<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
REGISTRATION NO. 333-65067
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON
FORM S-3
(WITH RESPECT TO TOYOTA MOTOR CREDIT CORPORATION)
AND FORM S-1
----------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C>
TOYOTA AUTO LEASE TRUST 1998-C TOYOTA MOTOR CREDIT CORPORATION
(Issuer with respect to the Certificates) (Originator of Toyota Lease Trust, transferor of
SUBI
to Transferor, Issuer of TMCC Demand Notes
and Swap Counterparty)
TOYOTA LEASING, INC. TOYOTA LEASE TRUST
(Originator of, and Transferor of the SUBI Certificate (Issuer with respect to the SUBI)
to, the Toyota Auto Lease Trust 1998-C)
</TABLE>
(Exact name of Registrants as specified in their charters)
<TABLE>
<S> <C> <C>
CALIFORNIA 6146 33-0755530
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Identification Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
--------------------------
19001 SOUTH WESTERN AVENUE
TORRANCE, CALIFORNIA 90509
(310) 787-3541
(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 DANIEL F. PASSAGE, ESQ.
O'MELVENY & MYERS LLP
400 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 434,
check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Automobile Lease Asset Backed Certificates,
Class A-1.................................. $333,333.33 100% $333,333.33 $98.33(2)
Automobile Lease Asset Backed Certificates,
Class A-2.................................. $333,333.33 100% $333,333.33 $98.33(2)
Automobile Lease Asset Backed Certificates,
Class A-3.................................. $333,333.33 100% $333,333.33 $98.33(2)
The Special Unit of Beneficial Interest..... (3) (3) (3) (3)
TMCC Demand Notes........................... (4) (4) (4) (4)
Swap Agreement.............................. (5) (5) (5) (5)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Previously 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 1998-C), and from Toyota
Leasing, Inc. to Toyota Auto Lease Trust 1998-C.
(4) The TMCC Demand Notes represent investments by the Trust of Collections in
demand notes issued from time to time by TMCC.
(5) Includes the rights of TMCC as Swap Counterparty under the Swap Agreement,
as further described in this Registration Statement, as the same may be
amended, restated or supplemented from time to time. No separate
consideration will be received by TMCC as Swap Counterparty.
--------------------------
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.
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER, 1998
Prospectus
TOYOTA AUTO LEASE TRUST 1998-C
$ ADJUSTABLE RATE AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-1
$ ADJUSTABLE RATE AUTO LEASE ASSET BACKED CERTIFICATES, CLASS A-2
$ ADJUSTABLE RATE 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 1998-C (the "Trust") formed
pursuant to a securitization trust agreement (the "Agreement") between Toyota
Leasing, Inc. (the "Transferor") and , as trustee (the "Trustee"). The
property of the Trust will consist primarily of a certificate (the "SUBI
Certificate") representing substantially all of a Special Unit of Beneficial
Interest (the "SUBI"), the right to receive amounts on deposit in the Reserve
Fund, and Permitted Investments of amounts held in certain accounts (including
the TMCC Demand Notes described herein) and the rights of the Trust under the
Swap Agreement described herein. The SUBI, 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 certain
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.
The Certificates will consist of three classes of senior certificates, the
$ Adjustable Rate Auto Lease Asset Backed Certificates, Class A-1 (the
"Class A-1 Certificates"), the $ Adjustable Rate Auto Lease Asset Backed
Certificates, Class A-2 (the "Class A-2 Certificates") and the $ Adjustable
Rate Auto Lease Asset Backed Certificates, Class A-3 (the "Class A-3
Certificates" and, together with the Class A-1 Certificates and Class A-2
Certificates, 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 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
$ .
(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" COMMENCING ON
PAGE 28 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 HAS BEEN MADE TO LIST THE CLASS A CERTIFICATES ON THE LUXEMBOURG
STOCK EXCHANGE.
<TABLE>
<CAPTION>
PRICE TO PUBLIC(1) UNDERWRITING DISCOUNTS(2)
<S> <C> <C>
Per Class A-1 Certificate......................... % %
Per Class A-2 Certificate......................... % %
Per Class A-3 Certificate......................... % %
Total............................................. $ $
<CAPTION>
PROCEEDS TO THE
<S> <C>
Per Class A-1 Certificate......................... %
Per Class A-2 Certificate......................... %
Per Class A-3 Certificate......................... %
Total............................................. $
</TABLE>
(1) Plus accrued interest, if any, calculated at the related Certificate Rate
from the date of initial issuance.
(2) The Underwriting Discount will be % per Class A-1 Certificate, %
per Class A-2 Certificate and % per Class A-3 Certificate sold to
certain noninstitutional investors. Therefore, to the extent of any such
sales to such investors, the actual total Underwriting Discount will be more
than, and the actual Proceeds to the Seller will be less than, the amounts
indicated in this table.
(3) 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, on or about
, against payment therefor in immediately available funds.
---------------------------
JOINT BOOKRUNNERS
, 1998.
<PAGE>
(CONTINUED FROM FRONT COVER)
The SUBI Assets consisting of lease contracts implicitly bear interest at
fixed interest rates, and require the related obligors to make monthly payments
thereon. By contrast, the Trust generally will be obligated to make quarterly
payments with respect to interest accrued on the Certificates at adjustable
rates and to pay in full the principal balances thereof only at maturity. In
order to enable the Trust to receive monthly collections on assets having
principal balances that decline monthly and to make quarterly interest payments
and principal payments at maturity on securities whose balances generally are
not expected to decline monthly, the Trust will invest certain collections in
Permitted Investments (expected to be the TMCC Demand Notes) until such amounts
(or the net investment income with respect thereto) are to be paid to
Certificateholders. To enable the Trust to satisfy its obligations to make
payments on the Certificates at the related adjustable interest rates, the Trust
will enter into an interest rate swap agreement with TMCC (the "Swap
Agreement").
Interest generally will accrue on the Class A-1 Certificates at the per
annum rate equal to three-month LIBOR (determined as described herein) plus
% per annum, on the Class A-2 Certificates at a per annum rate equal to
three-month LIBOR (determined as described herein) plus % per annum and on
the Class A-3 Certificates at a per annum rate equal to three-month LIBOR
(determined as described herein) plus % per annum. In each case, payments in
respect of interest so accrued will be made quarterly on March 25, June 25,
September 25 and December 25 of each year (or, if such day is not a Business
Day, on the next succeeding Business Day), commencing on March 25, 1999.
The "Class A-1 Targeted Maturity Date" will be (or, if such day is not a
Business Day, on the next succeeding Business Day), the "Class A-2 Targeted
Maturity Date" will be September 25, 2001 (or, if such day is not a Business
Day, on the next succeeding Business Day), the "Class A-3 Targeted Maturity
Date" will be (or, if such day is not a Business Day, on the next succeeding
Business Day) and the "Class B Targeted Maturity Date" will be (or if such
day is not a Business Day, on the next succeeding Business Day). Principal of
any Class of Class A Certificates generally will not be payable until the
related Targeted Maturity Date. If a Class of Class A Certificates remains
outstanding after all required payments in respect thereof have been made on the
related Targeted Maturity Date, principal thereof and interest thereon will be
distributed monthly thereafter on each Monthly Allocation Date until all
required payments in respect of such Class have been made. The Class A
Certificates will be payable solely from the assets of the Trust, including the
SUBI Certificate and the TMCC Demand Notes and other Permitted Investments of
amounts held in the SUBI Collection Account and the Certificateholders' Account
and amounts payable by the Swap Counterparty under the Swap Agreement. Final
payment of amounts due on each Class of Certificates is due on or before the
related Stated Maturity Date. The Stated Maturity Date for the Class A-1
Certificates is (or, if such day is not a Business Day, on the next
succeeding Business Day), for the Class A-2 Certificates is (or, if such day
is not a Business Day, on the next succeeding Business Day), for the Class A-3
Certificates is (or, if such day is not a Business Day, on the next
succeeding Business Day) and for the Class B Certificates is (or, if such
day is not a Business Day, on the next succeeding Business Day). In general, the
Certificates will be "sequential pay" certificates meaning that no principal
allocations, applications or payments will be made on the Class A-2 Certificates
until the Adjusted Class A-1 Certificate Balance has been reduced to zero, no
principal allocations, applications or payments will be made on the Class A-3
Certificates until the Adjusted Class A-2 Certificate Balance and the Adjusted
Class A-1 Certificate Balance have been reduced to zero and no principal
allocations, applications or payments will be made on the Class B Certificates
until the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance and the Adjusted Class A-3 Certificate Balance have been
reduced to zero.
From time to time during the Revolving Period described herein (generally
expected to be the period from the Cutoff Date through the calendar day
preceding , but which may terminate earlier as described herein), 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.
In the event of any Swap Termination described herein, the Trustee will
liquidate the assets of the Trust and apply the proceeds (net of the expenses of
such liquidation and reimbursements to be made to the Transferor, Servicer,
Trustee and Titling Trustee and after giving effect to any swap termination
payment to be made by the Trust under the Swap Agreement) to effect an early
repayment of the Certificates. Under such circumstances, there can be no
assurance as to how long such liquidation might take or that such net proceeds
will be sufficient to reduce the outstanding balances of each Class of
Certificates to zero.
---------------------
It is a condition of issuance of each Class of Class A Certificates that
they be assigned an Aaa rating by Moody's Investors Service, Inc. ("Moody's")
and an AAA rating by Standard & Poor's Ratings Services, a division of The
ii
<PAGE>
McGraw-Hill Companies ("Standard & Poor's" and, together with Moody's, the
"Rating Agencies"). A security rating is not a recommendation to buy, sell or
hold a security and may be subject to revision, suspension or withdrawal at any
time by the assigning rating organization. See "Summary -- Ratings".
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 bids and the purchase of
Class A Certificates to cover short positions. For a description of these
activities, see "Underwriting".
The Transferor, having made all reasonable inquiries, confirms that this
Prospectus is true and accurate in all material respects and is not misleading,
that the opinions and intentions expressed herein are honestly held and that
there are no other facts the omission of which makes this Prospectus, including
any information incorporated by reference herein, as a whole, or any of such
information or the expression of any such opinions or intentions misleading. The
Transferor accepts responsibility accordingly.
No person is authorized in connection with the issuance or sale of the Class
A Certificates to give any information or to make any representation not
contained in this Prospectus and any information or representation not contained
herein must not be relied upon as having been authorized by the Transferor or
the Underwriters. Neither the delivery of this Prospectus nor any sale or
allotment made in connection with the offering of the Class A Certificates
shall, under any circumstances, create any implication that the information
contained herein is correct as at any time subsequent to its date.
No action has been taken or will be taken by the Transferor or the
Underwriters that would permit a public offering of any Class A Certificates in
any country or jurisdiction (other than the United States and certain states in
the United States) where action for that purpose is required. Accordingly, the
Class A Certificates may not be offered or sold, directly or indirectly, and
neither this Prospectus nor any circular, prospectus, form of application,
advertisement or other material may be distributed in or from or published in
any country or jurisdiction except under circumstances that will result in
compliance with any applicable laws and regulations. Persons into whose hands
this Prospectus comes are required by the Transferor and the Underwriters to
comply with all applicable laws and regulations in each country or jurisdiction
in which they purchase, sell or deliver Class A Certificates or have in their
possession or distribute this Prospectus, in all cases at their own expense.
UNTIL , 1999, 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.
iii
<PAGE>
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 office of
Bankers Trust Company Luxembourg S.A., 14 Boulevard F. D. Roosevelt, L-2450,
Luxembourg. 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 pursuant to which the Titling Trust was formed (the
"Titling Trust Agreement"), the UTI and the SUBI are formed, the UTI Certificate
and SUBI Certificate are issued (the "UTI Supplement" and "SUBI Supplement"),
the assets of the Titling Trust and the SUBI Assets will be serviced (the
"Servicing Agreement"), the TMCC Demand Notes will be issued (the "Indenture")
and the swap will be executed (the "Swap Agreement") are incorporated by
reference herein. Insofar as documents are incorporated herein as to which TMCC
is a party, such documents relate solely to TMCC in its capacities as Servicer,
issuer of the TMCC Demand Notes and as Swap Counterparty.
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, 1998, and
TMCC's Quarterly Reports on Form 10-Q for the quarters ended December 31, 1997,
March 31, 1998 and June 30, 1998 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 Class
A 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. Copies of
the incorporated documents will be obtainable at no charge at the office of
Bankers Trust Company Luxembourg S.A., 14 Boulevard F. D. Roosevelt, L-2450,
Luxembourg.
iv
<PAGE>
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 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
- , as Trustee, will provide to holders of the Certificates (the
"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. 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 on the
same date such reports are to be delivered to Certificateholders. Copies of such
reports may be obtained at no charge at the office of Bankers Trust Luxembourg
S.A., 14 Boulevard F.D. Roosevelt, L-2450, Luxembourg.
v
<PAGE>
OVERVIEW OF TRANSACTION
[LOGO]
vi
<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 CAPITALIZED TERMS" BEGINNING ON PAGE HEREOF.
<TABLE>
<S> <C>
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 retail closed- end
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 has instructed 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 represents 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 a
certificate representing substantially all of the SUBI
(excluding the related rights to proceeds of the
Residual Value Insurance Policies described herein) (the
"SUBI Certificate") 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 has in the past and may in the future cause the
Titling Trust to allocate additional separate portfolios
of leases and leased vehicles and to create other
special units of beneficial interest similar to the SUBI
relating to such portfolios ("Other SUBIs") for sale 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 dated
as of , 1998, between the Transferor and
(" "), as Trustee. The property of the Trust will
consist primarily of the SUBI Certificate, monies on
deposit in certain accounts established as described
herein, the TMCC Demand Notes (or other Permitted
Investments of amounts held in the Certificateholders'
Account) and the rights of the Trust under the Swap
Agreement.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
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 National Association ("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 (the "Cutoff Date") will be allocated to the
SUBI on , 1998 (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 "Description of the Certificates --
Allocations, Applications and Payments -- The Revolving
Period" and "The Trust and the SUBI -- The SUBI".
The SUBI will evidence an indirect beneficial interest,
rather than a direct legal interest, in the SUBI Assets.
The SUBI will
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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, a branch in the
Commonwealth of Puerto Rico and a centralized customer
service center in Iowa. 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 1998-C SUBI
Servicing Supplement to the Titling Trust Agreement
among TMCC, the Titling Trustee and the Transferor dated
as of , 1998 (the "Servicing Supplement" and,
together with the Titling Trust Agreement, the
"Servicing Agreement"), TMCC acts as 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 Adjustable Rate
Auto Lease Asset Backed Certificates, Class A-1 (the
"Class A-1 Certificates"), the Adjustable Rate Auto
Lease Asset Backed Certificates, Class A-2 (the "Class
A-2 Certificates") and the Adjustable Rate Auto Lease
Asset Backed Certificates, Class A-3 (the "Class A-3
Certificates" and, together with the Class A-1
Certificates and Class A-2 Certificates, the "Class A
Certificates") are senior certificates. The Adjustable
Rate Auto Lease Asset Backed Certificates, Class B (the
"Class B Certificates" and, together with the Class A
Certificates, the "Certificates") are subordinated
certificates. Only the Class A Certificates are being
offered hereby.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Although proceeds of the SUBI will be collected and
allocated monthly, the Certificates will generally
represent the right to receive quarterly payments of
interest at the Class A-1 Rate, Class A-2 Rate, Class
A-3 Rate or Class B Rate, as the case may be, and, to
the extent described herein, payments of principal on
the related Targeted Maturity Date and payments of
principal and interest on each subsequent Monthly
Allocation Date. In addition, although the SUBI Assets
consist primarily of lease contracts that implicitly
bear interest at fixed rates, the Certificates will bear
interest at adjustable rates.
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 San Francisco, 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 Class A Certificates in
Luxembourg by a paying agent there located or any day on
which a transfer of a Definitive Certificate may be made
at the office of a transfer 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 Closing Date, the Trust will issue $ aggregate
initial principal amount of Class A-1 Certificates (the
"Initial Class A-1 Certificate Balance"), $ aggregate
initial principal amount of Class A-2 Certificates (the
"Initial Class A-2 Certificate Balance"), $ aggregate
initial principal amount of Class A-3 Certificates (the
"Initial Class A-3 Certificate Balance") and $
aggregate initial principal amount of Class B
Certificates (the "Initial Class B Certificate
Balance").
Interests in the assets of the Trust will be allocated
among (i) 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 (ii) the Transferor Interest.
The Transferor Interest will represent the interest in
the Trust not represented by the Investor Interest. The
Transferor Interest will initially equal $ (2.00% 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
Investor Balance. As more fully described herein, the
Aggregate
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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
Adjusted Investor Balance declines. SEE "Description of
the Certificates -- General".
Amounts payable by the Trust in respect of interest on
the Class A Certificates will generally be limited to
amounts payable by the Swap Counterparty in accordance
with the Swap Agreement in exchange for the payments by
the Trust to the Swap Counterparty, as described herein.
As described more fully herein, the amount to be used
for any such application will be determined on the basis
of calculations made each month on the basis of (i) the
Adjusted Class A-1 Certificate Balance and the Class A-1
Notional Rate in the case of the Class A-1 Certificates,
(ii) the Adjusted Class A-2 Certificate Balance and the
Class A-2 Notional Rate in the case of the Class A-2
Certificates, (iii) the Adjusted Class A-3 Certificate
Balance and the Class A-3 Notional Rate in the case of
the Class A-3 Certificates, (iv) the Adjusted Class B
Certificate Balance and the Class B Notional Rate in the
case of the Class B Certificates and (v) the amount of
the investment income on certain of the TMCC Demand
Notes at the related Required Rates, as described
herein.
As used herein for such purposes:
"Class A-1 Certificate Balance" means (a) the Initial
Class A-1 Certificate Balance less (i) all amounts paid
to Class A-1 Certificateholders on each relevant
Certificate Payment Date in respect of principal and
(ii) all unreimbursed Certificate Principal Loss Amounts
allocated to the Adjusted Class A-1 Certificate Balance
and (b) zero, from and after the Certificate Payment
Date on which the Adjusted Class A-1 Certificate Balance
is reduced to zero.
"Adjusted Class A-1 Certificate Balance" means the
Initial Class A-1 Certificate Balance less: (i) amounts
allocated and deposited into the Certificateholders'
Account in respect of the Adjusted Class A-1 Certificate
Balance; (ii) without duplicating the foregoing, amounts
paid to the Class A Certificateholders in respect of the
Adjusted Class A-1 Certificate Balance; and (iii) the
amount of unreimbursed Certificate Principal Loss
Amounts allocated thereto.
"Class A-1 Notional Rate" refers to the rate at which
amounts will be deemed to accrue in respect of the
Adjusted Class A-1 Certificate Balance for purposes of
calculating the Class A-1 Notional Interest Accrual
Amount to be paid to the Swap Counterparty which rate
will be % per annum.
"Class A-2 Certificate Balance" means (a) the Initial
Class A-2 Certificate Balance less (i) all amounts paid
to Class A-2 Certificateholders on each relevant
Certificate Payment Date in
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
respect of principal and (ii) all unreimbursed
Certificate Principal Loss Amounts allocated to the
Adjusted Class A-2 Certificate Balance and (b) zero,
from and after the Certificate Payment Date on which the
Adjusted Class A-2 Certificate Balance is reduced to
zero.
"Adjusted Class A-2 Certificate Balance" means the
Initial Class A-2 Certificate Balance less: (i) amounts
allocated and deposited into the Certificateholders'
Account in respect of the Adjusted Class A-2 Certificate
Balance; (ii) without duplicating the foregoing, amounts
paid to the Class A Certificateholders in respect of the
Adjusted Class A-2 Certificate Balance; and (iii) the
amount of unreimbursed Certificate Principal Loss
Amounts allocated thereto.
"Class A-2 Notional Rate" refers to the rate at which
amounts will be deemed to accrue in respect of the
Adjusted Class A-2 Certificate Balance for purposes of
calculating the Class A-2 Notional Interest Accrual
Amount to be paid to the Swap Counterparty which rate
will be % per annum.
"Class A-3 Certificate Balance" means (a) the Initial
Class A-3 Certificate Balance less (i) all amounts paid
to Class A-3 Certificateholders on each relevant
Certificate Payment Date in respect of principal and
(ii) all unreimbursed Certificate Principal Loss Amounts
allocated to the Adjusted Class A-3 Certificate Balance
and (b) zero, from and after the Certificate Payment
Date on which the Adjusted Class A-3 Certificate Balance
is reduced to zero.
"Adjusted Class A-3 Certificate Balance" means the
Initial Class A-3 Certificate Balance less: (i) amounts
allocated and deposited into the Certificateholders'
Account in respect of the Adjusted Class A-3 Certificate
Balance; (ii) without duplicating the foregoing, amounts
paid to the Class A Certificateholders in respect of the
Adjusted Class A-3 Certificate Balance; and (iii) the
amount of unreimbursed Certificate Principal Loss
Amounts allocated thereto.
"Class A-3 Notional Rate" refers to the rate at which
amounts will be deemed to accrue in respect of the
Adjusted Class A-3 Certificate Balance for purposes of
calculating the Class A-3 Notional Interest Accrual
Amount to be paid to the Swap Counterparty which rate
will be % per annum.
"Class B Certificate Balance" means (a) the Initial
Class B Certificate Balance less (i) all amounts paid to
Class B Certificateholders on each relevant Certificate
Payment Date in respect of principal and (ii) all
unreimbursed Certificate Principal Loss Amounts
allocated to the Adjusted Class B Certificate Balance
and (b) zero, from and after the Certificate Payment
Date on which the Adjusted Class B Certificate Balance
is reduced to zero.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
"Adjusted Class B Certificate Balance" means the Initial
Class B Certificate Balance less: (i) amounts allocated
and deposited into the Certificateholders' Account in
respect of the Adjusted Class B Certificate Balance;
(ii) without duplicating the foregoing, amounts paid to
the Class B Certificateholders in respect of the
Adjusted Class B Certificate Balance; and (iii) the
amount of unreimbursed Certificate Principal Loss
Amounts allocated thereto.
"Class B Notional Rate" refers to the rate at which
amounts will be deemed to accrue in respect of the
Adjusted Class B Certificate Balance for purposes of
calculating the Class B Notional Interest Accrual Amount
to be paid to the Swap Counterparty which rate will be
% per annum.
"Initial Investor Balance" means the sum of the Initial
Class A-1 Certificate Balance, the Initial Class A-2
Certificate Balance, the Initial Class A-3 Certificate
Balance and the Initial Class B Certificate Balance.
"Adjusted Investor Balance" means the sum of the
Adjusted Class A-1 Certificate Balance, the Adjusted
Class A-2 Certificate Balance, the Adjusted Class A-3
Certificate Balance and the Adjusted Class B Certificate
Balance.
"Class A-1 Notional Interest Accrual Amount" means the
amount of interest that accrues during a Monthly
Interest Period at the Class A-1 Notional Rate on the
sum of the Adjusted Class A-1 Certificate Balance and
unreimbursed Certificate Principal Loss Amounts
previously allocated thereto.
"Class A-2 Notional Interest Accrual Amount" means the
amount of interest that accrues during a Monthly
Interest Period at the Class A-2 Notional Rate on the
sum of the Adjusted Class A-2 Certificate Balance and
unreimbursed Certificate Principal Loss Amounts
previously allocated thereto.
"Class A-3 Notional Interest Accrual Amount" means the
amount of interest that accrues during a Monthly
Interest Period at the Class A-3 Notional Rate on the
sum of the Adjusted Class A-3 Certificate Balance and
unreimbursed Certificate Principal Loss Amounts
previously allocated thereto.
"Class B Notional Interest Accrual Amount" means the
amount of interest that accrues during a Monthly
Interest Period at the Class B Notional Rate on the sum
of the Adjusted Class B Certificate Balance and
unreimbursed Certificate Principal Loss Amounts
previously allocated thereto.
"Interest Payment Period" for each Class of Certificates
and any Certificate Payment Date means the period from
and including the preceding Certificate Payment Date to
but excluding the current Certificate Payment Date,
except that the first Interest Payment Period for each
Class of Certificates will be the period
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
from and including the Closing Date to but excluding
March 25, 1999. Prior to the related Targeted Maturity
Date, each Interest Payment Period will generally
consist of three months. Thereafter, the related
Interest Payment Period will generally be comprised of
one month.
"Monthly Interest Period" for each Class of Certificates
and any Monthly Allocation Date means the period from
and including the 25th day of the preceding calendar
month to but excluding the 25th day of the current
calendar month, except that the first Monthly Interest
Period for each Class of Certificates will be the period
from and including the Closing Date to but excluding
December 25, 1998.
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 25th day of each month (or, if such
day is not a Business Day, on the next succeeding
Business Day) commencing on December 28, 1998.
As used herein: (i) "allocation" is used to connote a
calculation made to determine which, if any, Collections
are available for a stated purpose, (ii) "application"
is used to connote the actual transfer, investment,
deposit or other use of a specified amount for a stated
purpose and (iii) "payment" is used to connote the
actual transfer of money to a party. For example: On
each Monthly Allocation Date, the Trustee will allocate
a portion of the Investor Percentage of Interest
Collections in respect of interest accrued on the
Adjusted Class A-1 Certificate Balance (and unreimbursed
Certificate Principal Loss Amounts allocated thereto) at
the Class A-1 Notional Rate during the related Monthly
Interest Period, which portion of Interest Collections
will be applied to make a deposit into the
Certificateholders' Account for investment in a
Permitted Investment that will mature on or prior to the
next relevant Certificate Payment Date, on which date
the proceeds thereof and certain other amounts will be
paid by the Trust to the Swap Counterparty in exchange
for an amount which the Trust will then pay to the Class
A-1 Certificateholders in respect of the total amount of
interest accrued on the Class A-1 Certificates at the
Class A-1 Rate during the related Interest Payment
Period.
Payments in respect of the Certificates of each Class
will be funded from payments received by the Trust on or
in respect of the assets of the SUBI evidenced by the
SUBI Certificate and, in certain circumstances, from
amounts 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.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
All such amounts received by the Trust in respect of
interest will be paid to the Swap Counterparty pursuant
to the Swap Agreement, and the Swap Counterparty will
pay the Trust amounts which will be used to make the
payments to Certificateholders in respect of interest
described herein.
No principal allocations, applications or payments will
be made on the Class B Certificates until the Adjusted
Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance and Adjusted Class A-3 Certificate
Balance are reduced to zero. In addition, the Class B
Certificates will be subordinated to the Class A
Certificates with respect to the allocation of losses to
the extent described herein. SEE "Description of the
Certificates -- Allocations, Applications and Payments".
The Transferor Interest also will be subordinated to the
Investor Interest, as described herein.
B. PAYMENTS...................... INTEREST. Payments in respect of interest on each Class
of Certificates will be made quarterly, on each Monthly
Allocation Date in March, June, September and December,
commencing in March 1999, until the related Targeted
Maturity Date, as well as (i) on the related Targeted
Maturity Date, (ii) if the Adjusted Class Certificate
Balance of such Class has not been reduced to zero on
its Targeted Maturity Date, on each Monthly Allocation
Date following such Targeted Maturity Date until such
Adjusted Class Certificate Balance is reduced to zero
and (iii) in connection with a Swap Termination and
related liquidation of the assets of the Trust or any
exercise by the Transferor of its option to repurchase
the SUBI Certificate, on the Monthly Allocation Date
following the receipt by the Trust of the proceeds of
such liquidation or sale, in each case to the extent of
amounts available therefor as described herein (each
such Monthly Allocation Date a relevant "Certificate
Payment Date" with respect to such Class). Interest will
accrue on the Class A-1 Certificates at three-month
LIBOR (determined as described herein) plus % per
annum, on the Class A-2 Certificates at three-month
LIBOR (determined as described herein) plus % per
annum, on the Class A-3 Certificates at three-month
LIBOR (determined as described herein) plus % per
annum and on the Class B Certificates at three-month
LIBOR (determined as described herein) plus % per
annum (the "Class A-1 Rate", "Class A-2 Rate", "Class
A-3 Rate" and "Class B Rate" respectively); provided,
however that the Class A-1 Rate, the Class A-2 Rate, the
Class A-3 Rate and the Class B Rate for the initial
Interest Payment Period will be [based on an
interpolated rate to be] calculated by the Servicer two
Business Days prior to the Closing Date. SEE
"Description of the Certificates -- Calculation of Class
A-1 Rate, Class A-2 Rate, Class A-3 Rate and Class B
Rate".
Interest allocations, applications and payments with
respect to each Class of Class A Certificates will have
the same priority.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Under certain circumstances, the amount available for
interest allocations and applications or payments could
be less than the amount of interest allocable and
applicable or payable with respect to the Class A
Certificates on any Monthly Allocation Date, in which
case each Class of Class A 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 and applied
or paid in respect of interest on the Class A
Certificates.
As mentioned above, the amounts available to make
interest payments with respect to each Class of
Certificates generally will be limited to amounts
payable by the Swap Counterparty in accordance with the
Swap Agreement. Except as described herein, on each
relevant Certificate Payment Date, the Trust will be
obligated to pay to the Swap Counterparty (i) the sum of
(a) the relevant Class A-1 Notional Interest Accrual
Amounts for the related Monthly Interest Periods
(generally the three Monthly Interest Periods preceding
such Certificate Payment Date), and (b) an amount equal
to interest accrued at the related Required Rate during
such Monthly Interest Periods on amounts deposited into
the Certificateholders' Account in respect of the
Adjusted Class A-1 Certificate Balance on prior Monthly
Allocation Dates (such sum, the "Class A-1 Swap Interest
Amount"), (ii) the sum of (a) the relevant Class A-2
Notional Interest Accrual Amounts for the related
Monthly Interest Periods (generally the three Monthly
Interest Periods preceding such Certificate Payment
Date), and (b) an amount equal to interest accrued at
the related Required Rate during such Monthly Interest
Periods on amounts deposited into the
Certificateholders' Account in respect of the Adjusted
Class A-2 Certificate Balance on prior Monthly
Allocation Dates (such sum, the "Class A-2 Swap Interest
Amount"), (iii) the sum of (a) the relevant Class A-3
Notional Interest Accrual Amounts for the related
Monthly Interest Periods (generally the three Monthly
Interest Periods preceding such Certificate Payment
Date), and (b) an amount equal to interest accrued at
the related Required Rate during such Monthly Interest
Periods on amounts deposited into the
Certificateholders' Account in respect of the Adjusted
Class A-3 Certificate Balance on prior Monthly
Allocation Dates (such sum, the "Class A-3 Swap Interest
Amount") and (iv) the sum of (a) the relevant Class B
Notional Interest Accrual Amounts for the related
Monthly Interest Periods (generally the three Monthly
Interest Periods preceding such Certificate Payment
Date), and (b) an amount equal to interest accrued at
the related Required Rate during such Monthly Interest
Periods on amounts deposited into the
Certificateholders' Account in respect of the Adjusted
Class B Certificate Balance on prior Monthly Allocation
Dates (such sum, the "Class B Swap Interest Amount") in
exchange for payment by the Swap Counterparty of amounts
equal to the
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
amount of interest accrued on the outstanding principal
balance of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and the Class B
Certificates, at the Class A-1 Rate, the Class A-2 Rate,
the Class A-3 Rate and the Class B Rate, respectively,
during the related Monthly Interest Periods.
If, however, on any Certificate Payment Date, the
aggregate of the amounts paid or available to be paid by
the Trust to the Swap Counterparty in respect of
interest on the relevant Certificate Payment Date, in
accordance with the priorities set forth herein, is less
than such Class A-1 Swap Interest Amount, Class A-2 Swap
Interest Amount, Class A-3 Swap Interest Amount or Class
B Swap Interest Amount (the amount of any such
insufficiency, a "Class A-1 Swap Interest Shortfall
Amount", "Class A-2 Swap Interest Shortfall Amount",
"Class A-3 Swap Interest Shortfall Amount" or "Class B
Swap Interest Shortfall Amount", as the case may be),
then under the Swap Agreement the corresponding payment
due from the Swap Counterparty in exchange therefor
(and, under the Agreement, the amount payable on such
date in respect of interest accrued on any Class of
Certificates) will be reduced in the same proportion as
the proportion that such Swap Interest Shortfall Amount
represents of such Class A-1 Swap Interest Amount, Class
A-2 Swap Interest Amount, Class A-3 Swap Interest Amount
or Class B Swap Interest Amount, as the case may be.
