Revolving Period through such date (whether from
Principal Collections, Transferor Amounts, Available Interest or a Maturity
Advance) are insufficient to make such payment in full, all such amounts
available will be paid to the related Certificateholders on the related
Targeted Maturity Date and, thereafter, payment of all Principal Collections
in respect of the related Collection Period allocable to the Investor
Interest, together with interest thereon at the related Certificate Rate will
be paid on each related Certificate Payment Date on a monthly basis until the
Class Certificate Balance of such Class of Certificates has been reduced to
zero. In addition, after the occurrence of any Monthly Payment Event,
payments of principal
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will be made monthly to the Holders of each Class of Certificates sequentially,
to the extent funds are allocated and are available therefor as described above,
on each Monthly Allocation Date (and each such subsequent Monthly Allocation
Date will be a Certificate Payment Date).
The Investor Percentage of the net proceeds of any sale or other
disposition of the SUBI Interest, the SUBI Certificate or other property of the
Trust, to the extent such net proceeds constitute Principal Collections, will be
distributed first, to the Class A Certificateholders on a pro rata basis, based
on their respective Class Certificate Balances as of the last day of the
preceding Collection Period, until the Class A Certificates have been paid in
full and, second, to the Class B Certificateholders.
INVESTMENT OF AVAILABLE AMOUNTS
During the Revolving Period, Available Interest not paid out to the
Trustee or Servicer and not released to the Transferor on any Monthly
Allocation Date that is not a Certificate Payment Date will be deposited into
the Certificateholders' Account on such Monthly Allocation Date and invested
in Permitted Investments maturing prior to the succeeding relevant
Certificate Payment Date. Following the termination of the Revolving Period,
so long as any Certificates are outstanding, such amounts of Available
Interest and the Investor Percentage of Principal Collections with respect to
any Monthly Allocation Date that is not a Certificate Payment Date will be
deposited into the Certificateholders' Account on such Monthly Allocation
Date and invested in Permitted Investments maturing prior to the succeeding
relevant Certificate Payment Date or Targeted Maturity Date, as appropriate.
Such Permitted Investments are expected to include one or more TMCC Demand
Notes. TMCC Demand Notes will be unsecured general obligations of TMCC and
will rank PARI PASSU with all other unsecured and unsubordinated indebtedness
of TMCC outstanding from time to time. Each TMCC Demand Note will bear
interest at the Required Rate, which rate will adjust on each Monthly
Allocation Date. Each Demand Note will mature on the earlier of the Deposit
Date prior to the next succeeding Certificate Payment Date or Targeted
Maturity Date, as the case may be, and the Certificate Payment Date following
the occurrence of a Monthly Payment Event. Pursuant to the terms of the TMCC
Demand Notes, the Trustee will be entitled to demand payment of the principal
amount of the TMCC Demand Notes, together with accrued interest thereon, on
any Deposit Date.
"Monthly Payment Events", the occurrence of which will terminate the
investment of amounts held in the Certificateholders' Account and will cause
payments of interest on and principal of the Certificates to be made monthly
thereafter, will include (a) the occurrence of any of the Early Amortization
Events described in clauses (ii) through (vi) and (viii) of the definition
thereof or (b) the downgrade by Standard & Poor's of TMCC's short-term debt to
a rating less than A-1+, or the downgrade by Moody's of TMCC's short term debt
to a rating less than P-1 or TMCC's long term debt to a rating less than Aa3,
unless within ten days of such event alternative arrangements satisfactory to
the Rating Agencies are made with respect to the investment of Collections to be
invested.
EARLY AMORTIZATION EVENTS
As described above, the Amortization Period will commence on the earlier of
the Amortization Date or the occurrence of an Early Amortization Event and
continue until the Class Certificate Balances of each Class of Certificates is
reduced to zero. An "Early Amortization Event" will mean any of the following
events:
(i) failure by the Servicer (a) to make any payment or deposit
required with respect to the SUBI, the SUBI Interest or the Certificates
under the Agreement or the Servicing Agreement, within five Business Days
after the date the payment or deposit is required to be made, or (b) to
deliver a Servicer's Certificate within ten Business Days after any
Determination Date which failure continues unremedied for three Business
Days;
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(ii) failure by the Transferor or the Servicer duly to observe or
perform in any material respect any other of its covenants or agreements in
the Agreement (other than those described in clause (i) above) or the
Servicing Agreement, which failure materially and adversely affects the
rights of holders of the SUBI Interest or Certificateholders and which
continues unremedied for 60 days after the giving of written notice of such
failure (a) to the Transferor or the Servicer, as the case may be, by the
Trustee or the Titling Trustee or (b) to the Transferor or the Servicer, as
the case may be, and to the Trustee by holders of Certificates evidencing
not less than 25% of the Voting Interests of the Class A Certificates and
the Class B Certificates, voting together as a single class;
(iii) failure to cure the inaccuracy of certain representations,
warranties and certificates of the Transferor or the Servicer in the
Agreement or the Servicing Agreement, which failure materially and
adversely affects the rights of holders of the Transferor or
Certificateholders and which continues uncured for 60 days after notice is
given as described in clause (ii) above; provided that an Early
Amortization Event pursuant to this subparagraph (iii) will not be deemed
to occur if a related Reallocation Payment is due in connection with such
breach and has been paid by the Servicer in accordance with the Servicing
Agreement;
(iv) the occurrence of certain Insolvency Events relating to the
Transferor;
(v) creation of any lien or encumbrance not otherwise permitted by
the Agreement or the Servicing Agreement on the SUBI Assets, which lien or
encumbrance is not released within 60 days of its creation;
(vi) the Transferor, the Trust or the Titling Trust becomes subject
to registration as an "investment company" for purposes of the Investment
Company Act of 1940, as amended;
(vii) if the Servicer determines on the last day of any calendar
month commencing in October 1997 that the amount of Principal Collections
and reimbursed Loss Amounts that have not been reinvested in Subsequent
Contracts and Subsequent Leased Vehicles as of the last day of the
preceding Collection Period exceeds $-;
(viii) an Event of Servicing Termination occurs; or
(ix) if on any Monthly Allocation Date the aggregate amount
withdrawn from the Reserve Fund and deposited into the SUBI Collection
Account on or prior to such Monthly Allocation Date (without giving effect
to any deposits into the Reserve Fund) exceeds $- (i.e., -% of the
Aggregate Net Investment Value as of the Cutoff Date).
If, because of the occurrence of an Early Amortization Event, the
Amortization Period begins earlier than the Amortization Date,
Certificateholders may (and if a Monthly Payment Event occurs, will) begin
receiving distributions of principal earlier than they would otherwise have
under the Agreement, which may shorten the final maturity and the weighted
average life of any such Class of Certificates.
In addition, if an Insolvency Event with respect to the Transferor were to
occur during the Revolving Period, the Agreement will require the Transferor
promptly to give notice of such Insolvency Event to the Trustee. Pursuant to
the Agreement, within 15 days of such notice, the Trustee may, and upon receipt
of written instructions from holders of Certificates evidencing Voting Interests
of not less than 51% of the Class A Certificates (voting together as a single
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class) or 51% of the Class A Certificates and Class B Certificates (voting
together as a single class) shall, publish a notice of the Insolvency Event
stating that the Trustee intends to sell or dispose of the SUBI Interest and the
SUBI Certificate and the other property of the Trust in a commercially
reasonable manner. Following such publication, unless otherwise prohibited by
applicable law, the Trustee will sell or otherwise dispose of the SUBI Interest,
the SUBI Certificate and such other property in a commercially reasonable manner
and on commercially reasonable terms; provided that such sale shall not be made
without the consent of all the Certificateholders if a net loss would be
realized as a result of such sale. Proceeds of the sale or disposition of the
SUBI Interest, the SUBI Certificate and such other property, net of related
Trust Administrative Expenses, will be deposited into the SUBI Collection
Account and treated as Collections on or in respect of the SUBI Assets. The
interest portion of the Investor Percentage of such proceeds will be distributed
to the Certificateholders in the priority provided for herein, and the principal
portion of the Investor Percentage of such proceeds will be distributed first,
on a pro rata basis, to the Class A Certificateholders based on their respective
Class Certificate Balances until each such Class of Certificates has been paid
in full, and second, to the Class B Certificateholders. If such proceeds,
together with all amounts on deposit in the Accounts and the Reserve Fund,
amounts otherwise payable to the Transferor in respect of the Transferor
Interest and certain amounts otherwise distributable in respect of the Class B
Certificates, are insufficient to pay in full the Certificate Balance of a Class
of Class A Certificates and any accrued and unpaid interest thereon, the related
Class A Certificateholders will suffer a corresponding loss.
The "Voting Interests" of the (i) Class A Certificates will be allocated
among the Class A Certificateholders or Certificate Owners, as the case may be,
in accordance with their respective Class Certificate Balances, and (ii) Class B
Certificates will be allocated among the Class B Certificateholders in
accordance with the Class B Certificate Balance represented thereby.
Notwithstanding the foregoing, in certain circumstances, any Class A
Certificates or Class B Certificates held or beneficially owned by the
Transferor, TMCC or any of their respective affiliates shall be excluded from
such determination.
STATEMENTS TO CERTIFICATEHOLDERS
On each Monthly Allocation Date, the Trustee will include with each
distribution to each Certificateholder a statement, setting forth with respect
to such Monthly Allocation Date or the related Collection Period, among other
things, the following:
(i) the Investor Percentage and Transferor Percentage in effect
with respect to the related Collection Period;
(ii) the amount being allocated or distributed to each Class of
Certificateholders (the "Certificate Distribution Amount");
(iii) the amount of the Certificate Distribution Amount allocable to
interest on and principal of each Class of Certificates, separately
identifying any Maturity Advances;
(iv) the amount of the Certificate Distribution Amount allocable to
any Class A or Class B Interest Carryover Shortfall;
(v) the amount, if any, of any unpaid Class A or Class B Interest
Carryover Shortfall, after giving effect to distribution of the Certificate
Distribution Amount;
(vi) the Certificate Balance, the Class Certificate Balance of each
Class and the Certificate Factor with respect to each Class, in each case
as of such Monthly Allocation Date and after giving effect to the
allocation and/or distribution of the Certificate Distribution Amount;
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(vii) the aggregate amount, if any, of the reimbursement of Loss
Amounts included in distribution of the Certificate Distribution Amount and
the amount thereof allocated to each Class of Certificateholders;
(viii) the amount of the Certificate Distribution Amount allocable to
reimbursement of previous Certificate Principal Loss Amounts for each
Class, in each case together with the amount of accrued interest thereon
included in such distribution;
(ix) the amount, if any, of the aggregate unreimbursed Certificate
Principal Loss Amounts for each Class, after giving effect to distribution
of the Certificate Distribution Amount;
(x) the amount of any Class B Available Principal and unreimbursed
Class B Available Principal, after giving effect to distribution of the
Certificate Distribution Amount;
(xi) the Investor Percentage of the Servicing Fee;
(xii) the amount of any Required Amount included in the Certificate
Distribution Amount and the balance on deposit in the Reserve Fund on such
Monthly Allocation Date, after giving effect to withdrawals therefrom and
deposits thereto on such Monthly Allocation Date, the change in such
balance from the immediately preceding Monthly Allocation Date and the
Specified Reserve Fund Balance;
(xiii) the amount of Transferor Amounts, if any, included in the
Certificate Distribution Amount;
(xiv) the Aggregate Net Investment Value as of the end of such
Collection Period;
(xv) the aggregate amount of Payments Ahead received by the Servicer
and being held thereby or on deposit in the SUBI Collection Account in
respect of future Collection Periods and the change in such amount from the
immediately preceding Monthly Allocation Date;
(xvi) the amount of Advances and Maturity Advances made, and the
amount of unreimbursed Advances and Maturity Advances outstanding after
giving effect to distribution of the Certificate Distribution Amount; and
(xvii) certain information used in determining the Specified Reserve
Fund Balance.
Copies of such statements may be obtained by Certificateholders or
Certificate Owners by a request in writing addressed to the Trustee. In
addition, within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Agreement, the Trustee will
mail to each person who at any time during such calendar year shall have been a
Class A or Class B Certificateholder or a Certificate Owner, a statement
containing the sum of the amounts described in clauses (ii) through (xi) above
for the purpose of preparing such person's federal income tax return.
TERMINATION OF THE TRUST; RETIREMENT OF THE CERTIFICATES
The respective obligations and responsibilities of the Transferor and the
Trustee created by the Agreement will terminate upon the earliest to occur of
(i) the maturity, sale or other liquidation, as the case may be, of the last
outstanding Contract and Leased Vehicle evidenced by the SUBI and the
distribution of all proceeds thereof, together with all amounts on deposit in
the Accounts and the Reserve Fund, in the manner to be prescribed in the
Agreement, (ii) the day following the Monthly Allocation Date on which the
Certificates have been paid in full and
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after which there is no unreimbursed Certificate Principal Loss Amount or
Principal Carryover Shortfall (together with accrued interest thereon) and (iii)
the Transferor's optional repurchase of the SUBI Certificate as described below.
In order to avoid excessive administrative expenses, the Transferor will be
permitted at its option to purchase the SUBI Certificate from the Trust on any
Monthly Allocation Date on or after the Class A-3 Targeted Maturity Date if,
either before or after giving effect to any payment of principal required to be
made on such Monthly Allocation Date, the Certificate Balance is less than or
equal to $123,123,151.92(10% of the Aggregate Net Investment Value as of the
Cutoff Date) or amounts sufficient to effectively reduce the Certificate Balance
to such amount have been deposited in the Collection Account on such date. The
purchase price will be equal to the greater of (i) the sum of the Class A
Certificate Balance and the Class B Certificate Balance, in each case plus
accrued and unpaid interest thereon at the related Certificate Rate, plus
certain other accrued and unpaid amounts, if any, due to the Investor
Certificateholders or the Servicer, and (ii) the Aggregate Net Investment Value
as of the last day of the preceding Collection Period. The Trustee will give
written notice of termination of the Trust to each Certificateholder. In
connection with any such termination, except as otherwise provided in the
Agreement, the Transferor will be deemed to relinquish all claims it may have
against the assets of the Trust in respect of Transferor Amounts that were not
paid to the Transferor.
The final distribution to any Certificateholder will be made only upon
surrender and cancellation of such Certificateholder's Certificate at an office
or agency of the Trustee specified in the notice of termination.
PRESCRIPTION
In the event that any Certificateholder shall not surrender its
Certificates for retirement within six months after the date specified in
written notice given by the Trustee of the date for final payment thereof, the
Trustee shall give a second written notice to the remaining Certificateholders
to surrender their Certificates for retirement and receive the final
distribution with respect thereto. If within one year after such second notice
any Certificates shall not have been surrendered, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Trustee to a charity specified in the
Agreement.
BOOK-ENTRY REGISTRATION
Unless and until Definitive Certificates are issued with respect to the
Certificates or any Class of Certificates, each Class of Certificates offered
hereby will be represented by one or more certificates registered in the name of
Cede & Co., as nominee of DTC. Until then, Certificate Owners will hold
beneficial interests in Certificates through DTC (in the United States) or Cedel
Bank or Euroclear (in Europe or Asia) directly if they are participants of such
systems, or indirectly through organizations which are participants in such
systems. All references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from DTC Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer to distributions, notices, reports and statements to Cede & Co., as
the registered holder of the Securities, for distribution to Certificateholders
in accordance with DTC procedures. As such, it is anticipated that the only
Certificateholder will be Cede & Co., as nominee of DTC. Certificate Owners
will not be recognized by the Trustee as Certificateholders as such term is used
in the Agreement or Servicing Supplement, and Certificate Owners will only be
permitted to exercise their rights as such indirectly through DTC and DTC
Participants, as further described below.
Cedel Bank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
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Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Bank Participants and Euroclear Participants will occur
in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel Bank or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant international clearing system by its
Depositary. However, each such cross-market transaction will require delivery
of instructions to the relevant international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines. The relevant international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Cedel Bank Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
Because of time-zone differences, credits of Certificates received in Cedel
Bank or Euroclear as a result of a transaction with a DTC Participant will be
made during subsequent securities settlement processing and dated the Business
Day following the DTC settlement date. Such credits or any transactions in such
Certificates settled during such processing will be reported to the relevant
Euroclear or Cedel Bank Participant on such Business Day. Cash received in
Cedel Bank or Euroclear as a result of sales of Certificates by or through a
Cedel Bank Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel Bank or Euroclear cash account only as of the Business Day
following settlement in DTC. As used in this paragraph, "Business Day" means a
Business Day on which Cedel Bank and Euroclear are also transacting settlements
in securities.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participating members ("DTC Participants") and to facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic book-entries, thereby eliminating the need for physical
movement of certificates. DTC Participants include securities brokers and
dealers, banks, trust companies and clearing corporations which may include
underwriters, agents or dealers with respect to the Certificates of any class or
series. Indirect access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the Commission.
Certificate Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Certificates may do so only through DTC Participants and
Indirect DTC Participants. DTC Participants will receive a credit for the
Certificates on DTC's records. The ownership interest of each Certificate Owner
will in turn be recorded on respective records of the DTC Participants and
Indirect DTC Participants. Certificate Owners will not receive written
confirmation from DTC of their purchase, but Certificate Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the DTC Participant or Indirect DTC
Participant through which the Certificate Owner entered into the transaction.
Transfers of ownership interests in the Certificates of any Class will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Certificate Owners.
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The deposit of Certificates with DTC and their registration in the name of
Cede & Co. will effect no change in Certificate ownership. DTC will have no
knowledge of the identities of Certificate Owners and its records will reflect
only the identity of the DTC Participants to whose accounts such Certificates
are credited, which may or may not be the Certificate Owners. DTC Participants
and Indirect DTC Participants will remain responsible for keeping account of
their holdings on behalf of their customers. While the Certificates are held in
book-entry form, Certificate Owners will not have access to the list of
Certificate Owners, which may impede the ability of Certificate Owners to
communicate with each other.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. DTC Participants and Indirect DTC Participants with which
Certificate Owners have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners.
DTC's practice is to credit DTC Participants' accounts on each Certificate
Payment Date in accordance with their respective holdings shown on its records,
unless DTC has reason to believe that it will not receive payment on such
Certificate Payment Date. Payments by DTC Participants and Indirect DTC
Participants to Certificate Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such DTC Participant and not of DTC, the Trustee or Titling
Trustee (or any paying agent appointed thereby), the Transferor or the Servicer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal of and interest on each class of
Certificates to DTC will be the responsibility of the Trustee, disbursement of
such payments to DTC Participants will be the responsibility of DTC and
disbursement of such payments to the related Certificate Owners will be the
responsibility of DTC Participants and Indirect DTC Participants. As a result,
under the book-entry format, Certificate Owners may experience some delay in
their receipt of payments. DTC will forward such payments to its DTC
Participants which thereafter will forward them to Indirect DTC Participants or
Certificate Owners.
The ability of a Certificate Owner to pledge Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
with respect to such Certificates, may be limited due to the lack of a physical
certificate for such Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by a Certificateholder only at the direction of one or more DTC
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC has advised the Transferor that it will take such actions with
respect to specified percentages of the Certificateholders' interest only at the
direction of and on behalf of DTC Participants whose holdings include undivided
interests that satisfy such specified percentages. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of DTC Participants whose holdings include such
undivided interests.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Certificates. Under its usual procedures, DTC will mail an "Omnibus Proxy" to
the Trustee as soon as possible after any applicable Record Date for such a
consent or vote. The Omnibus Proxy will assign Cede & Co.'s consenting or
voting rights to those DTC
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Participants to whose accounts the related Certificates are credited on that
record date (which record date will be identified in a listing attached to the
Omnibus Proxy).