If on a subsequent Certificate Payment Date amounts are
available, in accordance with the priorities set forth
herein, to reimburse all or any part of any unreimbursed
Class A-1 Swap Interest Shortfall Amount, Class A-2 Swap
Interest Shortfall Amount, Class A-3 Swap Interest
Shortfall Amount or Class B Swap Interest Shortfall
Amount, then the Trust will be obligated under the Swap
Agreement to pay such amounts to the Swap Counterparty
and the corresponding payment due from the Swap
Counterparty in respect of interest (and therefore any
amounts payable on such date in respect of interest
accrued on any Class of Certificates) will be increased
proportionately in the same proportion as such
reimbursement represents of the current Class A-1 Swap
Interest Amount, Class A-2 Swap Interest Amount, Class
A-3 Swap Interest ShortfallAmount or Class B Swap
Interest Amount, as the case may be. Class A
Certificateholders will not be entitled to receive any
interest on any Swap Interest Shortfall Amounts or
corresponding reductions in amounts payable by the Swap
Counterparty whether or not subsequently reimbursed as
described above. SEE "Description of the Certificates --
Calculation of Class A-1 Rate, Class A-2 Rate, Class A-3
Rate and Class B Rate" and "Additional Document
Provisions -- The Swap Agreement".
Interest will be calculated on the basis of: (i) in the
case of the Class A-1 Notional Interest Accrual Amount,
the Class A-2 Notional Interest Accrual Amount, the
Class A-3 Notional
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Interest Accrual Amount and the Class B Notional
Interest Accrual Amount, a 360-day year consisting of
twelve 30-day months, and (ii) in the case of the Class
A-1 Rate, the Class A-2 Rate, the Class A-3 Rate and the
Class B Rate and amounts due from the Swap Counterparty
under the Swap Agreement, the actual number of days in
the related Interest Payment Period and a 360-day year.
PRINCIPAL. Principal of each Class of Class A
Certificates will be payable (i) on the related Targeted
Maturity Date and (ii) if the Adjusted Class A-1
Certificate Balance, Adjusted Class A-2 Certificate
Balance or Adjusted Class A-3 Certificate Balance is not
reduced to zero on the related Targeted Maturity Date,
then for each such Class on each subsequent Monthly
Allocation Date until the date on which the Adjusted
Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance or Adjusted Class A-3 Certificate
Balance, as the case may be, is reduced to zero and
(iii) in connection with a Swap Termination or any
exercise by the Transferor of its option to repurchase
the SUBI Certificate, on the Monthly Allocation Date
following the receipt of proceeds from such liquidation
or sale (each such Targeted Maturity Date or Monthly
Allocation Date, a relevant "Certificate Payment Date"
with respect to such Class), in each case to the extent
of amounts available therefor as described herein.
The Targeted Maturity Date and the Stated Maturity Date
for each Class of Certificates are as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS TARGETED MATURITY DATE STATED MATURITY DATE
- --------------------- ---------------------- ----------------------
<S> <C> <C>
Class A-1............
Class A-2............
Class A-3............
Class B..............
</TABLE>
<TABLE>
<S> <C>
; provided, however, that if any such day is not a
Business Day, on the next succeeding Business Day.
Except as described under "Description of the
Certificates -- Termination of the Trust; Retirement of
the Certificates", the Certificates will be "sequential
pay" certificates meaning that no principal allocations,
applications or payments will be made on the Class A-2
Certificates until the Adjusted Class A-1 Certificate
Balance has been reduced to zero, no principal
allocations, applications or payments will be made on
the Class A-3 Certificates until the Adjusted Class A-2
Certificate Balance has been reduced to zero, and no
principal allocations, applications or payments will be
made on the Class B Certificates until the Adjusted
Class A-3 Certificate Balance has been reduced to zero.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Failure to pay in full a particular Class of
Certificates on its Targeted Maturity Date because
amounts allocable thereto are insufficient therefor will
not constitute an Event of Servicing Termination or a
Swap Termination, nor will it cause the payment of
principal or interest on other Classes of Certificates
to be made on a monthly basis.
THE REVOLVING PERIOD. The "Revolving Period" is the
period from the Cutoff Date through the calendar day
preceding the earliest to occur of (the
"Accumulation Date"), an Accumulation Event or a Swap
Termination. During the Revolving Period, all Principal
Collections and all amounts allocated and applied in
reimbursement of any Loss Amounts and Certificate
Principal Loss Amounts allocated to the Investor
Interest will be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles. Thus, except to the extent
Certificate Principal Loss Amounts are allocated thereto
and not reimbursed, the Adjusted Class A-1 Certificate
Balance, Adjusted Class A-2 Certificate Balance,
Adjusted Class A-3 Certificate Balance and Adjusted
Class B Certificate Balance will not decline during the
Revolving Period.
Accumulation Events are described under "Description of
the Certificates -- Accumulation Events". Events causing
a Swap Termination under the Swap are described under
"Additional Document Provisions -- Swap Agreement". An
Accumulation Event or a Swap Termination will terminate
the Revolving Period. SEE ALSO "Description of the
Certificates -- Termination of the Trust; Retirement of
the Certificates -- SWAP TERMINATION". While an
Accumulation Event will terminate the Revolving Period,
only a Swap Termination and related liquidation of the
assets of the Trust or purchase of the SUBI Certificate
by the Transferor may cause distributions in respect of
principal with respect to a Class of Certificates prior
to the related Targeted Maturity Date.
During the Revolving Period, on one or more Business
Days selected by the Servicer each month (each, a
"Transfer Date"), the Servicer will direct the Titling
Trustee to reinvest Principal Collections and amounts
applied to reimburse Loss Amounts and Certificate
Principal Loss Amounts allocated to the Investor
Interest 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 the
Servicer determines that the amount of Principal
Collections and reimbursed Loss Amounts and Certificate
Principal Loss Amounts for the preceding Collection
Period not reinvested in Subsequent Contracts and
Subsequent Leased Vehicles as of the first day of such
month exceeds $1,000,000, an Accumulation Event will be
deemed to have
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
occurred. SEE "Description of the Certificates --
Allocations, Applications and Payments 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
Servicing Supplement as described under the "The
Contracts -- Representations, Warranties and Covenants".
Reinvestment of Principal Collections and reimbursed
Loss Amounts and Certificate Principal Loss Amounts will
be in the lease contracts having the earliest
origination dates and the related vehicles that are
Titling Trust Assets (excluding those previously
allocated to any Other SUBI). SEE "The Contracts".
With respect to any Monthly Allocation Date, the related
"Collection Period" will be the preceding calendar
month.
"Principal Collections" will mean, with respect to any
Collection Period, all Collections allocable to the
principal component of any Contract, discounted to the
extent described below. For purposes of determining
Principal Collections, the principal component of all
payments (including any payment in respect of the
Residual Value thereof) made or to be made on or in
respect of a Contract (or the related Leased Vehicle)
with a Lease Rate less than % per annum (each, a
"Discounted Contract") will be discounted at a per annum
rate of %, 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 previously collected
Payments Ahead that represent Monthly Payments due
during such Collection Period), Prepayments, Advances,
Reallocation Payments, Reallocation Deposit Amounts, Net
Matured Leased Vehicle Proceeds, Net Charged-off Vehicle
Proceeds and other Net Liquidation Proceeds, less (i)
amounts representing Payments Ahead with respect to
future Collection Periods and (ii) Additional Loss
Amounts in respect of such Collection Period. As
described above, during the Revolving Period, amounts
otherwise allocable on the related Monthly Allocation
Date in reimbursement of Loss Amounts or Certificate
Principal 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, Applications and Payments -- ALLOCATIONS
AND APPLICATIONS OF COLLECTIONS".
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
With respect to any Collection Period "Interest
Collections" generally will equal the amount by which
Collections exceed Principal Collections. "Net
Charged-off Vehicle Proceeds" will equal Charged-off
Vehicle Proceeds net of Charged-off Vehicle Expenses,
and "Net Liquidation Proceeds" will equal Liquidation
Proceeds net of Liquidation Expenses.
Following the Revolving Period, the amount of Principal
Collections allocable to the Investor Interest in
respect of a Collection Period (the "Principal
Allocation") generally will mean the Investor Percentage
of the Principal Collections in respect of such
Collection Period allocable to the SUBI. The Investor
Percentage will be calculated as described herein under
"Description of the Certificates -- Calculation of
Investor Percentage and Transferor Percentage".
To the extent that on any Monthly Allocation Date any
portion of the Investor Percentage of Interest
Collections in respect of the related Collection Period
remains after required allocations and applications 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. On any
Monthly Allocation Date following the termination of the
Revolving Period, any such excess interest remaining
after such deposit into the Reserve Fund, up to but not
exceeding the product of (i) one-twelfth of 0.25% 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 to the Certificateholders (or for
reimbursements of Maturity Advances) in addition to (and
in the same manner and priority as) ordinary allocations
and applications of principal of the Certificates. SEE
"Description of the Certificates -- Allocations,
Applications and Payments -- ALLOCATIONS AND
APPLICATIONS OF COLLECTIONS" and "Assets of the Trust --
The Accounts; Collections -- THE SUBI COLLECTION
ACCOUNT" and "Certain Withdrawals from the SUBI
Collection Account".
C. ACCUMULATION PERIODS;
TMCC DEMAND NOTES.............. The Accumulation Period with respect to a Class of
Certificates will commence on the earlier of the
Accumulation Date or the day on which an Accumulation
Event occurs and will end on the related Targeted
Maturity Date or on the occurrence of a Swap
Termination, if any. During the Revolving Period,
amounts allocated on any Monthly Allocation Date as the
related Class A-1 Notional Interest Accrual Amount,
Class A-2 Notional Interest Accrual Amount, Class A-3
Notional Interest Accrual Amount or Class B Notional
Interest Accrual Amount will be deposited into the
Certificateholders' Account and invested in Permitted
Investments maturing on or prior to the succeeding
relevant Certificate Payment Date. Following the
Revolving Period, amounts allocated as described in the
prior
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
sentence will continue to be deposited and invested as
described in the preceding sentence, and amounts
allocated on any Monthly Allocation Date in reduction of
the Adjusted Class A-1 Certificate Balance, the Adjusted
Class A-2 Certificate Balance, Adjusted Class A-3
Certificate Balance and the Adjusted Class B Certificate
Balance (including reimbursements of Loss Amounts
allocated to any such Class) will be deposited into the
Certificateholders' Account and invested in Permitted
Investments maturing on or prior to the related Targeted
Maturity Date. Each such Permitted Investment is
required to bear interest at the related Required Rate.
Amounts so allocated on any Certificate Payment Date
will not be so invested in Permitted Investments if
currently payable or applicable to another purpose on
such Certificate Payment Date.
Such Permitted Investments are expected to be demand
obligations issued by TMCC (each a "TMCC Demand Note").
The TMCC Demand Notes are demand obligations insofar as
the Trustee, on behalf of the Trust, will have the right
to demand payment of amounts due thereunder prior to
their stated maturity dates if (i) for any reason
Standard & Poor's reduces TMCC's short-term debt to a
rating less than A-1+ or TMCC's long-term debt to a
rating less than AA, or Moody's reduces TMCC's
short-term debt to a rating less than P-1 or TMCC's
long-term debt to a rating less than Aa3 and the Trustee
determines that at such time one or more Permitted
Investments having substantially the same maturities,
similar demand features and bearing interest at the
relevant Required Rates are available and investment
therein rather than in TMCC Demand Notes will not, by
itself, cause a Rating Agency to reduce or withdraw its
rating of any Class of Certificates or (ii) in
connection with a Swap Termination. The Trustee will be
required to exercise the demand feature of the TMCC
Demand Notes upon any Swap Termination.
Because TMCC is the issuer of the TMCC Demand Notes, and
because such instruments will not be redeemable prior to
their maturity dates other than as described above, if
for any reason either Rating Agency reduces its rating
of TMCC's debt after the date hereof, such Rating Agency
may also downgrade the rating it has assigned to any
Class of Certificates. On August 20, 1998, Moody's
downgraded the long-term debt of TMC and its
subsidiaries (including TMCC) to Aa1 from Aaa. On
September 29, 1998, Standard & Poor's announced that it
had placed the long-term debt of TMCC on Credit Watch
with negative implications. The initial ratings of the
Certificates are not affected by Moody's reduction of
TMCC's rating or Standard & Poor's announcement. SEE
"Risk Factors - Risks Associated with Ratings of the
Class A Certificates" and "Additional Document
Provisions -- TMCC Demand Notes".
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
D. THE SWAP...................... In order to enable the Trust to satisfy its obligations
to make payments on the Class A Certificates at an
adjustable rate of interest, the Trust will enter into
the Swap Agreement with TMCC, as Swap Counterparty (the
"Swap Counterparty").
Pursuant to the Swap Agreement, the Trust generally will
pay to the Swap Counterparty on each relevant
Certificate Payment Date all amounts allocable in
respect of the Class A-1 Swap Interest Amount, the Class
A-2 Swap Interest Amount, the Class A-3 Swap Interest
Amount or the Class B Swap Interest Amount, in each case
subject to the payment priorities and limitations
described herein. On each such date, the Swap
Counterparty will make payments to the Trust of amounts
due on such date under the Swap Agreement, which amounts
will be used to make payments of interest accrued on the
related Class of Certificates. As described herein, if
the Trust makes payments of less than the Class A-1 Swap
Interest Amount, Class A-2 Swap Interest Amount, Class
A-3 Swap Interest Amount or Class B Swap Interest
Amount, as the case may be, on any Certificate Payment
Date, the Swap Counterparty's corresponding payment
obligations under the Swap Agreement will be reduced
proportionately. SEE "-- Payments -- INTEREST" above,
and "The Swap Agreement -- Payments under the Swap
Agreement" herein.
The Swap Agreement provides for termination in
connection with the occurrence of certain Events of
Default and Termination Events. If the Swap Agreement is
terminated as a result of an Event of Default or
Termination Event (a "Swap Termination"), the principal
of the Certificates will become due and payable without
regard to their respective Targeted Maturity Dates, and
the Trustee will be obligated to liquidate the SUBI and
any other Trust assets. In such event, the net proceeds
realized from the liquidation of the assets of the
Trust, if any, to the extent available after the payment
of all other obligations of the Trust in respect of any
amounts reimbursable to the Transferor, Servicer,
Trustee or Swap Counterparty as described herein, will
be allocated to make payments on the Certificates
pursuant to the priorities described herein under
"Description of the Certificates -- Termination of the
Trust; Retirement of the Certificates -- SWAP
TERMINATION". Such net proceeds may not be sufficient to
reduce the outstanding balances of the Class A
Certificates or Class B Certificates to zero. SEE "Risk
Factors -- Risks Associated With Swap Agreement". Under
such circumstances, Holders will have no recourse to any
other assets for payment of the Class A Certificates,
and will suffer a corresponding loss.
The long-term debt obligations of TMCC currently are
rated AAA by Standard & Poor's and Aa1 by Moody's. The
Swap Agreement will not terminate merely as a result of
a downgrade in any rating assigned to TMCC's debt
obligations. However,
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
because the ratings of each Class of Class A
Certificates take into account the provisions of the
Swap Agreement and the ratings currently assigned to the
debt obligations of the Swap Counterparty, a downgrade,
suspension or withdrawal of any rating of the debt of
the Swap Counterparty by a Rating Agency may result in
the downgrade, suspension or withdrawal of the rating
assigned by either Rating Agency to such Class of Class
A Certificates, with adverse consequences for the
liquidity or market value thereof. SEE "Risk Factors --
Risks Associated with Swap Agreement".
In the event the long-term debt rating of the Swap
Counterparty is reduced to a level below Aa3 by Moody's
or AA by Standard & Poor's or the short-term debt rating
of the Swap Counterparty is reduced to a level below P-1
by Moody's or A-1+ by Standard & Poor's, the Swap
Counterparty may assign the Swap Agreement to another
party and thereby be released from its obligations under
the Swap Agreement; provided that (i) such transferee,
by a written instrument, accepts all of the obligations
of the Swap Counterparty under the Swap Agreement to the
reasonable satisfaction of the Trustee, (ii) the Swap
Counterparty delivers an opinion of independent counsel
of recognized standing in form and substance reasonably
satisfactory to the Trustee confirming that as at the
date of such transfer the transferee will not, as a
result of such transfer, be required to withhold or
deduct on account of tax under the Swap Agreement, (iii)
a Termination Event or Event of Default does not occur
under the Swap Agreement as a result of such transfer
and (iv) the ratings assigned to the Certificates after
such assignment and release will be at least equal to
the ratings assigned by Moody's and Standard & Poor's to
the Certificates at the time of such reduction of the
rating of the Swap Counterparty's debt. Any cost of such
transfer will be borne by the Swap Counterparty or such
transferee and not by the Trust; provided, however, that
the Swap Counterparty should not be requested to make
any payment to the Transferee to obtain a replacement
swap.
E. 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 the allocations, applications
or payments required to be made in respect of principal
on such date, the Adjusted Investor Balance is less than
or equal to $ (10% of the Aggregate Net Investment
Value as of the Cutoff Date) or amounts sufficient to
effectively reduce the Adjusted Investor 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 outstanding Class
on such date. SEE "Description of the Certificates --
Termination of the Trust; Retirement of the
Certificates".
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
F. FORM AND DENOMINATIONS 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" and "ANNEX I:
Global Clearance, Settlement and Tax Documentation
Procedures".
G. LISTING....................... Application will be made for listing of the Class A
Certificates on the Luxembourg Stock Exchange.
THE SUBI.......................... The SUBI will be evidenced by two certificates
collectively evidencing a 100% beneficial interest in
the SUBI Assets, one of which, the SUBI Certificate,
will be transferred by the Transferor to the Trust, and
the other of which (evidencing the rights to proceeds of
the Residual Value Insurance Policies) will be retained
by the Transferor. The SUBI will not evidence an
interest in any Titling Trust Assets other than the SUBI
Assets. Payments made on or in respect of any Titling
Trust Assets other than the SUBI Assets, as well as
proceeds of the Residual Value Insurance Policies, 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".
THE CONTRACTS. The Contracts will consist of retail
closed-end lease contracts originated by the Dealers in
the Trust States having original terms of not more than
60 months. Substantially all of the Contracts will be
finance leases for accounting purposes and will have
been written for a "capitalized cost" which represents
the original principal balance of such Contract
("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").
Substantially all the Contracts 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 a
lease contract (based on instructions provided to the
Dealers by TMCC) and represents the estimated wholesale
market value at the end of the lease term, as such
estimated value may be reduced in connection with
payments received in respect of principal due during the
period of any extension granted as described herein
("Residual Value"). The amount to which the capitalized
cost of a Contract has been
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
amortized at any point in time is referred to herein as
its "Outstanding Principal Balance".
The Initial Contracts consist of lease contracts. As
of the Cutoff Date, the Initial Contracts had Lease
Rates ranging from % to % and a weighted average
Lease Rate of %. As of the Cutoff Date, the Initial
Contracts had an aggregate Outstanding Principal Balance
of $ , a weighted average original term of months
and a weighted average remaining term to scheduled
maturity of months. SEE "The Contracts".
The "Discounted Principal Balance" for each Contract
with a Lease Rate less than % will be its remaining
Monthly Payments and Residual Value discounted by %
(each such Contract, a "Discounted Contract"), and for
each Contract with a Lease Rate at least equal to %
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 $ (of which amount approximately
% represented Residual Values).
The "Aggregate Net Investment Value" as of any date will
equal the sum of (i) the Discounted Principal Balances
of all Contracts other than Charged-off, Liquidated,
Matured and Additional Loss Contracts, (ii) the
aggregate of the Residual Values of all Leased Vehicles
covered by Matured Contracts to the extent that such
Contracts have been terminated 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 and
Certificate Principal Loss Amounts.
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
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
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 or the
Titling Trustee. 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 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 Policies 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 SUBI Collection Account will be established and
maintained 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 (or portions thereof) determined by the
Servicer to be due in one or more future Collection
Periods, (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 through the date of disposition of the related
Leased Vehicles ("Matured Leased Vehicle Proceeds"),
(iv) proceeds received in connection with the sale or
other disposition of Repossessed Leased Vehicles or
other vehicles that were covered by Charged-off
Contracts ("Charged-off Vehicle Proceeds") and (v) other
amounts received in connection with the realization of
the amounts due under any Contract through the date of
disposition of the related vehicle (together with
Matured Leased Vehicle Proceeds and Charged-off 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"), Charged-off Vehicle Proceeds ("Charged-off
Vehicle Expenses") and other Liquidation Proceeds (such
expenses, together with Matured Leased Vehicle Expenses
and Charged-
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
off Vehicle Expenses, "Liquidation Expenses"), to be
netted from proceeds or Collections in respect of such
payments (including other Liquidation Proceeds), or
withdrawn from amounts 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
amounts (together with any unpaid Monthly Payments under
the related Contract) will be treated as Matured Leased
Vehicle Expenses or Charged-off Vehicle Expenses, as the
case may be, and will therefore reduce Matured Leased
Vehicle Proceeds or Charged-off Vehicle Proceeds, as the
case may be, and Liquidation Proceeds.
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
made by the Transferor and (iii) Reallocation Payments
by TMCC (together with, under certain circumstances
after the Revolving 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, Interest Collections (and, with respect to
the Deposit Date in any month following the termination
of the Revolving Period, Principal Collections) on
deposit in the SUBI Collection Account in respect of the
related Collection Period will be available for
allocation, application or payment 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
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
Proceeds being less than the sum of the Residual Values
of all Leased Vehicles so sold or otherwise disposed of.
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 none of the
Trust, the Certificateholders or the Swap Counterparty
will have any further claim thereto or interest therein.
THE RESERVE FUND.................. A Reserve Fund (the "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 Collections allocable to the
Investor Interest for the related Collection Period are
insufficient to allocate for or make applications or
payments in respect of, among other things, the (i)
Class A-1 Notional Interest Accrual Amounts, Class A-2
Notional Interest Accrual Amounts, Class A-3 Notional
Interest Accrual Amounts or Class B Notional Interest
Accrual Amounts, (ii) Loss Amounts and Certificate
Principal Loss Amounts allocated to the Certificates and
(iii) if such Monthly Allocation Date is a relevant
Certificate Payment Date, amounts on deposit in the
Reserve Fund will also be applied to fund any remaining
shortfalls in amounts payable to the Swap Counterparty
under the Swap Agreement (the aggregate amount of such
deficiency, the "Required Amount"). Of the amounts on
deposit in the Reserve Fund, an amount not to exceed $
(the "Class B Reserve Amount") generally will be
available exclusively for payment of accrued and unpaid
interest with respect to the Class B Certificates
provided that, on and after the Class B Targeted
Maturity Date, such amounts may be applied to repay
Maturity Advances as described above, and may be applied
in reduction of the Adjusted Class B Certificate Balance
until the Adjusted Class B Certificate Balance is
reduced to zero. Such amounts will not be so applied if
other amounts are then on deposit in the Reserve Fund
and available therefor. Following the initial allocation
of amounts to the Class B Reserve Amount, no subsequent
amounts deposited into the Reserve Fund will be
allocated to the Class B Reserve Amount. Subject to the
foregoing, on the related Stated Maturity Date, monies
on deposit in the Reserve Fund also may be applied and
paid to reduce the Adjusted Class A-1 Certificate
Balance, the Adjusted Class A-2 Certificate Balance, the
Adjusted Class A-3 Certificate Balance or the Adjusted
Class B Certificate Balance, as well as to reimburse
Loss Amounts and Certificate Principal Loss Amounts
previously allocated thereto should Collections
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
ultimately be insufficient to reduce any such balance to
zero and to effect such reimbursements on such date. In
addition, if such Monthly Allocation Date is on or after
the Class B Targeted Maturity Date, amounts remaining on
deposit in the Reserve Fund (including Class B Reserve
Amounts, if necessary) will be applied to fund any
unreimbursed Maturity Advances and amounts payable to
the Trustee, Titling Trustee and Servicer. If, following
such applications, the remainder is sufficient to reduce
the Adjusted Certificate Balance of all Classes of
outstanding Certificates to zero, such funds will be so
paid. 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 on the Closing Date
with an initial deposit (the "Initial Deposit") by the
Transferor of $ ( % of the Aggregate Net
Investment Value as of the Cutoff Date). Thereafter, on
each Monthly Allocation Date, the Reserve Fund will be
supplemented by amounts that would otherwise be released
to the Transferor after making all required allocations,
applications and payments, until the amount on deposit
therein equals the applicable Specified Reserve Fund
Balance. On each Monthly Allocation Date, all net
investment income with respect to amounts on deposit
therein and, after giving effect to all applications of
amounts withdrawn from the Reserve Fund on such 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,
Applications and Payments -- ALLOCATIONS AND
APPLICATIONS 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 Monthly Allocation
Date (i) allocations and applications in respect of
interest on the Class B Certificates generally will not
be made until amounts have been appropriately allocated
and applied in respect of the Class A-1 Notional
Interest Accrual Amount, the Class A-2 Notional Interest
Accrual Amount and the Class A-3 Notional Interest
Accrual Amount as of such Monthly Allocation Date, the
Class A-1 Swap Interest Shortfall Amount, the Class A-2
Swap Interest Shortfall Amount and the Class A-3 Swap
Interest Shortfall Amount as of such Monthly Allocation
Date allocated
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
to the Class A-1 Certificates, Class A-2 Certificates
and Class A-3 Certificates in respect of such Monthly
Allocation Date, (ii) allocations, applications and
payments in respect of principal of the Class B
Certificates generally will not be made until the
foregoing allocations and applications have been made
and all allocations, applications and payments in
reduction of the Adjusted Class A-1 Certificate Balance,
the Adjusted Class A-2 Certificate Balance and the
Adjusted Class A-3 Certificate Balance (as well as
reimbursements of Loss Amounts and Certificate Principal
Loss Amounts allocated thereto) have been made and (iii)
Loss Amounts and Certificate Principal Loss Amounts will
be allocated to the Class B Certificates until the
Adjusted Class B Certificate Balance has been reduced to
zero prior to the allocation thereof to the Adjusted
Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance and the Adjusted Class A-3
Certificate Balance.
To provide additional credit enhancement for the
Certificates, Transferor Amounts will not be paid to the
Transferor on any Monthly Allocation Date until all
allocations, applications and payments required to be
made with respect to the Adjusted Investor Balance have
been made on such date and the amount on deposit in the
Reserve Fund on such Monthly Allocation Date equals the
Specified Reserve Fund Balance as described under
"Description of the Certificates -- Allocations,
Applications and Payments -- ALLOCATIONS AND
APPLICATIONS OF COLLECTIONS". 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
that it determines such Advance may not be ultimately
recoverable from Net Liquidation Proceeds or otherwise.
In addition, the Servicer will have the option to make
certain Advances with respect to off-lease vehicles held
pending disposition. 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, if on the related Targeted
Maturity Date the aggregate of amounts available to be
allocated, applied and paid in respect of the Adjusted
Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance, the Adjusted Class A-3 Certificate
Balance or the Adjusted Class B Certificate Balance are
insufficient to reduce the Adjusted
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance, the Adjusted Class A-3 Certificate
Balance or the Adjusted Class B Certificate Balance, as
the case may be, to zero, or to reimburse Loss Amounts
and Certificate Principal Loss Amounts allocated
thereto, the Transferor will have the option to make an
advance (a "Maturity Advance") in any amount up to the
amount of such shortfall. Any such amounts advanced by
the Transferor will be reimbursable to the Transferor
from the Investor Percentage of Principal Collections on
subsequent Monthly Allocation Dates or from certain
amounts on deposit in the Reserve Fund as and to the
extent 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".
ERISA CONSIDERATIONS.............. Subject to considerations described below, the Class A
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 any Class of Class A
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 100 investors who are independent of the
Transferor and of one another and that such Certificates
are registered under the Exchange Act. 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 each Class of
Class A 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.
If the Trust's assets were deemed to be "plan assets" of
an employee benefit plan investor (e.g., if the 100
independent investor criterion is not satisfied),
violations of the "prohibited transaction" rules of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), could result and generate excise tax
and other liabilities under ERISA and section 4975 of
the Internal Revenue Code of 1986, as amended (the
"Code"), unless another statutory, regulatory or
administrative exemption is available. It is uncertain
whether existing exemptions from the
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
"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".
TAX STATUS........................ On the Closing Date, O'Melveny & Myers LLP will deliver
a legal opinion to the effect that (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 for federal income tax purposes. SEE
"Material Federal Income Tax 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 the Class A-1,
Class A-2 and Class A-3 Certificates in its highest
rating category. The ratings of the Class A-1, Class A-2
and Class A-3 Certificates primarily address the
likelihood of the payment in full of interest on and
principal of the Class A-1, Class A-2 and Class A-3
Certificates pursuant to the Agreement and the Swap
Agreement. At any time that amounts remain invested in
TMCC Demand Notes, or so long as TMCC is the Swap
Counterparty, a reduction or withdrawal of the ratings
assigned by either Rating Agency to the debt securities
of TMCC could result in the reduction or withdrawal of
its rating of the Class A-1, Class A-2 or Class A-3
Certificates. On July 3, 1998, Moody's placed the Aaa
long-term debt ratings of TMC, TMCC's ultimate parent,
and its subsidiaries (including TMCC) under review for
possible downgrade. On August 20, 1998, Moody's
downgraded the long-term debt of TMC and its
subsidiaries (including TMCC) to Aa1 from Aaa and
announced the conclusion of the rating review that began
on July 3, 1998. On September 29, 1998, Standard &
Poor's announced that it had placed the long-term debt
of TMCC on Credit Watch with negative implications. The
initial ratings of the Certificates are not affected by
Moody's reduction of TMCC's rating or Standard & Poor's
announcement. SEE "Risk Factors -- Risks Associated with
Ratings of the Class A Certificates". The ratings of the
Class A-1, Class A-2 and Class A-3 Certificates will not
address the likelihood of the payment in full of the
principal amount thereof on any particular date prior to
the related Stated Maturity Date. [On September 29,
1998, Standard & Poor's placed the long-term debt
ratings of TMC and its subsidiaries (including TMCC)
under review for possible downgrade.]
A security rating is not a recommendation to buy, sell
or hold securities, and may be subject to revision,
suspension or withdrawal at any time by the assigning
Rating Agency. SEE "Ratings of the Class A
Certificates".
</TABLE>
27
<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 any 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 such Class.
RISKS ASSOCIATED WITH SWAP AGREEMENT
The ability of the Trust to make payments to Class A Certificateholders at
the Class A-1 Rate, Class A-2 Rate or Class A-3 Rate, which are adjustable rates
of interest, while the SUBI Assets implicitly bear interest at fixed interest
rates, is substantially dependent on the operation of the Swap Agreement and the
performance by the Swap Counterparty of its obligations under the Swap Agreement
SEE "Additional Document Provisions -- Swap Agreement".
Certain events that are not entirely within the control of the Trust or even
of the Swap Counterparty may cause the termination of the Swap Agreement. Upon
termination of the Swap Agreement the assets of the Trust will be liquidated.
Upon liquidation of the assets of the Trust in connection with a termination of
the Swap Agreement, the proceeds of any liquidation of the assets of the Trust
may not be adequate to pay the Adjusted Class A-1 Certificate Balance, the
Adjusted Class A-2 Certificate Balance, the Adjusted A-3 Certificate Balance and
interest accrued thereon through the final Certificate Payment Date. In
addition, the Trust may be obligated to make a swap termination payment to the
Swap Counterparty, which will be deducted from the amounts available to make
payments to the Class A Certificateholders.
In connection with any liquidation of the assets of the Trust, the proceeds
of the sale of the Trust Assets will be applied first to reimburse the
Transferor for any unreimbursed Maturity Advances, second to reimburse the
Trustee and Titling Trustee for any Capped or Uncapped Administrative Expense
they have incurred, third to reimburse any unreimbursed Advances made by, and to
pay any other compensation owed to, the Servicer and, finally, to make payments
to the Certificateholders in accordance with the allocations and applications
described herein under "Description of the Certificates -- Termination of the
Trust; Retirement of the Certificates -- SWAP TERMINATION." In addition, amounts
available to make such payments will be further reduced if the Trust is
obligated to make a swap termination payment to the Swap Counterparty. No
assurance can be made as to length of time that will be required for the Trustee
to liquidate the assets of the Trust. There is no developed market for
securities such as the SUBI Certificate, which comprises the primary asset of
the Trust. Even if actual losses or shortfalls are not realized in connection
with a liquidation, any liquidation that causes principal of a Class of
Certificates to be payable prior to the related Targeted Maturity Date will
reduce the weighted average life and may reduce the yield to maturity of such
Class of Certificates. SEE "Description of the Certificates -- Termination of
the Trust; Retirement of the Certificates" and "Additional Document Provisions
- -- Swap Agreement".