Cedel Bank is incorporated under the laws of Luxembourg as a professional
depository. Cedel Bank holds securities for its participating organizations
("Cedel Bank Participants") and facilitates the clearance and settlement of
securities transactions between Cedel Bank Participants through electronic book
entry changes in accounts of Cedel Bank Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
Cedel Bank in any of 28 currencies, including United States dollars. Cedel Bank
provides to Cedel Bank Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel Bank interfaces with
domestic markets in several countries. As a professional depository, Cedel Bank
is subject to regulation by the Luxembourg Monetary Institute. Cedel Bank
Participants are recognized financial institutions around the world including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations and may include any underwriters,
agents or dealers with respect to any Class A Certificates offered hereby.
Indirect access to Cedel Bank is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Bank Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include any
underwriters, agents or dealers with respect to any Class A Certificates offered
hereby. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member Bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under
the Terms and Conditions only on behalf of Euroclear Participants, and has no
record of or relationship with persons holding through Euroclear Participants.
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Distributions with respect to Certificates held through Cedel Bank or
Euroclear will be credited to the cash accounts of Cedel Bank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax withholding in accordance with relevant United States tax laws
and regulations. SEE "Material Income Tax Considerations" and "Annex I--Global
Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal
Tax Documentation Requirements". Cedel Bank or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a
Certificateholder on behalf of a Cedel Bank Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Cedel Bank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners rather than to
DTC only if (i) DTC is no longer willing or able to discharge its
responsibilities with respect to the Class A Certificates, and neither the
Trustee nor the Transferor is able to locate a qualified successor, (ii) the
Transferor, at its option, elects to terminate the book-entry system through DTC
or (iii) after an Early Amortization Event, Certificate Owners representing in
the aggregate not less than 51% of the Voting Interests of the Class A
Certificates (voting together as a single class) advise the Trustee through DTC
or its successor in writing that the continuation of a book-entry system through
DTC or its successor is no longer in the best interest of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners, through Participants, of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the certificates representing the
related Class A Certificates and the receipt of instructions for
re-registration, the Trustee will issue Definitive Certificates to Certificate
Owners, who thereupon will become Certificateholders for all purposes of the
Agreement.
Payments on the related Class A Certificates will thereafter be made by the
Trustee directly to holders of such Class A Certificates in accordance with the
procedures set forth herein and to be set forth in the Agreement. Interest
payments and any principal payments on the Definitive Certificates on each
Certificate Payment Date will be made to holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Payments will be made by check mailed to the address of such holders as
they appear on the Certificate Register or, under the circumstances to be
provided by the Agreement, by wire transfer to a bank or depository institution
located in the United States and having appropriate facilities therefor. The
final payment on any Class A Certificates, however, will be made only upon
presentation and surrender of such Definitive Certificates or global
certificates at the office or agency specified in the notice of final
distribution to Class A Certificateholders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar to be set forth in the
Agreement. No service charge will be imposed for any registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith.
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ASSETS OF THE TRUST
GENERAL
The property of the Trust will primarily consist of the SUBI Interest
evidenced by the SUBI Certificate, excluding the right to proceeds of the
Residual Value Insurance Policy retained by the Transferor pursuant to the
Agreement. The property of the Trust will also include such amounts as from
time to time are held in the SUBI Collection Account and the Certificateholders'
Account. The Trust will also have the collateral benefit of the Contingent and
Excess Liability Insurance Policies described below (and indemnification by TMCC
of the related deductibles) and the Trustee's rights as a third-party
beneficiary of the Servicing Supplement and SUBI Supplement.
As registered holder of the SUBI Certificate, the Trustee will be deemed to
have ownership of the SUBI Certificate and, through such ownership, an indirect
beneficial ownership interest in the Contracts and Leased Vehicles. If a court
of competent jurisdiction recharacterizes the transfer of the SUBI Interest to
the Trust as a transfer for security, the Trustee may instead be deemed to have
a perfected security interest in the SUBI Certificate, the Contracts and
Contract Rights susceptible of perfection under the UCC, but in no event will
the Trustee be deemed to have a perfected security interest in the Leased
Vehicles. SEE "Material Legal Aspects of the Titling Trust--Structural
Considerations".
THE ACCOUNTS; COLLECTIONS
THE SUBI COLLECTION ACCOUNT
On or prior to the Closing Date, the Titling Trustee will establish an
account maintained at the Trust Agent in the name of the Titling Trustee as the
SUBI Collection Account (the "SUBI Collection Account" and, together with the
Certificateholders' Account and the Reserve Fund, the "Accounts") as a trust
account for the exclusive benefit of the holders of interests in the SUBI into
which collections on or in respect of the Contracts and the Leased Vehicles with
respect to each Collection Period generally will be deposited on the Deposit
Date.
DEPOSITS INTO THE SUBI COLLECTION ACCOUNT. Deposits into the SUBI
Collection Account will include, but will not be limited to, the following
payments made in respect of the SUBI Assets: (i) Monthly Payments; (ii) early
payments in full of the Discounted Principal Balance of a Contract, including an
amount equal to the Residual Value of the related Leased Vehicle (each, a
"Prepayment"); (iii) Matured Leased Vehicle Proceeds, Repossessed Vehicle
Proceeds and other Liquidation Proceeds; (iv) Payments Ahead; (v) Advances made
by the Servicer and Maturity Advances made by the Transferor; and (vi)
Reallocation Payments by TMCC (together with, under certain circumstances during
the Amortization Period, Reallocation Deposit Amounts) in respect of certain
Contracts as to which an uncured breach of certain representations and
warranties or certain servicing covenants has occurred. Pursuant to the
Agreement and the Servicing Agreement, in the event that TMCC, as Servicer,
ceases to satisfy certain tests with respect to its credit ratings, the Servicer
will thereafter be required to commence depositing Interest and Principal
Collections and other proceeds in respect of the Contracts and Leased Vehicles
into the SUBI Collection Account within two Business Days of receipt thereof,
and will cease to have the right, described below, to make such deposits net of
amounts payable, reimbursable or distributable to TMCC, as Servicer. SEE
"Assets of the Trust--The Accounts; Collections". Deposits also will be made to
the SUBI Collection Account from, among other sources, (i) monies on deposit in
the Reserve Fund and (ii) the Transferor, in the event it purchases the SUBI
Certificate on or after the Class A-3 Targeted Maturity Date when the
Certificate Balance is less than or equal to $123,123,151.92 (10% of the
Aggregate Net Investment Value as of the Cutoff Date) or amounts sufficient to
effectively reduce the Certificate Balance to such amount have been deposited in
the Collection Account on such date.
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"Net Insurance Proceeds" will include recoveries pursuant to the Contingent
and Excess Liability Insurance Policies and the comprehensive, collision, public
liability and property damage insurance policy required to be obtained and
maintained by the lessee pursuant to each Contract (or payment by TMCC of the
deductibles as to which it has indemnified the Trust as described in "Additional
Document Provisions--The Servicing Agreement--Insurance on Leased Vehicles"),
and amounts paid by any insurer under any other insurance policies relating to
the Contracts, the related lessees or the Leased Vehicles (excluding any
Residual Value insurance policy the proceeds of which may be a SUBI Asset not
transferred by the Transferor to the Trust), in each case net of certain sums
applied to the repair of the related Leased Vehicles.
NET DEPOSITS. So long as TMCC is the Servicer, the Servicer will be
permitted to deposit in the SUBI Collection Account only the net amount
distributable to the Trustee, as holder of the SUBI Certificate, and the
Transferor on the related Deposit Date. The Servicer, however, will account to
the Trustee, the Titling Trustee, the Certificateholders and the Transferor as
if all of the deposits and distributions described herein were made
individually. This "net deposit" provision will be for the administrative
convenience of the parties involved and will not affect amounts required to be
deposited into the Accounts.
CERTAIN WITHDRAWALS FROM THE SUBI COLLECTION ACCOUNT. To the extent not
already netted against Collections, Matured Leased Vehicle Proceeds or
Liquidation Proceeds, as the case may be, the Titling Trustee shall remit to the
Servicer, without interest and prior to any other distribution from the SUBI
Collection Account on such date, monies from the SUBI Collection Account
representing (i) unreimbursed Matured Leased Vehicle Expenses, Repossessed
Vehicle Expenses and other Liquidation Expenses; (ii) delinquent Monthly
Payments with respect to which the Servicer has made an unreimbursed Advance;
and (iii) an amount equal to any unreimbursed Advances that the Servicer has
concluded are Nonrecoverable Advances. SEE "Additional Document Provisions--The
Servicing Agreement--Advances" regarding "Nonrecoverable Advances".
THE CERTIFICATEHOLDERS' ACCOUNT
On or prior to the Closing Date, the Trustee will establish an account
maintained at the Trust Agent in the name of the Trustee as the
Certificateholders' Account (the "Certificateholders' Account") as a trust
account for the exclusive benefit of the Certificateholders into which the
Investor Percentage of Interest Collections and Principal Collections will be
deposited on each Monthly Allocation Date to the extent allocated for
distribution on subsequent Certificate Payment Dates in the amounts described
above under "Description of the Certificates--Allocations and Distributions".
Amounts so deposited will be invested in Permitted Investments (which are
expected to include one or more TMCC Demand Notes) meeting the criteria and
bearing a rate of interest satisfactory to the Rating Agencies that mature on or
before the next relevant Certificate Payment Date. Upon the occurrence of a
Monthly Payment Event, however, no further deposits will be made to the
Certificateholders' Account, but instead all such investments will be liquidated
and amounts on deposit therein will be withdrawn and deposited into the
Collection Account on or before the next Deposit Date for distribution to
Certificateholders on the next Monthly Allocation Date (which will be a relevant
Certificate Payment Date with respect to interest on all Classes of Certificates
and with respect to principal on the outstanding Classes of Certificates to the
extent described above under "Description of the Certificates--Allocations and
Distributions"). Thereafter, Collections will simply be deposited into the
Collection Account for distribution to Certificateholders on a monthly basis on
each Certificate Payment Date.
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THE RESERVE FUND
On or prior to the Closing Date, pursuant to the Agreement, the Transferor
will establish the Reserve Fund as a trust account with the Trustee for the
benefit of the Certificateholders and the Transferor. The Reserve Fund will not
be an asset of the Trust. On each Monthly Allocation Date, to the extent
described herein, monies on deposit in the Reserve Fund will be applied to pay
certain Loss Amounts and shortfalls in respect of amounts collected with respect
to the related Collection Period. In addition, to the extent not otherwise
required to make any of the payments described under "Description of the
Certificates--Allocations and Distributions on the Certificates--Allocations and
Distributions of Collections", monies on deposit in the Reserve Fund will be
available to make payments to the Certificateholders should Collections
ultimately be insufficient to reduce the Class A Certificate Balances or the
Class B Certificate Balance to zero on the related Stated Maturity Date.
THE SPECIFIED RESERVE FUND BALANCE. The Reserve Fund will be created on or
prior to the Closing Date with the deposit by the Transferor of the Initial
Deposit. On each Monthly Allocation Date, the Reserve Fund will be supplemented
by certain Collections in excess of those amounts required to be allocated or
distributed to the Certificateholders and certain monies that otherwise would be
distributed as Transferor Amounts, until the amount on deposit therein equals
the applicable Specified Reserve Fund Balance. Except as described below, the
"Specified Reserve Fund Balance" with respect to any Monthly Allocation Date
will equal $-, except that, if on any Monthly Allocation Date (i) the average of
the Charge-off Rates for the three preceding Collection Periods exceeds -% or
(ii) the average of the Delinquency Percentages for the three preceding
Collection Periods exceeds -%, then the Specified Reserve Fund Balance will be
an amount equal to the greater of (a) $- and (b) -% of the outstanding Class
Certificate Balance of each Class of Certificates (after giving effect to
distributions of principal to be made on such Monthly Allocation Date);
provided, however, that the Specified Reserve Fund Balance shall in no event be
more than the sum of the outstanding principal amounts of each Class of
Certificates.
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the Contracts expressed, on an annualized
basis, as a percentage of the average of (i) the Aggregate Net Investment Value
on the last day of the immediately preceding Collection Period and (ii) the
Aggregate Net Investment Value on the last day of such Collection Period. The
"Aggregate Net Losses" with respect to a Collection Period will equal the
Discounted Principal Balance of all Contracts newly designated during such
Collection Period as Charged-off Contracts minus the sum of (x) Net Liquidation
Proceeds collected during such Collection Period with respect to all Charged-off
Contracts and (y) the portion of amounts subsequently received in respect of
Contracts liquidated in prior Collection Periods specified in the SUBI
Supplement. The "Delinquency Percentage" with respect to a Collection Period
will equal (a) the number of all outstanding Contracts 61 days or more
delinquent (after taking into account permitted deferrals) as of the last day of
such Collection Period, determined in accordance with the Servicer's normal
practices, plus (b) the number of repossessed Leased Vehicles that have not been
liquidated (to the extent the related Contract is not otherwise reflected in
clause (a) above), expressed as a percentage of the aggregate number of Current
Contracts on the last day of such Collection Period.
A "Current Contract" will be a Contract that is not a Charged-off Contract,
a Liquidated Contract, a Matured Contract or an Additional Loss Contract. A
"Liquidated Contract" will be a Contract that has been the subject of a
Prepayment in full or otherwise has been paid in full or, in the case of a
Charged-off Contract, a Contract as to which the Servicer has determined that
the final amounts in respect thereof have been paid. An "Additional Loss
Contract" will be a Contract as to which the related SUBI Assets have been sold
or otherwise disposed of by the Servicer, acting on behalf of the Titling Trust,
to pay an Additional Loss Amount.
The Transferor may, from time to time after the date of this Prospectus,
request each Rating Agency to (a) approve a formula for determining the
Specified Reserve Fund Balance that is different from the one described above
that would result in a decrease in the amount of the Specified Reserve Fund
Balance or (b) a change in the
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manner by which the Reserve Fund is funded or to meet the Specified Reserve Fund
Balance. If each Rating Agency delivers a letter to the Trustee to the effect
that the use of any such new formula or change will not result in a
qualification, reduction or withdrawal of its then-current rating of any Class
of Certificates, then such new formula or change will be implemented and, to the
extent necessary, the Agreement will be amended, without the consent of any
Certificateholder or Certificate Owner.
WITHDRAWALS FROM THE RESERVE FUND. On each Deposit Date the Trustee shall
withdraw from the Reserve Fund, to the extent available, and deposit in the SUBI
Collection Account an amount equal to the Required Amount. Amounts on deposit
in the Reserve Fund will also be available to make certain other payments to
Certificateholders and the Transferor. SEE "Assets of the Trust--The Accounts;
Collections--The Reserve Fund". Monies on deposit in the Reserve Fund on a
Monthly Allocation Date in excess of the Specified Reserve Fund Balance will be
released to the Transferor. Income on investment of amounts held in the Reserve
Fund will belong to the Transferor and will be distributed thereto on each
Monthly Allocation Date. Any such amounts received by the Transferor shall be
free of any claim of the Trust, the Trustee or the Investor Certificateholders
and shall not be available to the Trustee or the Trust for the purpose of making
deposits to the Reserve Fund or making payments to the Investor
Certificateholders, nor shall the Transferor be required to refund any amount
properly received by it.
MAINTENANCE OF THE ACCOUNTS
The Accounts will be maintained with the Trustee so long as either (i) the
short-term unsecured debt obligations of the Trustee are rated at least P-1 by
Moody's and A-1+ by Standard & Poor's or (ii) the Trustee is a depository
institution or trust company having a long-term unsecured debt rating from
Moody's of at least Baa3 and corporate trust powers and the related Account is
maintained in a segregated trust account in the corporate trust department of
the Trustee. If the Trustee at any time does not qualify under either of these
criteria, the Servicer shall, with the assistance of the Trustee, as necessary,
cause the related Account to be moved to a depository institution organized
under the laws of the United States or any state thereof that does so qualify,
or moved to a segregated trust account located in a corporate trust department
of a depository institution or trust company as described above.
PERMITTED INVESTMENTS
At the direction of the Servicer, the Trustee or the Trust Agent, as the
case may be, shall invest funds on deposit in the Collection Account and the
Reserve Fund in one or more Permitted Investments maturing no later than the
Deposit Date succeeding the date of such investment. At the direction of the
Servicer, the Trustee or the Trust Agent, as the case may be, shall invest funds
on deposit in the Certificateholders' Account in one or more Permitted
Investments maturing no later than the Deposit Date preceding the next relevant
Certificate Payment Date or the Target Maturity Date, as appropriate.
Notwithstanding the foregoing, (a) investments on which the entity at which the
related Account is located is the obligor may mature on the related Deposit Date
or Monthly Allocation Date, as the case may be, and (b) investments during the
Revolving Period of Principal Collections on deposit in the SUBI Collection
Account may mature on such dates as in the Servicer's discretion will maintain
sufficient cash to acquire Subsequent Contracts and Subsequent Leased Vehicles
on the related Transfer Dates.
All income or other gain from the foregoing investments generally shall be
retained in the related Account with such gain in respect of funds in the SUBI
Collection Account generally being treated as Interest Collections received in
respect of the related Collection Period. Any loss resulting from such
investments shall be charged to the related Account. "Permitted Investments"
will be specified in the SUBI Supplement and will be limited to investments that
meet the criteria of each Rating Agency from time to time as being consistent
with its then-current rating of each Class of Certificates outstanding.
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THE CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES
In addition to the physical damage and liability insurance coverage
required to be obtained and maintained by the lessees pursuant to the Contracts,
and as additional protection in the event that any lessee fails to maintain all
such required insurance, TMCC maintains contingent liability insurance with
third party insurers for bodily injury and property damage suffered by third
persons caused by any vehicle owned by any insured. TMCC also maintains with
such insurers substantial amounts of excess insurance coverage for which the
Titling Trust is an additional named insured (together with the aforementioned
primary contingent liability insurance policy, the "Contingent and Excess
Liability Insurance Policies"). These insurance policies collectively provide
insurance coverage of $100 million per occurrence, and permit multiple claims in
any policy period (with no annual or aggregate cap on the number of claims
thereunder). Such Contingent and Excess Liability Insurance Policies are subject
to significant per occurrence deductibles (generally $125,000, but $250,000 if
the related lessees primary insurance policy has lapsed or the related insurer
denies coverage on the basis that TMCC or an approved TMCC affiliate is named as
loss payee instead of the Titling Trust) in respect of which TMCC will indemnify
the Trust. However, in the event that all such insurance coverage were exhausted
and/or TMCC did not satisfy its indemnity obligations such that damages were
assessed against the Titling Trust, various claims could be imposed against the
Titling Trust Assets, including the SUBI Assets. In such event, investors in
the Class A Certificates could incur a loss on their investment. However, the
Titling Trust will be an additional named insured under the Contingent and
Excess Liability Insurance Policies and payments made thereunder in respect of
Leased Vehicles comprising SUBI Assets, and indemnity payments made by TMCC in
respect of related deductibles, will constitute SUBI Assets. To the extent that
payments under the Contingent and Excess Liability Insurance Policies are made
to third party claimants, they will reduce the Additional Loss Amounts that
otherwise would be required to be paid out of the SUBI Assets. SEE "Risk
Factors--Risks Associated with Vicarious Tort Liability with Respect to Leased
Vehicles", "--Structural Considerations--Allocation of Titling Trust
Liabilities" and "--Third-Party Liens on SUBI Assets" and "Certain Legal Aspects
of the Contracts and the Leased Vehicles--Vicarious Tort Liability".
The Servicing Agreement will provide that so long as any Certificates are
outstanding, neither the Titling Trustee nor TMCC may terminate or cause the
termination of any Contingent and Excess Liability Insurance Policy unless a
replacement insurance policy or binder is obtained and each Rating Agency has
delivered notice to the Trustee to the effect that the obtaining of any such
replacement insurance will not cause it to qualify, reduce or withdraw its
then-current rating of any Class of Certificates. The foregoing obligations of
TMCC will survive any termination of TMCC as Servicer under the Servicing
Agreement.
SUBORDINATION
The rights of the Class B Certificateholders will be subordinated to the
rights of the Class A Certificateholders to the extent described herein. This
subordination is intended to enhance the likelihood of timely receipt by Class A
Certificateholders of the full amount of interest and principal required to be
paid to them, and to afford such Certificateholders limited protection against
losses in respect of the Contracts.
The Class B Certificateholders will not receive any distributions of
interest with respect to a Certificate Payment Date until the full amount of
interest accrued on the Class A Certificate Balances and unreimbursed
Certificate Principal Loss Amounts previously allocated thereto has been
distributed to the Class A Certificateholders. The Class B Certificateholders
will not receive any distributions of principal with respect to any Certificate
Payment Date until the Class A-3 Certificate Principal Balance has been reduced
to zero. Distributions of interest on the Class B Certificates, to the extent
of collections on Contracts allocable to interest and the amount on deposit in
the Reserve Fund, will not be subordinated to the payment of principal of or
reimbursement of Loss Amounts allocated to the Class A Certificates.
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In addition, the rights of the Certificateholders to receive certain
distributions with respect to the Contracts will be subordinated to the rights
of the Servicer (to the extent that the Servicer is paid the Servicing Fee with
respect to the related Collection Period, including any unpaid Servicing Fees
with respect to one or more prior Collection Periods and any additional
servicing compensation as described herein, and to the extent the Servicer is
reimbursed for certain unreimbursed Advances).
ADDITIONAL DOCUMENT PROVISIONS
The following summaries of certain provisions of the Agreement, the
Titling Trust Agreement, the Servicing Agreement, TMCC Demand Notes and of the
Indenture do not purport to be complete and are qualified in their entirety by
reference to such agreements, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. Capitalized
terms used but not defined in such summaries have the meanings given to them in
the respective agreements.
ADDITIONAL AGREEMENT PROVISIONS
Certain additional provisions of the Agreement are summarized below.
NO PETITION
The Trustee will agree not to institute, or join in, any bankruptcy or
similar proceeding against the Transferor, TMCC, the Titling Trust or the
Titling Trustee until one year and one day after the later of (i) payment of the
Certificates in full and (ii) final payment of all other financings involving
interests in the Titling Trust (including the transaction described herein and
all other transactions involving the UTI and each Other SUBI).
AMENDMENT
The Agreement may be amended by the Transferor and the Trustee, without the
consent of the Certificateholders, to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with any other
provision therein, to add any other provisions with respect to matters or
questions arising under the Agreement which are not inconsistent with the
provisions of the Agreement or to add or amend any provision therein in
connection with permitting transfers of the Class B Certificates; provided that
any such action will not, in the good faith judgment of the parties, materially
and adversely affect the interest of any Certificateholder and the Trustee shall
have been furnished with an opinion of counsel to the effect that such amendment
will not materially and adversely affect the interest of any Certificateholder.
The Agreement may also be amended from time to time by the Transferor and
the Trustee (including with respect to changing the formula for determining the
Specified Reserve Fund Balance, the manner in which the Reserve Fund is funded,
changing the remittance schedule for collection deposits in the SUBI Collection
Account or changing the definition of Permitted Investments) if (a) the Trustee
has been furnished with a letter from each Rating Agency to the effect that such
amendment would not cause its then-current rating on any Class of Certificates
to be qualified, reduced or withdrawn or (b) the Trustee has received the
consent of the holders of Certificates evidencing not less than 51% of the
Voting Interests of the Class A Certificates and the Class B Certificates,
voting together as a single class, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Agreement
or of modifying in any manner the rights of each Class of Certificateholders;
provided, however, that no such amendment shall increase or reduce in any manner
the amount of, or accelerate or delay the timing of, collections of payments on
the SUBI or the SUBI Certificate or distributions that shall be required to be
made on any Class of Certificates or the applicable Certificate Rate and no
amendment of any type shall reduce the percentage of the aggregate Voting
Interests of the Certificates of any Class required
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to consent to any such amendment, in each case without the consent of all
Certificateholders and Certificate Owners.
Any amendment eliminating the Reserve Fund or reducing the Specified
Reserve Fund Balance shall also require the Transferor to deliver to the Trustee
an opinion of counsel to the effect that after such amendment, for federal
income tax purposes, the Trust will not be treated as an association taxable as
a corporation, and the Class A Certificates will, and the Class B Certificates
should, properly be characterized as indebtedness that is secured by the assets
of the Trust.
LIST OF CERTIFICATEHOLDERS
Upon a written request of the Servicer, the Trustee, as Certificate
Registrar, will provide to the Servicer within 15 days after receipt thereof a
list of the names and addresses of all Certificateholders. In addition, three
or more Certificateholders or holders of Certificates evidencing not less than
25% of the Voting Interests of any Class of Certificates, upon compliance by
such Certificateholders with certain provisions of the Agreement, may request
that the Trustee, as Certificate Registrar, afford such Certificateholders
access during business hours to the current list of Certificateholders for
purposes of communicating with other Certificateholders with respect to their
rights under the Agreement. SEE "Description of the Certificates--Book-Entry
Registration" and "--Definitive Certificates".
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
THE TRUSTEE
U.S. Bank will be the Trustee under the Agreement. The Corporate Trust
Office of the Trustee is located at One Illinois Center, 111 E. Wacker Drive,
Suite 3000, Chicago, Illinois 60601. U.S. Bank is not affiliated with TMCC,
although it does act as a service provider to TMCC.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act or becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by such successor
Trustee.
The Trustee must be a bank or trust company organized under the laws of the
United States, any state of the United States, the District of Columbia or the
Commonwealth of Puerto Rico, authorized to exercise corporate trust powers under
those laws, and subject to supervision or examination by federal or state laws,
with a combined capital and surplus of at least $50,000,000 and a long-term
deposit rating no lower than Baa3 by Moody's, or must be otherwise acceptable to
each Rating Agency. A co-trustee or separate trustee appointed as described
above need not meet these eligibility requirements.
Holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, generally will have the power to direct any
proceeding for any remedy available to the Trustee under the Agreement, and the
exercise of any trust or power conferred on the Trustee by the Agreement
(including actions by the Trustee in its capacity as a party to, or a
third-party beneficiary of, the SUBI Supplement or the Servicing Supplement).
However, the Trustee will not be required to follow such a direction if, after
being advised by counsel, it concludes that the action is unlawful, or if it in
good faith determines that the proceedings directed would be illegal, would
subject it to personal liability or would be unduly prejudicial to the rights of
other Certificateholders.
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A Certificateholder may institute proceedings under the Agreement, but only
if (i) such holder previously has given to the Trustee written notice of
default, (ii) holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, have made written request upon the Trustee to
institute such proceeding in its own name as Trustee and have offered to the
Trustee reasonable indemnity and (iii) the Trustee for 30 days has neglected or
refused to institute any such proceeding. The Trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the Agreement
or to make any investigation of matters arising thereunder or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the Certificateholders, unless such
holders have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
Certificateholders will have no express right to institute a proceeding directly
under the Titling Trust Agreement or the Servicing Agreement.
GOVERNING LAW
The Agreement will be governed by the laws of the State of California.
THE TITLING TRUST AGREEMENT
THE SUBI, THE OTHER SUBIS AND THE UTI
TMCC is the grantor and (as holder of the UTI) a beneficiary of the Titling
Trust. In its capacity as grantor, TMCC will from time to time assign,
transfer, grant and convey (or cause to be assigned, transferred, granted and
conveyed) to the Titling Trustee in trust the Titling Trust Assets. TMCC will
hold the UTI, which represents a beneficial interest in all Titling Trust Assets
other than the SUBI Assets and the Other SUBI Assets. TMCC may pledge the UTI
as security for obligations to third-party lenders and may create and sell or
pledge Other SUBIs in connection with financings similar to the transaction
described herein. Each holder or pledgee of the UTI and any Other SUBI will be
required expressly to disclaim any interest in the Titling Trust Assets other
than the UTI Assets or the Other SUBI Assets, respectively, and to subordinate
fully any claims to such other Titling Trust Assets in the event that this
disclaimer is not given effect. Except under the limited circumstances
described under "Certain Legal Aspects of the Titling Trust--Structural
Considerations--Allocation of Titling Trust Liabilities", the SUBI Assets will
not be available to make payments in respect of, or pay expenses relating to,
the UTI or any Other SUBIs, and the Other SUBI Assets evidenced by any Other
SUBIs will not be available to make payments on, or pay expenses relating to,
the SUBI, the UTI or any other SUBI.
Each Other SUBI will be created pursuant to a supplement to the Titling
Trust Agreement (each, an "Other SUBI Supplement") which will amend the Titling
Trust Agreement only with respect to the Other SUBI to which it relates. The
SUBI Supplement will amend the Titling Trust Agreement only as it relates to the
SUBI, and no Other SUBI Supplement will amend the Titling Trust Agreement as it
relates to the SUBI.
All Titling Trust Assets, including the SUBI Assets, will be owned by the
Titling Trust on behalf of the beneficiaries of the Titling Trust. The SUBI
Assets will be segregated from the rest of the Titling Trust Assets on the books
and records of the Titling Trustee and the Servicer and the holders of other
beneficial interests in the Titling Trust (including the UTI and any Other
SUBIs) will have no rights to the SUBI Assets. Liabilities of the Titling Trust
shall be allocated to the SUBI Assets, the UTI Assets or Other SUBI Assets,
respectively, if incurred with respect thereto, or will be allocated pro rata
among all Titling Trust Assets if incurred with respect to the Titling Trust
Assets generally.
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TMCC has obtained an insurance policy naming the Titling Trust as an
additional loss payee and providing coverage with respect to shortfalls in
amounts collected in respect of the Residual Values of lease contracts and
related leased vehicles that are Titling Trust Assets and that are or become
SUBI Assets. The proceeds of such policy with respect to Contracts and Leased
Vehicles that are SUBI Assets will also be SUBI Assets, but will be retained by
the Transferor and not transferred to the Trust with the SUBI Certificate and
will therefore not be available as Collections, Net Insurance Proceeds or
otherwise for the benefit of the Certificateholders.
Additional Loss Amounts will be incurred in the event that any uninsured
liability to third parties (i.e., litigation risk) on the part of the Titling
Trust is ultimately borne by the SUBI Assets, whether such liability is incurred
(i) with respect to the SUBI Assets and is therefore allocated to the SUBI
Assets pursuant to the SUBI Supplement, (ii) with respect to the Titling Trust
Assets generally and a pro rata portion of such liability is allocated to the
SUBI Assets pursuant to the Titling Trust Agreement or (iii) with respect to UTI
Assets or Other SUBI Assets if such UTI Assets or Other SUBI Assets are
insufficient to pay such liability. SEE "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Allocation of Titling Trust Liabilities" and "
- --Third-Party Liens on SUBI Assets". For purposes of making calculations with
respect to distributions on the Certificates, "Additional Loss Amounts" will
include both losses incurred with respect to the foregoing uninsured liabilities
and monies reserved within the SUBI Collection Account against future losses in
respect of such liabilities by the Servicer on behalf of the Trustee.
SPECIAL OBLIGATIONS OF TMCC AS BENEFICIARY AND GRANTOR
TMCC, as grantor and holder of the UTI Certificate, will be liable for all
debts and obligations arising with respect to the Titling Trust Assets or the
operation of the Titling Trust; provided, however, that its liability to any
holder, assignee or pledgee of the SUBI or the SUBI Certificate will be
governed by the SUBI Supplement, the Agreement and the agreement pursuant to
which TMCC transfers the SUBI to the Transferor, and its liability with respect
to any transfer, pledge or other financing of the UTI or any UTI Certificate,
or any Other SUBI or Other SUBI Certificate shall be as set forth in the
documents relating thereto. To the extent that TMCC shall pay or suffer any
liability or expense with respect to the Titling Trust Assets or the operation
of the Titling Trust (including reasonable attorneys' fees and expenses, but
excluding all obligations with respect to making Advances, Reallocation Payments
and Reallocation Deposits), TMCC shall be indemnified, defended and held
harmless out of the Titling Trust Assets.
TITLING TRUSTEE DUTIES AND POWERS; FEES AND EXPENSES
Pursuant to the Titling Trust Agreement, the Titling Trustee will be
required to, among other things, (i) apply for and maintain, or cause to be
applied for and maintained, all licenses, permits and authorizations necessary
and appropriate to accept assignments of the Contracts and the Leased Vehicles
and to carry out its duties as Titling Trustee, including motor vehicle dealer
licenses, and (ii) file, or cause to be filed, applications for certificates of
title as are necessary and appropriate so as to cause the Titling Trust to be
recorded as the holder of legal title of record to the Leased Vehicles.
The Titling Trustee may be replaced by TMCC only if it ceases to be
qualified in accordance with the terms of the Titling Trust Agreement and shall
be removed if certain representations and warranties made by the Titling Trustee
therein prove to have been materially incorrect when made, or in certain events
of bankruptcy or insolvency thereof. The Trustee, as holder of the SUBI
Certificate, on behalf of the Certificateholders may, or at the direction of
holders of Certificates evidencing not less than 51% of the Voting Interests of
the Class A Certificates and the Class B Certificates voting together as a
single class will, exercise its powers under the Titling Trust Agreement to
cause the Trustee to be removed or replaced for a material breach of its
obligations.
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The Titling Trustee will make no representations as to the validity or
sufficiency of the SUBI or the SUBI Certificate (other than as to the execution
and authentication of the SUBI Certificate), or of any Contract, Leased Vehicle
or related document, will not be responsible for performing any of the duties of
TMCC or the Servicer and will not be accountable for the use or application by
any owners of beneficial interests in the Titling Trust Assets of any funds paid
in respect of the Titling Trust Assets, or the investment of any of such monies
before such monies are deposited into the accounts relating to the SUBI, the
Other SUBIs and the UTI. The Titling Trustee will not independently verify the
Contracts or the Leased Vehicles. The duties of the Titling Trustee will
generally be limited to the holding and liquidation of lease contracts, the
titling of the related leased vehicles in the name of the Titling Trust, the
creation of the SUBI, the Other SUBIs and the UTI, the maintenance of the SUBI
Collection Account and accounts relating to the Other SUBIs and the UTI and the
receipt of the various certificates, reports or other instruments required to be
furnished to the Titling Trustee under the Titling Trust Agreement, in which
case it will only be required to examine them to determine whether they conform
to the requirements of the Titling Trust Agreement.
The Titling Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Titling Trust Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of the Servicer, the UTI Beneficiary or by the holders of a majority
in interest in the SUBI, unless such party or parties have offered to the
Titling Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby. The reasonable expenses of
every such exercise of rights or powers or examination shall be paid by the
party or parties requesting such exercise or examination or, if paid by the
Titling Trustee, shall be a reimbursable expense of the Titling Trustee.
The Titling Trustee may enter from time to time into one or more agency
agreements (each, an "Agency Agreement") with such person or persons, including
without limitation any affiliate of the Titling Trustee (each, a "Trust Agent"),
as are by experience and expertise qualified to act in a trustee capacity and
otherwise acceptable to TMCC. The Titling Trustee has engaged U.S. Bank as the
Trust Agent. Pursuant to the Agency Agreement, the Trust Agent shall perform
each and every obligation of the Titling Trustee under the Titling Trust
Agreement.
The Titling Trustee shall be paid out of Titling Trust Assets reasonable
compensation and reimbursement of all reasonable expenses (including reasonable
attorneys' fees). However, with regard to the SUBI Assets allocable to the SUBI
Interest, this requirement is subject to provisions regarding Capped Titling
Trust Administrative Expenses. SEE "Description of the
Certificates--Allocations and Distributions on the Certificates--Allocations and
Distributions of Collections".
INDEMNITY OF TITLING TRUSTEE AND TRUST AGENTS
The Titling Trustee and each Trust Agent will be indemnified and held
harmless out of and to the extent of the Titling Trust Assets with respect to
any loss, liability or expense, including reasonable attorneys' fees and
expenses (collectively "Claims"), arising out of or incurred in connection with
(i) any of the Titling Trust Assets (including without limitation any Claims
relating to lease contracts or leased vehicles of the Titling Trust, any
personal injury or property damage claims arising with respect to any such
leased vehicle or any claim with respect to any tax arising with respect to any
Titling Trust Asset) or (ii) the Titling Trustee's or the Trust Agent's
acceptance or performance of the trusts and duties contained in the Agreement or
any Agency Agreement. Notwithstanding the foregoing, neither the Titling
Trustee nor any Trust Agent will be indemnified or held harmless out of the
Titling Trust Assets as to any Claim (i) which TMCC shall have satisfied because
of its liability therefor pursuant to the Servicing Agreement, (ii) incurred by
reason of the Titling Trustee's or such Trust Agent's willful misfeasance, bad
faith or negligence or (iii) incurred by reason of the Titling Trustee's or
Trust Agent's breach of its respective representations and warranties pursuant
to the Titling Trust Agreement or the Servicing Supplement.
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Such indemnities may result in Additional Loss Amounts to the extent payable in
respect of the SUBI Assets or allocated to the SUBI.
TERMINATION
The Titling Trust and the respective obligations and responsibilities of
TMCC and the Titling Trustee shall terminate upon the last to occur of (i) the
payment to TMCC and each permitted purchaser, assignee and pledgee of any of
TMCC's interests in the Titling Trust (including the Trustee, with respect to
the SUBI Interest) of all amounts and obligations required to be paid to them,
and the expiration or termination of all financings secured by the Titling Trust
Assets by their respective terms and (ii) the maturity or liquidation and the
disposition of all Titling Trust Assets and the disposition to or upon the order
of TMCC or any permitted purchaser, assignee or pledgee of all net proceeds
thereof.
NO PETITION
The Titling Trustee and the Trust Agent will agree not to institute, or
join in, any bankruptcy or similar proceeding against the Transferor or TMCC
until one year and one day after final payment of all financings involving
interests in the Titling Trust. Each pledgee or assignee of any UTI or other
SUBI must give a similar non-petition covenant.
AMENDMENT
The Titling Trust Agreement may be amended by written agreement between
TMCC and the Titling Trustee, with the approval of the Trustee (which may be
given in the circumstances described under "Additional Document
Provisions--Additional Agreement Provisions--Amendment"). To the extent that
any such amendment relates to or affects the UTI or any Other SUBI in addition
to the SUBI, the SUBI Certificate or the SUBI Assets, such amendment may require
certain other approvals.
GOVERNING LAW
The Titling Trust Agreement will be governed by the laws of the State of
Delaware.
TRUSTEE AS THIRD-PARTY BENEFICIARY
As the holder of the SUBI Interest, the Trustee will be a third-party
beneficiary of the Titling Trust Agreement. Therefore, the Trustee may, and,
upon the direction of Certificateholders representing at least 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates (voting
together as a single class) will, exercise any right conferred by the Titling
Trust Agreement upon a holder of any interest in the SUBI.