Because the ratings of each Class of Class A Certificates take into account
the provisions of the Swap Agreement and the TMCC Demand Notes and the ratings
currently assigned to TMCC's debt obligations (because TMCC is the Swap
Counterparty and the issuer of the TMCC Demand Notes), a downgrade, suspension
or withdrawal of any rating of the TMCC debt by a Rating Agency may result in
the downgrade, suspension or withdrawal of the rating assigned by either Rating
Agency to such Class of Class A Certificates, with adverse consequences for the
liquidity or market value thereof. SEE "Ratings of the Class A Certificates".
On April 2, 1998, Moody's affirmed its Aaa rating of Japan's debt, but
changed its outlook for Japan's Aaa debt rating from "stable" to "negative". On
July 23, 1998, Moody's announced its decision to review
28
<PAGE>
for possible downgrade Japan's Aaa "country ceilings" for foreign
currency-denominated debt and bank deposits as well as the Aaa-rated
yen-denominated securities issued or guaranteed by the government of Japan. On
August 20, 1998, Moody's downgraded the long-term debt of TMC and its
subsidiaries (including TMCC) to Aa1 from Aaa and announced the conclusion of
the rating review that began on July 3, 1998. [On September 29, 1998, Standard &
Poor's placed the long-term debt ratings of TMC and its subsidiaries (including
TMCC) under review for possible downgrade.] Although Standard & Poor's has not
made any public announcement to this effect, if the credit rating of TMC were
further lowered, the credit rating of TMCC (the Swap Counterparty and issuer of
the TMCC Demand Notes) could also be lowered, which could lead to a lower credit
rating by Standard & Poor's of the Certificates offered hereby.
STRUCTURED SECURITIES ARE SOPHISTICATED INSTRUMENTS, CAN INVOLVE A HIGH
DEGREE OF RISK AND ARE INTENDED FOR SALE ONLY TO INVESTORS CAPABLE OF
UNDERSTANDING THE RISKS ENTAILED IN SUCH INSTRUMENTS. POTENTIAL INVESTORS IN ANY
CLASS A CERTIFICATES ARE STRONGLY ENCOURAGED TO CONSULT WITH THEIR FINANCIAL
ADVISORS BEFORE MAKING ANY INVESTMENT DECISION.
RISK OF ABSENCE OF FUNDS FOR REIMBURSEMENT OF CERTAIN LOSSES
The Investor Percentage of Loss Amounts (including Certificate Principal
Loss Amounts) will be allocated first to the Adjusted Class B Certificate
Balance and then to the Adjusted Class A-1 Certificate Balance, the Adjusted
Class A-2 Certificate Balance and the Adjusted Class A-3 Certificate Balance pro
rata based on the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance and Adjusted Class A-3 Certificate Balance as of the last
day of the related Collection Period. To the extent that Loss Amounts exceed the
sources available for repayment thereof on the date so allocated, such Loss
Amounts will be allocated to the Certificates as Certificate Principal Loss
Amounts, temporarily or permanently reducing the Adjusted Class B Certificate
Balance or Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance and Adjusted Class A-3 Certificate Balance, as the case may
be. 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 after the Revolving Period, reimbursements of Loss
Amounts will be allocated or applied in respect of the Adjusted Class A-1
Certificate Balance, Adjusted Class A-2 Certificate Balance and Adjusted Class
A-3 Certificate Balance on a pro rata basis (based on the outstanding amount of
unreimbursed Loss Amounts and Certificate Principal Loss Amounts allocated to
the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2 Certificate
Balance and Adjusted Class A-3 Certificate Balance as of such date) and any
remainder to the Adjusted Class B Certificate Balance, in each case as an
allocation or application of Principal Collections 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
available therefor and Transferor Amounts.
"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
29
<PAGE>
year to buy, trade in or refinance the related vehicles, and the supply of, and
demand for, vehicles similar to the Leased Vehicles in the used car market.
Uncollected payments for excess mileage or excess wear and use also could affect
the related proceeds. 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. No assurance can be given as to the
likely Residual Value Loss Amounts allocated to the Investor Interest over the
life of the Certificates. SEE, "Risks Associated with Vehicles Returned at the
Termination of the Lease" and "Risks Associated with Concentrations of Vehicle
Types".
RISKS OF REDUCTION OF CERTIFICATE INTEREST PAYMENTS
Payments in respect of interest on the Certificates are subject to reduction
in certain circumstances as described under "Description of the Certificates --
Calculation of class A-1 Rate and Class A-2 Rate -- INTEREST REDUCTION" and "--
Interest Reduction in Connection with Taxation".
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
Adjusted Class A-1 Certificate Balance has been reduced to zero, no principal
payments will be made on the Class A-3 Certificates until the Adjusted Class A-2
Certificate Balance has been reduced to zero, and no principal payments will be
made on the Class B Certificates until the Adjusted Class A-3 Certificate
Balance has been reduced to zero. Sequential payment of the Certificates is
likely to cause Classes of Certificates that pay later to be outstanding (and to
have relatively higher outstanding Adjusted Certificate Balances than Classes
with earlier Targeted Maturity Dates) during periods when an increasingly larger
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, the Adjusted Class A-3 Certificate Balance may be allocated
relatively more Loss Amounts (including Residual Value Loss Amounts) as a
percentage of the Initial Class A-3 Certificate Balance than are allocated to
both the Adjusted Class A-2 Certificate Balance as a percentage of the Initial
Class A-2 Certificate Balance and the Adjusted Class A-1 Certificate Balance as
a percentage of the Initial Class A-1 Certificate Balance, because such
allocations will be made on each Monthly Allocation Date based on the
outstanding Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance and Adjusted Class A-3 Certificate Balance as of the last
day of the related Collection Period. In addition, the Adjusted Class A-2
Certificate Balance may be allocated relatively more Loss Amounts (including
Residual Value Loss Amounts) as a percentage of the Initial Class A-2
Certificate Balance than are allocated to the Adjusted Class A-1 Certificate
Balance as a percentage of the Initial Class A-1 Certificate Balance, because
such allocations will be made on each Monthly Allocation Date based on the
outstanding Adjusted Class A-1 Certificate Balance and Adjusted Class A-2
Certificate Balance as of the last day of the related Collection Period.
In addition, on any Monthly Allocation Date allocations and applications in
respect of interest on the Class B Certificates generally will not be made until
amounts have been appropriately allocated and applied in respect of the Class
A-1 Notional Interest Accrual Amount, the Class A-2 Notional Interest Accrual
Amount and the Class A-3 Notional Interest Accrual Amount as of such Monthly
Allocation Date, the Class A-1 Swap Interest Shortfall Amount, the Class A-2
Swap Interest Shortfall Amount and the Class A-3 Swap Interest Shortfall Amount
as of such Monthly Allocation Date and Loss Amounts and Certificate Principal
Loss Amounts allocated to the Class A-1 Certificates, Class A-2 Certificates and
Class A-3 Certificates in respect of such Monthly Allocation Date. However,
because such allocations will be made monthly while interest payments will be
made quarterly for each Class of Certificates until the related Targeted
Maturity Date, it is possible that the Class B Certificates will receive
allocations with
30
<PAGE>
respect to interest for a quarterly period even though the Class A Certificates
have not been allocated the full amount of the Notional Interest Accrual
Amounts, Swap Interest Shortfall Amounts, Loss Amounts and Certificate Principal
Loss Amounts with respect to all monthly periods included in the Interest
Payment Period.
MATURITY AND PREPAYMENT CONSIDERATIONS
Principal generally will not be paid to the Certificateholders until the
related Targeted Maturity Date. SEE "Description of the Certificates --
Accumulation Events" and "-- Termination of the Trust; Retirement of the
Certificates". If the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance, Adjusted Class A-3 Certificate Balance or Adjusted Class B
Certificate Balance is not reduced to zero on the related Targeted Maturity
Date, payments in reduction thereof will thereafter be made on each subsequent
relevant Monthly Allocation Date to the extent of amounts available therefor
until such amount or balance is reduced to zero or the Trust is otherwise
terminated. Events that could result in the Adjusted Class Certificate Balance
of a particular Class of Certificates not being reduced to zero on the related
Targeted Maturity Date include, without limitation, significantly higher than
expected loss experiences with respect to the Contracts, slower than expected
prepayment experiences with respect to the Contracts or the granting of
extensions or deferrals on the Contracts beyond historical levels, in each case
without a Maturity Advance being made. There can be no assurance as to whether a
Maturity Advance or Inventory Advance will be made or, if made, will be
sufficient to reduce the Adjusted Class A-1 Certificate Balance, Adjusted Class
A-2 Certificate Balance, Adjusted Class A-3 Certificate Balance or Adjusted
Class B Certificate Balance to zero on the related Targeted Maturity Date and,
therefore, any such Class may mature significantly later than its Targeted
Maturity Date. The rate at which payments may be made will be affected by the
payment, prepayment, residual value loss, liquidation and extension experience
with respect to the Contracts, which cannot be predicted, and may also be
affected by (i) payment by TMCC of Reallocation Payments and Reallocation
Deposit Amounts, if any, (ii) the exercise by the Transferor of its right to
purchase the SUBI Certificate under certain circumstances, thereby retiring the
Certificates and (iii) the subsequent occurrence of a Swap Termination and the
amounts realized as proceeds from the sale of the SUBI Assets and possible
payment of a swap termination payment. SEE "TMCC Leasing Operations",
"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".
A Swap Termination and the accompanying liquidation of the assets of the
Trust may result in the payment of proceeds from such liquidation earlier than
the Targeted Maturity Date for any Class. Under such circumstances, the related
Certificateholders may not be able to reinvest such proceeds at a yield at least
equal to their yield on the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates or Class B Certificates, as the case may be, due to
economic conditions that may be unrelated to the cause of any such Swap
Termination. Under such circumstances there are additional risks of loss to
Class A Certificateholders related to the Swap Agreement. SEE "Risk Factors --
Risks Associated with Swap" and "Additional Document provisions -- Swap
Agreement -- SWAP TERMINATION". In addition, no assurance can be made as to the
length of time that will be required for the Trustee to liquidate the assets of
the Trust. There is no developed market for securities such as the SUBI
Certificate, which comprises the primary asset of the Trust. Even if actual
losses or shortfalls are not realized in connection with a liquidation, any
liquidation that causes principal of any Class of Certificates to be payable
prior to the related Targeted Maturity Date will reduce the weighted average
life and may reduce the yield to maturity of such Class of Certificates. SEE
"Description of the Certificates -- Termination of the Trust; Retirement of the
Certificates".
Each of the Contracts may be prepaid by the related lessee without penalty
in full or in part at any time. TMCC actively encourages lessees under lease
contracts with remaining terms of less than one year to either buy, trade in or
refinance the related leased vehicles prior to their scheduled maturities. [TMCC
31
<PAGE>
estimates that, of the automobile and light duty truck retail lease contracts in
its portfolio that were scheduled to mature during the fiscal year ended
September 30, 1997, during the six-month period ended March 31, 1998, or during
the nine-month period ended June 30, 1998, approximately 48%, 45% and 44%,
respectively, terminated more than 30 days prior to maturity as a result of
voluntary prepayments as to which the leased vehicles were purchased by the
related lessee or a dealer or repossession of the leased vehicles due to default
by the lessees under the related lease contracts.] Such early terminations
primarily were due to voluntary prepayments. No assurance can be given that the
Contracts will experience the same rates 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 and Yield
Considerations".
RISKS ASSOCIATED WITH RATINGS OF THE CLASS A CERTIFICATES
Because the ratings of each Class of Class A Certificates take into account
the provisions of the TMCC Demand Notes and the ratings currently assigned to
TMCC's debt obligations (because TMCC is the issuer of the TMCC Demand Notes and
the Swap Counterparty), a downgrade, suspension or withdrawal of any rating of
the debt of TMCC by a Rating Agency may result in the downgrade, suspension or
withdrawal of the rating assigned by such Rating Agency to such Class of Class A
Certificates. Such downgrading, suspension or withdrawal of the rating assigned
such Class of Class A Certificates will most likely produce adverse consequences
for the liquidity or market value thereof. SEE "Ratings of the Class A
Certificates".
As of the date of this Prospectus, TMCC's long-term debt is rated Aa1 by
Moody's and AAA by Standard & Poor's. On July 3, 1998, Moody's placed the Aaa
long-term debt ratings of TMC, TMCC's ultimate parent, and its subsidiaries
(including TMCC) under review for possible downgrade. On August 20, 1998,
Moody's downgraded the long-term debt of TMC and its subsidiaries (including
TMCC) to Aa1 from Aaa and announced the conclusion of the rating review that
began on July 3, 1998. On September 29, 1998, Standard & Poor's announced that
it had placed the AAA long-term debt of TMC on Credit Watch with negative
implications. The initial ratings of the Certificates are not affected by
Moody's reduction of TMCC's rating or Standard & Poor's announcement.
On April 2, 1998, Moody's changed its outlook for Japan's Aaa debt rating
from "stable" to "negative". On July 23, 1998, Moody's announced its decision to
review for possible downgrade Japan's Aaa "country ceilings" for foreign
currency-denominated debt and bank deposits as well as the Aaa-rated
yen-denominated securities issued or guaranteed by the government of Japan. If
Japan's credit rating is lowered below that of the then credit rating of TMC
(and its subsidiaries), the credit rating of TMC (and its subsidiaries) would
likely be lowered to the same extent, which could lead to a lower credit rating
of the Certificates offered hereby. If TMC's credit rating is lowered, the
credit rating of TMCC would likely be lowered to the same extent, which could
lead to a lower credit rating of the Certificates offered hereby.
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. However, a significant
number of lessees may live in or relocate to other states and may register
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.
Of the Initial Contracts, - % (based on the 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 43% higher
than TMCC's loss experience with respect to its entire lease contract portfolio
over the past five
32
<PAGE>
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).
Economic factors such as unemployment, interest rates, the rate of inflation
and consumer perceptions of the economy may affect the rate of prepayment and
default on the Contracts and the ability to sell or otherwise dispose of Leased
Vehicles relating to Matured Contracts for their respective Residual Values.
Other non-economic 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 VEHICLES RETURNED AT THE TERMINATION OF THE LEASE
Leased vehicles returned to TMCC (as opposed to being purchased by the
related lessee or a dealer prior to return to TMCC) at the termination of the
related lease contracts must be disposed of through means that may result in net
sale proceeds which are less than the related established residual value. The
amount of such residual value risk associated with leased vehicles returned to
TMCC is impacted by the Full Term Return Ratio and the per unit loss with
respect to such returned leased vehicles. The number of returned vehicles sold
by TMCC during a specified period as a percentage of the number of lease
contracts that, as of their origination dates, were scheduled to terminate
during such period is the "Full Term Return Ratio". The Full Term Return Ratio
can be affected by a variety of factors including new and used car markets
(which may influence the related vehicles' market values at the related
termination date relative to their residual values) and the duration of the
lease (leased vehicles that have shorter term leases generally have a greater
likelihood of being returned rather than purchased). TMCC estimates that, during
the period from October 1, 1992 through [June 30, 1998], the Full Term Return
Ratio with respect to lease contracts included in its portfolio was
approximately 41.3% for lease contracts with an original term of 24 months or
less, 24.7% for lease contracts with an original term of 25-36 months, 15.5% for
lease contracts with an original term of 37-48 months, and 6.4% for lease
contracts with an original term of 49-60 months or less. Approximately 5.5% of
lease contracts included in the 1998 -- C SUBI as of the Cut-off Date have an
original lease term of 24 months or less, whereas for the [nine-month] period
ended [June 30, 1998], approximately 23.3% of the lease contracts in TMCC's
entire portfolio had an original lease term of 24 months or less.
Per unit loss rate is a function of the contractual residual value and the
market value and net disposition proceeds received in respect of such leased
vehicle at the disposition of such leased vehicle. Each residual value is
established at the origination of the lease contract (based on the instructions
provided to the dealers by TMCC) and represents the estimated wholesale market
value of the related leased vehicle at the end of the lease term. No assurance
can be made as to how closely the residual value contractually established at
the origination of any lease contract will approximate the fair market value or
net disposition proceeds received in respect of such leased vehicle upon the
disposition of such leased vehicle. Moreover, given that each of the lessee and
the originating dealer have the option to purchase the leased vehicle upon
termination of the related lease contract at a price equal to the established
residual value plus applicable taxes and other incidental charges, TMCC expects
that, in general, if the market value of a leased vehicle exceeds the residual
value of such leased vehicle, it is likely to be purchased by the lessee or the
originating dealer rather than being returned to TMCC. Conversely, if the market
value of a leased vehicle is less than the contractually established residual
value of such leased vehicle, it is generally more likely to be returned to TMCC
resulting in a loss in respect of such leased vehicle.
A higher rate of return at the termination of leases exposes the lessor to a
higher risk of aggregate losses. TMCC's Full Term Return Ratio for its entire
portfolio of lease contracts has increased during the
33
<PAGE>
fiscal year ended September 30, 1997 as compared to the previous year, and
increased further for the nine months ended June 30, 1998. SEE "TMCC's Leasing
Operations -- Delinquency, Repossession and Loss Data". TMCC anticipates that
the Full Term Return Ratio will continue at the increased level through the
remainder of the fiscal year and perhaps longer. TMCC believes that the
increased ratio is due in part to (i) the relatively large number of two year
leases of Toyota vehicles maturing during the 1998 fiscal year (which, as
mentioned above, tend to experience relatively higher return rates and losses
per unit) and (ii) the impact of highly competitive new vehicle pricing for key
models (the Toyota Camry, the Toyota Corolla and the Lexus ES300 in particular)
for the year ended September 30, 1997, and the 1998 fiscal year, which has put
downward pressure on the late model Toyota and Lexus used vehicle prices. In
addition, the large supply of late model used vehicles in the used car market
may also be affecting return rates by depressing market prices. No assurance can
be made that the Full Term Return Ratio for Leased Vehicles included as SUBI
Assets will reflect TMCC's historical experience for its entire lease portfolio
and will not increase further.
As described under "TMCC's Leasing Operations -- Establishment of Residual
Value," the contractual residual value with respect to a Leased Vehicle related
to a Contract is calculated by multiplying the related MSRP by the appropriate
residual value percentage. A relatively higher residual value percentage with
respect to a leased vehicle may expose the lessor to a higher risk of loss if
the leased vehicle is returned to the lessor. The "Residual Value Percentage"
(the contractual residual value of a leased vehicle as a percentage of the
related MSRP) with respect to TMCC's automobile and light duty truck retail
closed-end lease contracts owned or serviced by TMCC and scheduled to mature
during the relevant time periods has generally increased over the past five
fiscal years and for the nine months ended June 30, 1998, and, on a weighted
average basis, is higher for the Initial Contracts than for its entire
portfolio.
TMCC believes that the increases in the Residual Value Percentages during
this period are a result of a combination of factors, some of which are
interrelated. For example, during this period, the mix of leased vehicles in
TMCC's portfolio has shifted to include a greater percentage of leases with low
annual mileage allowances of 12,000 miles rather than the standard annual
allowance of 15,000 miles and to include lease contracts with relatively shorter
lease terms. Generally, lease contracts with low annual mileage allowances
and/or shorter-term leases also have relatively higher Residual Value
Percentages. In addition, the introduction of new models and a new generation of
core vehicles and the increased percentage of Lexus and sport utility vehicles
has also increased the weighted average Residual Value Percentage of TMCC's
lease portfolio. TMCC expects that recent introductions of new models (such as
the Lexus LX series, the Lexus RX300, the Toyota RAV4 and the Toyota Sienna) and
new generation of certain core vehicles (in particular the Toyota Camry, the
Toyota Corolla and the Lexus ES300) have had a similar effect on the Initial
Contracts. Moreover, TMCC believes that the increases in Residual Value
Percentages for lease contracts scheduled to mature during the periods referred
to above were also due in part to TMCC's view of the relative strength of the
used car market for Toyota and Lexus vehicles, and to the increased amount of
data available relating to off-lease resale experience.
Per unit losses on disposition have increased for TMCC's entire portfolio of
leased contracts for the nine months ended June 30, 1998, and the six months
ended March 31, 1998, as compared to TMCC's fiscal year ended September 30,
1997, primarily as a result of the factors described above with respect to
higher vehicle return rates. Per unit loss rates may also be affected by the
amount of accessories or installed optional equipment included on leased
vehicles and the types of installed optional equipment included thereon.
Although per unit loss rates are typically the result of a combination of
factors, to the extent certain types of optional equipment depreciate more
quickly than the value attributable to the base leased vehicle, leased vehicles
having a greater portion of their overall MSRP attributable to such optional
equipment will experience relatively higher levels of losses.
In August 1998, TMCC adopted a new residual value setting policy for new
vehicles, [expected to be] implemented in the fall of 1998, that will separately
calculate the residual value applicable to the base
34
<PAGE>
vehicle and the residual value applicable to certain specified optional
accessories and optional equipment. As of the date of this Prospectus, this new
policy has not been implemented, and none of the initial Contracts have been,
and none of the Subsequent Contracts will be, originated under this new policy.
See "TMCC's Leasing Operations -- Establishment of Residual Value".
RISKS ASSOCIATED WITH CONCENTRATIONS OF VEHICLE TYPES
The Full Term Return Ratio and losses per returned unit for Lexus vehicles
historically have been significantly higher than those for Toyota leased
vehicles. [The Full Term Return Ratio for Lexus vehicles for TMCC's fiscal year
ended September 30, 1997, and for the nine months ended June 30, 1998, were
41.59% and 56.75%, respectively, as compared to Full Term Return Ratios for
Toyota vehicles for the same period, of 12.47% and 33.52%, respectively.
Although approximately 17.06% of the leased vehicles in TMCC's entire portfolio
as of June 30, 1998, were Lexus vehicles, only approximately 15.74% of the
Initial Contracts relate to Lexus leased vehicles, based on the number of
vehicles.]
The used car market for any particular model type could be adversely
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-nine model types in its lease portfolio, of which twenty-six model types
initially will be included as SUBI Assets. [By number of vehicles, the Camry,
Corolla, 4Runner, Tacoma Pickup, Tacoma 4x4 and Lexus ES300 represent
approximately - %, - %, - %, - %, - % and - %, respectively,
of the Initial Leased Vehicles as compared to approximately 28%, 16%, 9%, 5%, 8%
and 9%, respectively, of leased vehicles included in TMCC's entire lease
portfolio as of June 30, 1998.] Any such adverse change with respect to a
specific model type could result in reduced proceeds upon the liquidation or
other disposition of Leased Vehicles of such model type, and therefore could
result in increased Residual Value Losses.
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 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 following the Revolving
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
35
<PAGE>
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 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. 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, upon
being alerted by the tracking system that 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 becomes aware of
such default, the related lease contract is forwarded to the appropriate TMCC
branch for follow-up handling, including possible repossession of the related
Leased Vehicles 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 fails 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).
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
36
<PAGE>
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 insurance coverage required to be
maintained by the Titling Trust is substantial, 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
Certificates could incur a loss on their investment. SEE "Certain Legal Aspects
of the Titling Trust -- 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".
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, unreimbursed Advances made by TMCC, as Servicer, or indemnification
payments made by TMCC, as Servicer, in connection with certain deductibles under
the Excess and Contingent Liability Policies, 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. In
addition, certain events of insolvency or bankruptcy of the Transferor or TMCC
may result in a Swap Termination. SEE "Description of the Certificates --
Termination of the Trust; Retirement of the Certificates -- SWAP TERMINATION".
Certain risks associated with a Swap Termination are described above under
"Risks Associated with Swap Agreement".
On the Closing Date, O'Melveny & Myers LLP, 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, O'Melveny & Myers LLP will render an opinion to the effect
that (i) the transfer of the SUBI Certificate by TMCC to the Transferor
constitutes a sale of the SUBI Certificate and the related SUBI Assets, and (ii)
the transfer of the SUBI Certificate by the Transferor to the Trust pursuant to
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, certain claims
37
<PAGE>
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. TMCC and the Titling
Trust are parties to, and are vigorously defending, various legal proceedings.
TMCC believes each such proceeding constitutes ordinary routine litigation
incidental to the business and activities conducted by TMCC and the Titling
Trust. Certain of the actions naming TMCC and/or the Titling Trust 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 Agreement, the SUBI
Supplement and the Servicing Supplement. However, there can be no assurance in
this regard.
RISKS ASSOCIATED WITH YEAR 2000 DATE CONVERSION
TMCC, together with its parent TMS, has developed an action plan to
identify, evaluate and implement changes to information technology systems ("IT
systems"), including mainframe, AS/400, networks and personal computers to
address potential year 2000 systems malfunctions associated with time sensitive
programs that may not properly recognize the year 2000. In addition, the action
plan addresses year 2000 compliance of non-information technology systems
("non-IT systems"), such as security systems, automated access readers and other
machinery and equipment. The assessment of mainframe and AS/400 applications has
been completed and the conversion and testing phases are underway. Completion of
the assessment of networks, personal computers and non-IT systems and the
testing and validation phases of all IT and non-IT systems is expected by fiscal
year end 1999. Independent consultants have been retained to assist in the
development and execution of the year 2000 action plan. TMCC has initiated
communications with dealers, financial institutions, and suppliers to determine
the extent of risk created by those third parties' failure to remediate their
own year 2000 issues. At present, TMCC cannot determine the effect of failed
remediation efforts by these outside parties.
Costs associated with the year 2000 systems and software modifications are
expensed as incurred. The total estimated costs associated with the required
modifications to TMCC's IT and non-IT systems are not expected to have a
material impact on TMCC's results of operations, liquidity or capital resources.
The inability of TMCC or TMCC's outside parties to address the necessary
year 2000 modifications of IT and non-IT systems could result in a significant
adverse effect on TMCC's operations and financial results including the
inability to collect receivables, pay obligations, process new business and
occupy facilities. Any such inability could have a material adverse effect on
Certificateholders. TMCC is in the process of developing a contingency plan in
the case of failure of the year 2000 remediation efforts. Completion of the
contingency plan is expected by the end of fiscal year 1999.
The foregoing description contains various "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
TMCC's expectations or beliefs concerning future events, including the
following: that completion of the assessment of networks, personal computers and
non-IT systems and validation phases on all IT and non-IT systems in connection
with year 2000 issues is expected by fiscal year end 1999; that the total cost
associated with required year 2000 issues is not expected to have a material
impact on TMCC's results of operations, liquidity or capital resources; and that
completion of the contingency plan relating to year 2000 issues is expected by
the end of fiscal year 1999.
38
<PAGE>
TMCC cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements, including, without limitation: the failure of TMCC's
action plan to resolve timely year 2000 issues due to non-performance by outside
contractors, the failure of third parties to remediate their year 2000 issues or
other factors and the failure of TMCC to develop an adequate contingency plan
relating to year 2000 issues. Results actually achieved thus may differ
materially from expected results included in these statements.
39
<PAGE>
THE TRUST AND THE SUBI
GENERAL
The Trust and the Certificateholders will have no interest in the UTI, any
Other SUBI or any Titling Trust Assets evidenced by the UTI or any Other SUBI.
Payments made on or in respect of the Titling Trust Assets not represented by
the SUBI will not be available to make payments on the Certificates. See "The
Titling Trust".
THE TRUST
Pursuant to the Agreement, the Transferor will establish the Trust by
transferring and assigning the SUBI and the SUBI Certificate (which does not
include rights to proceeds of the Residual Value Insurance Policies) 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, 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 Certificateholders' Account and
investments of amounts on deposit in the SUBI Collection Account and the
Certificateholders' Account, (iii) the Trust's rights under the Swap Agreement
and (iv) the Trustee's rights as a third-party beneficiary to the Servicing
Agreement and the SUBI Supplement. 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 have an interest only in the portion of the SUBI
Certificate and SUBI Assets transferred to it by the Transferor, and will not
have a direct ownership interest in any Leased Vehicles. To the extent described
herein the Swap Counterparty will have a right to payment from the foregoing
assets and proceeds thereof superior to the rights of the Certificateholders.
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) as proceeds of the SUBI
Certificate with respect to all allocations, applications and payments in
respect of the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance and the Adjusted Class A-3 Certificate Balance, as such
amounts with respect to interest are exchanged pursuant to the Swap Agreement,
for payment of amounts due on the Class A Certificates held thereby. In such
event, certain factors, such as the fact that the Trust will not have a direct
ownership interest in the Contracts or Leased Vehicles or a perfected security
interest in the Leased Vehicles (which will be titled in the name of the Titling
Trust or Titling Trustee) may limit the amounts realized to amounts less than
the Discounted Principal Balances of the related Contracts.
Defaults or delinquencies by lessees or depreciation in the value of the
related Leased Vehicles may cause the amounts actually realized as Collections
to be less than the amounts due from the related lessees, and may cause delays
in collection of such payments as a result of which investors in the Class A
Certificates may experience losses on the Class A Certificates. 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 1998-C 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 (to the extent of funds
therein relating to the Contracts and Leased Vehicles), (B) the
40
<PAGE>
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 (excluding rights
to proceeds of the Residual Value Insurance Policies, which rights will be
retained by the Transferor), and the Transferor will transfer and assign the
SUBI Certificate to the Trustee pursuant to the Agreement.
THE TITLING TRUST
GENERAL
The Titling Trust is a Delaware business trust formed as of October 1, 1996,
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 may not: (i) issue interests therein or securities thereof other than the
SUBI, 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 waive
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 are 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
41
<PAGE>
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 specified 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 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
bound by this allocation. Similarly, all Certificateholders and Certificate
Owners will be deemed to waive claims 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, all rights thereunder including the right to
receive proceeds of Dealer repurchase obligations under the related Dealer
agreements, and all monies due from lessees thereunder; (ii) the automobiles and
light duty trucks related thereto and all proceeds thereof; (iii) the rights to
proceeds from physical damage, credit life, disability and all other insurance
policies, if any, covering the lease contracts, the related lessees or the
leased vehicles, including, but not limited to, the Contingent and Excess
Liability Insurance Policies; (iv) 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 (v) 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 or the Titling Trustee.
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 or Titling Trustee 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.
42
<PAGE>
Pursuant to agreements between the Titling Trust and the Dealers, each
Dealer is obligated, after assignment of lease contracts to the Titling Trust,
to repurchase such lease contracts which do not meet certain representations and
warranties made by such Dealer. These representations and warranties relate
primarily to the origination of the lease contracts and the titling of the
related leased vehicles, and do not typically relate to the creditworthiness of
the related lessees or the collectibility of such lease contracts. The Dealer
agreements do not generally provide for recourse to the Dealer for unpaid
amounts in respect of a defaulted lease contract, other than in connection with
the breach of such representations and warranties. The rights of the Titling
Trust to receive proceeds of such Dealer repurchase obligations will constitute
Titling Trust Assets (and SUBI Assets, to the extent they relate to the
Contracts and Leased Vehicles), although the related Dealer agreements will not
constitute Titling Trust Assets.
USE OF PROCEEDS
The net proceeds from the sale of the Class A Certificates (i.e., the
proceeds of the 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) 787-3541.
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 June 30, 1998, TMCC
had 34 branches in various locations in the United States, a branch in the
Commonwealth of Puerto Rico and a centralized customer service center in Iowa.
In addition to the Transferor, TMCC has one wholly owned subsidiary engaged,
through subsidiaries organized in various jurisdictions, 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, 1997, September 30, 1996 and September 30, 1995, TMCC
had approximately 649,000, 624,000 and 438,000 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
43
<PAGE>
principal balances of retail lease contracts at such dates, were approximately
$13 billion, $12 billion and $9 billion, respectively.
The principal executive offices of TMCC are located at 19001 South Western
Avenue, Torrance, California and its telephone number is (310) 787-1310.
TMCC is subject to the informational requirements of the Exchange Act. See
"Documents Incorporated by Reference".
44
<PAGE>
TMCC'S LEASING OPERATIONS
LEASE CONTRACT UNDERWRITING PROCEDURES
TMCC's lease contract 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.
ESTABLISHMENT OF RESIDUAL VALUE
TMCC conducts a broad analysis of different factors that may affect the
residual values of the Toyota and Lexus vehicles that it leases. In setting
residual values, TMCC analyzes its historical lease portfolio performance
(including the wholesale value performance of terminating leases, vehicle return
rates and gain/loss performance), current used vehicle market conditions,
transaction prices, future product and price information from TMS and other
manufacturers when available and published residual value percentages from
Automotive Lease Guide ("ALG") and from other lessors. ALG is an independent
publisher of vehicle residual value percentages and is frequently used for
comparison purposes by the vehicle leasing industry. In addition, starting in
February 1993 for Lexus vehicles and March 1994 for Toyota vehicles, TMCC began
using a statistically-based residual value forecasting model developed by TMCC
and DRI/ McGraw-Hill, Inc. as one of the factors it considers in setting
residual values. This model incorporates a variety of economic and
automotive-related variables to forecast residual values and is updated
quarterly.
TMCC prepares residual value tables based upon the results of the foregoing
analysis and distributes them to its branches and franchised Dealers quarterly.
The tables provide residual value percentages for each new vehicle available
from Toyota and Lexus for lease terms of 24 through 60 months in 3 month
increments. If a term and corresponding residual value percentage is not
published, the Dealer will use the percentage for the next longer term. The same
residual value percentages are used to set maximum allowed residual values
nationwide.
The maximum allowable residual value with respect to a new leased vehicle is
calculated by multiplying the appropriate residual value percentage from the
most recent quarterly table by the total of:
(1) the manufacturer's suggested retail price for the vehicle; plus
(2) the manufacturer's suggested retail price of certain TMCC-approved
dealer or manufacturer installed value-added optional equipment; plus
(3) the difference between the total manufacturer's suggested retail price
of each individual option contained in a value package and the discounted
price of the value package (the sum of (1), (2) and (3), the "MSRP").
45
<PAGE>
In August 1998, TMCC adopted a new residual value setting policy for new
Toyota vehicles that is expected to be implemented in the fall of 1998. Under
the new policy guidelines, residual values with respect to new vehicles will be
calculated based on the sum of (i) the manufacturer's suggested retail price for
the base vehicle multiplied by the applicable residual value percentage and (ii)
the applicable predetermined value for certain approved accessories and optional
equipment as set by TMCC. Under this new policy, the residual values for certain
base vehicles will be higher than under the current policy, while the residual
value for most optional accessories will either be lower or zero for purposes of
calculating the aggregate residual values for leased vehicles.
No assurance can be given as to the impact of this new policy on the return
or loss rates with respect to TMCC's portfolio of retail lease contracts. None
of the Initial Contracts have been, and none of the Subsequent Contracts will
be, originated under this new policy. None of the statistical information
included in this Prospectus reflects lease contracts that were originated under
this new policy.
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 and
TMCC's centralized collections department in Torrance, California (which
collects recoveries of deficiencies after lease termination). 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 employs a behavioral scoring method of
collection, which statistically analyzes past performance data to predict future
payment behavior, which is used as the basis for determining when to begin
collection efforts with respect to past due accounts. TMCC recently implemented
the behavioral scoring method of collection in an effort to improve its
servicing, including its management of individual lease performance and
collection efforts.
Occasionally, situations occur in the collection process when a lessee has
become delinquent and is willing but unable to bring the related account current
(e.g., 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 specific guidelines, one or more payments
under such 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
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. 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. 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".
46
<PAGE>
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 by
more than sixteen months with the inclusion of any deferrals) 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.
Generally, TMCC collection personnel make every commercially reasonable
effort to preserve a lease as a performing lease. As described above, TMCC has
implemented behavioral scoring for the purposes of improving its servicing
efforts, including management of individual lease performance and collection
results. However, if a delinquency cannot be satisfactorily resolved through
deferrals or otherwise, the decision to repossess a leased vehicle generally
will be made before a payment is more than 60 days past due. Lessees are
typically notified of repossession on the day thereof, or within two days after
repossession, and are informed 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.
VEHICLE DISPOSITION PROCESS
Leased Vehicles may be returned to TMCC rather than being purchased by the
lessee or a dealer at maturity or upon early termination, or may be repossessed
upon default. Currently, TMCC disposes of off-lease vehicles primarily through
regional automobile auctions. However, TMCC has recently instituted a program in
which selected off-lease vehicles are offered at set prices to Toyota and Lexus
dealers, as applicable, through an Internet site. The prices for vehicles
offered through the Internet program are set by TMCC to approximate the prices
TMCC would expect to receive at auction and may be higher or lower than the
Residual Value of the Leased Vehicle. The primary objectives of the Internet
sales program are to reduce the time between vehicle return and ultimate
disposition and to broaden the number of prospective buyers.
Off-lease Vehicles are returned to a Toyota or Lexus dealer who is
responsible for reporting the return to the relevant TMCC branch and to provide
a completed TMCC approved vehicle condition checklist. The branch arranges for
transportation of the vehicle to an auction site. Based upon the vehicle
condition checklist prepared by the dealer, the branch will determine whether to
arrange for a third party inspection of the Leased Vehicle at the auction site.
In addition, TMCC maintains a representative at each auction site who also may
order an inspection, if necessary. If an inspection is necessary and the
inspection determines that there is excess wear and tear, the lessee is
responsible for payment of these charges.
TMCC will make repairs and refurbishments to a vehicle only if the
refurbishment or repairs are reasonably expected to increase the net proceeds
received on disposition. Generally, this practice results in only a limited
amount of basic repairs (E.G., replacement of a battery so that the vehicle will
run) and refurbishment (typically not more than an ordinary "detailing") being
performed. The return of any security deposit to a lessee will be net of any
appropriate charges for these costs and for excess mileage charges. However,
TMCC does not always require a security deposit under its Contracts.
In most cases, vehicles are transported to the auction site within
approximately 10 days of TMCC receiving notice that the vehicle has been
returned to a dealer, and the disposition of the vehicle at auction typically
occurs within approximately four weeks thereafter. However, various
circumstances can cause these periods to be longer than the norm. For example,
the failure of a dealer to report timely the return of a vehicle, the bankruptcy
of a lessee, a delay in obtaining title documentation or the decision to send a
vehicle to a more distant auction site (as described below) may delay sale of
the vehicle beyond the typical
47
<PAGE>
time frame. In addition, the TMCC sales representative may decide to delay the
sale of a vehicle if the bids received at auction are not sufficient.
The regional auctions currently used by TMCC are "open" auctions, meaning
that any licensed dealer (not only Toyota and Lexus dealers) may participate.
Although a TMCC branch will typically send vehicles to the same regional auction
site(s), occasionally vehicles are sent to a more distant location if a higher
auction price is reasonably expected to be obtained after taking into account
any increased transportation costs. Currently, the auctions typically receive a
fixed fee per vehicle for their services in addition to the costs of any
transportation, repairs and refurbishment performed by them. TMCC estimates that
the average expenses associated with auction sales have ranged from $150 to $300
per vehicle.
The TMCC sales representative at the auction site, in coordination with TMCC
headquarters staff, is responsible for handling TMCC's decisions with respect to
the vehicles sold at the auction, including arranging for inspections,
authorizing the approved repairs and refurbishment and determining whether bids
received at auction should be accepted.
VEHICLE MAINTENANCE: EXCESS WEAR AND TEAR AND EXCESS MILEAGE
Each lease contract provides that the lessee is responsible for all
maintenance. repair, service and operating expenses of the leased vehicle. In
addition, the lessee is responsible under the related contract for all damage to
the leased vehicle and for its loss, seizure or theft. At the scheduled maturity
date of the contract, if the lessee does not purchase the leased vehicle, the
contract requires the lessee to pay TMCC the estimated cost to repair any damage
to the vehicle which is "excessive wear and use". Excessive wear and use
generally includes, but is not limited to: (a) inoperative mechanical and
electrical parts; (b) damage to the body, lights, trim or paint; (c) damaged,
broken or tinted glass; (d) torn, damaged or stained interior; (e) damage from
flood, water, hail or sand; (f) damage from removal of equipment or signs placed
on the vehicle; (g) missing equipment, parts and accessories; and (h) damaged,
excessively worn or missing tires.
Each lease contract also specifies a selected mileage level per year which
is one of the factors taken into account by TMCC in establishing the residual
value for a leased vehicle. If the lessee does not purchase the leased vehicle
at the end of the lease term, the contract requires the lessee to pay TMCC an
excess mileage charge generally equal to $0.10 (for leases of Toyota vehicles)
or $0.15 (for leases of Lexus vehicles) for each mile the vehicle has been
driven in excess of the selected mileage level.
48
<PAGE>
DELINQUENCY, REPOSSESSION AND LOSS DATA
The following tables set forth certain delinquency, repossession and loss
data with respect to the entire automobile and light duty truck retail lease
contract portfolio owned or serviced by TMCC, 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 beyond the control of
TMCC which may adversely affect the experience of the portfolio. There is no
assurance that the Trust's delinquency, repossession and loss experience with
respect to its automobile and light duty truck retail closed-end 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.
ENTIRE TMCC PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT ,
---------------------------------------------------------------------------
AT ,
1998 1997 1996 1995 1994
-------------------- -------------------- -------------------- -------------------- ---------
UNITS % UNITS % UNITS % UNITS % UNITS
--------- --- --------- --- --------- --- --------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dollar Amount of Net
Receivables
Outstanding(1)........
Ending Number of Lease
Contracts
Outstanding...........
Number of Delinquent
Lease
Contracts(2)(3).......
30-59 Days............
60-89Days.............
90 Days or more.......
Total...............
<CAPTION>
1993
--------------------
% UNITS %
--- --------- ---
<S> <C> <C> <C>
Dollar Amount of Net
Receivables
Outstanding(1)........
Ending Number of Lease
Contracts
Outstanding...........
Number of Delinquent
Lease
Contracts(2)(3).......
30-59 Days............
60-89Days.............
90 Days or more.......
Total...............
</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 , 1998, approximately
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.
49
<PAGE>
ENTIRE TMCC PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
AT OR FOR
THE AT OR FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
PERIOD ENDED --------------------------------------------------------------------
, 1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ending Number of Lease
Contracts Outstanding.....
Average Number of Lease
Contracts Outstanding.....
Repossessions:
Number of Repossessions...
Number of Repossessions as
a Percentage of Ending
Number of Lease
Contracts Outstanding...
Number of Repossessions as
a Percentage of Average
Lease Contracts
Outstanding.............
Losses:
Dollar Amount of Net
Receivables
Outstanding(1)..........
Average Dollar Amount of
Net Receivables
Outstanding(2)..........
Net Repossession
Losses(3)...............
Average Net Repossession
Loss per Liquidated
Contract(3)(4)..........
Net Repossession Losses as
a Percentage of Average
Net Receivables
Outstanding(2)..........
</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) as of period end.
(2) Average Net Receivables Outstanding is calculated as the average of the sum
of all principal amounts outstanding under finance lease contracts and net
investment in operating leases as of the beginning and the end of the
indicated period.
(3) Losses include expenses incurred to dispose of vehicles and are net of
recoveries.
(4) Dollars not in thousands.
(5) Annualized.
50
<PAGE>
ENTIRE TMCC PORTFOLIO
RESIDUAL VALUE LOSS EXPERIENCE(1)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
AT OR FOR
THE PERIOD AT OR FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
ENDED , --------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total Number of Lease
Contracts Scheduled to
Terminate...................
Number of Returned Vehicles
Sold by TMCC(2).............
Full Term Return Ratio(3).....
Total Losses on Returned
Vehicles Sold by TMCC(4)....
Average Loss Per Returned
Vehicle Sold by TMCC(5).....
Losses as a Percentage of
Returned Vehicles Sold by
TMCC(6).....................
Losses as a Percentage of
Residual Values of Scheduled
Terminations (7)............
</TABLE>
- ------------
(1) To the extent that average terms vary over time, the residual value loss
experience for the periods in the table may not be fully comparable.
(2) Number of Matured Contracts for which vehicles had been returned to and sold
by TMCC.
(3) The ratio of returned vehicles sold during the stated period over vehicles
scheduled (as of their origination dates) to terminate during the stated
period expressed as a percentage.
(4) Losses include expenses incurred to dispose of vehicles but exclude certain
amounts received after the sale and disposition of the vehicle.
(5) Dollars not in thousands.
(6) The ratio of total losses on returned vehicles sold by TMCC during the
stated period over the Residual Values of such vehicles expressed as a
percentage.
(7) The ratio of total losses on returned vehicles sold by TMCC during the
stated period over the Residual Values of all vehicles under lease contracts
scheduled to terminate during the stated period expressed as a percentage.
51
<PAGE>
THE CONTRACTS
GENERAL
The Initial Contracts will consist of a pool of closed-end retail lease
contracts, having an aggregate Outstanding Principal Balance as of the Cutoff
Date of , and an aggregate Discounted Principal Balance as of such date of
, selected from the Titling Trust's portfolio of closed-end automobile and
light duty truck retail lease contracts. During the Revolving Period, Principal
Collections (and reimbursements of Loss Amounts and Certificate Principal 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 -- Allocations, Applications and Payments --
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. Principal
Collections (and reimbursements of Loss Amounts) will first be reinvested in the
eligible lease contract with the earliest origination date, then in the eligible
lease contract with the next earliest origination date and so forth. The
outstanding Other SUBIs whose revolving periods are scheduled to end on April 1,
1999 and August 1, 1999, respectively, will have priority over the SUBI with
respect to the allocation of additional lease contracts and leased vehicles
assigned to the Titling Trust by Dealers that meet the criteria specified in the
documentation relating to such outstanding Other SUBIs. However, the SUBI will
be allocated Subsequent Contracts and Subsequent Leased Vehicles meeting the
criteria specified herein before additional contracts and leased vehicles
assigned to the Titling Trust by Dealers are assigned to any subsequently
created Other SUBI. [Moreover, as of the date hereof, the Titling Trust Assets
included lease contracts and leased vehicles adequate to fulfill all obligations
with respect to the allocation of lease contracts and leased vehicles to the
Other SUBIs as well as 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 represents
the original principal balance of such Contract ("Capitalized Cost") (which may
exceed the MSRP), plus a lease charge which is based on the Lease Rate.
Substantially all of the Contracts 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. The balance of
the Contracts provide for a single payment at origination sufficient to amortize
the Capitalized Cost of the Leased Vehicle on the same basis as discussed above.
Each Residual Value is established at the origination of the lease (based on
instructions provided to the Dealers by TMCC) and represents the estimated
wholesale market value at the end of the scheduled lease term.
At the 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
52
<PAGE>
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 Contracts involving used Leased Vehicles included as 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 materially worse than other automobile and light duty truck
retail closed-end 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
prior to the scheduled lease term by paying certain miscellaneous charges, and
the Payoff Amount described below and all scheduled Monthly Payments owed under
the Contract through its original termination date.
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".
Under the Contracts, upon termination before maturity where the lessee is
not in default, does not exercise its option to purchase the Leased Vehicle, and
does not pay all remaining scheduled Monthly Payments required thereunder
through the original termination date, 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. 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 due
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
53
<PAGE>
appraised value then would be used as the wholesale value for purposes of
calculating sums due from the lessee.
In the Agreement, TMCC will represent that each Leased Vehicle has been
assigned a Residual Value that (i) does not exceed an amount established by TMCC
consistent with its policies and practices, (ii) was established at the
origination of the related Contract (based on instructions provided by TMCC to
the Dealers), and (iii) represented, as of its date of origination, the
estimated wholesale market value of the Leased Vehicle at its original scheduled
termination date.
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 also may be less than the outstanding Discounted Principal Balance)
of such Contract. In the event that a Contract reaches the date on which the
vehicle is scheduled to be returned, 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. In the event that any such shortfalls allocable to the Certificates
are not covered by the Investor Percentage of certain excess Interest
Collections, monies on deposit in the Reserve Fund available therefor, 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 amounts 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 December 6, 1996, in the case of
the Initial Contracts, and on or before , 1998, in the case of the
Subsequent Contracts; (iii) has an originally scheduled termination date on or
after , and no later than , in the case of the Initial Contracts, 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 Lease Rate implicit in the Contract calculated on a constant yield basis); (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.
54
<PAGE>
COMPOSITION OF INITIAL CONTRACTS
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance as of Cutoff Date
Aggregate Discounted Principal Balance as of Cutoff Date
Aggregate Net Investment Value as of Cutoff Date
Number of Initial Contracts
Average Outstanding Principal Balance as of Cutoff Date(2)
Average Discounted Principal Balance as of Cutoff Date
Range of Original Principal Balances of Initial Contracts(2)
Weighted Average Lease Rate(1)(2)
Range of Lease Rates(2)
Weighted Average Original Number of Monthly Payments(1)
Range of Original Number of Monthly Payments
Weighted Average Remaining Number of Monthly Payments(1)
Range of Remaining Number of Monthly Payments
Average Original Residual Value(2)
Range of Original Residual Values(2)
Aggregate of Residual Values as a Percentage of Aggregate Net Investment
Value as of Cutoff Date
Percentage of Lease Contracts for Lexus Vehicles (by Discounted Principal
Balance as of the Cutoff Date)
Percentage of Lease Contracts for Toyota Vehicles (by Discounted
Principal Balance as of the Cutoff Date)
Percentage of Lease Contracts for New Vehicles (by Outstanding Principal
Balance)(2)
Percentage of Lease Contracts for Used Vehicles (by Outstanding Principal
Balance)(2)
</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
Outstanding Principal Balance(1)(2)
Residual Value(1)(2)
Lease Rate(1)(3)
Seasoning (months)(1)(3)
Remaining Term (months)(1)(3)
</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.
55
<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 PERCENTAGE OF
NUMBER OF NUMBER OF INITIAL CUTOFF DATE AGGREGATE CUTOFF
INITIAL INITIAL OUTSTANDING DATE PRINCIPAL
LEASE RATE RANGE CONTRACTS CONTRACTS PRINCIPAL BALANCE BALANCE
- --------------------------------------- --------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
less than 2.00%........................
2.00% to 2.99%.........................
3.00% to 3.99%.........................
4.00% to 4.99%.........................
5.00% to 5.99%.........................
6.00% to 6.99%.........................
7.00% to 7.99%.........................
8.00% to 8.99%.........................
9.00% to 9.99%.........................
10.00% to 10.99%.......................
11.00% to 11.99%.......................
12.00% to 12.99%.......................
13.00% to 13.99%.......................
Total(1)...........................
</TABLE>
- ---------
(1) Percentages may not add to 100.00% due to rounding.
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 PERCENTAGE OF
NUMBER OF NUMBER OF CUTOFF DATE AGGREGATE CUTOFF
INITIAL INITIAL OUTSTANDING DATE PRINCIPAL
YEARS OF MATURITY CONTRACTS CONTRACTS PRINCIPAL BALANCE BALANCE
- --------------------------------------- --------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
1998...................................
1999...................................
2000...................................
2001...................................
2002...................................
2003...................................
Total(1)...........................
</TABLE>
- ---------
(1) Percentages may not add to 100.00% due to rounding.
56
<PAGE>
DISTRIBUTION OF THE INITIAL CONTRACTS BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PERCENTAGE OF CUTOFF DATE
NUMBER OF NUMBER OF CUTOFF DATE OUTSTANDING
INITIAL INITIAL OUTSTANDING PRINCIPAL
STATE OF ORIGINATION(1) CONTRACTS CONTRACTS PRINCIPAL BALANCE BALANCE
- ---------------------------------------- --------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
California..............................
Ohio....................................
Pennsylvania............................
Michigan................................
Florida.................................
Total(2)............................
</TABLE>
- ---------
(1) By Dealer location.
(2) Percentages may not add to 100.00% due to rounding.
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) originally scheduled termination
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 Titling Trustee (or a properly completed application for such title has
been submitted to the appropriate titling authority); (l) is a closed-end lease
that requires all contract payments to be made within 60 months of the date of
origination of such Contract; (m) is fully assignable and does not require the
consent of the lessee as a
57
<PAGE>
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 extended by more than sixteen months with the inclusion of any
deferrals) 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 reimbursed Loss Amounts and Certificate Principal Loss Amounts)
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 36 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 original principal balances of the Contracts
(including the Subsequent Contracts), in each case as of the related dates of
origination, is not greater than 70%. 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 AND YIELD CONSIDERATIONS
The weighted average life of each Class of Certificates will depend
primarily upon whether or not a Swap Termination occurs and whether the Adjusted
Class A-1 Certificate Balance, Adjusted Class A-2 Certificate Balance, Adjusted
Class A-3 Certificate Balance or Adjusted Class B Certificate Balance, as the
case may be, is reduced to zero on the related Targeted Maturity Date (including
whether or not any Maturity Advance is made to cause such result). Whether the
amount of Principal Collections received prior to a Targeted Maturity Date will
be sufficient to reduce the Adjusted Certificate Balance of any Class to zero
will be determined by the default, prepayment, loss, liquidation and extension
and deferral experience with respect to the Contracts, which cannot be
predicted. In the event the Adjusted Class A-1 Certificate Balance, Adjusted
Class A-2 Certificate Balance, Adjusted Class A-3 Certificate Balance or
Adjusted Class B Certificate Balance, as the case may be, is not reduced to zero
on the related Targeted Maturity Date, the rate at which principal is paid to
related Certificateholders thereafter will depend upon the amount of scheduled
and unscheduled payments on or in respect of the Contracts and the Leased
Vehicles (including liquidations of the Contracts and payment of the Residual
Values of the related Leased Vehicles) or payment of any Accelerated Principal
Distribution Amount, the rate at which such payments
58
<PAGE>
are paid through to such Certificateholders pursuant to the payment priorities
described herein and whether or not a Swap Termination or purchase of the SUBI
by the Transferor occurs thereafter. If a Swap Termination occurs and the
Certificates are to be retired prior to their Targeted Maturity Dates, the
related Certificateholders may not be able to reinvest the related payments of
principal received at yields as high as the applicable Class A-1 Rate, Class A-2
Rate, Class A-3 Rate or Class B Rate, as the case may be. In addition, if a Swap
Termination occurs, the amount of and liability for any swap termination payment
may affect the amounts available for such Class A Certificates.
In general, the rate of prepayments and defaults on the Contracts may be
influenced by a variety of economic, social, geographic and other factors, such
as interest rates, the unemployment rate, the inflation rate and the demand for
and supply of new and used cars. The Titling Trust was formed and began to
accept assignments of lease contracts in November 1996. All of the lease
contracts assigned to the Titling Trust since that time have been, and all of
the lease contracts to be assigned to the Titling Trust will be, assigned by
Dealers using TMCC's underwriting standards. TMCC actively encourages lessees
under lease contracts with remaining terms of less than one year to either buy,
trade in or refinance the related leased vehicles prior to the related scheduled
maturities of such lease contracts. TMCC estimates that, of the automobile and
light duty truck retail lease contracts in its portfolio that were scheduled to
mature during fiscal year 1997 and during the [nine-month] period ended [June
30, 1998], approximately 48% and 44%, respectively, terminated more than 30 days
prior to maturity as a result of voluntary prepayments as to which the leased
vehicles were purchased by the related lessee or a dealer or repossession of the
leased vehicles due to default by the lessees under the related lease contracts.
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,
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 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 or Inventory Advance will be made or, if made, will be
sufficient to pay in full any Class on the related Targeted Maturity Date and,
therefore, any Class may mature significantly later than its Targeted Maturity
Date.
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 Accumulation Period until the related Targeted Maturity Date or the
occurrence of a Swap Termination, after which each Certificateholder can
determine the outstanding balance of the Certificate held thereby by multiplying
the original denomination of the Certificateholder's Class A Certificate by the
related Certificate Factor for such month.
Pursuant to the Agreement, , 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
free of charge at the office of the paying agent in Luxembourg or 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".
59
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement which, together
with the Titling Trust Agreement, the SUBI Supplement, the Servicing Supplement,
and the Indenture are incorporated by reference in and made a part of this
Prospectus. 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. Copies of such documents
may be obtained as described under "Documents Incorporated by Reference".
GENERAL
Each Class A Certificate generally will represent the right to receive
quarterly payments of interest at the applicable Class A-1 Rate, Class A-2 Rate
or Class A-3 Rate and, to the extent described herein, payments in respect of
principal thereof on the related Targeted Maturity Date and, if the related
Adjusted Class Certificate Balance is not reduced to zero, payments of principal
and interest on each subsequent relevant Monthly Allocation Date. Allocations
with respect to such amounts, however, will be made monthly, pursuant to the
priorities described below under "-- Allocations, Applications and Payments --
ALLOCATIONS AND APPLICATIONS OF COLLECTIONS IN RESPECT OF INTEREST". In
addition, payment of interest to Certificateholders generally will be funded by
and limited to amounts payable by the Swap Counterparty in exchange for amounts
allocable, applicable and payable by the Trust and based on calculations of the
portions of Available Interest, amounts on deposit in the Reserve Fund and
Transferor Amounts that are allocable and applicable in respect of the Class A-1
Swap Interest Amount, Class A-2 Swap Interest Amount or Class A-3 Swap Interest
Amount and Class A-1 Swap Interest Shortfall Amounts, Class A-2 Swap Interest
Shortfall Amounts or Class A-3 Swap Interest Shortfall Amounts. Except as
described under "-- Termination of the Trust; Retirement of the Certificates",
the Certificates will be "sequential pay" certificates meaning that no principal
allocations, applications or payments will be made on the Class A-2 Certificates
until the Adjusted Class A-1 Certificate Balance has been reduced to zero, no
principal allocations, applications or payments will be made on the Class A-3
Certificates until the Adjusted Class A-2 Certificate Balance has been reduced
to zero, and no principal allocations, applications or payments will be made on
the Class B Certificates until the Adjusted Class A-3 Certificate Balance has
been reduced to zero.
Allocations, applications and payments in respect of interest on and
principal of the Class B Certificates will be subordinated to the extent
described herein. Because allocations in respect of interest will be made
monthly while interest payments will be made quarterly, it is possible that the
Class B Certificates will receive allocations and payments with respect to
interest for a quarterly period even though the Class A Certificates have not
been allocated the full amount of the related Notional Interest Accrual Amounts,
Swap Interest Shortfall Amounts, Loss Amounts and Certificate Principal Loss
Amounts with respect to all monthly periods included in the Interest Payment
Period.
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 "-- Calculation of Investor Percentage and
Transferor Percentage". The Transferor Interest will be subordinated to the
Investor Interest to the extent described herein, and on any day will equal the
difference between the Aggregate Net Investment Value and the Adjusted Investor
Balance. SEE "-- Certain Payments to the Transferor".
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
60
<PAGE>
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 "-- Book-Entry Registration" and "--
Definitive Certificates" below.
GOVERNING LAW
The Certificates and the Agreement will be governed by the laws of the State
of California.
TRANSFER OF THE SUBI
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 Certificate and the SUBI Assets
evidenced thereby (which exclude the rights retained by the Transferor to
proceeds of the Residual Value Insurance Policies that are SUBI Assets).
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 (other than during the Revolving Period), the Aggregate
Net Investment Value will decline by an amount equal to the Discounted Principal
Balance of such Contract, and such Contract and the related Leased Vehicle will
be reallocated as UTI Assets no longer constituting SUBI Assets. If such
deduction would cause the Transferor Interest to become less than zero, TMCC
will be required to deposit (or cause to be deposited) in the SUBI Collection
Account the amount (the "Reallocation Deposit Amount") by which the Transferor
Interest would be reduced to less than zero. Notwithstanding the foregoing, in
the event a Reallocation Deposit Amount is required to be made, reallocation of
the related Contract (and the related Leased Vehicle) will not be considered to
have occurred unless such deposit is actually made. SEE "The Contracts --
Representations, Warranties and Covenants" and "Additional Document Provisions
- -- The Servicing Agreement -- COLLECTIONS".
CALCULATION OF INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
Pursuant to the Servicing Agreement, the Servicer will make the calculations
necessary to allow the Trustee to allocate all Interest Collections and
Principal Collections collected or received in respect of SUBI Assets during the
related Collection Period between the Investor Interest and the Transferor
Interest, based on the applicable Investor Percentage and Transferor Percentage.
In addition, similar calculations 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 (less any related Net Charged-off Vehicle Proceeds) (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.
61
<PAGE>
The "Investor Percentage" in respect of any Collection Period will mean (i)
with respect to 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, the percentage equivalent of a fraction
(not to exceed 100%) the numerator of which is the Adjusted Investor Balance on
the last day of the immediately preceding Collection Period (or, in the case of
the first Collection Period, the Initial Investor 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, the Cutoff Date) and (ii) with respect to Principal Collections, the
percentage equivalent of a fraction (not to exceed 100%) the numerator of which
is the Adjusted Investor 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 that commenced during the Revolving Period. The "Transferor Percentage"
will in all cases be equal to 100% minus the applicable Investor Percentage.
As a result of the foregoing, Interest Collections will be allocated based
on the relationship of the sum of the Adjusted Class A-1 Certificate Balance,
the Adjusted Class A-2 Certificate Balance, the Adjusted Class A-3 Certificate
Balance and the Adjusted Class B Certificate Balance to the Aggregate Net
Investment Value, which relationship may change from Collection Period to
Collection Period. As described above, the Investor Percentage applicable to
allocations of Principal Collections after the Revolving Period will become
fixed 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, the following amounts (the
"Transferor Amounts"): (i) if such Monthly Allocation Date is during the
Revolving Period, the Transferor Percentage of Interest Collections and (ii) if
such Monthly Allocation Date is after the Revolving Period, 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, in each case subject to the subordination of the
Transferor Interest described herein. Amounts to be released to the Transferor
pursuant to clause (14) under "-- Allocations, Applications and Payments --
ALLOCATIONS AND APPLICATIONS OF COLLECTIONS" below 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 and applied or paid with respect to the Investor Interest as described
under "-- Allocations, Applications and Payments -- ALLOCATIONS AND APPLICATIONS
OF COLLECTIONS" have been allocated and applied or paid in full and (ii) the
amount on deposit in the Reserve Fund, after giving effect to all withdrawals
therefrom and other deposits thereto on such 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 the Class A-1
Notional Interest Accrual Amount, the Class A-2 Notional Interest Accrual
Amount, the Class A-3 Notional Interest Accrual Amount, any Class A-1 Swap
Interest Shortfall Amount, any Class A-2 Swap Interest Shortfall Amount, any
Class A-3 Swap Interest Shortfall Amount, any Class B Notional Interest Accrual
Amount, any Class B Swap Interest Shortfall Amount, or any Loss Amounts or
Certificate Principal Loss Amounts allocable to the Adjusted Class A-1
Certificate Balance, the Adjusted Class A-2 Certificate Balance, the Adjusted
Class A-3 Certificate Balance or the Adjusted Class B Certificate Balance, (b)
the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2 Certificate
Balance, the Adjusted Class A-3 Certificate Balance and Adjusted Class B
Certificate Balance have been reduced to zero (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).
62
<PAGE>
CALCULATION OF CLASS A-1 RATE, CLASS A-2 RATE, CLASS A-3 RATE AND CLASS B RATE
For the initial Interest Payment Period, the Class A-1 Rate, Class A-2 Rate,
Class A-3 Rate and Class B Rate will be based on interpolated rates to be
calculated by the Servicer two Business Days prior to the Closing Date. For each
subsequent Interest Payment Period the Trustee will make the following
determinations:
(i) On the second Interest Determination Business Day (defined below)
preceding the first day of each Interest Payment Period (the "Interest
Determination Date"), for each Class of Class A Certificates, the Trustee
will determine the London interbank offered rate for U.S. Dollar deposits
having maturities of three-months ("three-month LIBOR"), in each case as at
11:00 a.m. (London time) on the Interest Determination Date in question.
Such offered rate will be that which appears on the display designated as
Telerate Page 3750 on the Dow Jones Telerate Service (or such other page or
service as may replace it for the purpose of displaying London interbank
offered rates of major banks for U.S. Dollar deposits).
(ii) If for any reason the relevant page is unavailable or such offered
rate does not appear, the Trustee will determine the rates at which
three-month deposits in U.S. Dollars are offered by four major banks in the
London interbank market (the "Reference Banks") at approximately 11:00 a.m.
(London time) on the Interest Determination Date to prime banks in the
London interbank market commencing on the first day of the relevant Interest
Payment Period. The Trustee will request the principal London office of each
of the Reference Banks to provide a quotation of its rate. If at least two
quotations are provided, the Trustee will determine the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the
Trustee will determine the arithmetic mean of the rates quoted by major
banks in New York City, at approximately 11:00 a.m. (New York City time) on
the first day of the relevant Interest Payment Period for three-month loans
in U.S. Dollars to leading European banks commencing on that date. The rate
so determined by the Trustee will be "three- month LIBOR" for such Interest
Payment Period.
For purposes of these calculations, "Interest Determination Business Day"
shall mean any day on which commercial banks are open for business (including
dealings in foreign exchange and foreign currency deposits) in London.
Otherwise, as used herein, a "Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York, San
Francisco, California or Chicago, Illinois are authorized or obligated by law,
regulation, executive order or decree to be closed.