THE SERVICING AGREEMENT
Pursuant to the Servicing Agreement, the Servicer will perform on behalf of
the Titling Trustee all of the obligations of the Trust as lessor under the
Contracts, including, but not limited to, collecting and posting payments,
responding to inquiries of the lessees, investigating delinquencies, sending
payment statements to the lessees, collecting and remitting certain sales and
use and other taxes to state and local governments and agencies, advancing
certain licensing fees, payments of fines for citations and costs of disposition
of Leased Vehicles related to Charged-off Contracts, Matured Contracts and
Additional Loss Contracts and policing the Contracts, commencing legal
proceedings to enforce a Contract on behalf of the Titling Trust, administering
the Contracts, including accounting for collections and furnishing monthly and
annual statements to the Titling Trustee with
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respect to distributions and generating federal income tax information. The
Titling Trustee will furnish the Servicer with all powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out such
servicing and administrative duties under the Servicing Agreement. The Trustee
will be a third-party beneficiary of the Servicing Agreement.
CUSTODY OF CONTRACT DOCUMENTS AND CERTIFICATES OF TITLE
To assure uniform quality in servicing the Contracts and TMCC's own
portfolio of automobile and light duty truck lease contracts and to reduce
administrative costs, the Titling Trustee will appoint TMCC, as Servicer, to be
its agent, bailee and custodian of the Contracts, the certificates of title
relating to the Leased Vehicles and insurance policies and other documents
relating to the Contracts, the related lessees and the Leased Vehicles. Such
documents will not be physically segregated from other automobile and light duty
truck lease contracts, certificates of title and insurance policies and other
documents relating to such lease contracts and leased vehicles of TMCC, or those
which TMCC services for others, including those leased vehicles constituting
Titling Trust Assets that are not evidenced by the SUBI. The accounting records
and computer systems of TMCC will reflect the interests of the holders of
interest in the SUBI in the Initial Contracts, the Subsequent Contracts, the
Initial Leased Vehicles, the Subsequent Leased Vehicles and all related Contract
Rights, and "protective" UCC financing statements reflecting certain interests
in the Contracts and the Contract Rights will be filed. SEE "Material Legal
Aspects of the Titling Trust--Structural Considerations--Back-up Security
Interest in Certain SUBI Assets" and "Certain Legal Aspects of the Contracts and
Leased Vehicles--Back-up Security Interests". The Servicer will be responsible
for filing all periodic sales and use tax or property (real or personal) tax
reports, periodic renewals of licenses and permits, periodic renewals of
qualification to act as a trust and a business trust and other periodic
governmental filings, registration or approvals arising with respect to or
required of the Titling Trustee or the Titling Trust.
COLLECTIONS
The Servicer will service, administer and collect all amounts due on or in
respect of the Contracts. The Servicer will make reasonable efforts to collect
all such amounts and, in a manner consistent with the Servicing Agreement, will
be obligated to service the Contracts generally in accordance with its customary
and usual procedures in respect of lease contracts serviced by it for its own
account.
Consistent with its usual procedures, the Servicer may, in its
discretion, defer one or more payments (having the practical effect of
extending the Maturity Date of any Contract) by up to four months in the
aggregate, provided that no Contract may be deferred more than four times and
that the new Maturity Date of any such Contract must not be later than the
last day of the Collection Period with respect to the Stated Maturity Date in
respect of the Class B Certificates occurs. The amount of any Deferral Fee
received by the Servicer in connection with the deferral of a Contract will
be treated as additional servicing compensation and will not be deposited
into the SUBI Collection Account. The Servicing Agreement will provide that
Advances be made with respect to Contracts as to which deferrals of payments
are made that result in any diminution of the amount of Collections received
in connection therewith relative to the originally scheduled Monthly
Payments. The Servicing Agreement will also provide for the reallocation to
the UTI from the SUBI (accompanied by an appropriate Reallocation Payment by
TMCC) of each Contract as to which more than four deferrals are made or as to
which, through deferrals or extensions, the maturity date is extended beyond
the last day of the Collection Period relating to the Stated Maturity Date in
respect of the Class B Certificates. Upon any such reallocation, such
Contract and the related Leased Vehicle and other related assets and rights
will be UTI Assets and will no longer constitute SUBI Assets.
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NOTIFICATION OF LIENS AND CLAIMS
The Servicer will be required to notify the Transferor (in the event that
TMCC is not acting as the Servicer), the Trustee and the Titling Trustee as soon
as practicable of all liens or claims of whatever kind made by a third party
that would materially adversely affect the interests of, among others, the
Transferor, the Titling Trust, the Trust or any Certificateholder in or with
respect to the Contracts or Leased Vehicles. Following its learning of any such
lien or claim with respect to the Contracts or Leased Vehicles, the Servicer
will take whatever actions it deems reasonably necessary to cause such lien or
claim to be removed. SEE "Certain Legal Aspects of the Titling
Trust--Structural Considerations".
ADVANCES
In addition to Advances with respect to delinquent Monthly Payments, on
each Deposit Date, the Servicer will be obligated to make, by deposit into the
SUBI Collection Account, an advance with respect to delinquent Contracts and
Contracts as to which it has deferred payments as described above under
"Collections" in an amount equal to the aggregate amount of Monthly Payments due
thereon but not received during the related Collection Period.
Notwithstanding the foregoing, the Servicer will not be required to make an
Advance to the extent that such Advance would constitute a Nonrecoverable
Advance. A "Nonrecoverable Advance" will be any Advance that, in the reasonable
judgment of the Servicer, may not be ultimately recoverable by the Servicer from
Net Liquidation Proceeds or otherwise. In making Advances, the Servicer will
assist in maintaining a regular flow of scheduled principal and interest
payments on such delinquent or deferred Contracts, rather than to guarantee or
insure against losses. Accordingly, all Advances including Nonrecoverable
Advances shall be reimbursable to the Servicer monthly, without interest, from
Collections prior to the deposit thereof into the SUBI Collection Account.
SECURITY DEPOSITS
The Contract Rights will include all rights under the Contracts to the
security deposits paid by the lessees at the time of origination of the
Contracts (the "Security Deposits") to the extent applied to cover excess wear
and tear charges or treated as Liquidation Proceeds as described below. As part
of its general servicing obligations, the Servicer will retain possession of
each Security Deposit remitted by the lessees as an agent for the Titling Trust
and will apply the proceeds of Security Deposits in accordance with the terms of
the Contracts, its customary and usual servicing procedures and applicable law.
However, in the event that any Contract becomes a Charged-off Contract or the
related Leased Vehicle is repossessed, the related Security Deposit will, to the
extent provided by applicable law and such Contract, constitute Liquidation
Proceeds. The Titling Trustee may not have an interest in the Security Deposits
that is enforceable against third parties until such time as they are deposited
into the SUBI Collection Account. The Servicer will not be required to
segregate Security Deposits from its own funds, and any income earned from any
investment thereof by the Servicer shall be for the account of the Servicer as
additional servicing compensation.
INSURANCE ON LEASED VEHICLES
The terms of the Contracts require each lessee to maintain in full force
and effect during the term of a Contract a comprehensive collision and physical
damage insurance policy covering the actual cash value of the related Leased
Vehicle and naming the Titling Trust as loss payee. The terms of the Contracts
also require each lessee to maintain bodily injury and property damage liability
insurance in amounts equal to the greater of the amount prescribed by applicable
state law or industry standards as set forth in the Contract and naming the
Titling Trust as an additional insured. Since lessees may choose their own
insurers to provide the required coverage, the
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specific terms and conditions of their policies vary. If a lessee fails to
obtain or maintain the required insurance, the related Contract will be in
default. It is the practice of TMCC not to obtain insurance on behalf of and
at the expense of the related lessee. TMCC's central insurance tracking unit,
which monitors compliance with such lease contract provisions, will initiate
follow-up procedures, including telephone and mail contact with the related
lessee, when it becomes aware any lessee has not obtained or is not
maintaining required insurance. Typically, if such default is not cured
within 70 days from the date TMCC's central insurance tracking unit is
alerted to such default by the tracking system, the related lease contract is
forwarded to the appropriate TMCC branch for follow-up handling, including
possible repossession of the related Leased Vehicle if the related lessee
does not timely obtain a satisfactory replacement policy.
The policies issued with respect to a significant number of the Contracts
may name TMCC rather than the Titling Trust as additional loss payee. If a
primary insurer makes payment under such a policy to TMCC, TMCC will apply such
amounts or forward such amounts to the Titling Trust for application as a
portion of Net Insurance Proceeds. If a primary insurer failed to make payments
under a policy to the lessee and also to TMCC and the Titling Trust, losses
could be experienced by the Certificateholders. However, the Transferor has
been advised by the primary provider of the Contingent and Excess Liability
Policies described herein that such provider will not refuse any claim under the
Contingent and Excess Liability Policies solely because a primary policy names
TMCC or an approved TMCC affiliate, rather than the Titling Trust, as additional
loss payee (although under such circumstances, if the primary insurer denies a
claim on such basis, a deductible of $250,000 (rather than the standard
deductible of $125,000) will be payable by TMCC, as to which TMCC will indemnify
the Trust).
TMCC does not require lessees to carry credit disability, credit life or
credit health insurance or other similar insurance coverage which provides for
payments to be made on the Contracts on behalf of such lessees in the event of
disability or death. To the extent that such insurance coverage is obtained by
a lessee, payments received in respect of such coverage may be applied to
payments on the related Contract to the extent that the lessee's beneficiary
chooses to do so.
REALIZATION UPON CHARGED-OFF CONTRACTS
The Servicer will use commercially reasonable efforts to repossess and
liquidate the Leased Vehicle relating to a Contract that comes into and
continues in default and for which no satisfactory arrangements can be made for
collection of delinquent payments. Such liquidation may be through repossession
of such Leased Vehicle and disposition at a public or private sale, or the
Servicer may take any other action permitted by applicable law. The Servicer
may enforce all rights under any such Contract, sell the Leased Vehicle in
accordance with the Contract and commence and prosecute any proceedings in
connection with the Contract. In connection with any such repossession, the
Servicer will follow its usual and customary practices and procedures in respect
of lease contracts serviced by it for its own account, and in any event will act
in compliance with all applicable laws. The Servicer will be required to repair
the Leased Vehicle if it reasonably determines that such repairs will increase
the related Net Repossessed Vehicle Proceeds. The Servicer will be responsible
for all costs and expenses incurred in connection with the sale or other
disposition of Leased Vehicles related to Charged-off Contracts and other
Contracts as to which a lessee has defaulted, but will be entitled to
reimbursement to the extent that such costs constitute Repossessed Vehicle
Expenses or other Liquidation Expenses or expenses recoverable under an
applicable insurance policy. Proceeds from the sale or other disposition of
repossessed Leased Vehicles will constitute Repossessed Vehicle Proceeds and
will be deposited into the SUBI Collection Account. The Servicer will be
entitled to reimbursement of all related Repossessed Vehicle Expenses, and
Principal Collections in respect of a Collection Period will include all Net
Repossessed Vehicle Proceeds collected during such Collection Period.
MATURED LEASED VEHICLE INVENTORY
Upon the scheduled maturity of a Contract, the related lessee has the
option to acquire the related Leased Vehicle for an amount equal to its Residual
Value plus any applicable taxes and all other incidental charges which may be
due under such Contract. If the lessee chooses not to exercise this option but
instead returns the Leased Vehicle, the dealer to whom such vehicle is returned
will have the option to purchase such vehicle for the same price. TMCC
disposes of off-lease and repossessed vehicles not purchased by the related
lessee or dealer to whom
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the vehicle is returned through regional automobile auctions. Off -lease and
repossessed vehicles not yet disposed of constitute Matured Leased Vehicle
Inventory.
Principal Collections in respect of a Collection Period will include all
Net Matured Leased Vehicle Proceeds collected during such Collection Period.
The Servicer also will be entitled to reimbursement of certain payments made and
expenses and charges incurred by it in the ordinary course of servicing the
Contracts (including payments it makes on behalf of the related lessees in
connection with the payment of taxes, vehicle registration, clearance of parking
tickets and similar items) from Collections with respect to the related
Contracts, separate payment thereof by the related lessees or from amounts
realized upon the final disposition of the related Leased Vehicle. To the
extent such amounts are reimbursed prior to or at the final disposition of the
related leased vehicle but remain unpaid by the related lessee, such
unreimbursed amounts (together with any unpaid Monthly Payments under the
related Contract) will be treated as Matured Leased Vehicle Expenses or
Liquidation Expenses, as the case may be, and will therefor reduce Net Matured
Leased Vehicle Proceeds or Liquidation proceeds, as the case may be. Related
Matured Leased Vehicle Expenses may be retained by the Servicer or released from
amounts on deposit in the SUBI Collection Account upon request therefor
presented to the Trustee by the Servicer together with any supporting
documentation reasonably requested by the Trustee. Any Residual Value Surplus
for a Collection Period will be released to the Transferor on the related
Monthly Allocation Date, and thereafter neither the Trust nor any
Certificateholder will have a claim to or interest in such amounts.
RECORDS, SERVICER DETERMINATIONS AND REPORTS
The Servicer will retain or cause to be retained all data (including,
without limitation, computerized records, operating software and related
documentation) relating directly to or maintained in connection with the
servicing of the Contracts for at least 2 years after the termination of the
Trust. Upon the occurrence and continuance of an Event of Servicing Termination
and termination of the Servicer's obligations under the Servicing Agreement, the
Servicer will use commercially reasonable efforts to effect the orderly and
efficient transfer of the servicing of the Contracts, including all such records
to the extent necessary, to a successor servicer.
The Servicer will perform certain monitoring and reporting functions on
behalf of the Transferor, the Trustee, the Titling Trustee and
Certificateholders, including the preparation and delivery to the Trustee, the
Titling Trustee and each Rating Agency of a monthly certificate, on or before
each Determination Date, setting forth all information necessary to make all
distributions required in respect of the related Collection Period (the
"Servicer's Certificate"), and the preparation and delivery of (i) monthly
statements setting forth information described under "Description of the
Certificates--Statements to Certificateholders" and (ii) an annual officer's
certificate specifying, among other things, the occurrence and status of any
Event of Servicing Termination.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of nationally recognized
independent public accountants will furnish to the Trustee annually, commencing
in 1998, a statement as to compliance by the Servicer during the preceding
twelve months (or since the Closing Date in the case of the first such
statement) with certain standards relating to the servicing of the Contracts.
The Servicing Agreement will also provide for delivery to the Trustee,
substantially simultaneously with the delivery of such accountants' statement,
of a certificate signed by an officer of the Servicer stating that the Servicer
has fulfilled its obligations under the Servicing Agreement throughout the
preceding twelve months (or since the Closing Date in the case of the first such
certificate) or, if there has been a default in the fulfillment of any such
obligation, describing each such default.
Copies of such statements and certificates may be obtained by Certificate
Owners or Class A Certificateholders by a request in writing addressed to the
Trustee at its Corporate Trust Office.
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SERVICING COMPENSATION
The Servicer will be entitled to compensation for the performance of its
servicing obligations under the Servicing Agreement. The Servicer will be
entitled to receive on each Monthly Allocation Date, the Servicing Fee in
respect of the related Collection Period equal to one-twelfth of the product of
1.00% and the Aggregate Net Investment Value as of the first day of the related
Collection Period (or, in the case of the first Monthly Allocation Date, as of
the Cutoff Date). The Servicing Fee will be calculated and paid based upon a
360-day year consisting of twelve 30-day months. So long as TMCC is the
Servicer, it may, by notice to the Trustee and the Titling Trustee, on or before
a Determination Date, elect to waive the Servicing Fee with respect to the
related Collection Period, so long as TMCC believes that sufficient collections
will be available from Interest Collections on one or more future Monthly
Allocation Dates to pay such waived Servicing Fee, without interest. In such
event, the Servicing Fee for such Collection Period shall be deemed to equal
zero for all purposes of the Agreement and the Servicing Agreement.
The Servicer will also be entitled to additional servicing compensation in
the form of certain late payment fees, Deferral Fees and other administrative
fees or similar charges paid with respect to the Contracts, and earnings from
the investment of Security Deposits (to the extent lawful and as provided in the
Contracts). SEE "Additional Document Provisions--The Servicing
Agreement--Security Deposits". The Servicer will be entitled to retain Deferral
Fees paid in connection with deferred Contracts as additional servicing
compensation. The Servicer will pay all expenses incurred by it in connection
with its servicing activities under the Servicing Agreement, including the
payment of Uncapped Administrative Expenses allocable to the SUBI Interest, and
will not be entitled to reimbursement of such expenses except to the extent any
such expenses constitute Liquidation Expenses in respect of a Contract or Leased
Vehicle or reasonable issuance expenses under an applicable insurance policy, or
to the extent that Uncapped Administrative Expenses are reimbursed out of
Interest Collections.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Contracts as an agent for the Trustee under the
Servicing Agreement, including collecting and posting payments, responding to
inquiries of lessees on the Contracts, investigating delinquencies, policing the
SUBI Assets, administering the Contracts, making Advances, accounting for
collections and furnishing monthly and annual statements to the Trustee with
respect to distributions and generating federal income tax information.
SERVICER RESIGNATION AND TERMINATION
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder are no
longer permissible by reason of a change in applicable law or regulations. No
such resignation will become effective until a successor servicer has assumed
the Servicer's obligations under the Servicing Agreement. The Servicer may not
assign the Servicing Agreement or any of its rights, powers, duties or
obligations thereunder except as otherwise provided therein or except in
connection with a consolidation, merger, conveyance, transfer or lease made in
compliance with the Servicing Agreement.
The rights and obligations of the Servicer under the Servicing Agreement
may be terminated following the occurrence and continuance of an Event of
Servicing Termination. SEE "Additional Document Provisions--The Servicing
Agreement--Rights Upon Event of Servicing Termination".
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INDEMNIFICATION BY THE SERVICER
The Servicer will indemnify the Trustee and its agents for any and all
liabilities, losses, damages and expenses that may be incurred by them as a
result of any act or omission by the Servicer in connection with the performance
of its duties under the Servicing Agreement.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" under the Servicing Agreement with
respect to the SUBI Assets will consist of, among other things: (i) any failure
by the Servicer to deliver to the Titling Trustee for distribution to holders of
interests in the SUBI or to the Trustee for distribution to the
Certificateholders any required payment on the related Certificate as to
allocations and distributions, which failure continues unremedied for three
Business Days after discovery of such failure by an officer of the Servicer or
receipt by the Servicer of notice thereof from the Trustee, the Titling Trustee
or holders of Certificates evidencing not less than 25% of the Voting Interests
of the Class A Certificates and the Class B Certificates, voting together as a
single class; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Servicing
Agreement which failure materially and adversely affects the rights of holders
of interests in the SUBI or the Certificateholders and which continues
unremedied for 90 days after written notice of such failure is given as
described in clause (i) above; or (iii) the occurrence of certain Insolvency
Events relating to the Servicer. Notwithstanding the foregoing, a delay in or
failure of performance referred to under clause (i) above for a period of ten
Business Days shall not constitute an Event of Servicing Termination if such
failure or delay was caused by an event of force majeure. Upon the occurrence
of any such event, the Servicer shall not be relieved from using all
commercially reasonable efforts to perform its obligations in a timely manner in
accordance with the terms of the Servicing Agreement and the Servicer shall
provide to the Trustee, the Titling Trustee, the Transferor and the
Certificateholders prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
RIGHTS UPON EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Titling Trustee, upon the direction of the Trustee or holders of Certificates
evidencing not less than 51% of the Voting Interests of the Class A Certificates
and the Class B Certificates, voting together as a single class, may terminate
all of the rights and obligations of the Servicer under the Servicing Agreement
with respect to the SUBI Assets. In the event of such a termination affecting
the SUBI Assets, the Trust Agent generally will succeed to the rights, powers,
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement with respect to the SUBI Assets (excluding certain specific
obligations listed in the Servicing Agreement) or provide for a new Servicer to
be approved by each Rating Agency. The Trust Agent or other new Servicer, will
receive substantially the same servicing compensation to which the Servicer
otherwise would have been entitled. If, however, a bankruptcy trustee or
similar official has been appointed for the Servicer, and no Event of Servicing
Termination other than such appointment has occurred, such trustee or official
may have the power to prevent the Titling Trustee, the Trustee or such
Certificateholders from effecting a transfer of servicing. Notwithstanding the
termination of the Servicer's rights and powers in such event, the Servicer will
remain obligated to perform certain specific obligations listed in the Servicing
Agreement and to reimburse the Trust Agent for any losses incurred in performing
certain such obligations, and will be entitled to payment of certain amounts
payable to it for services rendered prior to such termination.