INTEREST REDUCTION
If on any relevant Certificate Payment Date with respect to either the Class
A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates or Class B
Certificates, the aggregate of amounts payable by the Trust to the Swap
Counterparty in respect of interest in accordance with the priorities set forth
herein is less than the Class A-1 Swap Interest Amount, Class A-2 Swap Interest
Amount, Class A-3 Swap Interest Amount or Class B Swap Interest Amount, then the
Trust will pay the amount allocated in respect of the Class A-1 Swap Interest
Amount, Class A-2 Swap Interest Amount, Class A-3 Swap Interest Amount and Class
B Swap Interest Amount as described below under "-- Allocations, Applications
and Payments" to the Swap Counterparty and the corresponding payment due from
the Swap Counterparty (and therefore the amount payable on such date on the
Class A-1 Certificates, Class A-2 Certificates or Class A-3 Certificates in
respect of interest accrued thereon) will be reduced in the same proportion as
the proportion that such Class A-1 Swap Interest Shortfall Amount, Class A-2
Swap Interest Shortfall Amount, Class A-3 Swap Interest Shortfall Amount or
Class B Swap Interest Shortfall Amount represents of such Class A-1 Swap
Interest Amount, Class A-2 Swap Interest Amount, Class A-3 Swap Interest Amount
or Class B Swap Interest Amount. If on a subsequent Certificate Payment Date
amounts are available, in accordance with the priorities set forth herein, to
reimburse all or any part of such Class A-1 Swap Interest Shortfall Amount,
Class A-2 Swap Interest Shortfall Amount, Class A-3 Swap Interest Shortfall
Amount or
63
<PAGE>
Class B Swap Interest Shortfall Amount, then the Trust will be obligated under
the Swap Agreement to pay such amounts to the Swap Counterparty and the
corresponding payment due from the Swap Counterparty (and therefore any amounts
payable on such date on the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates or Class B Certificates in respect of interest accrued
thereon) will be increased proportionally in the same proportion as such
reimbursement of such Class A-1 Swap Interest Shortfall Amount, Class A-2 Swap
Interest Shortfall Amount, Class A-3 Swap Interest Shortfall Amount or Class B
Swap Interest Shortfall Amount represents of the current Class A-1 Swap Interest
Amount, Class A-2 Swap Interest Amount, Class A-3 Swap Interest Amount or Class
B Swap Interest Amount. Certificateholders will not be entitled to receive any
interest on any Swap Interest Shortfall Amounts or the corresponding reductions
in amounts payable in respect of interest by the Swap Counterparty.
CALCULATION AND PUBLICATION OF INTEREST ACCRUAL AMOUNTS
The Trustee will as soon as practicable after 11:00 a.m. (London time) on
each Interest Determination Date determine the Class A-1 Rate, Class A-2 Rate,
Class A-3 Rate and Class B Rate, the actual number of days in the related
Interest Payment Period and the amount of interest that will accrue on each
Certificate during such Interest Payment Period. Separately, on each Interest
Determination Date, the amount of interest payable on the next relevant
Certificate Payment Date for each Class of Certificates shall be calculated by,
to the extent necessary, applying any proportional reduction calculated as
described above to the amount of interest determined by the Trustee to have
accrued on each Certificate at the Class A-1 Rate, Class A-2 Rate, Class A-3
Rate or Class B Rate, as applicable, as described above in accordance with the
methods of calculation set forth in the Agreement.
The Trustee will cause the applicable Class A-1 Rate, Class A-2 Rate, Class
A-3 Rate and Class B Rate and the amount of interest payable on each Class of
Certificates for each Interest Payment Period to be included in the Statement to
Certificateholders to be delivered on the next succeeding Monthly Allocation
Date as described herein, and thereby to be notified to each Paying Agent and
the Luxembourg Stock Exchange. The applicable Class A-1 Rate, Class A-2 Rate,
Class A-3 Rate and Class B Rate or the amount of interest payable on each Class
of Certificates so published may subsequently be amended (or appropriate
alternative arrangements made with the consent of the Trustee by way of
adjustment) without notice in the event of an extension or shortening of any
Interest Payment Period. The Luxembourg Stock Exchange will be notified
separately of any change in a Certificate Payment Date in connection with any
such extension or shortening of an Interest Payment Period.
The foregoing determinations by the Trustee shall (in the absence of
manifest error) be final and binding upon all parties.
ALLOCATIONS, APPLICATIONS AND PAYMENTS
GENERAL
On the nineteenth day of each month (or if such day is not a Business Day,
then the next succeeding Business Day) (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, the Investor
Percentage, the Transferor Percentage, the Certificate Factor for each Class,
the amount of Advances and Maturity Advances, if any, 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 preceding Collection Period and related
Monthly Allocation Date. On or prior to each Determination Date, the Servicer
shall also determine the Specified Reserve Fund Balance and the amounts to be
allocated and applied or paid in respect of the Investor Interest and Transferor
Interest and in respect of other amounts to be released from the Trust.
64
<PAGE>
ALLOCATIONS AND APPLICATIONS OF COLLECTIONS IN RESPECT OF INTEREST
Except as set forth below under "-- Termination of the Trust; Retirement of
the Certificates", on each Monthly Allocation Date, based solely upon the
information set forth in the Servicers' Certificate, the Trustee will make the
following allocations of Available Interest (to the extent sufficient therefor)
in the following order of priority:
(1) an amount equal to the sum of the Class A-1 Notional Interest
Accrual Amount, Class A-2 Notional Interest Accrual Amount and Class A-3
Notional Interest Accrual Amount for the related Monthly Interest Period (on
a pro rata basis);
(2) an amount equal to the amount of any unreimbursed Class A-1 Swap
Interest Shortfall Amount, Class A-2 Swap Interest Shortfall Amount and
Class A-3 Swap Interest Shortfall Amount (on a pro rata basis);
(3) an amount equal to the Class B Notional Interest Accrual Amount
for the related Monthly Interest Period, plus any Class B Swap Interest
Shortfall Amount;
(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 (or the Servicer if such amounts were
previously advanced by the Servicer) , the Investor Percentage of Capped
Titling Trust Administrative Expenses;
(7) to the Trustee (or the Servicer if such amounts were previously
advanced by the Servicer), the Investor Percentage of Capped Trust
Administrative Expenses;
(8) an amount equal to the amount, if any, of Loss Amounts allocable
to the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance and Adjusted Class A-3 Certificate Balance on such
Monthly Allocation Date, plus the aggregate amount of Certificate Principal
Loss Amounts allocated thereto on any prior Monthly Allocation Date (on a
pro rata basis based on the amount of such Loss Amounts and Certificate
Principal Loss Amounts previously allocated to each such Class), in each
case to the extent not reimbursed on such date through the application of
amounts withdrawn from the Reserve Fund or Transferor Amounts and not
reimbursed pursuant to this clause on any prior date;
(9) an amount equal to the amount, if any, of interest accrued during
the related Monthly Interest Period at the Class B Rate on Certificate
Principal Loss Amounts allocated to the Adjusted Class B Certificate Balance
and not reimbursed prior to such date;
(10) an amount equal to the aggregate amount of Loss Amounts allocable
to the Class B Certificateholders on such Monthly Allocation Date and not
reimbursed pursuant to this clause or through the application of amounts
withdrawn from the Reserve Fund and Transferor Amounts, plus the aggregate
amount of Certificate Principal Loss Amounts allocated to the Adjusted Class
B Certificate Balance and not reimbursed prior to such date;
(11) for deposit into the Reserve Fund, until the amount on deposit
therein equals the Specified Reserve Fund Balance;
(12) to the Titling Trustee (or the Servicer if such amounts previously
were advanced by the Servicer), the Investor Percentage of Uncapped Titling
Trust Administrative Expenses;
65
<PAGE>
(13) to the Trustee (or the Servicer, if such amounts previously were
advanced by the Servicer), the Investor Percentage of Uncapped Trust
Administrative Expenses; and
(14) 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 IN RESPECT OF PRINCIPAL AND INTEREST
Payments will be made to Certificateholders of record as of the Record Date
preceding each relevant Certificate Payment Date. With respect to each Interest
Payment Period, interest will accrue on the Class A-1 Certificate Balance (and
on unreimbursed Certificate Principal Loss Amounts allocated thereto), Class A-2
Certificate Balance (and on unreimbursed Certificate Principal Loss Amounts
allocated thereto), Class A-3 Certificate Balance (and on unreimbursed
Certificate Principal Loss Amounts allocated thereto) and Class B Certificate
Balance (and on unreimbursed Certificate Principal Loss Amounts allocated
thereto) at the Class A-1 Rate, Class A-2 Rate, Class A-3 Rate or Class B Rate,
as applicable. On each Certificate Payment Date, the Swap Counterparty will make
payments to the Trust of amounts due on such date under the Swap Agreement,
which amounts will be used to make payments to the related Class A
Certificateholders of interest accrued on the related Class of Certificates. If
the Trust makes payments of less than the Class A-1 Swap Interest Amount, Class
A-2 Swap Interest Amount, Class A-3 Swap Interest Amount or Class B Swap
Interest Amount, as the case may be, on any Certificate Payment Date, the Swap
Counterparty's corresponding payment obligations under the Swap Agreement will
be reduced proportionately. Interest will be calculated on the basis of: (i) in
the case of the Adjusted Class A-1 Notional Amount, the Adjusted Class A-2
Notional Amount, the Adjusted Class A-3 Notional Amount and the Adjusted Class B
Notional Amount, a 360-day year consisting of twelve 30-day months, and (ii) in
the case of each Class of Certificates and amounts due from the Swap
Counterparty under the Swap Agreement, the actual number of days in the related
Interest Payment Period and a 360-day year.
Payments to the Swap Counterparty of amounts allocable as interest with
respect to the Class A Certificates will be funded out of (A) Available Interest
allocated therefor pursuant to clauses (1) and (2) above (whether held in the
SUBI Collection Account or Certificateholders' Account) and (B) amounts
constituting the net investment income earned on Permitted Investments with
respect to funds deposited into the Certificateholders' Account on prior Monthly
Allocation Dates in respect of the Adjusted Class A-1 Certificate Balance,
Adjusted Class A-2 Certificate Balance or Adjusted Class A-3 Certificate
Balance, as the case may be. As noted above, the Swap Counterparty will make
corresponding payments to the Trust of amounts due thereto under the Swap
Agreement. Interest will be payable to the Class A Certificateholders by the
Trust (i) on each Monthly Allocation Date in March, June, September and December
commencing in March 1999 until all required payments in respect of such Class
have been made, and (ii) on the related Targeted Maturity Date and each
succeeding relevant Monthly Allocation Date until the Adjusted Class A-1
Certificate Balance, Adjusted Class A-2 Certificate Balance or Adjusted Class
A-3 Certificate Balance, as the case may be, is reduced to zero.
Payments to the Swap Counterparty of amounts allocable as interest with
respect to the Class B Certificates will be funded out of (A) Available Interest
allocated therefor pursuant to clauses (3) and (9) above (whether held in the
SUBI Collection Account or Certificateholders' Account) and (B) amounts
constituting net investment income earned on Permitted Investments with respect
to funds deposited into the Certificateholders' Account on prior Monthly
Allocation Dates in respect of the Adjusted Class B Certificate Balance. As
noted above, the Swap Counterparty will make corresponding payments to the Trust
of amounts due thereto under the Swap Agreement. Interest will be payable to the
Class B Certificateholders by the Trust (i) on each Monthly Allocation Date in
March, June, September and December, commencing in March 1999 and (ii) on the
Class B Targeted Maturity Date and each succeeding Monthly Allocation Date until
the Adjusted Class B Certificate Balance is reduced to zero.
66
<PAGE>
Amounts allocated for the foregoing purposes and not paid on any Monthly
Allocation Date that is not a relevant Certificate Payment Date will be
deposited into the Certificateholders' Account and invested in Permitted
Investments pending payment as described above.
In addition to the foregoing, Certificateholders will receive payments (i)
in connection with any exercise by the Transferor of its option to repurchase
the SUBI Certificate, on the Monthly Allocation Date following the receipt by
the Trust of proceeds from such sale and (ii) in connection with the liquidation
of the assets of the Trust following the occurrence of a Swap Termination, on
the Monthly Allocation Date following the receipt by the Trust of the proceeds
of such liquidation.
Amounts allocated in reduction of the Adjusted Class A-1 Certificate
Balance, the Adjusted Class A-2 Certificate Balance, the Adjusted Class A-3
Certificate Balance or the Adjusted Class B Certificate Balance pursuant to
clauses (8) or (10) above and not either (i) reinvested in Subsequent Contracts
and Subsequent Leased Vehicles on a particular Monthly Allocation Date (because
such Monthly Allocation Date is not a relevant Certificate Payment Date) or (ii)
paid to the Certificateholders on any Monthly Allocation Date will be deposited
into the Certificateholders' Account and invested in Permitted Investments
pending such payment as described below under "-- Investment of Available
Amounts".
The amount of funds to be withdrawn from the Reserve Fund on a Monthly
Allocation Date and allocated and applied as described above will equal the
lesser of (i) the amount on deposit in the Reserve Fund on the related Deposit
Date and available therefor and (ii) the sum of (a) the amount, if any, by which
the aggregate of amounts allocable and applicable or payable pursuant to clauses
(1), (2), (3), (8), (9) or (10) above exceeds the amount of Available Interest
available to make such allocation and application or payment based on the
foregoing priorities, (b) if such Monthly Allocation Date is on or after the
Class B Targeted Maturity Date, amounts remaining on deposit in the Reserve Fund
(including Class B Reserve Amounts, if necessary) will be applied to fund any
unreimbursed Maturity Advances and, if the remainder is sufficient to reduce the
Adjusted Certificate Balance of all Classes of outstanding Certificates to zero,
such funds will be so paid. On the related Stated Maturity Date, amounts on
deposit in the Reserve Fund will be applied to reduce the Adjusted Class A-1
Certificate Balance, the Adjusted Class A-2 Certificate Balance, the Adjusted
Class A-3 Certificate Balance or the Adjusted Class B Certificate Balance to
zero, including to reimburse Certificate Principal Loss Amounts previously
allocated thereto, should Collections ultimately be insufficient to reduce any
such balance to zero and to effect such reimbursements on such date; provided
that Class B Reserve Amounts will not be so applied other than with respect to
the Class B Certificates, except to the extent that the Class B Reserve Amount
exceeds the amount necessary both to reduce the Adjusted Class B Certificate
Balance to zero and to make such reimbursements to the Class B
Certificateholders. Except as described above, the Class B Reserve Amount shall
be available exclusively for payment of accrued and unpaid interest with respect
to the Class B Certificates. SEE "Assets of the Trust -- The Accounts;
Collections -- THE RESERVE FUND".
To the extent Available Interest is insufficient therefor, the amount of any
deficiency in amounts allocable and applicable or payable pursuant to clauses
(1) through (10) above will be covered, first, from amounts withdrawn from the
Reserve Fund, to the extent set forth in the preceding paragraph, that are
available therefor and, second, from Transferor Amounts.
Notwithstanding the foregoing, Available Interest, amounts withdrawn from
the Reserve Fund and Transferor Amounts allocated to reimburse Loss Amounts or
Certificate Principal Loss Amounts pursuant to clauses (8) and (10) above on a
Monthly Allocation Date that occurs during the Revolving Period will be treated
as Principal Collections for the Collection Period in which such Monthly
Allocation Date occurs and, unless an Accumulation Event or a Swap Termination
occurs prior to the related Transfer Date, will be available to be reinvested in
Subsequent Contracts and Subsequent Leased Vehicles.
Payments of principal shall be made in the following manner. On each Monthly
Allocation Date, Principal Collections (and if Principal Collections are
insufficient therefor, Interest Collections) will be applied to reimburse the
Servicer for unreimbursed Advances and Nonrecoverable Advances. Thereafter,
67
<PAGE>
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 for payment in respect of the Adjusted Class A-1
Certificate Balance (until the Adjusted Class A-1 Certificate Balance is reduced
to zero), Adjusted Class A-2 Certificate Balance (until the Adjusted Class A-2
Certificate Balance is reduced to zero), Adjusted Class A-3 Certificate Balance
(until the Adjusted Class A-3 Certificate Balance is reduced to zero) or
Adjusted Class B Certificate Balance (until the Adjusted Class B Certificate
Balance is reduced to zero), in that order, on any relevant Certificate Payment
Date, as described below. On each Certificate Payment Date that coincides with
or follows the Targeted Maturity Date for a particular Class of Certificates all
amounts on deposit in the SUBI Collection Account and the Certificateholders'
Account in respect of principal for such Class (after giving effect to any
application of amounts withdrawn from the Reserve Fund and available for such
application and Transferor Amounts described above and after the Adjusted
Certificate Balance of any senior Class of Certificates has been reduced to
zero) will be paid to the Certificateholders of such Class as described herein.
Principal of each Class of Class A Certificates will be payable (i) on the
related Targeted Maturity Date and (ii) if the Adjusted Class A-1 Certificate
Balance, Adjusted Class A-2 Certificate Balance or Adjusted Class A-3
Certificate Balance is not reduced to zero on the related Targeted Maturity
Date, then for each such Class on each subsequent Monthly Allocation Date until
the date on which the Adjusted Class A-1 Certificate Balance, Adjusted Class A-2
Certificate Balance or Adjusted Class A-3 Certificate Balance, as the case may
be, is reduced to zero and (iii) in connection with a Swap Termination or any
exercise by the Transferor of its option to repurchase the SUBI Certificate, on
the Monthly Allocation Date following the receipt of proceeds from such
liquidation or sale. To the extent that the Adjusted Certificate Balance of a
Class of Certificates is not reduced to zero on the related Targeted Maturity
Date, the Transferor will have the option to make a Maturity Advance in any
amount up to the amount of such deficiency. Notwithstanding the foregoing,
payments in reduction of the Adjusted Class A-1 Certificate Balance, Adjusted
Class A-2 Certificate Balance, Adjusted Class A-3 Certificate Balance or
Adjusted Class B Certificate Balance may be made prior to the related Targeted
Maturity Date if the assets of the Trust are liquidated following a Swap
Termination as described below under "-- Termination of the Trust -- SWAP
TERMINATION".
"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 (to the extent not
already reimbursed from Principal Collections as described above) plus (ii)
investment income (net of investment losses) on Permitted Investments of amounts
deposited into the Certificateholders' Account in respect of the Class A-1
Notional Interest Accrual Amount, Class A-2 Notional Interest Accrual Amount,
Class A-3 Notional Interest Accrual Amount and the Class B Notional Interest
Accrual Amount, and on any Swap Interest Shortfall Amounts allocated to any such
Class.
The "Class A-1 Swap Interest Shortfall Amount" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the Class A-1 Notional
Interest Accrual Amount, plus any outstanding Class A-1 Swap Interest Shortfall
Amount from the immediately preceding Monthly Allocation Date, over (y) the
aggregate of the amounts of Available Interest and net investment income on
Permitted Investments of amounts deposited in the Certificateholders' Account in
respect of the Adjusted Class A-1 Certificate Balance allocated and applied or
paid for the benefit of Class A-1 Certificateholders in respect of interest on
such Monthly Allocation Date.
The "Class A-2 Swap Interest Shortfall Amount" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the Class A-2 Notional
Interest Accrual Amount, plus any outstanding Class A-2 Swap Interest Shortfall
Amount from the immediately preceding Monthly Allocation Date, over (y) the
aggregate of the amounts of Available Interest and net investment income on
Permitted Investments of amounts deposited in the Certificateholders' Account in
respect of the Adjusted Class A-2
68
<PAGE>
Certificate Balance allocated and applied or paid for the benefit of Class A-2
Certificateholders in respect of interest on such Monthly Allocation Date.
The "Class A-3 Swap Interest Shortfall Amount" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the Class A-3 Notional
Interest Accrual Amount, plus any outstanding Class A-3 Swap Interest Shortfall
Amount from the immediately preceding Monthly Allocation Date, over (y) the
aggregate of the amounts of Available Interest and net investment income on
Permitted Investments of amounts deposited in the Certificateholders' Account in
respect of the Adjusted Class A-3 Certificate Balance allocated and applied or
paid for the benefit of Class A-3 Certificateholders in respect of interest on
such Monthly Allocation Date.
The "Class B Swap Interest Shortfall Amount" with respect to any Monthly
Allocation Date will equal the excess, if any, of (x) the Class B Notional
Interest Accrual Amount, plus any outstanding Class B Swap Interest Shortfall
Amount from the immediately preceding Monthly Allocation Date, over (y) the
aggregate of the amounts of Available Interest and net investment income on
Permitted Investments of amounts deposited in the Certificateholders' Account in
respect of the Adjusted Class B Certificate Balance allocated and applied or
paid for the benefit of 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 up to but not exceeding $100,000 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 not subject to the limitations set forth in the definition
of Capped Titling Trust Administrative Expenses.
"Capped 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 associated with the Certificates
up to but not exceeding $75,000 in any calendar year (or $125,000 in a calendar
year in which a Swap Termination occurs).
"Uncapped 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 associated with the Certificates
not subject to the limitations set forth in the definition of Capped Trust
Administrative Expenses.
"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, up to
but not exceeding $300,000 in any calendar year.
"Excess Amounts" with respect to any Monthly Allocation Date are the
Interest Collections distributable to the Transferor pursuant to clause (14)
above.
ALLOCATIONS OF LOSSES
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 reduce the Adjusted Class B
Certificate Balance and then, on any Monthly Allocation Date on which the
Adjusted Class B Certificate Balance is reduced to zero, to reduce the Adjusted
Class A-1 Certificate Balance, the Adjusted Class A-2 Certificate Balance and
the Adjusted Class A-3 Certificate Balance pro rata (based on such amounts as of
the last day of the related Collection Period). With respect to any Monthly
Allocation Date, the Loss Amounts allocated to the Adjusted Class B Certificate
Balance, the Adjusted Class A-1
69
<PAGE>
Certificate Balance, the Adjusted Class A-2 Certificate Balance or the Adjusted
Class A-3 Certificate Balance, as the case may be, on such date less any
reimbursement thereof on such date from Available Interest, amounts withdrawn
from the Reserve Fund that are available therefor and Transferor Amounts will
become "Certificate Principal Loss Amounts". Certificate Principal Loss Amounts
will be reimbursable on future Monthly Allocation Dates as described above;
provided, however, that no such reimbursements will be made after the first
relevant Certificate Payment Date on which the Adjusted Class B Certificate
Balance, the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance or the Adjusted Class A-3 Certificate Balance, as the case
may be, is reduced to zero. Certificate Principal Loss Amounts which are not
reimbursed as provided herein will bear interest at the Class B Notional Rate,
the Class A-1 Notional Rate, Class A-2 Notional Rate, Class A-3 Notional Rate as
the case may be, until reimbursed or until the Adjusted Class B Certificate
Balance, the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance or the Adjusted Class A-3 Certificate Balance, as the case
may be, is reduced to zero.
REVOLVING PERIOD
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, but not greater than, all
Principal Collections collected or received since the Cutoff Date (together with
amounts used to fund or reimburse Loss Amounts or Certificate Principal 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 or Certificate Principal Loss Amounts) equal to the
aggregate Discounted Principal Balance of such Subsequent Contracts to make such
reinvestment.
Principal Collections and reimbursements of Loss Amounts and Certificate
Principal Loss Amounts allocated to the Investor Interest and not previously
reinvested may be reinvested in additional Subsequent Contracts and Subsequent
Leased Vehicles on one or more subsequent Transfer Dates each month 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 that the
amount of Principal Collections and reimbursed Loss Amounts and Certificate
Principal Loss Amounts for the preceding Collection Period that have not been
reinvested in Subsequent Contracts and Subsequent Leased Vehicles as of the
first day of such month exceeds $1,000,000, an Accumulation Event will occur,
the Revolving Period will terminate and all unreinvested Principal Collections
and reimbursements of Loss Amounts will be allocated as described herein. SEE
"-- Accumulation Events" below.
ACCUMULATION PERIODS
The Accumulation Period with respect to each Class shall commence on the
earlier of the Accumulation Date or the day on which an Accumulation Event
occurs, and will end on the earlier of the related Targeted Maturity Date or the
occurrence of a Swap Termination, if any. Upon the commencement of the
Accumulation Period, Principal Collections and reimbursed Loss Amounts and
Certificate Principal Loss Amounts will no longer be reinvested in Subsequent
Contracts and Subsequent Leased Vehicles. Rather, during any Accumulation
Period, such amounts will be deposited in the Certificateholders'
70
<PAGE>
Account and invested in Permitted Investments maturing on the next relevant
Certificate Payment Date on which date such amounts will be payable as described
herein.
INVESTMENT OF AVAILABLE AMOUNTS
During the Revolving Period, Available Interest allocated and applied
pursuant to clauses (1), (2), (3), (8), (9) and (10) above will be deposited
into the Certificateholders' Account on such Monthly Allocation Date and
invested in Permitted Investments maturing on or prior to the succeeding
relevant Certificate Payment Date and bearing interest at the related Required
Rates. Following the termination of the Revolving Period and prior to the
occurrence of any Swap Termination on any Monthly Allocation Date that is not a
Certificate Payment Date, both Available Interest so allocated and applied and
all amounts allocable and applicable in respect of the Adjusted Class A-1
Certificate Balance, the Adjusted Class A-2 Certificate Balance, the Adjusted
Class A-3 Certificate Balance and the Adjusted Class B Certificate Balance
(including reimbursements of Loss Amounts or Certificate Principal Loss Amounts)
will be deposited into the Certificateholders' Account on such Monthly
Allocation Date and invested in Permitted Investments maturing on or prior to
the succeeding relevant Certificate Payment Date and bearing interest at the
related Required Rates. Such Permitted Investments are expected to be 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
mature on or prior to the next succeeding relevant Certificate Payment Date.
Pursuant to the terms of the TMCC Demand Notes, the Trustee, on behalf of the
Trust, will have the right to demand payment of amounts due thereunder prior to
their stated maturity dates if for any reason Standard & Poor's reduces TMCC's
short-term debt to a rating less than A-1+ or Standard & Poor's reduces TMCC's
long-term debt to a rating of less than AA, Moody's reduces TMCC's short term
debt to a rating less than P-1 or Moody's reduces TMCC's long-term debt to a
rating less than Aa3 and the Trustee determines that at such time one or more
Permitted Investments having substantially the same maturities and similar
demand features and bearing interest at the relevant Required Rates are
available and investment therein rather than in TMCC Demand Notes will not, by
itself, cause a Rating Agency to reduce or withdraw its rating of any Class of
Certificates.
ACCUMULATION EVENTS
As described above, the Accumulation Period with respect to each Class of
Certificates will commence on the earlier to occur of the Accumulation Date or
an Accumulation Event and will continue until the earlier of the related
Targeted Maturity Date or the occurrence of a Swap Termination, if any.
"Accumulation 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 or the Certificates under the Agreement or the
Servicing Agreement within ten Business Days after the date the payment or
deposit is required to be made, or (b) to deliver a Servicer's Certificate
within ten Business Days after any Determination Date, which failure
continues unremedied for three Business Days;
(ii) failure by the Transferor or the Servicer duly to observe or
perform in any material respect any other of its covenants or agreements in
the Agreement (other than those described in clause (i) above) or the
Servicing Agreement, which failure materially and adversely affects the
rights of holders of the SUBI Certificate 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;
71
<PAGE>
(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 the holders of the SUBI Certificate or
Certificateholders and which continues uncured and to have such a material
adverse effect for 60 days after notice is given as described in clause (ii)
above; provided that an Accumulation 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) 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;
(v) if the Servicer determines on the last day of any calendar month
commencing in that the amount of Principal Collections and reimbursed
Loss Amounts and Certificate Principal Loss Amounts for the preceding
Collection Period that have not been reinvested in Subsequent Contracts and
Subsequent Leased Vehicles as of the first day of such month exceeds
$1,000,000;
(vi) an Event of Servicing Termination occurs; or
(vii) if on any Monthly Allocation Date the aggregate amount withdrawn
from the Reserve Fund and deposited into the SUBI Collection Account or the
Certificateholders' Account on or prior to such Monthly Allocation Date
(without giving effect to any deposits into the Reserve Fund) exceeds $
(i.e., 0.25% of the Aggregate Net Investment Value as of the Cutoff Date).
TERMINATION OF THE TRUST; RETIREMENT OF THE CERTIFICATES
OPTIONAL PURCHASE OF THE SUBI CERTIFICATE
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 the allocations, applications and
payments in respect of principal required to be made on such Monthly Allocation
Date, the Investor Balance is less than or equal to $ (10% of the Aggregate
Net Investment Value as of the Cutoff Date) or amounts sufficient to effectively
reduce the Investor 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 Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance, the Adjusted Class A-3 Certificate Balance and the Adjusted
Class B Certificate Balance, in each case plus accrued and unpaid interest
thereon and on all unreimbursed Certificate Principal Loss Amounts allocated
thereto, plus certain other accrued and unpaid amounts, if any, due to the
Trustee, the Titling Trustee and the Servicer, and (ii) the Aggregate Net
Investment Value as of the last day of the preceding Collection Period.
SWAP TERMINATION
Notwithstanding the payment priorities described above under "Description of
the Certificates Allocations, Applications and Payments", following any Swap
Termination the assets of the Trust, as increased or decreased by the amount of
any swap termination payment, will be liquidated in a commercially reasonable
manner. The net proceeds of the liquidation of the assets of the Trust will be
allocated and applied or paid on the Monthly Allocation Date following the
receipt of such proceeds in the following amounts and order of priority:
(1) to pay to the Transferor, an amount equal to the amount of any
unreimbursed Maturity Advances;
(2) to pay to the Trustee and Titling Trustee, an amount equal to the
amount of any Capped or Uncapped Administrative Expense not yet reimbursed;
72
<PAGE>
(3) to pay to the Servicer, an amount equal to the amount of any
unreimbursed Advances made by it;
(4) to pay to the Class A Certificateholders, as applicable, on a
pro-rata basis, an amount equal to the sum of the Class A-1 Swap Interest
Amount, the Class A-2 Swap Interest Amount and the Class A-3 Swap Interest
Amount through the date of such payment (with a single corresponding
Interest Payment Period from the most recent relevant Certificate Payment
Date for each Class of Class A Certificates through such date) to be paid to
Class A Certificateholders in respect of interest on a pro rata basis based
on the respective amounts of interest so accrued on each such Class at the
applicable Class A-1 Rate, Class A-2 Rate and Class A-3 Rate respectively;
(5) to pay to the Class B Certificateholders, an amount equal to the
Class B Swap Interest Amount through the date of such payment (with a single
corresponding Interest Payment Period from the most recent relevant
Certificate Payment Date through such date);
(6) an amount equal to the sum of (i) the Adjusted Class A-1 Certificate
Balance plus any unreimbursed Certificate Principal Loss Amounts allocated
thereto, (ii) the Adjusted Class A-2 Certificate Balance plus any
unreimbursed Certificate Principal Loss Amounts allocated thereto, and (iii)
the Adjusted Class A-3 Certificate Balance plus any unreimbursed Certificate
Principal Loss Amounts allocated thereto to be paid to the Class A-1
Certificateholders, Class A-2 Certificateholders and Class A-3
Certificateholders on a pro rata basis, based on the amounts described in
clauses (i), (ii) and (iii) above;
(7) to pay to the Class B Certificateholders, an amount equal to the
Adjusted Class B Certificate Balance plus any unreimbursed Certificate
Principal Loss Amounts allocated thereto; and
(8) to pay to the Transferor any remaining proceeds.
The net proceeds of any such liquidation may not be sufficient to pay in
full the Initial Class A-1 Certificate Balance, Initial Class A-2 Certificate
Balance or Initial Class A-3 Certificate Balance in accordance with the
foregoing payment priorities. Under such circumstances, Holders will have no
recourse to any other assets for payment of the Class A Certificates, and will
suffer corresponding losses.
The Trustee will give notice of termination of the Trust as described below
under "Notices" and by delivery to the Titling Trustee, Swap Counterparty and
the Luxembourg Stock Exchange. 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.