The holders of Certificates evidencing not less than 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, with the consent of the Titling Trustee and the
Trustee (which consents shall not be unreasonably withheld) may waive any
default by the Servicer in the performance of
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its obligations under the Servicing Agreement and its consequences with respect
to the SUBI Assets, other than a default in making any required deposits to or
payments from an Account in accordance with the Servicing Agreement or in
respect of a covenant or provision of the Servicing Agreement that cannot be
modified or amended without the consent of each Certificateholder, in which
event the related waiver will require the approval of holders of all of the
Certificates. No such waiver will impair the rights of the Certificateholders
with respect to subsequent defaults.
NO PETITION
The Servicer will agree not to institute, or join in, any bankruptcy or
similar proceeding against the Transferor, the Titling Trustee or the Titling
Trust until one year and one day after final payment of all financings involving
interests in the Titling Trust.
AMENDMENT
The Servicing Agreement may be amended from time to time in a writing
signed by the Titling Trustee and the Servicer, with the approval of the Trustee
(which approval may be given in the circumstances described under "Additional
Document Provisions--Additional Agreement Provisions--Amendment"). Any such
amendment relating to the UTI or any Other SUBI may require certain other
approvals.
TERMINATION
The Servicing Agreement shall terminate upon the earlier to occur of (i)
the termination of the Titling Trust, (ii) the discharge of the Servicer in
accordance with its terms or (iii) the termination of the Agreement.
GOVERNING LAW
The Servicing Supplement will be governed by the laws of the State of
Delaware.
TMCC DEMAND NOTES
GENERAL
So long as a Monthly Payment Event has not occurred, and so long as the
Certificates of any Class are outstanding, amounts allocated to interest on or
principal of the Certificates of such Class on a Monthly Allocation Date that is
not also a Certificate Payment Date will be deposited into the
Certificateholders' Account on such Monthly Allocation Date and invested in
Permitted Investments maturing prior to the succeeding relevant Certificate
Payment Date or Targeted Maturity Date, as appropriate. The Servicer will have
the power to direct the investment of such funds in Permitted Investments. Due
to the incremental administrative difficulty in obtaining highly rated
investments in variable amounts and with variable maturities that bear the
required interest rate, the Servicer expects initially to invest all such funds
in TMCC Demand Notes. The TMCC Demand Notes will be issued under an indenture,
dated as of August l, 1997, as such indenture may be amended from time to time
(the "Indenture"), between TMCC and U.S. Bank, as trustee thereunder (in such
capacity, the "Indenture Trustee"). The terms of the TMCC Demand Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The principal amount of the TMCC Demand Notes outstanding will change
from time to time on Monthly Allocation Dates. The aggregate principal
amount of TMCC Demand Notes that may be issued under the
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Indenture is limited to $-. The principal amount of TMCC Demand Notes will
bear interest from and including the date of issuance of such principal
amount, to but excluding its date of Maturity. Interest on the TMCC Demand
Notes will only be paid at Maturity. Each TMCC Demand Note will mature on
the earlier of (x) in the case of the TMCC Demand Notes issued with respect
to the investment of Available Interest, the next succeeding Certificate
Payment Date, and in the case of the TMCC Demand Notes issued with respect to
the investment of Principal Collections and other amounts allocable as
principal, the next succeeding Targeted Maturity Date, and (y) the date on
which the Trustee demands payment of the TMCC Demand Notes (each such date,
a "Maturity"). The TMCC Demand Notes will bear interest at the Required
Rate, which rate will adjust each Monthly Allocation Date. Interest accrued
on TMCC Demand Notes will be calculated on the basis of a 360 day year of
twelve 30-day months.
The TMCC Demand Notes will be unsecured general obligations of TMCC and
will rank pari passu with all other unsecured and unsubordinated indebtedness of
TMCC from time to time outstanding. The TMCC Demand Notes will be obligations
solely of TMCC and will not be obligations of, or guaranteed by, TMS or any
affiliate of TMCC or TMS, directly or indirectly. The TMCC Demand Notes will
not be subject to redemption by TMCC and will not have the benefit of any
sinking fund.
The TMCC Demand Notes will be issued only in fully registered form without
coupons and payment of principal of and interest on TMCC Demand Notes will be
made by the Indenture Trustee as paying agent by wire transfer to an account
maintained by the Trustee, as the holder of the TMCC Demand Notes.
No Certificateholder will have a direct interest in the TMCC Demand
Notes or have any direct rights under the TMCC Demand Notes or the Indenture.
The Trustee will be the only holder of the TMCC Demand Notes, which it will
hold for the benefit of the Certificateholders. In the event any vote or
other action, including action upon the occurrence of an Event of Default
under the Indenture, is required or permitted by the holders of the TMCC
Demand Notes under the Indenture, the Trustee as such holder will be
permitted to vote or take such other action as it shall deem fit. However,
the Trustee shall be permitted to seek the direction of the
Certificateholders, who in such case shall be permitted to vote in the manner
set forth under "--Additional Agreement Provisions--Amendment" above.
References under this caption to "holders of the TMCC Demand Notes" and
phrases of similar import shall be to the Trustee as the holder of the TMCC
Demand Notes.
The "Required Rate" with respect to any Monthly Allocation Date is the
weighted average of the Certificate Rates (in each case expressed as the
equivalent of monthly rates of interest rate rather than as semi-annual coupon
rates) for each class of Certificates outstanding at the close of business on
such date, weighted on the basis of their respective Class Certificate
Balances.
SUCCESSOR CORPORATION
The Indenture provides that TMCC may consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other corporation, provided, that in any such case: (i) either TMCC shall be the
continuing corporation, or the successor corporation shall be a corporation
organized and existing under the laws of the United States or any state thereof
and shall expressly assume, by execution and delivery to the Indenture Trustee
of a supplemental indenture in form satisfactory thereto, all of the obligations
of TMCC under the TMCC Demand Notes and the Indenture; and (ii) TMCC or such
successor corporation, as the case may be, shall not, immediately after such
merger or consolidation, or such sale, lease or conveyance, be in default in the
performance of any such obligation. Subject to certain limitations in the
Indenture, the Indenture Trustee may receive from TMCC an officer's certificate
and an opinion of counsel as conclusive evidence that any such consolidation,
merger, sale, lease or conveyance, and any such assumption, complies with the
provisions of the Indenture.
SUPPLEMENTAL INDENTURES
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Supplemental indentures may be entered into by TMCC and the Indenture
Trustee with the consent of the holder of the TMCC Demand Notes, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights with
respect to the TMCC Demand Notes, provided that no supplemental indenture may,
among other things, reduce the principal amount of or interest on any TMCC
Demand Notes, change the maturity date for the payment of the principal, the
date on which interest will be payable or other terms of payment or reduce the
percentage of holders of TMCC Demand Notes necessary to modify or alter the
Indenture, without the consent of each holder of Certificates affected thereby.
Under certain circumstances, supplemental indentures may also be entered into
without the consent of the holders.
EVENTS OF DEFAULT UNDER THE INDENTURE
The Indenture defines an Event of Default with respect to the TMCC Demand
Notes as being any one of the following events: (i) default in payment of
principal on the TMCC Demand Notes; (ii) default in payment of any interest on
the TMCC Demand Notes and continuance of such default for a period of 30 days;
(iii) default in the performance, or breach, of any other covenant or warranty
of TMCC in the Indenture continued for 60 days after appropriate notice; and
(iv) certain events of bankruptcy, insolvency or reorganization. If an Event of
Default occurs and is continuing, the Indenture Trustee or the holders of at
least 25% in aggregate principal amount of TMCC Demand Notes may declare the
TMCC Demand Notes to be due and payable. Any past default with respect to the
TMCC Demand Notes may be waived by the holders of a majority in aggregate
principal amount of the outstanding TMCC Demand Notes, except in a case of
failure to pay principal of or interest on the TMCC Demand Notes for which
payment has not been subsequently made or a default in respect of a covenant or
provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding TMCC Demand Note. TMCC will be
required to file with the Indenture Trustee annually an officer's certificate as
to the absence of certain defaults. The Indenture Trustee may withhold notice
to holders of the TMCC Demand Notes of any default with respect to such series
(except in payment of principal or interest) if it in good faith determines that
it is in the interest of such holders to do so.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing, the
Indenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders,
unless such holders have offered to the Indenture Trustee reasonable indemnity
or security against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction. Subject to provisions in
the Indenture for the indemnification of the Indenture Trustee and to certain
other limitations, the holders of a majority in principal amount of the
outstanding TMCC Demand Notes will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee
with respect to the TMCC Demand Notes.
ABSENCE OF COVENANTS
The provisions of the Indenture do not contain any covenants that limit the
ability of TMCC to subject its properties to liens, to enter into any type of
transaction or business or to secure any of its other indebtedness without
providing security for the TMCC Demand Notes. The provisions of the Indenture
do not afford the holders of the TMCC Demand Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, change in control,
merger or similar transaction or other event.
DEFEASANCE AND DISCHARGE OF INDENTURE
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The Company may satisfy and discharge its obligations under the Indenture
by delivering to the Indenture Trustee for cancellation all outstanding TMCC
Demand Notes, or depositing with the Indenture Trustee money and/or U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money sufficient to pay the principal
of and interest on the outstanding TMCC Demand Notes on the date on which any
such payments are due and payable in accordance with the terms of the Indenture
and the TMCC Demand Notes, and in each case by satisfying certain additional
conditions in the Indenture. Thereafter the Company will no longer be required
to comply with, among other things, the other covenants described above under
"--Certain Covenants" and "--Merger, Consolidation or Sale of Assets." However,
in the case of any such deposit, certain of the Company's obligations under the
Indenture (including the obligation to pay the principal and interest on the
outstanding TMCC Demand Notes) will continue until all of the TMCC Demand Notes
are paid in full.
REGARDING THE INDENTURE TRUSTEE
The Indenture Trustee is the Trustee under the Agreement. The Indenture
contains certain limitations on the right of the Indenture Trustee, should it
become a creditor of TMCC, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Indenture Trustee is permitted to engage in other transactions
with TMCC; provided, however, that if the Indenture Trustee acquires any
conflicting interest (as defined) it must eliminate such conflict or resign.
The Indenture provides that, in case an Event of Default has occurred and
is continuing, the Indenture Trustee is required to use the degree of care and
skill of a prudent person in the conduct of his or her own affairs in the
exercise of its powers.
GOVERNING LAW
The Indenture and the TMCC Demand Notes will be governed by and construed
in accordance with the laws of the State of New York.
CERTAIN LEGAL ASPECTS OF THE TITLING TRUST
THE TITLING TRUST
The Titling Trust was formed as a Delaware business trust. The Titling
Trust also has been qualified as a business trust authorized to transact
business in certain other states where it is required to be so qualified.
Because the Titling Trust has been registered as a business trust for
Delaware and other state law purposes, like a corporation, it may be eligible to
be a debtor in its own right under the United States Bankruptcy Code. SEE "Risk
Factors--Risks Associated with Possible Future Insolvency of TMCC; Substantive
Consolidation with TMCC".
STRUCTURAL CONSIDERATIONS
Unlike many structured financings in which the holders of the related
securities have a direct ownership interest or a perfected security interest in
the underlying assets being securitized, the Trust will not own directly the
SUBI Assets. Instead, the Titling Trust will own the Titling Trust Assets,
including the SUBI Assets, and the Titling Trustee will take action with respect
thereto in the name of the Titling Trust on behalf of and as directed by the
beneficiaries of the Titling Trust (i.e. the holders of the UTI Certificate and
each SUBI Certificate or Other
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SUBI Certificate). The Trust will own the assets of the Trust, the primary
asset of which will be the SUBI Certificate evidencing a 100% beneficial
interest in the SUBI Assets, and the Trustee will take action with respect
thereto in the name of the Trust and on behalf of the Certificateholders and the
Transferor. Beneficial interests in the Contracts and Leased Vehicles, rather
than direct legal ownership thereof, are transferred under this structure in
order to avoid the administrative difficulty and expense of retitling the Leased
Vehicles in the name of the transferee. The SUBI Assets will be segregated from
the other Titling Trust Assets on the books and records maintained with respect
thereto by the Servicer and/or the Titling Trustee. Except under the limited
circumstances described below, neither the Servicer nor any holders of other
beneficial interests in the Titling Trust will have rights in the SUBI Assets,
and payments made on or in respect of any Titling Trust Assets other than the
SUBI Assets will not be available to make payments on the Certificates or to
cover expenses of the Titling Trust allocable to the SUBI Assets.
ALLOCATION OF TITLING TRUST LIABILITIES
Pursuant to the Titling Trust Agreement, the various liabilities of the
Titling Trust will be allocated to and charged against (i) to the extent
incurred specifically with respect thereto, the SUBI Assets, the Titling Trust
Assets allocated to Other SUBIs ("Other SUBI Assets") or Titling Trust Assets
not allocated to the SUBI or any Other SUBI (the "UTI Assets"), respectively, or
(ii) pro rata among the Titling Trust Assets if incurred with respect to the
Titling Trust Assets generally. The Titling Trustee and the beneficiaries of
the Titling Trust and their assignees and pledgees will be bound by the
foregoing allocation. Thus, any liability to third parties arising from or in
respect of a Contract or Leased Vehicle will be borne by the Trust as a holder
of interests in the SUBI. If any such liability arises from or in respect of a
contract or leased vehicle that is an Other SUBI Asset or a UTI Asset, the SUBI
Assets will not be subject to such liability unless such Other SUBI Assets or
UTI Assets are insufficient to pay the liability. However, to the extent that
there are no other assets from which to satisfy such liability, and such
liability is owed to entities other than the Titling Trustee or other
beneficiaries of the Titling Trust, the SUBI Assets may be used to satisfy such
liabilities. Under such circumstances, investors in the Class A Certificates
could incur a loss on their investment.
THIRD-PARTY LIENS ON SUBI ASSETS
Because the Trustee will not own directly the SUBI Assets, and since its
interest therein generally will be an indirect beneficial ownership interest,
perfected liens of third-party creditors of the Titling Trust in one or more
SUBI Assets will take priority over the interest of the Trustee therein. With
respect to claims relating to the SUBI Assets, this result is no different than
would be the case if a claim were made against the Trust and the Trust directly
owned the SUBI Assets. However, because the Titling Trust also will hold Other
SUBI Assets and UTI Assets, and third-party creditors of the Titling Trust may
not be bound in all cases by the allocation of liabilities described above, a
general creditor of the Titling Trust may obtain a lien on one or more SUBI
Assets. Such liens could include tax liens arising against the Transferor or
the Trust, liens arising under various federal and state criminal statutes,
judgment liens arising from successful claims under federal and state consumer
protection laws and Lemon Laws with respect to leases and leased vehicles that
are Titling Trust Assets and judgment liens arising from successful claims
against the Titling Trust arising from the operation of such leased vehicles.
Various liens could be imposed upon all or part of the SUBI Assets that, by
operation of law, would take priority over the Trustee's interest therein. SEE
"Risk Factors--Risks Associated with Consumer Protection Laws", "--Risks
Associated with ERISA Liabilities" and "--Risks Associated with Vicarious Tort
Liability with Respect to Leased Vehicles" and "Certain Legal Aspects of the
Contracts and the Leased Vehicles--Back-up Security Interests".
The Titling Trust Agreement provides that, to the extent that such a
third-party claim is satisfied out of one or more SUBI Assets rather than Other
SUBI Assets or UTI Assets, as the case may be, the Titling Trustee will
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reallocate the remaining Titling Trust Assets (i.e., the Other SUBI Assets and
the UTI Assets) so that each portfolio will bear the expense of the claim as
nearly as possible as if the claim had been allocated as provided in the Titling
Trust Agreement. However, if a third party claim exceeds the value of the
portfolio or portfolios of Titling Trust Assets to which it should be allocated,
and as a result the damages and expenses with respect to such claim are borne by
the SUBI Assets, investors in the Class A Certificates could incur a loss on
their investment. SEE "Additional Document Provisions--The Titling Trust
Agreement--The SUBI, the Other SUBIs and the UTI".
TMCC may pledge the UTI as security for obligations to third-party lenders,
and may create and sell or pledge Other SUBIs in connection with other
financings. Each holder or pledgee of the UTI or any Other SUBI will be
required expressly to disclaim any interest in the SUBI Assets, and to fully
subordinate any claims to the SUBI Assets in the event that this disclaimer is
not given effect. Although no assurance can be given, in the unlikely event of
a bankruptcy of TMCC, the Transferor believes that the SUBI Assets would not be
treated as part of TMCC's bankruptcy estate and that, even if they were so
treated, the subordination by holders and pledgees of the UTI and Other SUBIs
should be enforceable. In addition, a pledge of the UTI will not impair the
Titling Trustee's ability to reallocate leases and leased vehicles out of the
UTI Assets as Subsequent Contracts and Subsequent Leased Vehicles during the
Revolving Period.
BACK-UP SECURITY INTEREST IN CERTAIN SUBI ASSETS
The transfer of the SUBI Certificate by the Transferor to the Trust is
intended to constitute a sale of the SUBI Certificate and of the beneficial
interest in the SUBI Assets evidenced thereby, subject in each case to the
rights of the Transferor as the holder of the Transferor Interest. Although
unlikely, it is possible that a court could recharacterize (for accounting and
general state law purposes) the transactions contemplated by the Titling Trust
Agreement and SUBI Supplement as a financing secured by a pledge of the SUBI
Certificate or the SUBI Assets rather than as a sale. In such an event, absent
prior perfection of the Trustee's security interest in the SUBI Assets, the
holder of a perfected lien in one or more SUBI Assets would have priority over
the interest of the Trustee in such SUBI Assets.