VOTING INTERESTS AND CERTIFICATEHOLDER ACTION
The "Voting Interests" of (a) the Class A Certificates and Class B
Certificates, respectively, will be allocated between the Certificateholders pro
rata, based on the Adjusted Class A-1 Certificate Balance, the Adjusted Class
A-2 Certificate Balance, the Adjusted Class A-3 Certificate Balance and the
Adjusted Class B Certificate Balance and (b) the Class A-1, Class A-2 and Class
A-3 Certificates, respectively, will be allocated among the related
Certificateholders pro rata based on the denominations of the outstanding
Certificates held thereby. Notwithstanding the foregoing, in certain
circumstances, any Class A 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 Determination Date, commencing in , the Servicer will prepare
and forward to the Titling Trustee, Trustee and the Luxembourg Stock Exchange,
and on each Monthly Allocation Date the
73
<PAGE>
Trustee will make available 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 aggregate amount being allocated and applied or paid to the
Certificateholders of each Class (the "Certificate Distribution Amount");
(iii) the amount of the Certificate Distribution Amount allocable to (i)
the Class A-1 Notional Interest Accrual Amount, the Class A-2 Notional
Interest Accrual Amount, the Class A-3 Notional Interest Accrual Amount and
the Class B Notional Interest Accrual Amount, (ii) any unreimbursed Class
A-1 Swap Interest Shortfall Amount, Class A-2 Swap Interest Shortfall
Amount, Class A-3 Swap Interest Shortfall Amount and Class B Swap Interest
Shortfall Amount, (iii) the Class A-1 Swap Interest Amount, Class A-2 Swap
Interest Amount, Class A-3 Swap Interest Amount and Class B Swap Interest
Amount and (iv) the reduction of the Adjusted Class A-1 Certificate Balance,
the Adjusted Class A-2 Certificate Balance, the Adjusted Class A-3
Certificate Balance and the Adjusted Class B Certificate Balance, separately
identifying any Maturity Advances;
(iv) the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2
Certificate Balance, the Adjusted Class A-3 Certificate Balance and Adjusted
Class B Certificate Balance, in each case as of such Monthly Allocation Date
and after giving effect to the allocation and application or payment of the
Certificate Distribution Amount;
(v) the aggregate amount, if any, of the reimbursement of Loss Amounts
included in the Certificate Distribution Amount and the amount thereof
allocated to the Adjusted Class A-1 Certificate Balance, the Adjusted Class
A-2 Certificate Balance, the Adjusted Class A-3 Certificate Balance and the
Adjusted Class B Certificate Balance;
(vi) the amount of the Certificate Distribution Amount allocable to
reimbursement of Certificate Principal Loss Amounts and the amount thereof
allocated to the Adjusted Class A-1 Certificate Balance, the Adjusted Class
A-2 Certificate Balance, the Adjusted Class A-3 Certificate Balance and the
Adjusted Class B Certificate Balance;
(vii) the amount, if any, of the remaining unreimbursed Certificate
Principal Loss Amounts, after giving effect to the allocation and
application or payment of the Certificate Distribution Amount;
(viii) the Investor Percentage of the Servicing Fee; and any amounts
remaining unpaid in respect thereof from any prior Monthly Allocation Date;
(ix) 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 as of the date of such report;
(x) the amount of Transferor Amounts, if any, included in the
Certificate Distribution Amount;
(xi) the Aggregate Net Investment Value as of the end of such Collection
Period;
(xii) 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;
74
<PAGE>
(xiii) the amount of Advances and Maturity Advances made, and the amount
of unreimbursed Advances and Maturity Advances outstanding after giving
effect to the allocation or distribution of the Certificate Distribution
Amount; and
(xiv) certain information used in determining the Specified Reserve Fund
Balance.
Statements in respect of the Class A Certificates will also provide the
Class A-1 Rate, Class A-2 Rate and Class A-3 Rate in effect for the related
Interest Period and the amount of any proportional reduction or increase in
interest paid to the Class A Certificateholders on such Certificate Payment Date
pursuant to the Swap Agreement. Additionally, reports will be prepared by the
Servicer during the Revolving Period that report certain statistical information
with respect to Subsequent Lease Contracts and Subsequent Leased Vehicles
allocated as SUBI Assets during the Revolving Period. Such reports will be
delivered by the Servicer at the intervals specified in the Agreement to the
Trustee and the Luxembourg Stock Exchange, will be filed with the Commission and
will be made available at the offices of each Paying Agent.
In addition, within a reasonable period of time after the end of each
calendar year during the term of the Agreement, the Servicer will prepare and
forward to the Titling Trustee, Trustee, Swap Counterparty and the Luxembourg
Stock Exchange, and the Trustee will make available to each Certificateholder, a
statement, setting forth the amounts described in clauses (ii) through (viii)
above on an aggregate or annualized basis.
Copies of all such statements may be obtained at the office of any Paying
Agent or by making a request in writing to the Trustee.
NOTICES
For so long as any Class A Certificates are listed on the Luxembourg Stock
Exchange, and such Exchange so requires, notices to Certificateholders will be
given by publication in a leading daily newspaper of general circulation in
Luxembourg or, if publication in Luxembourg is not practical, in Europe. Such
publication is expected to be made in the LUXEMBOURGER WORT. In addition, if
Definitive Certificates are issued, such notices will be mailed to the addresses
of holders thereof as they appear in the register maintained by the Trustee
prior to such mailing. Such notices will be deemed to have been given on the
date of such publication or mailing.
PRESCRIPTION
In the event that any Certificateholder shall not surrender its Certificates
for retirement within six months after the date specified in any notice
published by the Trustee of the date for final payment thereof, the Trustee
shall publish a second notice to Certificateholders to surrender their
Certificates for retirement and receive the final payment 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 the Agreement. Any funds remaining
in the Trust after exhaustion of such remedies shall be returned to the
Transferor as 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) 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
75
<PAGE>
taken by DTC upon instructions from DTC Participants, and all references herein
to distributions, notices, reports and statements to Certificateholders shall
refer to distributions, notices, reports and statements to Cede & Co., as the
registered holder of the Securities, for distribution to Certificateholders in
accordance with DTC procedures. As such, it is anticipated that the only
Certificateholder will be Cede & Co., as nominee of DTC. Certificate Owners will
not be recognized by the Trustee as Certificateholders as such term is used in
the Agreement or Servicing Supplement, and Certificate Owners will only be
permitted to exercise their rights as such indirectly through DTC and DTC
Participants, as further described below.
Cedel Bank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Bank Participants and Euroclear Participants will occur
in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel Bank or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant international clearing system by its
Depositary. However, 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
76
<PAGE>
Participants and Indirect DTC Participants. DTC Participants will receive a
credit for the Certificates on DTC's records. The ownership interest of each
Certificate Owner will in turn be recorded on respective records of the DTC
Participants and Indirect DTC Participants. Certificate Owners will not receive
written confirmation from DTC of their purchase, but Certificate Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the DTC Participant or
Indirect DTC Participant through which the Certificate Owner entered into the
transaction. Transfers of ownership interests in the Certificates of any Class
will be accomplished by entries made on the books of DTC Participants acting on
behalf of Certificate Owners.
The deposit of Certificates with DTC and their registration in the name of
Cede & Co. will effect no change in Certificate ownership. DTC will have no
knowledge of the identities of Certificate Owners and its records will reflect
only the identity of the DTC Participants to whose accounts such Certificates
are credited, which may or may not be the Certificate Owners. DTC Participants
and Indirect DTC Participants will remain responsible for keeping account of
their holdings on behalf of their customers. While the Certificates are held in
book-entry form, Certificate Owners will not have access to the list of
Certificate Owners, which may impede the ability of Certificate Owners to
communicate with each other.
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
77
<PAGE>
may take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of DTC Participants whose holdings
include such undivided interests.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Certificates. Under its usual procedures, DTC will mail an "Omnibus Proxy" to
the Trustee as soon as possible after any applicable Record Date for such a
consent or vote. The Omnibus Proxy will assign Cede & Co.'s consenting or voting
rights to those DTC Participants to whose accounts the related Certificates are
credited on that record date (which record date will be identified in a listing
attached to the Omnibus Proxy).
Cedel Bank 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
78
<PAGE>
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel Bank or
Euroclear will be credited to the cash accounts of Cedel Bank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax withholding in accordance with relevant United States tax laws
and regulations. See "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, or (ii) the
Transferor, at its option, elects to terminate the book-entry system through
DTC.
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 and, in addition, 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 of principal and interest 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, which shall
include the office of the Paying Agent in Luxembourg if at such date any Class A
Certificates are listed on the Luxembourg Stock Exchange and the rules of the
Luxembourg Stock Exchange so require.
A Definitive Certificate may be transferred in whole or in part upon the
surrender of the Definitive Certificate to be transferred, together with the
completed and executed assignment, at the specified office of the registrar or
any transfer agent (which shall include a transfer agent having its specified
office in Luxembourg so long as any Class A Certificates are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require). In the case of a permitted transfer of only part of a Certificate, a
new Certificate in respect of the balance not transferred will be issued to the
transferor. Each new Definitive Certificate to be issued upon the transfer of a
Definitive Certificate will, upon the effective
79
<PAGE>
receipt of such completed assignment by the registrar or a transfer agent at its
respective specified office, be available for delivery at such specified office,
or at the request of the Holder requesting such transfer, will, within three
Business Days of receipt of such completed assignment, be mailed at the risk of
the transferee entitled to the new Definitive Certificate to such address as may
be specified in such completed assignment. For these purposes, a completed
assignment received by the registrar or a transfer agent during the period
between a Record Date and the related Certificate Payment Date shall be deemed
not to be effectively received by such registrar or transfer agent until the day
following such Certificate Payment Date. Neither the registrar nor any transfer
agent shall register the transfer of or exchange of any Definitive Certificates
following the exercise by the Transferor of the option to purchase the SUBI
Certificate.
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. Holders of Definitive
Certificates in Luxembourg will be able to effect transfers by delivery of the
Definitive Certificates to Bankers Trust Company Luxembourg S.A. with
instructions for the transfer of all or part thereof to the proposed transferee
thereof.
Bankers Trust Company Luxembourg S.A., 14 Boulevard F.D. Roosevelt, L-2450,
Luxembourg, has been appointed as paying agent and transfer agent in Luxembourg
in relation to the Class A Certificates. The Transferor will maintain a paying
agent and transfer agent in relation to the Class A Certificates in Luxembourg
for so long as any Class A Certificates are listed on the Luxembourg Stock
Exchange. Payments and transfers of the Class A Certificates will be made at the
offices of the paying agent and transfer agent in Luxembourg.
ASSETS OF THE TRUST
GENERAL
The property of the Trust will primarily consist of the SUBI Assets
evidenced by the SUBI Certificate (which exclude the right to proceeds of the
Residual Value Insurance Policies retained by the Transferor). 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, investments with
respect to such amounts and the net income therefrom, the Trust's rights under
the Swap Agreement and the Trustee's rights as third party beneficiary to the
SUBI Supplement and the SUBI Servicing Supplement. 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 to the Trust
as a transfer for security, the Trustee may instead be deemed to have a
perfected security interest in the SUBI Certificate and the Contracts and
Contract Rights susceptible of perfection under the UCC, but in no event will
the Trustee be deemed to have a perfected security interest in the Leased
Vehicles. SEE "Certain Legal Aspects of the Titling Trust -- Structural
Considerations".
THE ACCOUNTS; COLLECTIONS
THE SUBI COLLECTION ACCOUNT
On or prior to the Closing Date, one or more accounts will be established as
the SUBI Collection Account (the "SUBI Collection Account" and, together with
the Certificateholders' Account and the
80
<PAGE>
Reserve Fund, the "Accounts") as trust accounts 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 any Contract, including an amount equal to the Residual
Value of the related Leased Vehicle (each, a "Prepayment"); (iii) Matured Leased
Vehicle Proceeds, Charged-off 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 following the Revolving 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. Deposits also will be made to the SUBI
Collection Account from, among other sources, (i) monies on deposit in the
Reserve Fund, (ii) the proceeds of any liquidation of the assets of the Trust
following a Swap Termination and (iii) 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 $ - (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.
"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
the Residual Value Insurance Policies, the proceeds of which will be a SUBI
Asset but will not be 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, Charged-off
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.
81
<PAGE>
THE CERTIFICATEHOLDERS' ACCOUNT
On or prior to the Closing Date, the Trustee will establish an account
maintained 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 that is not a relevant Certificate Payment Date in the amounts
described above under "Description of the Certificates -- Allocations,
Applications and Payments". Amounts so deposited will be invested in Permitted
Investments (which are expected to be 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. From and after the
occurrence of a Swap Termination, no further deposits will be made to
Certificateholders' Accounts but instead all such investments will be liquidated
and amounts on deposit therein will be deposited into the SUBI Collection
Account for application or payment on the next relevant Certificate Payment Date
as described herein.
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 cover
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 specified under "Description of the
Certificates -- Allocations, Applications and Payments", monies on deposit in
the Reserve Fund will be available to make payments to the Certificateholders
should Collections ultimately be insufficient to reduce the Adjusted Class A-1
Certificate Balance, the Adjusted Class A-2 Certificate Balance, the Adjusted
Class A-3 Certificate Balance or the Adjusted Class B Certificate Balance to
zero on the related Stated Maturity Date. Of the amounts on deposit in the
Reserve Fund, $ shall be allocated to the Class B Reserve Amount and
generally will be available exclusively for payment of accrued and unpaid
interest with respect to the Class B Certificates and for reimbursement of Loss
Amounts allocated to the Class B Certificates; provided that on and after the
Class B Targeted Maturity Date, such amounts may be applied to repay
unreimbursed Maturity Advances, to the extent described herein, and may be
applied in reduction of the Adjusted Class B Certificate Balance until the
Adjusted Class B Certificate Balance is reduced to zero. Such amounts will not
be so applied unless no other amounts are then on deposit in the Reserve Fund
and available therefor. Following the initial allocation of amounts to the Class
B Reserve Amount, no subsequent amounts deposited into the Reserve Fund will be
allocated to the Class B Reserve Amount.
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. Thereafter, on each Monthly Allocation Date, the Reserve Fund will be
supplemented by certain Collections in excess of those amounts required to be
allocated and applied or paid pursuant to clauses (1) through (10) above under
"Description of the Certificates -- Allocations, Applications and Payments --
ALLOCATIONS AND APPLICATIONS OF COLLECTIONS" and from 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 $ ( % of the Aggregate Net Investment
Value as of the Cutoff Date), except that, if on any Monthly Allocation Date (i)
the average of the Charge-off Rates for the three preceding Collection Periods
exceeds 1.25%, (ii) the average of the Delinquency Percentages for the three
preceding Collection Periods exceeds 1.25%, or (iii) the Residual Value Test is
not satisfied as of the related Determination Date, then the Specified Reserve
Fund Balance will equal $ ( % of the Aggregate Net Investment Value as
82
<PAGE>
of the Cutoff Date); provided, however, that the Specified Reserve Fund Balance
shall in no event be more than the Adjusted Investor Balance.
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the Contracts that became Charged-off
Contracts during such Collection Period 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 charged-off 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 60 days or more delinquent (after
taking into account permitted deferrals) as of the last day of such Collection
Period (excluding Contracts as to which the Leased Vehicle has been sold or
otherwise disposed of during such Collection Period) determined in accordance
with the Servicer's normal practices, plus (b) the number of Repossessed Leased
Vehicles that have not been sold or otherwise disposed of (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.
The "Residual Value Test" will not be satisfied as of any Determination Date
if (i) with respect to the related Collection Period the number of Leased
Vehicles returned to the Servicer relating to Matured Contracts and sold during
such period is greater than 25% of all Contracts that, as of their respective
origination dates, had been scheduled to become Matured Contracts during such
period (provided that at least 500 such Contracts had been scheduled to become
Matured Contracts during such Collection Period), and (ii) the average Net
Matured Leased Vehicle Proceeds during the three immediately preceding calendar
months is less than 75% of the average Residual Values of Leased Vehicles
disposed of or liquidated during such 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. 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.
"Matured Contract" means any Contract that (i) has been terminated not more
than 30 days prior to the termination date specified therein, as such
termination date may have been extended or deferred as described herein or (ii)
has been terminated 31 or more days prior to the termination date specified
therein, as such termination date may have been extended or deferred as
described herein, and as to which all scheduled Monthly Payments have been made
by or on behalf of the lessee.
"Repossessed Leased Vehicle" means any Leased Vehicle actually repossessed
by the Servicer or its agent or returned by the related lessee 31 or more days
prior to the termination date specified in the related Contract, as such
termination date may have been deferred as described herein, but as to which one
or more scheduled Monthly Payments has not been made by or on behalf of the
lessee.
The Transferor may, from time to time after the date of this Prospectus,
request each Rating Agency to (a) approve a formula for determining the
Specified Reserve Fund Balance that is different from the one described above
that would result in a decrease in the amount of the Specified Reserve Fund
Balance or (b) a change in the manner by which the Reserve Fund is funded or to
meet the Specified Reserve Fund Balance. If each Rating Agency delivers a letter
to the Trustee to the effect that the use of any such new formula or change will
not result in a qualification, reduction or withdrawal of its then-current
rating of
83
<PAGE>
any Class A 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 therefor, and deposit in
the SUBI Collection Account or Certificateholders' Account, as appropriate, an
aggregate amount equal to the amount to be applied in reduction of unreimbursed
Maturity Advances, plus the Required Amount. Certain amounts on deposit in the
Reserve Fund will also be available to make certain other payments on the Stated
Maturity Date or for release to the Transferor on such date if not so applied or
paid. 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 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 Certificateholders, nor shall the Transferor be required to
refund any amount it has properly received.
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) a long-term unsecured debt rating from
Moody's of at least Baa3 and (b) 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 shall invest funds on deposit
in the SUBI 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. Additionally, at the direction of the Servicer, the Trustee 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 (except as set forth in the following
paragraph) and bearing interest at the related Required Rate (except that
certain overnight investments need not bear the Required Rate). It is expected
that all or substantially all Permitted Investments identified by the Servicer
with respect to amounts on deposit in the Certificateholders' Account will be
TMCC Demand Notes.
"Permitted Investments" will be specified in the SUBI Supplement and will
include, among other things, U.S. treasury securities, certificates of deposit
issued by highly rated U.S. depository institutions or trust companies
(including the Trustee), demand or time deposits of, bankers acceptances issued
by, or federal funds sold by highly rated U.S. depository institutions or trust
companies or other savings institutions that are fully insured by the FDIC,
certain repurchase obligations held by any Securitization Trustee backed by
similar securities, certain debt securities issued by highly rated U.S.
corporations, (including funds for which the Trustee or an Affiliate of the
Trustee serves as an investment advisor, administrator, shareholder servicing
agent and/or custodian) and the TMCC Demand Notes. Notwithstanding the
foregoing, (a) investments on which the obligor is the entity at which the
related Account is located may mature on the related Certificate Payment Date or
Monthly Allocation Date, as the case may be; (b) investments during the
Revolving Period of Principal Collections and reimbursements of Loss Amounts and
Certificate Principal Loss Amounts on deposit in the SUBI Collection Account may
84
<PAGE>
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; and (c) investments of amounts on deposit in the
Certificateholders' Account may mature on the day immediately preceding the next
Certificate Payment Date that is a day other than a Saturday or Sunday or a day
on which banking institutions in New York, New York and San Francisco,
California are not authorized or obligated by law, regulation or executive order
to be closed; provided, however, that any Permitted Investments consisting of
TMCC Demand Notes may mature as late as such Certificate Payment Date.
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 and the Certificateholders' Account (other than amounts
deposited in respect of the Adjusted Class A-1 Certificate Balance, Adjusted
Class A-2 Certificate Balance, Adjusted Class A-3 Certificate Balance or
Adjusted Class B Certificate Balance) 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. Income
or other gain from such investments of amounts on deposit in the Reserve Fund
will be distributed to the Transferor on each Monthly Allocation Date, and
income or other gain from certain overnight investments of amounts in the
Certificateholders' Account will be distributed to TMCC on relevant Certificate
Payment Dates.
The "Required Rate" with respect to any Permitted Investment of amounts held
in the Certificateholders' Account in respect of (i) the Adjusted Class A-1
Certificate Balance will be the Class A-1 Notional Rate, (ii) the Adjusted Class
A-2 Certificate Balance will be the Class A-2 Notional Rate, (iii) the Adjusted
Class A-3 Certificate Balance will be the Class A-3 Notional Rate (iv) the
Adjusted Class B Certificate Balance will be the Class B Notional Rate, and (v)
in respect of the Class A-1 Notional Interest Accrual Amount or any Class A-1
Swap Interest Shortfall Amount, the Class A-2 Notional Interest Accrual Amount
or any Class A-2 Swap Interest Shortfall Amount, the Class A-3 Notional Interest
Accrual Amount or any Class A-3 Swap Interest Shortfall Amount or the Class B
Notional Interest Accrual Amount or any Class B Swap Interest Shortfall Amount,
will be the one month commercial paper rate, which rate will be reset monthly.
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 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"). Currently,
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), but such coverages may be
reduced as described below. 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 has been 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
85
<PAGE>
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", "Certain Legal Aspects of the Titling Trust -- 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, the Titling Trustee and TMCC will maintain one or more Contingent
and Excess Liability Insurance Policies with coverages in an amount of at least
$10 million per occurrence as specified in the Servicing Supplement unless each
Rating Agency has delivered notice to the Trustee to the effect that failure to
maintain any such insurance policy 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 Class B Certificates will be subordinated to the Class A Certificates so
that on any Monthly Allocation Date (i) allocations and applications in respect
of interest on the Class B Certificates generally will not be made until amounts
have been appropriately allocated and applied in respect of the Class A-1
Notional Interest Accrual Amount and any Class A-1 Swap Interest Shortfall
Amount, the Class A-2 Notional Interest Accrual Amount and any Class A-2 Swap
Interest Shortfall Amount and the Class A-3 Notional Interest Accrual Amount and
any Class A-3 Swap Interest Shortfall Amount as of such Monthly Allocation Date,
(ii) allocations and applications in respect of principal of the Class B
Certificates generally will not be made until the foregoing allocations,
applications and payments and all allocations and applications in reduction of
the Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2 Certificate
Balance and the Adjusted Class A-3 Certificate Balance (including reimbursements
of Loss Amounts allocated thereto) have been made and (iii) Loss Amounts and
Certificate Principal Loss Amounts will be allocated to the Class B Certificates
until the Class B Certificate Balance has been reduced to zero prior to the
allocation of any Loss Amounts or Certificate Principal Loss Amounts to the
Adjusted Class A-1 Certificate Balance, the Adjusted Class A-2 Certificate
Balance and the Adjusted Class A-3 Certificate Balance. Payments of interest on
the Class B Certificates to the extent of collections on Contracts allocable to
interest will not be subordinated to the payment of principal of or
reimbursements of Loss Amounts allocable to the Class A Certificates. In
addition, because allocations of interest will be made monthly while interest
payments will be made quarterly, it is possible that the Class B Certificates
will receive allocations and payments with respect to interest for a quarterly
period even though the Class A Certificates have not received the full amount of
the related Notional Interest Accrual Amounts, Swap Interest Shortfall Amounts,
Loss Amounts and Certificate Principal Loss Amounts with respect to all monthly
periods included in the Interest Payment Period.
In addition, the rights of the Certificateholders to receive certain
payments with respect to the Contracts will be subordinated to the rights of the
Swap Counterparty to receive any Swap Termination payment due to it, the rights
of the Transferor to be reimbursed for any Maturity Advances, the rights of the
Trustee and the Titling Trustee to be reimbursed for Capped and Uncapped Trust
Administrative Expenses and 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, the Swap Agreement
and the Indenture do not purport to be
86
<PAGE>
complete and are qualified in their entirety by reference to such agreements,
which are incorporated by reference in this Prospectus and copies of which may
be obtained as described under "Available Information" and "Documents
Incorporated by Reference". 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, the Titling Trust or the Titling
Trustee until one year and one day after payment of the Certificates in full.
Whether or not the Trustee institutes or joins in any such proceeding, certain
events of insolvency or bankruptcy with respect to TMCC or the Transferor will
be Events of Default under the Swap Agreement that may cause the termination of
the Swap Agreement and liquidation of the assets of the Trust.
AMENDMENT
The Agreement may be amended by the Transferor and the Trustee, without the
consent of the Certificate Owners, to cure any ambiguity, mistake or error, to
correct or supplement any provision therein which may be inconsistent with any
other provision therein, to add, change or eliminate 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 Certificate Owner.
The Agreement may also be amended from time to time by the Transferor and
the Trustee 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 (including, without
limitation, 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 Certificates, voting together as a single class;
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 payments that shall be required to be made
to the Holders of Certificates and no amendment of any type shall reduce the
percentage of the aggregate Voting Interests of the Certificates of any Class
required to consent to any such amendment, in each case without the consent of
all Certificateholders.
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.
87
<PAGE>
THE TRUSTEE
- will be the Trustee under the Agreement. The Corporate Trust Office of
the Trustee is located at - . - 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 Certificates, voting together as a single class, generally will have the
power to direct any proceeding for any remedy available to the Trustee under the
Agreement, and the exercise of any trust or power conferred on the Trustee by
the Agreement (including actions by the Trustee in its capacity as a party to,
or a third-party beneficiary of, the SUBI Supplement or the Servicing
Supplement). However, the Trustee will not be required to follow such a
direction if, after being advised by counsel, it concludes that the action is
unlawful, or if it in good faith determines that the proceedings directed would
be illegal, would subject it to personal liability or would be unduly
prejudicial to the rights of other Certificateholders.
A Certificateholder may institute proceedings under the Agreement, but only
if (i) such Holder previously has given to the Trustee written notice of
default, (ii) Holders of Certificates evidencing not less than 25% of the Voting
Interests of the Certificates, considered 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 security or indemnity satisfactory to it
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 and the Certificates will be governed by the laws of the
[State of California] except that the rights, privileges, duties, liabilities
and immunities of the Trustee shall be governed by the laws of the [State of New
York.]
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
88
<PAGE>
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.
The Titling Trust has obtained insurance policies (the "Residual Value
Insurance Policies"), naming TMCC 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 may become SUBI Assets. The proceeds of such
policies 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 allocations and applications in respect of 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 UTI 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
89
<PAGE>
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, among other things, to (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 Certificates, voting together as a single class, will, exercise its powers
under the Titling Trust Agreement to cause the Titling Trustee to be removed or
replaced for a material breach of its obligations.
The Titling Trustee will make no representations as to the validity or
sufficiency of the SUBI or the SUBI Certificate (other than as to the execution
and authentication of the SUBI Certificate), or of any Contract, Leased Vehicle
or related document, will not be responsible for performing any of the duties of
TMCC or the Servicer and will not be accountable for the use or application by
any owners of beneficial interests in the Titling Trust Assets of any funds paid
in respect of the Titling Trust Assets, or the investment of any of such monies
before such monies are deposited into the accounts relating to the SUBI, the
Other SUBIs and the UTI. The Titling Trustee will not independently verify the
Contracts or the Leased Vehicles. The duties of the Titling Trustee will
generally be limited to the holding and liquidation of lease contracts, the
titling of the related leased vehicles in the name of the Titling Trust, the
creation of the SUBI, the Other SUBIs and the UTI, the maintenance of 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, a "Trust 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 Trust Agency Agreement, the Trust Agent
shall perform each and every obligation of the Titling Trustee under the Titling
Trust Agreement.
90
<PAGE>
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,
this requirement is subject to provisions regarding Capped Titling Trust
Administrative Expenses. SEE "Description of the Certificates -- Allocations,
Applications and Payments -- ALLOCATIONS AND APPLICATIONS 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. 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) 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 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, subject to the approval of the Trustee if such
amendment affects the rights or interests of the holders of the SUBI Certificate
or the Certificateholders (and which approval 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.
91
<PAGE>
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 Certificate, 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 Certificates, voting together as a single class, will, exercise
any right conferred by the Titling Trust Agreement upon a holder of any interest
in the SUBI.
THE SERVICING AGREEMENT
Pursuant to the Servicing Agreement, the Servicer will perform on behalf of
the Titling Trustee all of the obligations of the Trust as lessor under the
Contracts, including, but not limited to, collecting and posting payments,
responding to inquiries of the lessees, investigating delinquencies, sending
payment statements to the lessees, collecting and remitting certain sales and
use and other taxes to state and local governments and agencies, advancing
certain licensing fees, payments of fines for citations and costs of disposition
of Leased Vehicles related to Charged-off Contracts, Matured Contracts and
Additional Loss Contracts and policing the Contracts, commencing legal
proceedings to enforce a Contract on behalf of the Titling Trust, administering
the Contracts, including accounting for collections and furnishing monthly and
annual statements to the Titling Trustee with respect to distributions and
generating federal income tax information. The Titling Trustee will furnish the
Servicer with all powers of attorney and other documents necessary or
appropriate to enable the Servicer to carry out such servicing and
administrative duties under the Servicing Agreement. The Trustee will be a
third-party beneficiary of the Servicing Agreement.
CUSTODY OF CONTRACT DOCUMENTS AND CERTIFICATES OF TITLE
To assure uniform quality in servicing the Contracts and TMCC's own
portfolio of automobile and light duty truck lease contracts and to reduce
administrative costs, the Titling Trustee will appoint TMCC, as Servicer, to be
its agent, bailee and custodian of the Contracts, the certificates of title
relating to the Leased Vehicles and insurance policies and other documents
relating to the Contracts, the related lessees and the Leased Vehicles. Such
documents will not be physically segregated from other automobile and light duty
truck lease contracts, certificates of title and insurance policies and other
documents relating to such lease contracts and leased vehicles of TMCC, or those
which TMCC services for others, including those leased vehicles constituting
Titling Trust Assets that are not evidenced by the SUBI. The accounting records
and computer systems of TMCC will reflect the interests of the holders of
interests in the SUBI in the Initial Contracts, the Subsequent Contracts, the
Initial Leased Vehicles, the Subsequent Leased Vehicles and all related Contract
Rights, and "protective" UCC financing statements reflecting certain interests
in the Contracts and the Contract Rights will be filed. SEE "Certain Legal
Aspects of the Titling Trust -- Structural Considerations -- BACK-UP SECURITY
INTEREST IN CERTAIN SUBI ASSETS" and "Certain Legal Aspects of the Contracts and
Leased Vehicles -- Back-up Security Interests". The Servicer will be responsible
for filing all periodic sales and use tax or property (real or personal) tax
reports, periodic renewals of licenses and permits, periodic renewals of
qualification to act as a trust and a business trust and other periodic
governmental filings, registration or approvals arising with respect to or
required of the Titling Trustee or the Titling Trust.
COLLECTIONS
The Servicer will service, administer and collect all amounts due on or in
respect of the Contracts. The Servicer will make reasonable efforts to collect
all such amounts and, in a manner consistent with the Servicing Agreement, will
be obligated to service the Contracts generally in accordance with its customary
and usual procedures in respect of lease contracts serviced by it for its own
account.
92
<PAGE>
Consistent with its usual procedures, the Servicer may, in its discretion,
defer one or more payments under a Contract (having the practical effect of
extending the Maturity Date of any Contract), 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 preceding
the Stated Maturity Date for the Class B Certificates. 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 by more than
twelve months in the aggregate (or by more than sixteen months with the
inclusion of any deferrals) or beyond the last day of the Collection Period
relating to the Class B Stated Maturity Date. Upon any such reallocation, such
Contract and the related Leased Vehicle and other related assets and rights will
be UTI Assets and will no longer constitute SUBI Assets.
NOTIFICATION OF LIENS AND CLAIMS
The Servicer will be required to notify the Transferor (in the event that
TMCC is not acting as the Servicer), the Trustee and the Titling Trustee as soon
as practicable of all liens or claims of whatever kind made by a third party
that would materially adversely affect the interests of, among others, the
Transferor, the Titling Trust, the Trust or any Certificateholder in or with
respect to the Contracts or Leased Vehicles. Following its learning of any such
lien or claim with respect to the Contracts or Leased Vehicles, the Servicer
will take whatever actions it deems reasonably necessary to cause such lien or
claim to be removed. SEE "Certain Legal Aspects of the Titling Trust --
Structural Considerations".
ADVANCES
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. Also, with
respect to each Monthly Allocation Date, the Servicer will have the option to
advance an amount not to exceed the aggregate amount of Liquidation Proceeds
that the Servicer reasonably expects to realize (based on criteria set forth in
the Agreement) upon disposition of all or any Leased Vehicles in its possession
and pending disposition during the related Collection Period (such Advance, an
"Inventory Advance").
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 deferred and matured 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
93
<PAGE>
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 (including when 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 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 the
telephone and mail contact with the related lessee, upon being alerted by the
tracking system that 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 made aware of 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 Vehicles 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 fails 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
94
<PAGE>
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 repair Leased Vehicles in connection with
their disposition to the extent that it would do so in connection with the sale
or disposition of vehicles subject to lease contracts that are its own property.
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
Charged-off 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 Charged-off
Vehicle Proceeds and will be deposited into the SUBI Collection Account. The
Servicer will be entitled to reimbursement of all related Charged-off Vehicle
Expenses, and Principal Collections in respect of a Collection Period will
include all Net Charged-off 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 originating dealer will have the option
to purchase such vehicle for the same price. TMCC currently disposes of
Repossessed Leased Vehicles and off-lease vehicles not purchased by the related
lessee or the originating dealer through regional automobile auctions that are
not open to the public and an Internet site accessible to Toyota and Lexus
dealers. Leased Vehicles covered by Matured Contracts, to the extent that such
Contracts have been terminated within the three immediately preceding Collection
Periods but which, 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, 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 not 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 therefore 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
95
<PAGE>
with the servicing of the Contracts for at least two 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 the information necessary to make all
allocations, applications and payments 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.