Certain actions have been taken to ensure that, if the transfer of the SUBI
Interest were to be so recharacterized as a transfer to secure a loan, the
Trustee would be deemed to have a perfected security interest in the SUBI
Certificate (and the SUBI Interest evidenced thereby) and in the Contracts and
the Contract Rights susceptible of perfection under the Uniform Commercial Code
(the "UCC") as in effect in the Trust States. The "Contract Rights" are all
rights relating to the Contracts and the proceeds thereof, including the
documents evidencing such Contracts, Monthly Payments received or due on or
after the related Cutoff Date, Security Deposits (to the extent applied to cover
excess wear and tear charges or treated as Liquidation Proceeds as described
herein and as provided for in the Contracts), Prepayments, Liquidation Proceeds
and Net Insurance Proceeds (to the extent constituting proceeds of the related
Contract rather than proceeds of the related Leased Vehicle) received on or
after the related Cutoff Date. The SUBI Certificate will constitute an
"instrument" under the UCC and, by virtue of its possession thereof, the Trustee
will be deemed to have a perfected security interest therein (and the SUBI
Interest evidenced thereby). The Contracts will not be stamped to reflect the
Trustee's indirect interest therein. On or prior to the Closing Date, however,
"protective" UCC-1 financing statements will be filed in California, Illinois
and Delaware with respect to the Contracts and the Contract Rights to reflect
the perfection of any security interest that the Trustee would be deemed to have
therein. However, no action will be taken to perfect the lien that the Trustee
would be deemed to have in the Leased Vehicles in the event of such a
recharacterization. Therefore, to the extent that a valid lien is imposed by a
third party against a Leased Vehicle, the interest of the lienholder will be
superior to the unperfected beneficial interest of the Trustee in such Leased
Vehicle. The Servicing Agreement will require the Servicer to contest all such
liens and cause the removal of any liens that may be imposed, but investors in
the Class A Certificates could incur a loss on their investment if any such
liens are imposed against the Leased Vehicles. SEE "Additional Document
Provisions--The Servicing Agreement--Notification of Liens and Claims".
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Additionally, any perfected security interest of the Trustee in all or part
of the property of the Trust could be subordinate to claims of any trustee in
bankruptcy or debtor-in-possession in the event of a bankruptcy of the
Transferor prior to any perfection of the transfer of the assets transferred by
the Transferor to the Trust pursuant to the Agreement. SEE "Risk Factors--Risks
Associated with Possible Future Insolvency of TMCC; Substantive Consolidation
with TMCC".
INSOLVENCY RELATED MATTERS
Although no assurance can be given, the Transferor believes that in the
unlikely event of a bankruptcy of TMCC the SUBI Assets would not be treated as
part of TMCC's bankruptcy estate and that, even if they were so treated, the
subordination by holders and pledgees of the UTI and Other SUBIs should be
enforceable. In addition, the Transferor has taken steps in structuring the
transactions contemplated hereby that are intended to make it unlikely that the
voluntary or involuntary application for relief by TMCC under any Insolvency
Laws will result in consolidation of the assets and liabilities of the
Transferor, the Titling Trust or the Trust with those of TMCC. If, however, (i)
a court concluded that the assets and liabilities of the Transferor, the Titling
Trust or the Trust should be consolidated with those of TMCC in the event of the
application of applicable Insolvency Laws to TMCC, (ii) a filing were made under
any Insolvency Law by or against the Transferor, the Titling Trust or the Trust
or (iii) an attempt were made to litigate any of the foregoing issues, delays in
payments on the Certificates and possible reductions in the amount of such
payments could occur.
CERTAIN LEGAL ASPECTS OF THE
CONTRACTS AND THE LEASED VEHICLES
Although all Contracts have been or will be originated in the Trust States,
in some instances the related lessees may live in other states at the time of
origination or may move to another state after the time of origination.
Consequently, the related Leased Vehicles may be operated and registered in
states other than Trust States and the related certificates of title may be
recorded in such other states. The following discussion of certain legal
aspects of the Contracts and Leased Vehicles does not purport to address the
laws of every state in which a Leased Vehicle may be operated or registered or
in which title may be recorded.
BACK-UP SECURITY INTERESTS
The Contracts are "chattel paper" as defined in the UCC. Pursuant to the
California UCC, a non-possessory security interest in or transfer of chattel
paper in favor of the Titling Trust and the Transferor may be perfected by
filing a UCC-1 financing statement with the appropriate state authorities in the
jurisdiction in which the principal place of business of the transferor is
located (i.e. the California Secretary of State). On or prior to the Closing
Date, "protective" UCC-1 financing statements will be filed in California,
Delaware and Illinois to effect this perfection. If the Certificates were to be
recharacterized as loans secured by the SUBI Assets, the Trustee will be deemed
to have a perfected security interest in certain SUBI Assets, including the
Contracts. The Trustee's security interest in that circumstance could be
subordinate to the interest of certain other parties, if any, who take
possession of the Contracts before the filing described above has been
completed. Specifically, the Trustee's security interest in a Contract could be
subordinate to the rights of a purchaser of such Contract who takes possession
thereof without knowledge or actual notice of the Trustee's security interest.
The Contracts will not be stamped to reflect the foregoing back-up security
arrangements. Any perfected security interest of the Trustee in the Contracts
will be unaffected by any change of location of any lessee, since, under the
UCC, this back-up security interest will be perfected by the filing of a UCC-1
financing statement in the jurisdiction in which the chief executive office of
the "debtor" (in this case, the Titling Trust) is located, not the location of
any lessee.
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Various liens could be imposed upon all or part of the SUBI Assets
(including the Leased Vehicles) that, by operation of law, would take priority
over the Trustee's interest therein. Such liens could include tax liens arising
against the Transferor or the Trust, mechanic's, repairmen's, garagemen's and
motor vehicle accident liens and certain liens for personal property taxes, in
each case arising with respect to a particular Leased Vehicle, and liens arising
under various state and federal criminal statutes. Additionally, any perfected
security interest of the Trustee 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 assets transferred by the Transferor to the
Trust pursuant to the Agreement.
VICARIOUS TORT LIABILITY
Although the Titling Trust will own the Leased Vehicles, they will be
operated by the lessees and their respective invitees. State laws differ as to
whether anyone suffering injury to person or property involving a leased vehicle
may bring an action against the owner of the vehicle merely by virtue of that
ownership. To the extent that applicable State law permits such an action, the
Titling Trust and the Titling Trust Assets may be subject to liability to such
an injured party.
For example, in California, where a majority of the Initial Contracts were
originated, under Section 17150 of the California Vehicle Code, the owner of a
motor vehicle subject to a lease is responsible for injuries to persons or
property resulting from the negligent or wrongful operation of the vehicle by
any person using the vehicle with the owner's permission. The owner's liability
for personal injuries is limited to $15,000 per person and $30,000 in total per
accident and for property damage is limited to $5,000 per accident. However,
recourse for any judgment arising out of the operation of the vehicle must first
be had against the operator's property if the operator is within the
jurisdiction of the court.
The laws of most states, including the Trust States, either do not permit
such suits, or limit the lessor's liability to the amount of any liability
insurance that the lessee was required under applicable law to maintain (or in
the case of Florida, the lessor was permitted to maintain), but failed to
maintain. Notwithstanding the foregoing, in the event that vicarious liability
is imposed on the Titling Trust as owner of a Leased Vehicle in a state that
does not so limit liability, and the coverage provided by the Contingent and
Excess Liability Insurance Policies is insufficient to cover such loss,
including in certain circumstances with respect to a leased vehicle that is an
Other SUBI Asset or a UTI Asset, investors in the Class A Certificates could
incur a loss on their investments.
The Titling Trust's insurance coverage is substantial. However, in the
event that all applicable insurance coverage were exhausted and damages were
assessed against the Titling Trust, claims could be imposed against the Titling
Trust Assets, including the Leased Vehicles. Such claims would not take
priority over any SUBI Assets to the extent that the Trustee has a prior
perfected security interest therein (such as would be the case, in certain
limited circumstances, with respect to the Contracts). If any such claims were
imposed against the Titling Trust Assets and the Trustee did not have a prior
perfected security interest, investors in the Class A Certificates could incur a
loss on their investment. SEE "Certain Legal Aspects of the Titling
Trust--Structural Considerations--Back-up Security Interest in Certain SUBI
Assets".
REPOSSESSION OF LEASED VEHICLES
In the event that a default by a lessee has not been cured within a certain
period of time after notice, the Servicer will ordinarily retake possession of
the related leased vehicle. Some jurisdictions require that the lessee be
notified of the default and be given a time period within which to cure the
default prior to repossession.
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Generally, this right to cure may be exercised on a limited number of occasions
in any one-year period. In these jurisdictions, if the lessee objects or raises
a defense to repossession, an order must be obtained from the appropriate state
court, and the vehicle must then be repossessed in accordance with that order.
Other jurisdictions (including each of the Trust States) permit repossession
without notice, but only if the repossession can be accomplished peacefully. If
a breach of the peace cannot be avoided, judicial action is required. If a
breach of the peace cannot be avoided, the lessor typically must seek a writ of
possession or replevin in a state court action or pursue other judicial action
to repossess such leased vehicle.
After the Servicer has repossessed a Leased Vehicle, it may provide the
lessee with a period of time within which to cure the default under the related
Contract. If by the end of such period the default has not been cured, the
Servicer will attempt to sell the Leased Vehicle. The Net Repossessed Vehicle
Proceeds therefrom may be less than the remaining amounts due under the Contract
at the time of default by the lessee.
DEFICIENCY JUDGMENTS
The proceeds of sale of a leased vehicle generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
amounts due under the related lease contract. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale of a leased vehicle do not cover the full amounts due under the related
lease contract, a deficiency judgment can be sought in those states (including
each of the Trust States) that do not prohibit directly or limit such judgments.
However, in some states (including California), a lessee may be allowed an
offsetting recovery for any amount not recovered at resale because the terms of
the resale were not commercially reasonable. In any event, a deficiency
judgment would be a personal judgment against the lessee for the shortfall, and
a defaulting lessee might have little capital or sources of income available
following repossession. Therefore, in many cases, it may not be useful to seek
a deficiency judgment. Because it is a personal judgment against an obligor who
may have few if any assets remaining after the repossession, even if a
deficiency judgment is obtained, it may be settled at a significant discount or
it may prove impossible to collect all or any portion thereof.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose requirements
upon lessors and servicers involved in consumer leasing. The federal Consumer
Leasing Act of 1976 and Regulation M, issued by the Board of Governors of the
Federal Reserve System, for example, require that a number of disclosures be
made at the time a vehicle is leased, including, among other things, all amounts
due at the time of origination of the lease, a description of the lessee's
liability at the end of the lease term, the amount of any periodic payments, the
circumstances under which the lessee may terminate the lease prior to the end of
the lease term and (beginning in October 1997) the capitalized cost of the
vehicle and a warning regarding possible charges for early termination. Each of
the Trust States has adopted Article 2A of the uniform commercial code which
provides protection to lessees through certain implied warranties and the right
to cancel a lease contract relating to defective goods. In addition, California
and Florida have enacted comprehensive vehicle leasing statutes 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 Titling Trust as a "co-lessor" of the Contracts and may also apply to the
Trust as holder of a beneficial interest in the Contracts. The failure to
comply with such consumer protection laws may give rise to liabilities on the
part of the Servicer, the Titling Trust and the Titling Trustee, including
liabilities for statutory damages and attorneys' fees. In addition, claims by
the Servicer, the Titling Trust and the Titling Trustee may be subject to
set-off as a result of such noncompliance.
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Courts have applied general equitable principles in litigation relating to
repossession and deficiency balances. These equitable principles may have the
effect of relieving a lessee from some or all of the legal consequences of a
default.
In several cases, consumers have asserted that the self-help remedies of
lessors violate the due process protection provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally found
that repossession and resale by a lessor do not involve sufficient state action
to afford constitutional protection to consumers.
Many states, including each of the Trust States, have adopted laws (each, a
"Lemon Law") providing redress to consumers who purchase or lease a vehicle that
remains out of conformance with its manufacturer's warranty after a specified
number of attempts to correct a problem or after a specific time period. Should
any Leased Vehicle become subject to a Lemon Law, a lessee could compel the
Titling Trust to terminate the related Contract and refund all or a portion of
payments that previously have been paid. Although the Titling Trust may be able
to assert a claim against the manufacturer of any such defective Leased Vehicle,
there can be no assurance any such claim would be successful. To the extent a
lessee is able to compel the Titling Trust to terminate the related Contract,
such Contract will be deemed to be a Liquidated Contract and amounts received
thereafter on such Contract will be deemed to be Liquidation Proceeds. As
noted below, TMCC will represent and warrant to the Trustee as of the Cutoff
Date and as of each Transfer Date that none of the Initial Leased Vehicles or
the related Subsequent Leased Vehicles, as the case may be, is out of compliance
with any law, including any Lemon Law. Nevertheless, there can be no assurance
that one or more Leased Vehicles will not become subject to return (and the
related Contract terminated) in the future under a Lemon Law.
Representations and warranties will be made in the Titling Trust Agreement
that each Contract complies with all requirements of law in all material
respects. If any such representation and warranty proves to be incorrect with
respect to any Contract, has certain material adverse effects, and is not timely
cured, TMCC will be required under the Servicing Agreement to deposit an amount
equal to the Reallocation Payment (together with, in certain circumstances
during the Amortization Period, an amount equal to the Reallocation Deposit
Amount) in respect of such Contract into the SUBI Collection Account unless the
breach is cured. SEE "Additional Document Provisions--The Titling Trust
Agreement--The SUBI, the Other SUBIs and the UTI" and "The
Contracts--Representations, Warranties and Covenants".
OTHER LIMITATIONS
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including applicable Insolvency Laws, may interfere
with or affect the ability of a lessor to enforce its rights under an automobile
or light duty truck lease contract. For example, if a lessee commences
bankruptcy proceedings, the lessor's receipt of rental payments due under the
lease contract is likely to be delayed. In addition, a lessee who commences
bankruptcy proceedings might be able to assign the lease contract to another
party even though the lease prohibits assignment.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
Set forth below is a discussion representing the opinion of Andrews & Kurth
L.L.P., special federal income tax counsel to the Transferor, as to material
federal income tax consequences to holders of the Class A Certificates who are
original owners and who hold the Class A Certificates as capital assets under
the Internal Revenue Code
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of 1986, as amended (the "Code"). This discussion does not purport to be
complete or to deal with all aspects of federal income taxation or any aspects
of state or local taxation that may be relevant to Class A Certificateholders or
Certificate Owners in light of their particular circumstances, nor to certain
types of Class A Certificateholders or Certificate Owners subject to special
treatment under the federal income tax laws (for example, banks and life
insurance companies). This discussion is based upon present provisions of the
Code, the regulations promulgated thereunder and judicial and ruling
authorities, all of which are subject to change, which change may be
retroactive. The parties do not intend to seek a ruling from the Internal
Revenue Service ("IRS") on any of the issues discussed below. Moreover, there
can be no assurance that if such a ruling were sought, the IRS would rule
favorably. Taxpayers and preparers of tax returns (including those filed by
any partnership or other issuer) should be aware that under applicable Treasury
Regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice is (i) given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their respective tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. Prospective investors
should consult their own tax advisors with regard to the federal income tax
consequences of the purchase, ownership or disposition of the Class A
Certificates, as well as the tax consequences arising under the laws of any
state, foreign country or other taxing jurisdiction.
CHARACTERIZATION OF THE CLASS A CERTIFICATES AS INDEBTEDNESS
The Transferor and the Trustee (by entering into the Agreement) and each
Certificateholder, and each Certificate Owner (by acquiring a beneficial
interest in a Class A Certificate) will express their intent that and will agree
to treat the Class A Certificates as indebtedness, secured by the assets of the
Trust, for all federal, state and local income and franchise tax purposes.
However, because different criteria are used to determine the non-tax accounting
characterization of the transaction, the Transferor will treat the transfer of
the SUBI to the Trust, for financial accounting purposes, as a sale of an
ownership interest in the Titling Trust Assets and not as the issuance of a debt
obligation.
In general, the characterization of a transaction for federal income tax
purposes is based upon economic substance, and the substance of the transaction
in which the Class A Certificates are issued is consistent with the treatment of
the Class A Certificates as debt for federal income tax purposes. Although
there are certain judicial precedents holding that under appropriate
circumstances a taxpayer should be required to treat a transaction in accordance
with the form chosen by the taxpayer regardless of the transaction's substance,
the operative provisions of the transaction and the Agreement will not be
inconsistent with treating the Class A Certificates as debt and, accordingly,
these authorities should not be applied to require sale characterization for
federal income tax purposes. The determination of whether the economic
substance of a property transfer is a sale or a loan secured by the transferred
property depends upon numerous factors designed to determine whether the
Transferor has relinquished (and the transferee has obtained) substantial
incidents of ownership in the property. The primary factors examined are
whether the transferee has the opportunity to gain if the property increases in
value, and has the risk of loss if the property decreases in value. Based upon
its analysis of such factors, Andrews & Kurth L.L.P. is of the opinion that,
for federal income tax purposes, the characterization of the Class A
Certificates should be governed by the substance of the transaction and
accordingly, (i) the Trust will not be treated as an association or a publicly
traded partnership taxable as a corporation and (ii) the Class A Certificates
will properly be characterized as indebtedness that is secured by the assets of
the Trust.
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TAXATION OF INTEREST AND DISCOUNT INCOME
Assuming that the Certificate Owners are owners of debt obligations for
federal income tax purposes, interest generally will be taxable as ordinary
income for federal income tax purposes when received by the Certificate Owners
utilizing the cash method of accounting and when accrued by Certificate Owners
utilizing the accrual method of accounting. Interest received on the Class A
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
ORIGINAL ISSUE DISCOUNT. Under regulations issued with respect to the
original issue discount ("OID") provisions of the Code, the Class A Certificates
will be deemed to have been issued with OID in an amount equal to the excess of
the "stated redemption price at maturity" of the Class A Certificates (generally
equal to their Initial Class Certificate Balances plus all interest other than
"qualified stated interest" payable prior to or at maturity), over their
original issue price (in this case, the initial offering price at which a
substantial amount of the related Class of Class A Certificates is sold to the
public). Qualified stated interest generally means interest payable at a single
fixed rate or qualified variable rate provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the relevant Class A Certificates. Under the OID provisions of the Code,
interest will only be treated as qualified stated interest if it is
"unconditionally payable". Interest will be treated as "unconditionally
payable" only if Certificateholders have reasonable remedies to compel payment
of interest deficiencies (e.g., default and acceleration rights). Because Class
A Certificateholders will not be entitled to penalty payments of interest on
interest deficiencies, and Class A Certificateholders will have no default and
acceleration rights in the event of interest shortfalls, interest paid on the
Class A Certificates may not be treated by the IRS as qualified stated interest,
and, in such event, would be treated as OID. A Class A Certificateholder must
include OID income over the term of the related Class A Certificate under a
constant yield method. In general, OID must be included in income in advance of
the receipt of cash representing that income, regardless of the
Certificateholder's method of accounting.
The issue price of a Class A Certificate is the first price at which a
substantial amount of Class A Certificates are sold to the public (excluding
brokers, underwriters or wholesalers). If less than a substantial amount of a
particular Class of Class A Certificates is sold for cash on or prior to the
Closing Date, the issue price of such Class will be treated as the fair market
value of such Class on the Closing Date. The issue price of a Class A
Certificate also includes the amount paid by a Class A Certificateholder for
accrued interest that relates to a period prior to the issue date of the Class A
Certificate. The stated redemption price at maturity of a Class A Certificate
includes the initial Certificate Balance of the Class A Certificate, but
generally will not include distributions of interest if such distributions
constitute "qualified stated interest."
Under the de minimis rule, OID on a Class A Certificate will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Class A Certificate multiplied by the weighted average maturity
of the Class A Certificate. Certificateholders generally must report de minimis
OID pro rata as principal payments are received, and such income will be capital
gain if the Class A Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
The holder of a Class A Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Class A
Certificate, the sum of the "daily portions" of such original issue discount.
The amount of OID includible in income by a Certificateholder will be computed
by allocating to each day during a taxable year a pro rata portion of the
original issue discount that accrued during the relevant accrual period. If a
Certificateholder purchases a Class A Certificate issued with OID at an
"acquisition premium" (i.e., at a price in excess of the adjusted issue price of
the Class A Certificate, but less than or equal to the "stated
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redemption price at maturity"), the amount includible by such Certificateholder
in income in each taxable year as OID will be reduced by that portion of the
premium properly allocable to such year.
Although the matter is not entirely clear, the Transferor currently intends
to report all stated interest on the Class A Certificates as qualified stated
interest and not as OID.
MARKET DISCOUNT.
Certificate Owners should be aware that the resale of a Class A Certificate
may be affected by the market discount rules of the Code. These rules generally
provide that, subject to a de minimis exception, if a holder acquires a Class A
Certificate at a market discount (i.e., at a price below its "adjusted issue
price") and thereafter recognizes gain upon a disposition of the Class A
Certificate, the lesser of such gain or the portion of the market discount that
accrued while the Class A Certificate was held by such holder will be treated as
ordinary interest income realized at the time of the disposition. A taxpayer
may elect to include market discount currently in gross income in taxable years
to which it is attributable, computed using either a ratable accrual or a yield
to maturity method.
PREMIUM.
A Certificate Owner who purchases a Class A Certificate for more than its
stated redemption price at maturity will be subject to the premium amortization
rules of the Code. Under those rules, the Certificate Owner may elect to
amortize such premium on a constant yield method. Amortizable premium reduces
interest income on the related Class A Certificate. If the Certificate Owner
does not make such an election, the premium paid for the Class A Certificate
generally will be included in the tax basis of the Class A Certificate in
determining the gain or loss on its disposition.
Each Certificate Owner should consult his own tax advisor regarding the
impact of the original issue discount, market discount, and premium amortization
rules.
SALES OF CLASS A CERTIFICATES
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a Class A Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued stated interest) and (ii) the Certificate Owner's tax basis in the
Class A Certificate (as increased by any OID or market discount previously
included in income by the holder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments, other than qualified
stated interest payments, received with respect to such Class A Certificate).
Subject to the market discount rules discussed above and to the applicable
holding period requirement for long-term capital gain treatment, any such gain
or loss generally will be long-term capital gain or loss, provided that the
Class A Certificate was held as a capital asset. Moreover, capital losses
generally may be used only to offset capital gains. The recently enacted Tax
Relief Act of 1997 reduces the maximum rate of tax on net capital gains for
individuals on sales of certain assets (including stocks and securities) and
increases the time period for which an asset must be held for the gain from its
sale to be eligible for the lowest rate. Generally, the holding period is
increased from 12 to 18 months for the lowest rate, with a further rate
reduction scheduled to take effect after the year 2000 for the sale of certain
assets that have been held at least five years.
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FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income tax
treatment of investors that are not United States persons ("Foreign Investors")
if the Class A Certificates are treated as debt. The term "Foreign Investor"
means any person other than (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity organized in or under the laws of the
United States or any state or political subdivision thereof, or (iii) an estate
the income of which is includible in gross income for United States federal
income tax purposes, regardless of its source or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have authority to
control all substantial decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The Class A
Certificates will be issued in registered form; therefore, if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Class A Certificates.
For the Class A Certificates to constitute portfolio debt investments
exempt from United States withholding tax, the withholding agent must receive
from the Certificate Owner an executed IRS Form W-8 signed under penalty of
perjury by the Certificate Owner stating that the Certificate Owner is a Foreign
Investor and providing such Certificate Owner's name and address. The statement
must be received by the withholding agent in the calendar year in which the
interest payment is made, or in either of the two preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the sale,
exchange or redemption of such Class A Certificate, provided that (i) such gain
is not effectively connected with a trade or business carried on by the
Certificate Owner in the United States, (ii) in the case of a Certificate Owner
that is an individual, such Certificate Owner is not present in the United
States for 183 days or more during the taxable year in which such sale, exchange
or redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in the immediately preceding paragraph are
satisfied.
BACKUP WITHHOLDING
A Certificate Owner may be subject to a backup withholding at the rate of
31% with respect to interest paid on the Class A Certificates if the Certificate
Owner, upon issuance, fails to supply the Trustee or his broker with such
Certificate Owner's taxpayer identification number, fails to report interest,
dividends or other "reportable payments" (as defined in the Code) properly, or
under certain circumstances, fails to provide the Trustee or his broker with a
certified statement, under penalty of perjury, that such Certificate Owner is
not subject to backup withholding. Information returns will be sent annually to
the IRS and to each Certificate Owner setting forth the amount of interest paid
on the Class A Certificates and the amount of tax withheld thereon.
POSSIBLE ALTERNATIVE TREATMENT OF THE CLASS A CERTIFICATES
Although, as described above, it is the opinion of Andrews & Kurth L.L.P.
that the Class A Certificates will properly be characterized as debt for federal
income tax purposes, such opinion will not be binding on the IRS and thus no
assurance can be given that such a characterization shall prevail. If the IRS
were to contend
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successfully that the Class A Certificates did not represent debt for federal
income tax purposes, certain adverse tax consequences to the Class A
Certificateholders could result. For example, the Trust generally should be
required to pay corporate income tax on its taxable income (thus reducing the
cash available to make payments on the Class A Certificates). In addition,
income to certain tax-exempt entities (including pension funds) generally should
be "unrelated business taxable income", and income to foreign holders generally
should be subject to U.S. withholding tax and reporting requirements.
Prospective investors are advised to consult with their own tax advisors
regarding the federal income tax consequences of the purchase, ownership and
disposition of the Class A Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit pension, profit sharing
or other employee benefit plans ("Benefit Plans") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Benefit Plans
subject to ERISA. Under ERISA, any person who exercises any authority or
control with respect to the management or disposition of the assets of a Benefit
Plan is considered to be a fiduciary of such Benefit Plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may result in liability under ERISA and the Code for such persons.
Neither ERISA nor the Code defines the terms "plan assets". Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying assets
of an entity (such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an "equity
interest" in such entity. The Transferor believes that the Certificates will
give Certificateholders an equity interest in the Trust for purposes of the
Regulation. Under the Regulation, when a Plan acquires an equity interest that
is neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the underlying
assets of the entity will be considered "plan assets" unless the entity is an
"operating company" or equity participation in the entity by benefit plan
investors is not "significant".
A "publicly-offered security" is a security that is (a) freely
transferable, (b) part of a class of securities that is owned, immediately
subsequent to the initial offering, by 100 or more investors who were
independent of the issuer and of one another ("Independent Investors") and (c)
either is (i) part of a class of securities registered under section 12(b) or
12(g) of the Exchange Act, or (ii) sold to the plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and the class of securities of which such security is a part
is registered under the Exchange Act within 120 days (or such later time as may
be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. For
purposes of the 100 Independent Investor criterion, each Class of Certificates
should be deemed to be a "class" of securities that would be tested separately
from any other securities that may be issued by the Trust. Except to the extent
otherwise disclosed herein, it is anticipated that the Class A-1 and Class A-2
Certificates will meet the foregoing criteria for treatment as "public-offered
securities." No restrictions will be imposed on the transfer of the Class A-1
or Class A-2 Certificates. Although no assurances can be given, and no
monitoring or other measures will be taken to ensure, that such condition will
be met, the Underwriters expect that the Class A-1 and Class A-2 Certificates
will be held by at least 100 independent investors at the conclusion of the
initial public offering. The Class A Certificates will be sold as part of an
offering pursuant to an effective registration statement under the Act and then
will be timely registered under the Exchange Act.
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In the event the Requested Exemption (discussed below) is granted
substantially in the form (including that it is to apply retroactively to the
date of issuance of the Class A Certificates) for which application was made to
the DOL, the Transferor intends to deregister the Class A-1 and Class A-2
Certificates under the Exchange Act as soon as permitted by law. As a result,
the Class A-1 and Class A-2 Certificates may no longer be eligible to be held by
Benefit Plans that did not meet the eligibility criteria for the Requested
Exemption, even if more than 100 other qualified investors continued to hold
securities of each such Class. However, at such time the Class A-3 Certificates
would be an eligible investment for certain Benefit Plans under the Requested
Exemption even though they are not eligible investments for such investors as of
the Closing Date. The Transferor anticipates that all of the conditions of the
Exemption that are within its control will be satisfied if and when the
Exemption is granted. There can be no assurance that the Exemption will be
granted, or the date on which the Exemption might be granted.
Equity participation in an entity by "benefit plan investors" (i.e., Plans
and other employee benefit plans not subject to ERISA, such as governmental or
foreign plans, as well as entities holding assets deemed to be "plan assets") is
not "significant" on any date on which any series of certificates is issued and
outstanding if, immediately after the most recent acquisition of any equity
interest therein, less than 25% of the value of each class of equity interests
therein (excluding interests held by the related transferor, the trustee or
their affiliates in the case of a trust) is held by benefit plan investors. No
assurance can be given by the Transferor as to whether the value of each Class
of Certificates that might be deemed to be equity interests in the Trust held by
benefit plan investors will be "significant" upon completion of the offering of
any Certificates or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception.
TMCC, on behalf of itself and certain of its affiliates (including the
Transferor), has applied to the DOL for an administrative exemption (the
"Requested Exemption") from certain of the prohibited transaction rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale by
Benefit Plans of certificates similar to the Class A Certificates. There can be
no assurance that the Requested Exemption will be granted or that, if granted,
it will be made retroactive through the date of the issuance of the Class A
Certificates. Should the Requested Exemption be granted, it would apply to the
acquisition, holding and resale by Benefit Plans of the Class A Certificates
provided that specified conditions (including those described below) are met.
The Transferor believes that all conditions of the Requested Exemption other
than those within the control of the investors have or will be met.
For the Requested Exemption to apply to the acquisition by a Benefit Plan
of Class A Certificates, the Class A Certificates would be required to be
offered and sold initially to the public (including Benefit Plans) pursuant to
an underwriting arrangement with one or more underwriters which have received
one of a group of administrative exemptions from certain of the prohibited
transaction rules of ERISA. Such exemptions apply with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of certificates
representing interests in asset backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of such exemption. The DOL has granted such an administrative
exemption to one of the underwriters (Prohibited Transaction Exemption 90-25;
Exemption Application No. D-8102, 55 Fed. Reg. 42597 (1990), as amended).
Among the other conditions that are required to be satisfied for the
Exemption to apply to the acquisition by a Benefit Plan of the Class A
Certificates are the following (each of which the Transferor believes has been
or will be met in connection with the Class A Certificates):
(i) The acquisition of the Class A Certificates by a Benefit Plan
is on terms (including the price for the Class A Certificates) that are at
least as favorable to the Benefit Plan as they would be in an arm's length
transaction with an unrelated party.
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(ii) The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by any other Class of Certificates, and the rights and
interests evidenced by the SUBI Interest are not subordinated to the rights
and interests evidenced by Other SUBI Certificates or UTI Certificates.
(iii) The Class A Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from Standard & Poor's, Moody's,
Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch").
(iv) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum
of all payments made to and retained by the Transferor pursuant to the sale
of the SUBI Interest to the Trust represents not more than the fair market
value of the interest in the Contracts and Leased Vehicles represented
thereby. The sum of all payments made to and retained by the Servicer with
regard to the SUBI Assets represents not more than reasonable compensation
for the Servicer's services under the Servicing Agreement and reimbursement
of the Servicer's reasonable expenses in connection therewith.
(v) The Revolving Period ends no more than 15 consecutive months
from the Closing Date and (A) all Subsequent Contracts meet the terms and
conditions for eligibility described in this Prospectus, and (B) the
addition of Subsequent Contracts does not result in the reduction of the
ratings on the Class A Certificates received from any of Moody's, Standard
& Poor's, Duff & Phelps or Fitch.
(vi) After the Revolving Period ends, the average Lease Rate for the
Contracts included in the SUBI Assets shall not be more than 200 basis
points greater than the average Lease Rate for the Initial Contracts.
(vii) Principal Collections that are reinvested in Subsequent
Contracts during the Revolving Period are first invested in an eligible
lease contract with the earliest origination date, then in an eligible
lease contract with the next earliest origination date and so forth,
beginning with the lease contracts that have been reserved specifically for
such purpose at the time of the initial allocation of lease contracts to
the SUBI, but excluding those specific lease contracts reserved for
allocation to or allocated to Other SUBIs.
In addition, it is a condition that the Benefit Plan investing in the Class
A Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Requested Exemption would not apply to Benefit Plans sponsored by the
Transferor, the Underwriters, the Trustee, the Servicer, any lessee with respect
to Contracts allocated to the SUBI Assets constituting more than 5% of the
aggregate unamortized principal balance of the SUBI Assets, or any affiliate of
such parties (the "Restricted Group"). As of the date hereof, no lessee with
respect to the Contracts allocated to the SUBI Assets constitutes more than 5%
of the aggregate unamortized principal balance of the Trust (i.e., more than 5%
of the Aggregate Net Investment Value as of the Cutoff Date). Moreover, the
Requested Exemption would provide relief for sales, exchanges or transfers
between a Benefit Plan and the underwriter or sponsor with discretionary
investment authority over such Benefit Plan's assets, from certain
self-dealing/conflict of interest prohibited transactions, only if, among other
requirements, (i) a Benefit Plan's investment in the Class A Certificates does
not exceed 25% of all of the Class A Certificates outstanding at the time of the
acquisition, and (ii) immediately after the acquisition, no more than 25% of the
assets of a Benefit Plan with respect to which the person who has
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discretionary authority or renders investment advice are invested in Class A
Certificates representing an interest in a trust containing assets sold or
serviced by the same entity.
Due to the complexities of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is important that the fiduciary
of a Benefit Plan considering the purchase of Class A Certificates consult with
its counsel regarding the grant and applicability of the Requested Exemption and
the prohibited transaction provisions of ERISA and the Code to such investment.
Moreover, each Benefit Plan fiduciary should determine whether, under the
general fiduciary standards of investment prudence and diversification, an
investment in the Class A Certificates is appropriate for the Benefit Plan,
taking into account the overall investment policy of the Benefit Plan and the
composition of the Benefit Plan's investment portfolio.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated September-, 1997 (the "Underwriting Agreement"), among the
Transferor, TMCC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated (the "Underwriters"), the
Transferor has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase from the Transferor, severally but not jointly, the following
respective amounts of Class A Certificates:
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
Merrill Lynch, Pierce, Fenner &
Smith Incorporated . . . . . . . . $- $- $-
Lehman Brothers Inc. . . . . . . . $- $- $-
Morgan Stanley & Co. Incorporated . $- $- $-
Total . . . . . . . . . . . . $- $- $-
In the Underwriting Agreement the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Class A Certificates
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriter may be increased or the Underwriting Agreement
may be terminated.
The Transferor has been advised by the Underwriters that they propose to
offer the Class A Certificates to the public initially at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such prices less a concession of -%, -% and -% of the principal amount per Class
A-1, Class A-2 and Class A-3 Certificate, respectively, and that the
Underwriters and such dealers may allow a discount of -%, -% and -% of such
principal amount per Class A-1, Class A-2 and Class A-3 Certificate,
respectively, on sales to certain other dealers. After the initial public
offering, the public offering price and concessions and discounts to dealers may
be changed by the Underwriters.
The Transferor and TMCC have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act.
The Class A Certificates are a new issue of securities with no established
trading markets. The Transferor has been advised by the Underwriters that the
Underwriters intend to make a market in each Class of Class A Certificates, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in any Class of Class A Certificates and
any such market-making may be discontinued at any time at the sole discretion of
the Underwriters without notice. Accordingly, no assurance can be given as to
the liquidity of or trading markets for any Class of Class A Certificates.
The Underwriters have advised the Transferor that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids and syndicate covering
transactions, which may have the effect of stabilizing or maintaining the market
price of any Class of Class A Certificates at levels above those that might
otherwise prevail in the open market. A "stabilizing bid" is a bid for or the
purchase of any Class A Certificates on behalf of the Underwriters for the
purpose of fixing or maintaining the price of such Certificates. A "syndicate
covering transaction" is the bid for or the purchase of Class
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A Certificates on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with this offering.
Stabilizing bids and syndicate covering transactions may have the effect
of causing the price of the Class A Certificates of any Class to be higher than
it might be in the absence thereof. Neither the Transferor nor the Underwriters
makes any representation or prediction as to the direction or magnitude of any
such effect on the prices for the Certificates. Neither the Transferor nor the
Underwriters makes any representation that the Underwriters will engage in any
such transactions or that, once commenced, any such transactions will not be
discontinued without notice.
The Trust may, from time to time, invest the funds in the Accounts in
Permitted Investments acquired from one or more of the Underwriters or the
Servicer.
It is expected that delivery of the Class A Certificates will be made
against payment therefor on or about the date specified in the last paragraph of
the cover page of this Prospectus, which is the - business day following the
date hereof. Under Rule 15c6-1 of the Commission under the Exchange Act, trades
in the secondary market generally are required to settle in three business days,
unless the parties to any such trade expressly agree otherwise. Accordingly,
purchasers who wish to trade Class A Certificates on the date hereof will be
required, by virtue of the fact that the Class A Certificates initially will
settle - business days after the date hereof, to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement.
TMCC has agreed to pay the Underwriters a fee for certain advisory,
analytical and structuring services relating to the Titling Trust.
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Transferor or the Underwriters will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Certificates in Canada is being made only
on a private placement basis exempt from the requirement that the Transferor
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Class A Certificates are effected. Accordingly,
any resale of the Class A Certificates in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Class A Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Transferor and the dealer from
whom such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such Class A
Certificates without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as principal
and not as agent, and (iii) such purchaser has reviewed the text above under
"Resale Restrictions".
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RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of foreign issuers and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liabilities provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada. Following a recent decision of the U.S. Supreme
Court, it is possible that Ontario purchasers will not be able to rely upon the
remedies set out in Section 12(2) of the Securities Act if the securities are
being offered under a U.S. private placement memorandum.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Certificates to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Certificates acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from the
Transferor. Only one such report must be filed in respect of Class A
Certificates acquired on the same date and under the same prospectus exemption.
RATINGS OF THE CLASS A CERTIFICATES
It is a condition of issuance that each of Moody's and Standard & Poor's
rates each Class of Class A Certificates in its highest rating category. The
ratings of the Class A Certificates will be based primarily upon the value of
the Initial Contracts, the Reserve Fund and the terms of the Transferor Interest
and the Class B Certificates. There is no assurance that any such rating will
not be lowered or withdrawn by the assigning Rating Agency if, in its judgment,
circumstances so warrant. In the event that a rating with respect to any Class
of Class A Certificates is qualified, reduced or withdrawn, no person or entity
will be obligated to provide any additional credit enhancement with respect to
such Class of Class A Certificates.
The ratings of the Class A Certificates should be evaluated independently
from similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold the related Class A Certificates, inasmuch
as such rating does not comment as to market price or suitability for a
particular investor. The ratings of each Class of Class A Certificates
addresses the likelihood of the payment of principal of and interest on such
Certificates pursuant to their terms.
There can be no assurance as to whether any rating agency other than
Moody's and Standard & Poor's will rate the Class A Certificates, or, if one
does, what rating will be assigned by such other rating agency. A rating on any
Class of Class A Certificates by another rating agency, if assigned at all, may
be lower than the ratings assigned to such Class A Certificates by each of
Moody's and Standard & Poor's.