Except (i) in connection with a liquidation of the assets of the Trust upon
Swap Termination and (ii) for the determination of interest accrued on the Class
A-1, Class A-2 and Class A-3 Certificates during any Monthly Interest Period as
described under "Description of the Certificates -- Calculation of Adjustable
Rate -- Calculation and Publication of Accrued Interest Amounts", the amount of
any allocation, application or payment to be made by the Trustee shall be
calculated by the Servicer and specified in the Servicer's Certificate.
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 1999, 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 a request in
writing addressed to the Trustee at its Corporate Trust Office.
SERVICING COMPENSATION
The Servicer will be entitled to compensation for the performance of its
servicing obligations under the Servicing Agreement. The Servicer will be
entitled to receive on each 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. 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 (other than from amounts on deposit
in the Reserve Fund) 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.
96
<PAGE>
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 DEPOSIT". 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 advancing certain
administrative expenses allocable to the SUBI, 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
expenses under an applicable insurance policy, or to the extent that Uncapped
Titling Trust Administrative Expenses are reimbursed out of Available Interest.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Contracts as an agent for the Trustee under the
Servicing Agreement, including collecting and posting payments, responding to
inquiries of lessees on the Contracts, investigating delinquencies, policing the
SUBI Assets, administering the Contracts, making Advances, accounting for
collections and furnishing monthly and annual statements to the Trustee with
respect to distributions and generating federal income tax information.
SERVICER RESIGNATION AND TERMINATION
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder are no
longer permissible by reason of a change in applicable law or regulations. No
such resignation will become effective until a successor servicer has assumed
the Servicer's obligations under the Servicing Agreement. The Servicer may not
assign the Servicing Agreement or any of its rights, powers, duties or
obligations thereunder except as otherwise provided therein or except in
connection with a consolidation, merger, conveyance, transfer or lease made in
compliance with the Servicing Agreement.
The rights and obligations of the Servicer under the Servicing Agreement may
be terminated following the occurrence and continuance of an Event of Servicing
Termination. SEE "Additional Document Provisions -- The Servicing Agreement --
RIGHTS UPON EVENT OF SERVICING TERMINATION".
INDEMNIFICATION BY THE SERVICER
The Servicer will indemnify the Trustee and its officers, directors,
employees and 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 allocation and application or
payment to holders of interests in the SUBI or to the Trustee for any required
payments in respect of the Certificates 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 Certificates, voting together as a single class, or
failure, for any reason, of the Trust to pay in full any Class of Certificates
on the related Stated Maturity Date not cured within ten Business Days; (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
97
<PAGE>
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 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 be empowered to appoint a successor servicer to 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) subject to approval by each
Rating Agency. Any successor 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.
Holders of Certificates evidencing not less than 51% of the Voting Interests
of the Certificates, voting together as a single class, with the consent of the
Titling Trustee and the Trustee (which consents shall not be unreasonably
withheld) may waive any default by the Servicer in the performance of its
obligations under the Servicing Agreement and its consequences with respect to
the SUBI Assets, other than any uncured default in making any required deposits
to or payments from an Account in accordance with the Servicing Agreement (after
giving effect to any applicable grace period) 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 all of the Certificateholders. No such waiver will
impair the rights of the Certificateholders with respect to subsequent defaults.
COMPLIANCE WITH ERISA
If the credit rating of TMCC becomes less than investment grade, then on a
quarterly basis, TMCC shall provide the Trustee and each Rating Agency with an
officer's certificate stating that none of TMCC and its affiliates for purposes
of ERISA (i) maintains an ERISA plan which, as of its last valuation date, had
any unfunded current liability, (ii) anticipates that the value of the assets of
any ERISA plan it maintains would not be sufficient to cover any current
liability and (iii) is contemplating benefit improvements with respect to any
plans then maintained or the establishment of any new ERISA plans, either of
which would cause it to maintain an ERISA plan with unfunded current liability
(the "ERISA Compliance Test"). In the event that TMCC does not timely make the
foregoing certifications, all Excess Amounts in respect of each Monthly
Allocation Date, after giving effect to all allocations and applications or
payments required to be made therefrom on such Monthly Allocation Date, will be
deposited into the Reserve Fund until the ERISA Compliance Test is satisfied. On
the Monthly Allocation Date following the
98
<PAGE>
date on which such failure is cured, monies on deposit in the Reserve Fund in
excess of the Specified Reserve Fund Balance shall be distributed to the
Transferor.
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, the Trust Agent 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, except that the rights, privileges, duties, liabilities and immunities
of the Trustee shall be governed by the laws of the [State of New York.]
TMCC DEMAND NOTES
GENERAL
Amounts deposited into the Certificateholders' Account on any Monthly
Allocation Date will be invested in Permitted Investments maturing on or prior
to the succeeding relevant Certificate Payment Date. 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
rates, 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
, 1998, as such indenture may be amended from time to time (the
"Indenture"), between TMCC and , as trustee thereunder (in such capacity,
the "Indenture Trustee").
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 Indenture is limited to [$ ]. The
TMCC Demand Notes will bear interest at the related Required Rates 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 be paid on each
Certificate Payment Date and at Maturity with respect to such TMCC Demand Notes.
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 amounts allocated pursuant
to clauses (1), (2), (3) and (9) above under "Description of the Certificates --
Allocations, Applications and Payments -- ALLOCATIONS AND APPLICATIONS OF
COLLECTIONS", on or prior to the next succeeding Certificate Payment Date, and
in the case of the TMCC Demand Notes issued with respect to the investment of
amounts allocated pursuant to clauses (8) and (10) above under "Description of
the Certificates -- Allocations, Applications and Payments -- ALLOCATIONS AND
APPLICATIONS OF
99
<PAGE>
COLLECTIONS" or otherwise in reduction of the Adjusted Class A-1 Certificate
Balance, Adjusted Class A-2 Certificate Balance, Adjusted Class A-3 Certificate
Balance or Adjusted Class B Certificate Balance, on or prior to the related
Targeted Maturity Date and (y) on the date on which the Trustee demands payment
thereof in connection with (i) the reduction by Standard & Poor's of TMCC's
short-term debt to a rating less than A-1+ or the reduction by Standard & Poor's
of TMCC's long-term debt to a rating less than AA, the reduction by Moody's of
TMCC's short-term debt to a rating less than P-1 or the reduction by Moody's of
TMCC's long-term debt to a rating of less than Aa3 and the determination by the
Trustee that at such time one or more Permitted Investments having substantially
the same maturities, similar demand features and bearing interest at the
relevant Required Rates are available and investment therein rather than in TMCC
Demand Notes will not, by itself, cause a Rating Agency to reduce or withdraw
its rating of any Class of Certificates or (ii) any Swap Termination. SEE "Risk
Factors -- Risks Associated with the Ratings of the Class A Certificates".
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. Currently, no outstanding debt of TMCC is senior
in right of payment to the TMCC Demand Notes. 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
interest 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, on behalf of the Trust, 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, on behalf of the Trust, shall be permitted to seek the direction of the
Certificateholders before taking any such action. 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.
REMOVAL OF INDENTURE TRUSTEE; SUCCESSOR INDENTURE TRUSTEE
The Indenture Trustee may resign by providing written notice to TMCC and the
Trust, as holder of the TMCC Demand Notes. The Trust, as holder of the TMCC
Demand Notes, may remove the Indenture Trustee by written notice thereto and to
TMCC, and may appoint a successor Indenture Trustee. TMCC may remove the
Indenture Trustee in the event that: (a) the Indenture Trustee fails to continue
to satisfy the criteria for eligibility to act as Indenture Trustee; (b) the
Indenture Trustee is adjudged a bankrupt or insolvent; (c) a receiver or other
public officer takes charge of the Indenture Trustee or its property; or (d) the
Indenture Trustee otherwise becomes incapable of acting in such capacity.
If the Indenture Trustee resigns, is removed or is unable to act as
Indenture Trustee for any reason, TMCC shall promptly appoint a successor
Indenture Trustee, unless the Trust shall already have done so. Within one year
after a successor Indenture Trustee takes office, the Trust may appoint a
successor Indenture Trustee to replace any successor Indenture Trustee appointed
by TMCC. Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee shall become effective only upon such successor's
acceptance of such appointment and the payment of outstanding fees and expenses
due to the prior Indenture Trustee as set forth in the Indenture.
100
<PAGE>
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
Supplemental indentures may be entered into by TMCC and the Indenture
Trustee without the consent of the holder of the TMCC Demand Notes (a) to cure
any ambiguity, to correct or supplement any provisions thereof that may be
inconsistent with any other provision thereof or to add any other provision with
respect to matters or questions arising under the Indenture which are not
inconsistent with the provisions thereof, provided that any such action will
not, in the good faith judgment of the parties, materially and adversely affect
the interest of any holder of TMCC Demand Notes or any Certificateholder and the
Indenture Trustee shall be furnished an opinion of counsel to the effect that
such amendment will not materially and adversely affect the interest of any
Certificateholder, and (b) for purposes of appointing a successor trustee
thereunder or in connection with any merger or consolidation of TMCC or the
transfer or lease of the assets of TMCC in their entirety, in each case in
accordance with the provisions of the Indenture. In addition, supplemental
indentures may be entered into by TMCC and the Indenture Trustee with the
consent of the holder of the TMCC Demand Notes (which consent will not be given
except at the written direction of Holders of at least 25% in aggregate
principal amount of the Class A Certificates), for the purpose of adding any
provisions to or changing in any manner or eliminating any other 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.
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 and continuance of such default for a period
of 10 days; (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
101
<PAGE>
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 of
TMCC Demand Notes, unless such holders have offered to the Indenture Trustee
indemnity or security satisfactory to it 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
TMCC 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 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. However, in the case of any such
deposit, certain of TMCC'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 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.
102
<PAGE>
THE SWAP AGREEMENT
The following summary describes certain terms of the Swap Agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Swap Agreement.
PAYMENTS UNDER THE SWAP AGREEMENT
On the Closing Date the Trust will enter into a 1992 International Swaps and
Derivatives Association, Inc. ("ISDA") Master Agreement (Multi Currency-Cross
Border) (such agreement, the "1992 Master Agreement") with the Swap
Counterparty, as modified to reflect the transactions described below (the 1992
Master Agreement, as so modified, the "Swap Agreement"). The Swap Agreement will
incorporate certain relevant standard definitions published by ISDA.
Under the Swap Agreement, the Trust will generally pay to the Swap
Counterparty amounts equal to the Class A-1 Swap Interest Amount, the Class A-2
Swap Interest Amount, the Class A-3 Swap Interest Amount and the Class B Swap
Interest Amount due on each Certificate Payment Date and the Swap Counterparty
will generally pay to the Trust amounts equal to the interest payable on each
Class of Certificates; provided that if the Trust is unable to make any payment
due to be made by it to the Swap Counterparty under the Swap Agreement, the Swap
Counterparty will not be obligated to make its corresponding payment to the
Trust under the Swap Agreement.
More specifically, if on any Certificate Payment Date, the amount allocated
under the Agreement and paid by the Trust to the Swap Counterparty is less than
the Class A-1 Swap Interest Amount due on such date (the amount of any such
insufficiency, the "Class A-1 Swap Interest Shortfall Amount"), the obligation
of the Swap Counterparty to pay an amount equal to the interest otherwise due on
the Class A-1 Certificates on such Certificate Payment Date will be reduced in
the same proportion as the proportion that such Class A-1 Swap Interest
Shortfall Amount represents of the Class A-1 Swap Interest Amount otherwise due
on such date. If on a subsequent Certificate Payment Date, amounts are available
under the Agreement and are paid by the Trust to the Swap Counterparty to
reimburse all or any part of such Class A-1 Swap Interest Shortfall Amount, then
the obligation of the Swap Counterparty to pay an amount equal to the interest
otherwise due on the Class A-1 Certificates on such Certificate Payment Date
will be increased in the same proportion as the proportion that the amount of
such reimbursement represents of the Class A-1 Swap Interest Amount otherwise
due on such date.
If on any Certificate Payment Date, the amount allocated under the Agreement
and paid by the Trust to the Swap Counterparty is less than the Class A-2 Swap
Interest Amount due on such date (the amount of any such insufficiency, the
"Class A-2 Swap Interest Shortfall Amount"), the obligation of the Swap
Counterparty to pay an amount equal to the interest otherwise due on the Class
A-2 Certificates on such Certificate Payment Date will be reduced in the same
proportion as the proportion that such Class A-2 Swap Interest Shortfall Amount
represents of the Class A-2 Swap Interest Amount otherwise due on such date. If
on a subsequent Certificate Payment Date, amounts are available under the
Agreement and are paid by the Trust to the Swap Counterparty to reimburse all or
any part of such Class A-2 Swap Interest Shortfall Amount, then the obligation
of the Swap Counterparty to pay an amount equal to the interest otherwise due on
the Class A-2 Certificates on such Certificate Payment Date will be increased in
the same proportion as the proportion that the amount of such reimbursement
represents of the Class A-2 Swap Interest Amount otherwise due on such date.
If on any Certificate Payment Date, the amount allocated under the Agreement
and paid by the Trust to the Swap Counterparty is less than the Class A-3 Swap
Interest Amount due on such date (the amount of any such insufficiency, the
"Class A-3 Swap Interest Shortfall Amount"), the obligation of the Swap
Counterparty to pay an amount equal to the interest otherwise due on the Class
A-3 Certificates on such Certificate Payment Date will be reduced in the same
proportion as the proportion that such Class A-3 Swap Interest Shortfall Amount
represents of the Class A-3 Swap Interest Amount otherwise due on such
103
<PAGE>
date. If on a subsequent Certificate Payment Date, amounts are available under
the Agreement and are paid by the Trust to the Swap Counterparty to reimburse
all or any part of such Class A-3 Swap Interest Shortfall Amount, then the
obligation of the Swap Counterparty to reimburse all or any part of such Class B
Swap Interest Shortfall Amount, then the obligation of the Swap Counterparty to
pay an amount equal to the interest otherwise due on the Class A-3 Certificates
on such Certificate Payment Date will be increased in the same proportion as the
proportion that the amount of such reimbursement represents of the Class A-3
Swap Interest Amount otherwise due on such date.
If on any Certificate Payment Date, the amount allocated under the Agreement
and paid by the Trust to the Swap Counterparty is less than the Class B Swap
Interest Amount due on such date (the amount of any such insufficiency, the
"Class B Swap Interest Shortfall Amount"), the obligation of the Swap
Counterparty to pay an amount equal to the interest otherwise due on the Class B
Certificates on such Certificate Payment Date will be reduced in the same
proportion as the proportion that such Class B Swap Interest Shortfall Amount
represents of the Class B Swap Interest Amount otherwise due on such date. If on
a subsequent Certificate Payment Date, amounts are available under the Agreement
and are paid by the Trust to the Swap Counterparty to reimburse all or any part
of such Class B Swap Interest Shortfall Amount, then the obligation of the Swap
Counterparty to pay an amount equal to the interest otherwise due on the Class B
Certificates on such Certificate Payment Date will be increased in the same
proportion as the proportion that the amount of such reimbursement represents of
the Class B Swap Interest Amount otherwise due on such date.
The Trust will not be obligated to pay interest to the Swap Counterparty on
any Class A-1 Swap Interest Shortfall Amount, Class A-2 Swap Interest Shortfall
Amount, Class A-3 Swap Interest Shortfall Amount or Class B Swap Interest
Shortfall Amount and, correspondingly, the Certificateholders will not be
entitled to receive interest on any Class A-1, Class A-2, Class A-3 or Class B
Swap Interest Shortfall Amounts.
Unless the Swap Agreement is terminated early as described under "-- Early
Termination of Swap Agreement", the Swap Agreement will terminate on the earlier
of (i) the Class B Stated Maturity Date and (ii) the date on which the Adjusted
Class A-1 Certificate Balance, the Adjusted Class A-2 Certificate Balance, the
Adjusted Class A-3 Certificate Balance and the Adjusted Class B Certificate
Balance, have been reduced to zero.
CONDITIONS PRECEDENT
The respective obligations of the Swap Counterparty and the Trust to pay
certain amounts due under the Swap Agreement will be subject to the following
conditions precedent: (i) no Event of Default (as defined below under "--
Defaults Under Swap Agreement") or event that with the giving of notice or lapse
of time or both would become an Event of Default shall have occurred and be
continuing and (ii) no Early Termination Date (as defined below under "-- Early
Termination of Swap Agreement") shall have occurred or been effectively
designated.
DEFAULTS UNDER SWAP AGREEMENT
"Events of Default" under the Swap Agreement (each, an "Event of Default")
are limited to: (i) the failure of the Trust or the Swap Counterparty to pay any
amount when due under the Swap Agreement after giving effect to the applicable
grace period, if any; (ii) the occurrence of certain events of insolvency or
bankruptcy of the Trust or the Swap Counterparty and (iii) certain other
standard events of default under the 1992 Master Agreement including "Breach of
Agreement" (not applicable to the Trust), "Misrepresentation" (not applicable to
the Trust) and "Merger without Assumption", as described in Sections 5(a)(ii),
5(a)(iv) and 5(a)(viii) of the 1992 Master Agreement.
104
<PAGE>
TERMINATION EVENTS
"Termination Events" under the Swap Agreement consist of the following: (i)
certain events of insolvency or bankruptcy of the Transferor; (ii) the Trust or
the Transferor becomes subject to registration as an "investment company" under
the Investment Company Act of 1940; and (iii) certain standard termination
events under the 1992 Master Agreement including "Illegality" (which generally
relates to changes in law causing it to become unlawful for either of the
parties to perform its obligations under the Swap Agreement), "Tax Event" (which
generally relates to either party to the Swap Agreement receiving payments
thereunder from which an amount has been deducted or withheld for or on account
of certain taxes) and "Tax Event Upon Merger" (which generally relates to a
party to the Swap Agreement receiving a payment under the Swap Agreement from
which an amount has been deducted or withheld for or on account of certain taxes
as a result of a party merging with another entity), each as more fully
described in Sections 5(b)(i), 5(b)(ii) and 5(b)(iii) of the 1992 Master
Agreement; provided, however, that the occurrence of a "Tax Event" or "Tax Event
Upon Merger" will only constitute a Termination Event if at least 51% by Voting
Interests of the Class A Certificateholders directs the Trustee to terminate the
Swap Agreement and liquidate the assets of the Trust.
EARLY TERMINATION OF SWAP AGREEMENT
Upon the occurrence of any Event of Default under the Swap Agreement, the
non-defaulting party will have the right to designate an Early Termination Date
(as defined in the Swap Agreement) upon the occurrence and continuance of such
Event of Default. On the Early Termination Date, the Swap Agreement will
terminate. With respect to Termination Events, an Early Termination Date may be
designated by one or both of the parties (as specified in the Swap Agreement
with respect to each Termination Event) and will occur only upon notice and, in
certain cases, after the party causing the Termination Event has used reasonable
efforts to transfer its rights and obligations under such Swap Agreement to a
related entity within a limited period after notice has been given of the
Termination Event, all as set forth in the Swap Agreement. The occurrence of an
Early Termination Date under the Swap Agreement will constitute a "Swap
Termination".
Upon any Swap Termination, the Trust or the Swap Counterparty may be liable
to make a termination payment to the other (regardless, if applicable, of which
of such parties may have caused such termination). Such termination payment will
be calculated on the basis that the Trust is the Affected Party (as defined in
the Swap Agreement), subject to certain exceptions. The amount of any such
termination payment will be based on the market value of the Swap Agreement
computed on the basis of market quotations of the cost of entering into swap
transactions with the same terms and conditions that would have the effect of
preserving the respective full payment obligations of the parties, in accordance
with the procedures set forth in the Swap Agreement (assuming, for purposes of
such calculation, that all outstanding Class A-1 Swap Interest Shortfall
Amounts, Class A-2 Swap Interest Shortfall Amounts, Class A-3 Swap Interest
Shortfall Amounts and Class B Swap Interest Shortfall Amounts are due and
payable on the first Certificate Payment Date that would have occurred after the
Early Termination Date). Any such termination payment could, if interest rates
have changed significantly, be substantial.
If the Swap Agreement is terminated as a result of (i) certain events of
insolvency or bankruptcy of the Swap Counterparty or (ii) the Swap
Counterparty's failure to pay amounts due under the Swap Agreement, the Swap
Counterparty will not be entitled to any portion of the termination payment
related to the market value of the Swap Agreement.
If a Swap Termination occurs, the principal of each Class of Certificates
will become immediately payable and the Trustee will be obligated to liquidate
the assets of the Trust as described under "Description of the Certificates --
Termination of the Trust; Retirement of the Certificates -- Swap Termination".
In any such event, the ability of the Trust to pay interest on the Class A
Certificates will depend on (a) the price at which the assets of the Trust are
liquidated, (b) the amount of the termination
105
<PAGE>
payment, if any, which may be due to the Swap Counterparty from the Trust under
the Swap Agreement and (c) the amount of the swap termination payment, if any,
which may be due to the Trust from the Swap Counterparty under the Swap
Agreement. In the event that the net proceeds of the liquidation of the assets
of the Trust are not sufficient to make all payments due in respect of each
Class of Certificates and for the Trust to meet its obligations, if any, in
respect of the termination of the Swap Agreement, then such amounts will be
allocated and applied in accordance with the priority of payments described
herein and the claims of the Swap Counterparty in respect of such net proceeds
will rank higher in priority than the claims of the Certificateholders. SEE
"Description of the Certificates -- Termination of the Trust; Retirement of the
Certificates -- Swap Termination".
The Agreement provides that upon the occurrence of (i) any Event of Default
arising from any action taken, or failure to act, by the Swap Counterparty, or
(ii) a Termination Event (except as described in the following sentence) with
respect to which the Swap Counterparty is an Affected Party, the Trustee may and
will, at the direction of 51% by Voting Interest of the Class A and Class B
Certificateholders, by notice to the Swap Counterparty, designate an Early
Termination Date with respect to the Swap Agreement. If a Termination Event
occurs (i) as a result of the insolvency or bankruptcy of the Transferor or (ii)
because the Trust or the Transferor becomes subject to registration as an
"investment company" under the Investment Company Act of 1940, the Trustee will
be required by the terms of the Agreement to terminate the Swap Agreement.
TAXATION
Neither the Trust nor the Swap Counterparty is obligated under the Swap
Agreement to gross up if withholding taxes are imposed on payments made under
the Swap Agreement.
In the event that any withholding or similar tax is imposed on payments by
the Trust to the Swap Counterparty under the Swap Agreement, the Swap
Counterparty will be entitled to deduct amounts in the same proportion (as
calculated in accordance with the Swap Agreement) from subsequent payments due
from it. In the event that the Swap Counterparty is required to withhold amounts
from payments by the Swap Counterparty under the Swap Agreement, the payment
obligations of the Swap Counterparty will be reduced by such amounts and the
payment obligations of the Trust under the Swap Agreement will remain the same.
In either such event, payments on the Class A and Class B Certificates will be
subject to reduction in proportion to the amount so deducted or withheld. In
either such event, 51% by Voting Interests of the Class A and Class B
Certificateholders may direct the Trustee to terminate the Swap Agreement and
liquidate the assets of the Trust, as described above under "-- Termination
Events".
ASSIGNMENT
Except as provided below, neither the Trust nor the Swap Counterparty is
permitted to assign, novate or transfer as a whole or in part any of its rights,
obligations or interests under the Swap Agreement. The Swap Counterparty may
transfer the Swap Agreement to another party on ten Business Days' prior written
notice, provided that (i) such notice will be accompanied by a guarantee of the
Swap Counterparty of such transferee's obligations in form and substance
reasonably satisfactory to the Trustee, (ii) the Swap Counterparty delivers an
opinion of independent counsel of recognized standing in form and substance
reasonably satisfactory to the Trustee confirming that as of the date of such
transfer the transferee will not, as a result of such transfer, be required to
withhold or deduct on account of tax under the Swap Agreement, (iii) a
Termination Event or Event of Default does not occur under the Swap Agreement as
a result of such transfer and (iv) the then current ratings of the Certificates
are not adversely affected as a result of such transfer. In addition, in the
event the long-term debt rating of the Swap Counterparty is reduced to a level
below Aa2 by Moody's or AA- by Standard & Poor's or the short-term debt rating
of the Swap Counterparty is reduced to a level below P-1 by Moody's or A-1+ by
Standard & Poor's, the Swap Counterparty may assign the Swap Agreement to
another party and thereby be released from its obligations under the Swap
Agreement; provided that (i) such transferee, by a written instrument, accepts
106
<PAGE>
all of the obligations of the Swap Counterparty under the Swap Agreement to the
reasonable satisfaction of the Trustee, (ii) the Swap Counterparty delivers an
opinion of independent counsel of recognized standing in form and substance
reasonably satisfactory to the Trustee confirming that as at the date of such
transfer the transferee will not, as a result of such transfer, be required to
withhold or deduct on account of tax under the Swap Agreement, (iii) a
Termination Event or Event of Default does not occur under the Swap Agreement as
a result of such transfer and (iv) the ratings assigned to the Certificates
after such assignment and release will be at least equal to the ratings assigned
by Moody's and Standard & Poor's to the Certificates at the time of such
reduction of the rating of the Swap Counterparty's long-term debt. Any cost of
such transfer will be borne by the Swap Counterparty or such transferee and not
by the Trust; provided, however that the Swap Counterparty shall not be required
to make any payment to the Transferee to obtain the replacement swap.
MODIFICATION AND AMENDMENT OF SWAP AGREEMENT
The Agreement contains provisions permitting the Trustee to enter into any
amendment of the Swap Agreement (i) to cure any ambiguity or mistake, (ii) to
correct any defective provisions or to correct or supplement any provision
therein which may be inconsistent with any other provision therein or with the
Agreement or (iii) to add any other provisions with respect to matters or
questions arising under the Swap Agreement; provided, in the case of clause
(iii) that such amendment will not adversely affect in any material respect the
interest of any Certificateholder. Any such amendment shall be deemed not to
adversely affect in any material respect the interests of any Certificateholder
if the Trustee receives written confirmation from each rating agency rating the
Certificates that such amendment will not cause such rating agency to reduce the
then current rating thereof.
THE SWAP COUNTERPARTY
A description of the Swap Counterparty is provided under "TMCC" herein.
Information regarding the Swap Counterparty is publicly available as described
under "Documents Incorporated by Reference" herein. Where indicated by the
context, as used herein "Swap Counterparty" includes any party that replaces
TMCC as Swap Counterparty as described above under "-- Assignment".
GOVERNING LAW
The Swap Agreement 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
107
<PAGE>
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, the SUBI
Certificate or any Other SUBI Certificate). The Trust will own the assets of the
Trust, the primary asset of which will be the SUBI Certificate evidencing a 100%
beneficial interest in the SUBI Assets, and the Trustee will take action with
respect thereto in the name of the Trust and on behalf of the Certificateholders
and the Transferor. Beneficial interests in the Contracts and Leased Vehicles,
rather than direct legal ownership thereof, are transferred under this structure
in order to avoid the administrative difficulty and expense of retitling the
Leased Vehicles in the name of the transferee. The SUBI Assets will be
segregated from the other Titling Trust Assets on the books and records
maintained with respect thereto by the Servicer and/or the Titling Trustee.
Except under the limited circumstances described below, neither the Servicer nor
any holders of other beneficial interests in the Titling Trust will have rights
in the SUBI Assets, and payments made on or in respect of any Titling Trust
Assets other than the SUBI Assets will not be available to make payments on the
Certificates or to cover expenses of the Titling Trust allocable to the SUBI
Assets.
ALLOCATION OF TITLING TRUST LIABILITIES
Pursuant to the Titling Trust Agreement, the various liabilities of the
Titling Trust will be allocated to and charged against (i) to the extent
incurred specifically with respect thereto, the SUBI Assets, the Titling Trust
Assets allocated to Other SUBIs ("Other SUBI Assets") or Titling Trust Assets
not allocated to the SUBI or any Other SUBI (the "UTI Assets"), respectively, or
(ii) pro rata among the Titling Trust Assets if incurred with respect to the
Titling Trust Assets generally. The Titling Trustee and the beneficiaries of the
Titling Trust and their assignees and pledgees will be bound by the foregoing
allocation. Thus, any liability to third parties arising from or in respect of a
Contract or Leased Vehicle will be borne by the Trust as a holder of interests
in the SUBI. If any such liability arises from or in respect of a contract or
leased vehicle that is an Other SUBI Asset or a UTI Asset, the SUBI Assets will
not be subject to such liability unless such Other SUBI Assets or UTI Assets are
insufficient to pay the liability. However, to the extent that there are no
other assets from which to satisfy such liability, and such liability is owed to
entities other than the Titling Trustee or other beneficiaries of the Titling
Trust, the SUBI Assets may be used to satisfy such liabilities. Under such
circumstances, investors in the 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
108
<PAGE>
Trustee will reallocate the remaining Titling Trust Assets (I.E., the Other SUBI
Assets and the UTI Assets) so that each portfolio will bear the expense of the
claim as nearly as possible as if the claim had been allocated as provided in
the Titling Trust Agreement. However, if a third party claim exceeds the value
of the portfolio or portfolios of Titling Trust Assets to which it should be
allocated, 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. 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
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
assets of the SUBI 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 a "financial asset" under the
UCC and the Trustee will be deemed to have a perfected security interest therein
(and the SUBI 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, New York 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 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".
109
<PAGE>
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, New York 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.
110
<PAGE>
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 Certificates could incur a loss on their investment.
SEE "Certain Legal Aspects of the Titling Trust -- Structural Considerations --
BACK-UP SECURITY INTEREST IN CERTAIN SUBI ASSETS".
REPOSSESSION OF LEASED VEHICLES
In the event that a default by a lessee has not been cured within a certain
period of time after notice, the Servicer will ordinarily retake possession of
the related leased vehicle. Some jurisdictions require that the lessee be
notified of the default and be given a time period within which to cure the
default prior to repossession. Generally, this right to cure may be exercised on
a limited number of occasions in any one-year period. In these jurisdictions, if
the lessee objects or raises a defense to repossession, an order must be
obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order. Other jurisdictions (including each
of the Trust States) permit repossession without notice, but
111
<PAGE>
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 Charged-off 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 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.
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
112
<PAGE>
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
following the Revolving 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 O'Melveny &
Myers LLP, special federal income tax counsel to the Transferor, as to certain
United States federal income tax consequences to Holders of the Class A
Certificates who are original owners and who hold the Class A Certificates as
capital assets under the Internal Revenue Code of 1986, as amended (the "Code").
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation or any aspects of state or local taxation that may be
relevant to Class A Certificateholders or Certificate Owners in light of their
particular circumstances, nor to certain types of Class A Certificateholders or
Certificate Owners subject to special treatment under the federal income tax
laws (for example, banks and life insurance companies). This discussion is based
upon present provisions of the Code, the regulations promulgated thereunder and
judicial and ruling authorities, all of which are subject to change, which
change may be retroactive. The parties do not intend to seek a ruling from the
Internal Revenue Service ("IRS") on any of the issues discussed below. Moreover,
there can be no assurance that if such a ruling were sought, the IRS would rule
favorably. Taxpayers and preparers of tax returns (including those filed by any
partnership or other
113
<PAGE>
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 agree to and will express their intent
that the Class A Certificates be treated 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 Certificate to the Trust, for financial accounting
purposes, as a sale of an ownership interest in the related 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,
O'Melveny & Myers LLP is of the opinion that, for federal income tax purposes,
the characterization of the Class A Certificates should be governed by the
substance of the transaction and accordingly, (i) the Trust will not be treated
as an association or a publicly traded partnership taxable as a corporation and
(ii) the Class A Certificates will properly be characterized as indebtedness
that is secured by the assets of the Trust.
TAXATION OF INTEREST AND ORIGINAL ISSUE 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
114
<PAGE>
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 Certificate Owners have reasonable remedies to
compel payment of interest deficiencies (e.g., default and acceleration rights).
Because Class A Certificate Owners will not be entitled to penalty payments of
interest on interest deficiencies, and Class A Certificate Owners 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 Certificate Owner'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 Certificate Owner 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. Certificate Owner 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
Certificate Owner purchases a Class A Certificate issued with OID at an
"acquisition premium" (i.e., at a price in excess of the adjusted issue price of
the Class A Certificate, but less than or equal to the "stated redemption price
at maturity"), the amount includible by such Certificate Owner 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
115
<PAGE>
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, currently more
than 12 months, 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.
Long-term capital gains will be taxable to non-corporate Certificate Owners at a
reduced tax rate of 20%, 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.
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 persons 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 Investor.