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LEGAL MATTERS
Certain legal matters, including certain federal income tax matters, with
respect to the Class A Certificates have been passed upon for TMCC and the
Transferor by Andrews & Kurth L.L.P., Los Angeles, California. Certain other
legal matters will be passed upon for TMCC and the Transferor with respect to
California, Florida, Michigan, Ohio and Pennsylvania law, by Hudson Cook LLP,
Crofton, Maryland. Certain other legal matters will be passed upon for TMCC
and the Transferor with respect to Delaware law, by -. Brown & Wood LLP, New
York, New York will act as counsel for the Underwriters and has performed
certain legal services for TMCC in connection with the Titling Trust.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of Toyota Motor Credit Corporation for the year
ended September 30 , 1996 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of that
firm as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the three-month periods ended December 31, 1996 and
1995, the six-month periods ended March 31, 1997 and 196, and the nine-month
periods ended June 30, 1997 and 1996 incorporated by reference in this
Prospectus, Price Waterhouse LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports dated February 12, 1997, May 12,
1997 and August 12, 1997 incorporated by reference herein state that they did
not audit and they do not state an opinion on that unaudited consolidated
financial information. Price Waterhouse LLP has not carried out any significant
additional audit tests beyond those which would have been necessary if their
reports had not been included. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of section 11 of the Securities Act for their reports on
the unaudited consolidated financial information because those reports are not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of section 7 and 11 of the Securities
Act.
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INDEX OF CAPITALIZED TERMS
Accelerated Principal Distribution Amount. . . . . . . . . . . . . . . . . . .11
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Additional Loss Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Additional Loss Contract . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Adjusted Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . .10
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Agency Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Aggregate Net Investment Value . . . . . . . . . . . . . . . . . . . . . . . .11
Aggregate Net Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Amortization Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Available Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capped Contingent and Excess Liability Premiums. . . . . . . . . . . . . . . .51
Capped Origination Trust Administrative Expenses . . . . . . . . . . . . . . .51
Capped Trust Administrative Expenses . . . . . . . . . . . . . . . . . . . . .51
Cedel Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Cedel Bank Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Certificate Distribution Amount. . . . . . . . . . . . . . . . . . . . . . . .55
Certificate Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Certificate Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Certificate Principal Loss Amount . . . . . . . . . . . . . . . . . . . . . .
Certificateholders' Account. . . . . . . . . . . . . . . . . . . . . . . . . .63
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Charge-off Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Charged-off Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Charged-off Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Class A Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Class A Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . .50
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Class A-1 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class A-2 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class A-3 Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class B Available Principal . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Class B Interest Carryover Shortfall . . . . . . . . . . . . . . . . . . . . .50
Class B Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Contingent and Excess Liability Insurance Policies . . . . . . . . . . . . . .65
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Contract Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Current Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Deferral Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Delinquency Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Deposit Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Discounted Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Discounted Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . .11
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Early Amortization Event . . . . . . . . . . . . . . . . . . . . . . . . . . .53
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12, 60
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Events of Servicing Termination. . . . . . . . . . . . . . . . . . . . . . . .77
Excess Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
First Principal Monthly Allocation Date. . . . . . . . . . . . . . . . . . . . 8
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Indirect DTC Participants. . . . . . . . . . . . . . . . . . . . . . . . . . .58
Initial Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Initial Class A-1 Certificate Balance. . . . . . . . . . . . . . . . . . . . . 4
Initial Class A-2 Certificate Balance. . . . . . . . . . . . . . . . . . . . . 4
Initial Class A-3 Certificate Balance. . . . . . . . . . . . . . . . . . . . . 4
Initial Class B Certificate Balance. . . . . . . . . . . . . . . . . . . . . . 5
Initial Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Initial Leased Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Insolvency Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Interest Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Interest Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investor Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor Percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Lease Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lemon Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Liquidated Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Loss Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20, 46
Matured Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
104
<PAGE>
Matured Leased Vehicle Expenses. . . . . . . . . . . . . . . . . . . . . . . .15
Matured Leased Vehicle Inventory . . . . . . . . . . . . . . . . . . . . . . .11
Matured Leased Vehicle Proceeds. . . . . . . . . . . . . . . . . . . . . . . .14
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Maturity Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Monthly Allocation Date . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Monthly Payment Event . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moody's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Net Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Net Matured Leased Vehicle Proceeds. . . . . . . . . . . . . . . . . . . . . .16
Net Repossessed Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . .10
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Origination Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .30
Other SUBI Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Other SUBI Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Other SUBIs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Outstanding Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . .13
Payment Ahead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Payoff Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Permitted Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Principal Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Principal Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Realized Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Reallocation Deposit Amount. . . . . . . . . . . . . . . . . . . . . . . . . .45
Reallocation Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Repossessed Vehicle Expenses . . . . . . . . . . . . . . . . . . . . . . . . .15
Repossessed Vehicle Proceeds . . . . . . . . . . . . . . . . . . . . . . . . .14
Required Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Requested Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Residual Value Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . .20
Residual Value Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule of Contracts and Leased Vehicles. . . . . . . . . . . . . . . . . . .41
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Security Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Servicing Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Specified Reserve Fund Balance . . . . . . . . . . . . . . . . . . . . . . . .64
Standard & Poor's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Stated Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i, 1
105
<PAGE>
SUBI Supplement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
SUBI Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SUBI Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
SUBI Collection Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Subsequent Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Subsequent Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Targeted Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Titling Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Titling Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Titling Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Titling Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TMA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TMCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, 31
TMCC Demand Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
TMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Transfer Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Transferor Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Transferor Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ii
Transferor Percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Trust Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . .
Trust Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Trust States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
U.S. Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unallocated Principal Collections. . . . . . . . . . . . . . . . . . . . . . .47
Uncapped Titling Trust Administrative Expenses . . . . . . . . . . . . . . . .51
Uncapped Trust Administrative Expenses . . . . . . . . . . . . . . . . . . . .51
UTI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
UTI Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
UTI Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Voting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
106
<PAGE>
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A-1
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through DTC, Cedel Bank or Euroclear. The Global Securities will be tradeable
as home market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel Bank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through DTC
will be conducted according to the rules and procedure applicable to U.S.
corporate debt obligations and prior asset-backed securities issues. Secondary
cross-market trading between Cedel Bank or Euroclear and DTC Participants
holding securities will be effected on a delivery-against-payment basis through
the Relevant Depositaries of Cedel Bank and Euroclear (in such capacity) and as
DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel Bank and Euroclear
will hold positions on behalf of their participants through their Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel Bank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior asset-
backed securities issues in same-day funds.
A-1
<PAGE>
TRADING BETWEEN CEDEL BANK AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Bank Participants or Euroclear Participants will be
settled using the Procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND CEDEL BANK OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Bank Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel Bank or Euroclear through a Cedel Bank
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel Bank or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Bank Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be back-
valued to, and the interest on the Global Securities will accrue from, the value
date (which would be the preceding day when settlement occurred in New York).
If settlement is not completed on the intended value date (i.e., the trade
fails), the Cedel Bank or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Bank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel Bank or Euroclear. Under
this approach, they may take on credit exposure to Cedel Bank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedel Bank or Euroclear has extended a line of credit
to them, Cedel Bank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Bank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they clear the overdraft when the Global Securities are credited
to their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although this result will depend on each
Cedel Bank Participants or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Bank Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CEDEL BANK OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Cedel Bank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel Bank or Euroclear through a Cedel Bank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Cedel Bank or Euroclear will instruct the Relevant Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
A-2
<PAGE>
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedel Bank Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Cedel Bank Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Bank Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel Bank
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel Bank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Bank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing though Cedel Bank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel Bank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel Bank or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Bank Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel
Bank or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are Non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
A-3
<PAGE>
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Certificate Owners or their
agents.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person though whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years, and Form 4224 is effective for one calendar year.
As used in the foregoing discussion, the term "U.S. Person" means (i) a
citizen or resident of the United States, (ii) a corporation or partnership
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate that is subject to United States federal income tax,
regardless of the source of its income or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (b) one or more United States fiduciaries have the authority to
control all substantial decisions of the Trust. The term "Non-U.S. Person"
means any person who is not a U.S. Person. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of
Global Securities.
A-4
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE SELLER SINCE SUCH DATE.
-----------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Reports to Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . .iv
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
The Trust and the SUBI . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
The Titling Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
The Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
TMCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
The Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Maturity, Prepayment and Yield Considerations . . . . . . . . . . . . . . . .43
Class a Certificate Factors and Trading Information;
Reports to Class A Certificateholders . . . . . . . . . . . . . . . . . . .45
Description of the Certificates . . . . . . . . . . . . . . . . . . . . . . .45
Assets of the Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Additional Document Provisions . . . . . . . . . . . . . . . . . . . . . . . .68
Certain Legal Aspects of the Titling Trust . . . . . . . . . . . . . . . . . .83
Certain Legal Aspects of the Contracts
and the Leased Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . .86
Material Federal Income Tax Considerations . . . . . . . . . . . . . . . . . .89
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Notice to Canadian Residents . . . . . . . . . . . . . . . . . . . . . . . . .98
Ratings of the Class A Certificates . . . . . . . . . . . . . . . . . . . . .99
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Index of Capitalized Terms . . . . . . . . . . . . . . . . . . . . . . . . . 101
Global Clearance, Settlement and
Tax Documentation Procedures . . . . . . . . . . . . . . . . . . . . . . . A-1
- --------------------------------------------------------------------------------
[LOGO]
TOYOTA AUTO LEASE TRUST 1997-A
$-
$- -% Auto Lease
Asset Backed Certificates, Class A-1
$- -% Auto Lease
Asset Backed Certificates, Class A-2
$- -% Auto Lease
Asset Backed Certificates, Class A-3
TOYOTA LEASING, INC.
Transferor
TOYOTA MOTOR CREDIT CORPORATION
Servicer
PROSPECTUS
JOINT BOOKRUNNERS
MERRILL LYNCH & CO.
(GLOBAL COORDINATOR)
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
-, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Payment.
Expenses in connection with the offering of the Class A Certificates being
registered herein are estimated as follows:
SEC registration fee. . . . . . . . . . . . . . . . . . $ 347,272.73
Legal fees and expenses . . . . . . . . . . . . . . . . 617,500.00
Accounting fees and expenses. . . . . . . . . . . . . . 90,000.00
Blue sky fees and expenses. . . . . . . . . . . . . . . 10,000.00
Rating agency fees. . . . . . . . . . . . . . . . . . . 415,000.00
Trustee fees and expenses . . . . . . . . . . . . . . . 45,000.00
Printing. . . . . . . . . . . . . . . . . . . . . . . . 75,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 60,227.27
Total. . . . . . . . . . . . . . . . . . . . . . $1,660,000.00
-------------
ITEM 14. Indemnification of Directors and Officers.
Toyota Motor Credit Corporation ("TMCC") and Toyota Leasing, Inc. ("TLI")
were incorporated as California corporations. Section 317 of the California
Corporations Code authorizes a corporation to indemnify any person who was or is
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the corporation to procure a judgment in its favor)
by reason of the fact that such person is or was an officer or director of the
corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably believed to be
in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of such person was
unlawful.
Each of TMCC's and TLI's Bylaws authorize TMCC and the Transferor to
indemnify their officers and directors to the maximum extent permitted by the
California Corporations Code. TMCC has entered into indemnification agreements
with its officers and directors to indemnify such officers and directors to the
maximum extent permitted by the California Corporations Code.
This item is not applicable to the other Registrants.
ITEM 15. Recent Sales of Unregistered Securities.
Not applicable.
II-1
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules.
a. Exhibits:
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of Toyota Leasing, Inc.*
3.2 Bylaws of Toyota Leasing, Inc.*
4.1 Form of Securitization Trust Agreement between Toyota Leasing, Inc.
and First Bank National Association ("First Bank")+, as Trustee
(including forms of Class A Certificates).**
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality.*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to federal income tax
matters.*
10.1 Amended and Restated Trust and Servicing Agreement among Toyota Motor
Credit Corporation ("TMCC"), TMTT, Inc., as Trustee and First Bank,
as Trust Agent, dated as of October 1, 1996.**
10.2 UTI Supplement to Amended and Restated Trust and Servicing Agreement
among TMCC, TMTT, Inc., as Trustee, and First Bank, as Trust Agent,
dated October 1, 1996 (including form of UTI Certificate).**
10.3 Form of SUBI Supplement 1997-A to Amended and Restated Trust and
Servicing Agreement among TMCC, TMTT, Inc., as Trustee and U.S.
Bank National Association (f/k/a First Bank National Association,
"U.S. Bank")+, as Trust Agent (including form of SUBI Certificate).**
10.4 Form of 1997-A SUBI Servicing Supplement to Amended and Restated Trust
and Servicing Agreement between TMTT, Inc., TMCC and Toyota Leasing,
Inc.**
10.5 Form of Administration Agreement among TMCC, TMTT, Inc., as Trustee,
and U.S. Bank, as Trust Agent.*
10.6 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and
Toyota Leasing, Inc.**
10.7 Form of Indenture with respect to TMCC Demand Notes between TMCC and
U.S. Bank, as Trustee.*
15.1 Awareness Letter of Price Waterhouse LLP.
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 5.1).*
23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1).*
23.3 Consent of Hudson Cook LLP.*
23.4 Consent of -.*
23.5 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney.**
25.1 Statement of Eligibility of U.S. Bank.*
- --------------------
* To be filed by amendment.
** Previously filed.
+ First Bank changed its name to U.S. Bank National Association following its
merger therewith in July 1997.
b. Financial Statement Schedules:
Not applicable.
II-2
<PAGE>
ITEM 17. Undertakings.
The undersigned Registrants hereby undertake as follows:
(a) To provide to the Underwriters at the closing date specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriters to provide prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment that contains a form of prospectus
will be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time will be deemed
to be the initial BONA FIDE offering thereof.
(e) TMCC, one of the undersigned registrants, hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of such registrant's annual report pursuant to Section 13(a) and 15(d) of
the Securities Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(f) The undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
II-3
<PAGE>
registered) and any deviation from the low or high of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (f)(1)(i) and (f)(1)(ii) do not apply if
the registration statement is on Form S-3 and the information required to
be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration statement.
(2) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and State of California, on the 19th day of August, 1997.
TOYOTA AUTO LEASE TRUST 1997-A
By: TOYOTA LEASING, INC., solely as originator of
Toyota Auto Lease Trust 1997-A
By: /s/ Gregory Willis
------------------------------------------
Gregory Willis, Director and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gregory Willis Director and Principal Executive August 19, 1997
- ------------------------- Officer of Toyota Leasing, Inc.
Gregory Willis
/s/ Nobu Shigemi* Director and Principal Financial August 19, 1997
- ------------------------- Officer and Principal Accounting
Nobu Shigemi Officer of Toyota Leasing, Inc.
/s/ William Latham, III* Director of Toyota August 19, 1997
- ------------------------- Leasing, Inc.
William Latham, III
*By: /s/ Gregory Willis
---------------------
Gregory Willis
Attorney-in-fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Torrance and State of California, on the 19th day of
August, 1997.
TOYOTA LEASING, INC.
By: /s/ Gregory Willis
-----------------------------------------
Gregory Willis, Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gregory Willis Director and Principal Executive August 19, 1997
- ------------------------- Officer of Toyota Leasing, Inc.
Gregory Willis
/s/ Nobu Shigemi* Director and Principal Financial August 19, 1997
- ------------------------- Officer and Principal Accounting
Nobu Shigemi Officer of Toyota Leasing, Inc.
/s/ William Latham, III* Director of Toyota August 19, 1997
- ------------------------- Leasing, Inc.
William Latham, III
*By: /s/ Gregory Willis
---------------------
Gregory Willis
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Torrance and State of California, on the 19th day of August, 1997.
TOYOTA MOTOR CREDIT CORPORATION, solely as
transferor of the SUBI to the Transferor and
issuer of the TMCC Demand Notes
By: /s/ George Borst
-----------------------------------------------
George Borst
Senior Vice President and General Manager
TOYOTA LEASE TRUST
By: TOYOTA MOTOR CREDIT CORPORATION, solely as
originator of the Toyota Lease Trust
By: /s/ George Borst
-----------------------------------------------
George Borst
Senior Vice President and General Manager
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ George Borst Director, Senior Vice President and August 19, 1997
- ----------------------- General Manager of TMCC
George Borst (principal executive officer)
/s/ Robert Pitts* Director and Secretary of TMCC August 19, 1997
- -----------------------
Robert Pitts
/s/ Nobu Shigemi* Director, Senior Vice President and August 19, 1997
- ----------------------- Treasurer of TMCC (principal
Nobu Shigemi financial officer)
/s/ Douglas West* Director of TMCC August 19, 1997
- -----------------------
Douglas West
/s/ Gregory Willis Vice President of Finance August 19, 1997
- ----------------------- and Administration (principal
Gregory Willis accounting officer)
II-7
<PAGE>
*By: /s/ Gregory Willis
-------------------
Gregory Willis
Attorney-in-fact
II-8
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Description Numbered Page
- ------- ----------- -------------
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of Toyota Leasing, Inc.*
3.2 Bylaws of Toyota Leasing, Inc.*
4.1 Form of Securitization Trust Agreement between Toyota Leasing, Inc.
and First Bank National Association ("First Bank")+, as Trustee
(including forms of Class A Certificates).**
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality.*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to federal income tax
matters.*
10.1 Amended and Restated Trust and Servicing Agreement among Toyota Motor
Credit Corporation ("TMCC"), TMTT, Inc., as Trustee and First Bank,
as Trust Agent, dated as of October 1, 1996.**
10.2 UTI Supplement to Amended and Restated Trust and Servicing Agreement
among TMCC, TMTT, Inc., as Trustee, and First Bank, as Trust Agent,
dated October 1, 1996 (including form of UTI Certificate).**
10.3 Form of SUBI Supplement 1997-A to Amended and Restated Trust and
Servicing Agreement among TMCC, TMTT, Inc., as Trustee and U.S.
Bank National Association (f/k/a First Bank National Association,
"U.S. Bank")+, as Trust Agent (including form of SUBI Certificate).**
10.4 Form of 1997-A SUBI Servicing Supplement to Amended and Restated Trust
and Servicing Agreement between TMTT, Inc., TMCC and Toyota Leasing,
Inc.**
10.5 Form of Administration Agreement among TMCC, TMTT, Inc., as Trustee,
and U.S. Bank, as Trust Agent.*
10.6 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and
Toyota Leasing, Inc.**
10.7 Form of Indenture with respect to TMCC Demand Notes between TMCC and
U.S. Bank, as Trustee.*
15.1 Awareness Letter of Price Waterhouse LLP.
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 5.1).*
23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibit 8.1).*
23.3 Consent of Hudson Cook LLP.*
23.4 Consent of -.*
23.5 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney.**
25.1 Statement of Eligibility of U.S. Bank.*
- ---------------
* To be filed by amendment.
** Previously filed.
+ First Bank changed its name to U.S. Bank National Association
following its merger therewith in July 1997.
II-9
<PAGE>
Exhibit 15.1
August 19, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Toyota Motor Credit Corporation has incorporated by reference
our reports dated February 12, 1997, May 12, 1997 and August 12, 1997 (issued
pursuant to the provisions of Statement on Auditing Standards No. 71) in the
Prospectus constituting part of the Registration Statement on Form S-3 (No.
333-26717). We are also aware of our responsibilities under the Securities Act
of 1933.
Yours very truly,
<PAGE>
Exhibit 23.5
August 19, 1997
To the Board of Directors of
Toyota Motor Credit Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
October 31, 1996 appearing on page 19 of Toyota Motor Credit Corporation's
Annual Report on Form 10-K for the year ended September 30, 1996. We also
consent to the reference to us under the heading "Experts."