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, payments of principal and interest (including
original issue discount) on a Class A Certificate by the Trust or any of its
Paying Agents to a Foreign Investor, will not be subject to United States
withholding tax; provided, however, that in the case of interest and original
issue discount (1) such Investor does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Transferor entitled to vote, (2) such Investor is not a controlled foreign
corporation for United States tax purposes that is related to the
116
<PAGE>
Transferor through stock ownership, (3) such Investor is not a bank extending
credit pursuant to a loan agreement entered into in the ordinary course of its
trade or business, and (4) the Investor provides the appropriate forms
establishing its Foreign Investor status.
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
Certain payments to noncorporate persons of interest on and principal of
obligations, and of the proceeds from the sale of obligations, are subject to
information reporting and may be subject to a backup withholding tax at a rate
of 31%. Under current United States federal income tax law and regulations
payments of interest on and principal of a Class A Certificate by the Trust or
any of its paying agents, and payment of the proceeds of the sale of a Class A
Certificate, made outside the United States, will not be subject to information
reporting or backup withholding unless the Trustee or any Paying Agents have
actual knowledge that the beneficial owner of the Class A Certificate is a
United States person (as defined below). However, if payments of interest on or
principal of, or the proceeds of the sale of, a Class A Certificate are
collected outside the United States by the foreign office of a custodian,
nominee or other agent acting on behalf of the beneficial owner of a Class A
Certificate, and, if such custodian, nominee or other agent acting on behalf of
the beneficial owner of a Class A Certificate is a (i) United States person,
(ii) a controlled foreign corporation for United States tax purposes, or (iii) a
foreign person 50% or more of whose gross income is from a United States trade
or business, payments of interest and principal in respect of the Class A
Certificates, or the proceeds of a sale of the Class A Certificates, made by
such custodian, nominee or agent to the beneficial owner may be subject to
information reporting unless such custodian, nominee or agent has sufficient
documentary evidence in its records that the beneficial owner is not a United
States person or the beneficial owner otherwise establishes an exemption.
Currently, such payments are not subject to backup withholding. If payments of
interest, principal or the proceeds of the sale of a Class A Certificate are
collected by the United States office of a custodian, agent or nominee acting on
behalf of the beneficial owner, information reporting and backup withholding
will apply to payments made by such custodian, agent or nominee to the
beneficial owner unless such owner certifies under penalty of perjury that it is
not a United State person or otherwise established an exemption.
On October 6, 1997, the Internal Revenue Service issued regulations (the
"Final Regulations") which could affect the procedures to be followed by a
Foreign Investor in establishing such Foreign Investor's status as a Foreign
Investor for the purposes of the withholding rules. The Final Regulations
generally are effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors should consult their tax
advisors concerning the potential effect of such Final Regulations on their
ownership of Class A Certificates.
117
<PAGE>
POSSIBLE ALTERNATIVE TREATMENT OF THE CLASS A CERTIFICATES
Although, as described above, it is the opinion of O'Melveny & Myers LLP
that the Class A Certificates will properly be characterized as debt for federal
income tax purposes, such opinion will not be binding on the IRS and thus no
assurance can be given that such a characterization shall prevail. If the IRS
were to contend successfully that the Class A Certificates did not represent
debt for federal income tax purposes, certain adverse tax consequences to the
Class A Certificate Owners 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 Investors
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 term "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 each
Class of Class A Certificates will meet the foregoing criteria for treatment as
"publicly-offered securities". No restrictions will be imposed on the transfer
of the Class A-1, Class A-2 and Class A-3 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, Class
A-2 and Class A-3 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
118
<PAGE>
as part of an offering pursuant to an effective registration statement under the
Act and then will be timely registered under the Exchange Act except as
described below.
Equity participation in an entity by "benefit plan investors" (i.e., Benefit
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 any person (or
its affiliates) which has discretionary authority or control or provides
investment advice for a fee, with respect to the 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.
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 applicability of 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.
119
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1998 (the "Underwriting Agreement"), among the Transferor,
TMCC and the Underwriters named below (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:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- --------------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
......................................... $ $ $
......................................... $ $ $
......................................... $ $ $
......................................... $ $ $
Total...................................... $ $ $
</TABLE>
In the Underwriting Agreement the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Class A Certificates
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriter may be increased or the Underwriting Agreement
may be terminated.
The Transferor has been advised by the Underwriters that they propose to
offer the Class A 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 Certificate, Class A-2 Certificate 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 Certificate, Class
A-2 Certificate and Class A-3 Certificate, respectively, on sales to certain
other dealers.
The Transferor and TMCC have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act.
The Class A-1, Class A-2 and Class A-3 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 the Class A
Certificates.
The Underwriters have advised the Transferor that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids and syndicate covering
transactions, which may have the effect of stabilizing or maintaining the market
price of the Class A-1 Certificates, Class A-2 Certificates or Class A-3
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-1
Certificates, Class A-2 Certificates or Class A-3 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 A-1 Certificates, Class A-2 Certificates or Class A-3 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-1 Certificates, Class A-2 Certificates or Class
A-3 Certificates 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
120
<PAGE>
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, an
affiliate thereof or the Servicer or engage one or more of the Underwriters or
affiliates thereof as Swap Counterparties in replacement of TMCC.
It is expected that delivery of the Class A Certificates will be made
against payment therefor on or about the Closing Date, which is expected to be
the business day following the date hereof. Under Rule 15c6-1 under the
Exchange Act, trades in the secondary market generally are required to settle
within three business days, unless the parties thereto expressly agree
otherwise. Accordingly, purchasers who wish to trade Class A-1 Certificates,
Class A-2 Certificates or Class A-3 Certificates on the date hereof will be
required, by virtue of the fact that the Class A-1 Certificates, Class A-2
Certificates or Class A-3 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.
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.
LISTING AND GENERAL INFORMATION
LISTING
Application will be made for listing the Class A-1 Certificates, Class A-2
Certificates and Class A-3 Certificates on the Luxembourg Stock Exchange.
In connection with the listing application made to the Luxembourg Stock
Exchange, the Articles of Incorporation and Bylaws of the Transferor, the
Agreement, the Agency Agreement and a legal notice relating to the issuance of
each Class of Class A Certificates will be deposited prior to the listing with
the Chief Registrar of the District Court of Luxembourg, where copies thereof
may be obtained upon request.
REPRESENTATIONS
UNITED KINGDOM
Each Manager will represent that: (i) it has not offered or sold and will
not offer or sell, prior to the date six months after their date of issuance,
any Class A Certificates to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted in and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Class A Certificates in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of Class A Certificates to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom
the document can otherwise lawfully be issued or passed on.
GENERAL
No action has been taken or will be taken by the Transferor or the
Underwriters that would permit a public offering of any Class A Certificates in
any country or jurisdiction where action for that purpose is required unless
such action is taken. Accordingly, Class A Certificates may not be offered or
sold, directly or indirectly, and neither this Prospectus nor any circular,
prospectus, form of application, advertisement or other material may be
distributed in or from or published in any country or jurisdiction except under
circumstances that will result in compliance with any applicable laws and
regulations. Persons into whose
121
<PAGE>
hands this Prospectus comes are required by the Transferor and the Underwriters
to comply with all applicable laws and regulations in each country or
jurisdiction in which they purchase, sell or deliver Class A Certificates or
have in their possession or distribute this Prospectus, in all cases at their
own expense.
Each Manager will represent and agree that it will comply with all
applicable laws and regulations in each jurisdiction in which it purchases,
offers or sells any Class A Certificates or possesses or distributes this
Prospectus or any other offering material and will obtain any consent, approval
or permission required by it for the purchase, offer or sale by it of any Class
A Certificates under the laws and regulations in force in any jurisdiction to
which it is subject or in which it makes such purchases, offers or sales, and
neither the Transferor nor TMCC shall have any responsibility therefor. Each
Manager will also represent and agree that it will not offer, sell or deliver
any of the Class A Certificates or distribute any such offering material in or
from any jurisdiction except under circumstances which will result in compliance
with applicable laws and regulations and which will not impose any obligation on
the Transferor, TMCC or the Underwriters.
EUROCLEAR AND CEDEL
The Class A-1 Certificates, Class A-2 Certificates and Class A-3
Certificates have been accepted for clearance through the Cedel Bank and
Euroclear systems. The Class A-1 Certificates have been assigned the Common Code
, and the ISIN number . The Class A-2 Certificates have been assigned
the Common Code and ISIN number . The Class A-3 Certificates have been
assigned the Common Code and ISIN number .
DOCUMENTS AVAILABLE FOR COLLECTION AND INSPECTION
Copies of the Articles of Incorporation and Bylaws of the Transferor, the
Agreement, the Titling Trust Agreement, the SUBI Supplement, the Servicing
Supplement, the Agency Agreement and the Indenture will be available for
inspection during the term of the Class A-1 Certificates, Class A-2 Certificates
and Class A-3 Certificates at the offices of Bankers Trust Company Luxembourg
S.A., 14 Boulevard F.D. Roosevelt, L-2450, Luxembourg. For so long as any Class
A-1 Certificates, Class A-2 Certificates or Class A-3 Certificates are listed on
the Luxembourg Stock Exchange, copies of the reports to Certificateholders to be
delivered to the Trustee will be obtainable at no charge at such location.
TOYOTA LEASING, INC.
The Transferor was incorporated in the State of California in April 1997 as
a wholly owned, limited purpose subsidiary of TMCC. The principal executive
offices of the Transferor are located at 19001 South Western Avenue, Torrance,
California 90509 and its telephone number is (310) 787-3541.
AUTHORIZATION
The execution and delivery of the Agreement, the Titling Trust Agreement,
the SUBI Supplement, the Servicing Supplement and the Indenture and the sale of
each Class of Class A Certificates were authorized by the Boards of Directors of
the Transferor and/or TMCC, as appropriate, on July 29, 1997, August 15, 1997,
June 9, 1998 and .
NO MATERIAL CHANGE
There has been no material adverse change in the information provided in
this Prospectus with respect to the SUBI, the Contracts, the Leased Vehicles or
the Trust since June 30, 1998, except as otherwise disclosed herein.
LITIGATION
Neither the Trust nor TMCC or any of its subsidiaries are involved in, nor
are there any, legal or arbitration proceedings pending or threatened of which
TMCC is aware, which may have or have had
122
<PAGE>
during the 12 months prior to the date hereof a material effect on the financial
position of TMCC and its subsidiaries on a consolidated basis.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP of Los Angeles, California are independent public
accountants of TMCC.
UNITED STATES LAW
O'Melveny & Myers LLP, a law firm licensed in the states of California and
New York and in the District of Columbia, in the United States, has given and
has not withdrawn its consent to the inclusion in this Prospectus of the
descriptions of its opinions regarding matters of United States federal income
taxation and other matters with respect to the Class A Certificates in the forms
and contexts in which they are included, in each case effective as of the dates
of such documents.
RATINGS OF THE CLASS A CERTIFICATES
It is a condition of issuance that each of Moody's and Standard & Poor's
rate 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, the terms of the Transferor Interest
and Class B Certificates, and the current ratings assigned to the debt
obligations of TMCC in its capacity as issuer of the TMCC Demand Notes. A
reduction, suspension or withdrawal of a rating assigned by either Rating Agency
to the debt securities of TMCC could result in the reduction, suspension or
withdrawal of its rating of either Class of Class A Certificates. Even absent
any such reduction, suspension or withdrawal of a rating assigned to the debt
obligations of TMCC, there can be no assurance that any such rating will not be
reduced, suspended, withdrawn or otherwise qualified by the assigning Rating
Agency if, in its judgment, other circumstances so warrant. In the event that a
rating with respect to either Class of Class A Certificates is reduced,
suspended, withdrawn or otherwise qualified, no person or entity will be
obligated to provide any additional credit enhancement with respect thereto. The
ratings of each Class of Class A Certificates will not address the likelihood of
the payment in full of the principal amount of such Class A Certificates on any
particular date prior to the Stated Maturity Date. Notice of any change in the
ratings of the Class A Certificates will be provided to the Luxembourg Stock
Exchange, and will be given by publication to Certificateholders in accordance
with the rules of the Luxembourg Stock Exchange. SEE "Description of the
Certificates -- Notices".
The ratings of each Class of 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 any 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 address 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 either Class of Class A Certificates, or, if one
does, what rating will be assigned by such other rating agency. A rating on
either Class of Class A Certificates by another rating agency, if assigned at
all, may be lower than the ratings assigned thereto by Moody's or Standard &
Poor's. SEE "Risk Factors -- Risks Associated with Ratings of the Class A
Certificates".
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 O'Melveny & Myers LLP, Los Angeles, California. will act as
counsel for the Underwriters and has performed certain legal services for TMCC,
including in connection with the Titling Trust.
123
<PAGE>
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, 1998 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the six-month periods ended December 31, 1997 and
1996, the six-month periods ended March 31, 1998 and 1997, and the nine-month
periods ended June 30, 1998 and 1997 incorporated by reference in this
Prospectus, PricewaterhouseCoopers 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, 1998, May 7,
1998 and , 1998 incorporated by reference herein state that they did
not audit and they do not express an opinion on that unaudited consolidated
financial information. PricewaterhouseCoopers 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. PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP within the meaning of section 7 and 11
of the Securities Act.
124
<PAGE>
INDEX OF CAPITALIZED TERMS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
1992 Master Agreement................................................................................ 93
Accelerated Principal Distribution Amount............................................................ 15
Accounts............................................................................................. 70
Accumulation Date.................................................................................... 13
Accumulation Event................................................................................... 61
Additional Loss Amounts.............................................................................. 78
Additional Loss Contract............................................................................. 73
Adjusted Class A-1 Certificate Balance............................................................... 5
Adjusted Class A-2 Certificate Balance............................................................... 6
Adjusted Class A-3 Certificate Balance............................................................... 6
Adjusted Class B Certificate Balance................................................................. 7
Adjusted Investor Balance............................................................................ 7
Advance.............................................................................................. 25
Aggregate Net Investment Value....................................................................... 20
Aggregate Net Losses................................................................................. 72
Agreement............................................................................................ i
ALG.................................................................................................. 45
allocation........................................................................................... 8
application.......................................................................................... 8
Available Interest................................................................................... 59
Benefit Plans........................................................................................ 105
Business Day......................................................................................... 4, 66
Capitalized Cost..................................................................................... 19
Capped Contingent and Excess Liability Premiums...................................................... 60
Capped Titling Trust Administrative Expenses......................................................... 59
Capped Trust Administrative Expenses................................................................. 59
Cedel Bank........................................................................................... 19
Cedel Bank Participants.............................................................................. 68
Certificate Distribution Amount...................................................................... 64
Certificateholders................................................................................... v
Certificate Factor................................................................................... 59
Certificate Owners................................................................................... 19
Certificate Payment Date............................................................................. 9, 12
Certificate Principal Loss Amounts................................................................... 60
Certificateholders' Account.......................................................................... 71
Certificates......................................................................................... i, 3
Charged-off Amount................................................................................... 52
Charged-off Contract................................................................................. 52
Charged-off Vehicle Expenses......................................................................... 21
Charged-off Vehicle Proceeds......................................................................... 21
Charge-off Rate...................................................................................... 72
Claims............................................................................................... 80
Class A-1 Certificate Balance........................................................................ 5
Class A Certificates................................................................................. i, 3
Class A-1 Certificates............................................................................... i, 3
Class A-1 Notional Interest Accrual Amount........................................................... 7
Class A-1 Notional Rate.............................................................................. 5
Class A-1 Rate....................................................................................... 9
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Class A-1 Swap Interest Amount....................................................................... 10
Class A-1 Swap Interest Shortfall Amount............................................................. 11, 59
Class A-1 Targeted Maturity Date..................................................................... ii
Class A-2 Certificate Balance........................................................................ 5
Class A-2 Certificates............................................................................... i, 3
Class A-2 Notional Interest Accrual Amount........................................................... 7
Class A-2 Notional Rate.............................................................................. 6
Class-A-2 Rate....................................................................................... 9
Class A-2 Swap Interest Amount....................................................................... 10
Class A-2 Swap Interest Shortfall Amount............................................................. 11, 59
Class A-2 Targeted Maturity Date..................................................................... ii
Class A-3 Certificate Balance........................................................................ 6
Class A-3 Certificates............................................................................... i, 3
Class A-3 Notional Interest Accrual Amount........................................................... 7
Class A-3 Notional Rate.............................................................................. 6
Class A-3 Rate....................................................................................... 9
Class A-3 Swap Interest Amount....................................................................... 10
Class A-3 Swap Interest Shortfall Amount............................................................. 11, 59
Class A-3 Targeted Maturity Date..................................................................... iii
Class B Certificate Balance.......................................................................... 6
Class B Certificates................................................................................. i, 3
Class B Notional Interest Accrual Amount............................................................. 7
Class B Notional Rate................................................................................ 7
Class B Rate......................................................................................... 9
Class B Reserve Amount............................................................................... 23
Class B Swap Interest Amount......................................................................... 10
Class B Swap Interest Shortfall Amount............................................................... 11, 59
Closing Date......................................................................................... 2
Code................................................................................................. 26, 100
Collection Period.................................................................................... 14
Collections.......................................................................................... 14, 82
Commission........................................................................................... iv
Contingent and Excess Liability Insurance Policies................................................... 75
Contract Rights...................................................................................... 97
Contracts............................................................................................ 2
Cooperative.......................................................................................... 68
Current Contract..................................................................................... 73
Cutoff Date.......................................................................................... 2
Dealers.............................................................................................. 1
Deferral Fee......................................................................................... 46
Delinquency Percentage............................................................................... 72
Deposit Date......................................................................................... 21
Determination Date................................................................................... 55
Discounted Contract.................................................................................. 14, 20
Discounted Principal Balance......................................................................... 19
DOL.................................................................................................. 105
DTC.................................................................................................. 19
DTC Participants..................................................................................... 66
ERISA................................................................................................ 26, 105
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
ERISA Compliance Test................................................................................ 87
Euroclear............................................................................................ 19
Euroclear Operator................................................................................... 68
Euroclear Participants............................................................................... 68
Event of Default..................................................................................... 90
Events of Servicing Termination...................................................................... 86
Excess Amounts....................................................................................... 60
Exchange Act......................................................................................... iv
Final Regulations.................................................................................... 104
Foreign Investor..................................................................................... 103
Foreign Investors.................................................................................... 103
Full Term Return Ratio............................................................................... 33
Global Securities.................................................................................... 1
Indenture............................................................................................ iv, 88
Indenture Trustee.................................................................................... 88
Independent Investors................................................................................ 105
Indirect DTC Participants............................................................................ 66
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.................................................................. 4
Initial Contracts.................................................................................... 2
Initial Deposit...................................................................................... 24
Initial Investor Balance............................................................................. 7
Initial Leased Vehicles.............................................................................. 2
Insolvency Laws...................................................................................... 37
Interest Collections................................................................................. 15
Interest Determination Business Day.................................................................. 53
Interest Determination Date.......................................................................... 54
Investor Interest.................................................................................... 4
Interest Payment Period.............................................................................. 7
Inventory Advance.................................................................................... 93
Investor Percentage.................................................................................. 52
IRS.................................................................................................. 101
ISDA................................................................................................. 93
IT Systems........................................................................................... 38
Lease Rate........................................................................................... 19
Leased Vehicles...................................................................................... 2
Lemon Law............................................................................................ 100
Liquidated Contract.................................................................................. 73
Liquidation Expenses................................................................................. 22
Liquidation Proceeds................................................................................. 21
Loss Amounts......................................................................................... 29, 52
Matured Contract..................................................................................... 73
Matured Leased Vehicle Expenses...................................................................... 21
Matured Leased Vehicle Inventory..................................................................... 20
Matured Leased Vehicle Proceeds...................................................................... 21
Maturity Advance..................................................................................... 26
Maturity Date........................................................................................ 45
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Monthly Allocation Date.............................................................................. 8
Monthly Interest Period.............................................................................. 8
Monthly Payment...................................................................................... 19
Moody's.............................................................................................. ii, 27
MSRP................................................................................................. 37, 45
Net Charged-off Vehicle Proceeds..................................................................... 15
Net Insurance Proceeds............................................................................... 71
Net Liquidation Proceeds............................................................................. 15
Net Matured Leased Vehicle Proceeds.................................................................. 23
Nonrecoverable Advance............................................................................... 82
Non IT Systems....................................................................................... 38
OID.................................................................................................. 101
Omnibus Proxy........................................................................................ 68
Other SUBI Assets.................................................................................... 95
Other SUBI Certificates.............................................................................. 41
Other SUBI Supplement................................................................................ 78
Other SUBIs.......................................................................................... 1
Outstanding Principal Balance........................................................................ 20
payment.............................................................................................. 8
Payment Ahead........................................................................................ 21
Payoff Amount........................................................................................ 45
Permitted Investments................................................................................ 74
Prepayment........................................................................................... 70
Principal Allocation................................................................................. 15
Principal Collections................................................................................ 14
Rating Agencies...................................................................................... iii, 27
Realized Value....................................................................................... 45
Reallocation Deposit Amount.......................................................................... 52
Reallocation Payment................................................................................. 49
Record Date.......................................................................................... 4
Reference Banks...................................................................................... 53
Registration Statement............................................................................... iv
Regulation........................................................................................... 105
Repossessed Leased Vehicle........................................................................... 73
Required Amount...................................................................................... 23
Required Rate........................................................................................ 74
Reserve Fund......................................................................................... 23
Residual Value....................................................................................... 19
Residual Value Insurance Policies.................................................................... 78
Residual Value Loss Amount........................................................................... 29
Residual Value Percentage............................................................................ 34
Residual Value Surplus............................................................................... 23
Residual Value Test.................................................................................. 73
Revolving Period..................................................................................... 13
Schedule of Contracts and Leased Vehicles............................................................ 48
Securities Act....................................................................................... iv
Security Deposits.................................................................................... 82
Servicer............................................................................................. 3
Servicer's Certificate............................................................................... 84
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Servicing Agreement.................................................................................. iv, 3
Servicing Fee........................................................................................ 26
Servicing Supplement................................................................................. 3
Specified Reserve Fund Balance....................................................................... 72
Standard & Poor's.................................................................................... iii, 27
SUBI................................................................................................. i, 1
SUBI Assets.......................................................................................... i, 2
SUBI Certificate..................................................................................... i, 1
SUBI Collection Account.............................................................................. 70
SUBI Supplement...................................................................................... iv, 40
Subsequent Contracts................................................................................. 2
Subsequent Leased Vehicles........................................................................... 2
Swap Agreement....................................................................................... ii, iv, 93
Swap Counterparty.................................................................................... 17
Swap Termination..................................................................................... 17
Termination Events................................................................................... 68
three-month LIBOR.................................................................................... 53
Titling Trust........................................................................................ i
Titling Trust Agreement.............................................................................. iv, 2
Titling Trust Assets................................................................................. i, 12
Titling Trustee...................................................................................... 2
TMA.................................................................................................. 3
TMC.................................................................................................. 3
TMCC................................................................................................. i, 43
TMCC Demand Note..................................................................................... 16
TMS.................................................................................................. 3
Transfer Date........................................................................................ 13
Transferor........................................................................................... i
Transferor Amounts................................................................................... 53
Transferor Interest.................................................................................. i, 1
Transferor Percentage................................................................................ 52
Trust................................................................................................ i
Trust Agency Agreement............................................................................... 80
Trust Agent.......................................................................................... 2, 80
Trust States......................................................................................... 1
Trustee.............................................................................................. i
U.S. Bank............................................................................................ 2
UCC.................................................................................................. 197
Unallocated Principal Collections.................................................................... 53
Uncapped Titling Trust Administrative Expenses....................................................... 59
Uncapped Trust Administrative Expenses............................................................... 60
Underwriters......................................................................................... 107
Underwriting Agreement............................................................................... 107
UTI.................................................................................................. 1
UTI Assets........................................................................................... 95
UTI Certificates..................................................................................... 41
UTI Supplement....................................................................................... iv
Voting Interests..................................................................................... 63
</TABLE>
I-5
<PAGE>
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
DTC, Cedel Bank or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel Bank and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement). Secondary
market trading between investors holding Global Securities through DTC will be
conducted according to the rules and procedure applicable to U.S. corporate debt
obligations and prior asset-backed securities issues. Secondary cross-market
trading between Cedel Bank or Euroclear and DTC Participants holding securities
will be effected on a delivery-against-payment basis through the Relevant
Depositaries of Cedel Bank and Euroclear (in such capacity) and as DTC
Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel Bank and Euroclear will
hold positions on behalf of their participants through their Depositaries, which
in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel Bank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Cedel Bank and/or Euroclear Participants. Secondary market
trading between Cedel Bank Participants or Euroclear Participants will be
settled using the Procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC Seller and Cedel Bank or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Bank Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel Bank or Euroclear through a Cedel Bank
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel Bank or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities
A1-1
<PAGE>
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
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
A1-2
<PAGE>
(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).
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
A1-3
<PAGE>
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.
A1-4
<PAGE>
<TABLE>
<S> <C> <C>
PRINCIPAL OFFICES OF THE TRANSFEROR
AND NOTICE ADDRESS OF TRUST
Toyota Leasing, Inc.
19001 South Western Avenue
Torrance, California 90509
United States
JOINT BOOKRUNNERS
LUXEMBOURG LISTING AGENT, TRANSFER AGENT
AND PAYING AGENT
Bankers Trust Luxembourg S.A.
14 Boulevard F.D. Roosevelt
L-2450, Luxembourg
TRUSTEE
INDEPENDENT PUBLIC ACCOUNTANTS
OF TMCC
PricewaterhouseCoopers LLP
400 South Hope Street, 22nd Floor
Los Angeles, California 90071-2889
United States
LEGAL ADVISORS
TO TMCC AND THE TRANSFEROR AS TO TO THE UNDERWRITERS AS TO
MATTERS
MATTERS OF UNITED STATES LAW OF UNITED STATES LAW
O'Melveny & Myers LLP
400 South Hope Street, 15th
Floor
Los Angeles, California 90071
United States
</TABLE>
A1-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY 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
HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
OF THE SECURITIES OFFERED THEREBY 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 THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE TRANSFEROR SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
AVAILABLE INFORMATION......................... iv
DOCUMENTS INCORPORATED BY REFERENCE........... iv
REPORTS TO CERTIFICATEHOLDERS................. v
OVERVIEW OF TRANSACTION....................... vi
SUMMARY....................................... 1
RISK FACTORS.................................. 28
THE TRUST AND THE SUBI........................ 40
THE TITLING TRUST............................. 41
USE OF PROCEEDS............................... 43
THE TRANSFEROR................................ 43
TMCC.......................................... 43
TMCC'S LEASING OPERATIONS..................... 45
THE CONTRACTS................................. 52
MATURITY AND YIELD CONSIDERATIONS............. 58
CLASS A CERTIFICATE FACTORS AND TRADING
INFORMATION; REPORTS TO CLASS A CERTIFICATE
HOLDERS..................................... 59
DESCRIPTION OF THE CERTIFICATES............... 60
ASSETS OF THE TRUST........................... 80
ADDITIONAL DOCUMENT PROVISIONS................ 86
CERTAIN LEGAL ASPECTS OF THE TITLING TRUST.... 107
CERTAIN LEGAL ASPECTS OF THE CONTRACTS AND THE
LEASED VEHICLES............................. 110
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.... 113
ERISA CONSIDERATIONS.......................... 118
UNDERWRITING.................................. 120
LISTING AND GENERAL INFORMATION............... 121
RATINGS OF THE CLASS A CERTIFICATES........... 123
LEGAL MATTERS................................. 123
EXPERTS....................................... 124
INDEX OF CAPITALIZED TERMS.................... I-1
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES.................... A1-1
</TABLE>
TOYOTA AUTO LEASE TRUST 1998-C
$ % 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
-------------------
---------------
[DATE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 295
Legal fees and expenses......................................... $
Accounting fees and expenses.................................... $
Blue sky fees and expenses...................................... $
Rating agency fees.............................................. $
Trustee fees and expenses....................................... $
Printing........................................................ $
Miscellaneous................................................... $
---------
Total........................................................... $
</TABLE>
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<C> <S>
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 , as
Trustee (including forms of Class A Certificates)*
5.1 Opinion of O'Melveny & Myers LLP with respect to legality*
8.1 Opinion of O'Melveny & Myers LLP with respect to federal income tax matters*
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.1 Amended and Restated Trust and Servicing Agreement among Toyota Motor Credit
Corporation ("TMCC"), TMTT, Inc., as Trustee and U.S. Bank National Association
("U.S. 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 U.S. Bank, as Trust Agent, dated October 1, 1996
(including form of UTI Certificate)*
10.3 Form of SUBI Supplement 1998-C to Amended and Restated Trust Agreement among
TMCC, TMTT, Inc., as Trustee and U.S. Bank, as Trust Agent (including form of
SUBI Certificate)*
10.4 Form of 1998-C SUBI Servicing Supplement to Amended and Restated Trust and
Servicing Agreement between TMTT, Inc., TMCC and Toyota Leasing, Inc.*
10.5 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and Toyota
Leasing, Inc.*
10.6 Form of Indenture with respect to TMCC Demand Notes between TMCC and , as
Trustee*
15.1 Awareness Letter of PricewaterhouseCoopers LLP*
23.1 Consent of O'Melveny & Myers LLP (included as part of Exhibit 5.1)*
23.2 Consent of O'Melveny & Myers LLP (included as part of Exhibit 8.1)*
23.3 Consent of PricewaterhouseCoopers LLP*
24.1 Powers of Attorney**
25.1 Statement of Eligibility on Form T-1 of *
</TABLE>
- ---------
* To be filed by amendment.
** Included on pages II-4 through II-7.
Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake as follows:
(a) To provide to the Underwriters at the closing date specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit 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 the 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.
II-2
<PAGE>
(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 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus 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.
(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) or 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 undertake:
(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 registered) and any
deviation from the low or highend 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) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Amendment No 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Torrance, State of California, on
October 30, 1998.
<TABLE>
<S> <C> <C>
TOYOTA LEASING, INC.
By: /s/ GREGORY WILLIS
-----------------------------------------
Gregory Willis,
DIRECTOR AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GREGORY WILLIS Director and Principal October 30, 1998
- ------------------------------ Executive Officer of
Gregory Willis Toyota Leasing, Inc.
/s/ NOBU SHIGEMI* Director and Principal October 30, 1998
- ------------------------------ Financial Officer and
Nobu Shigemi Principal Accounting
Officer of Toyota
Leasing, Inc.
/s/ WILLIAM LATHAM, III* Director of Toyota October 30, 1998
- ------------------------------ Leasing, Inc.
William Latham, III
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ GREGORY WILLIS October 30, 1998
-------------------------
Gregory Willis
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Torrance, State of California, on
October 30, 1998.
<TABLE>
<S> <C> <C>
TOYOTA AUTO LEASE TRUST 1998-C
By: TOYOTA LEASING, INC., solely as originator
of Toyota Auto Lease Trust 1998-C
By: /s/ GREGORY WILLIS
-----------------------------------------
Gregory Willis,
DIRECTOR AND PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GREGORY WILLIS Director and Principal October 30, 1998
- ------------------------------ Executive Officer of
Gregory Willis Toyota Leasing, Inc.
/s/ NOBU SHIGEMI* Director and Principal October 30, 1998
- ------------------------------ Financial Officer and
Nobu Shigemi Principal Accounting
Officer of Toyota
Leasing, Inc.
/s/ WILLIAM LATHAM, III* Director of Toyota October 30, 1998
- ------------------------------ Leasing, Inc.
William Latham, III
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ GREGORY WILLIS October 30, 1998
-------------------------
Gregory Willis
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Torrance, State of California, on
October 30, 1998.
<TABLE>
<S> <C> <C>
TOYOTA MOTOR CREDIT CORPORATION, solely as
transferor of the SUBI to the Transferor,
issuer of the TMCC Demand Notes and Swap
Counterparty
By: /s/ GEORGE BORST*
-----------------------------------------
George Borst
SENIOR VICE PRESIDENT AND GENERAL MANAGER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GEORGE BORST* Director, Senior Vice October 30, 1998
- ------------------------------ President and General
George Borst Manager of TMCC
(principal executive
officer)
/s/ ROBERT PITTS* Director and Secretary of October 30, 1998
- ------------------------------ TMCC
Robert Pitts
/s/ NOBU SHIGEMI* Director, Senior Vice October 30, 1998
- ------------------------------ President and Treasurer
Nobu Shigemi of TMCC (principal
financial officer)
/s/ DOUGLAS WEST* Director of TMCC October 30, 1998
- ------------------------------
Douglas West
/s/ YALE GIESZL* Director of TMCC October 30, 1998
- ------------------------------
Yale Gieszl
/s/ GREGORY WILLIS Vice President of Finance October 30, 1998
- ------------------------------ and Administration of
Gregory Willis TMCC (principal
accounting officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ GREGORY WILLIS October 30, 1998
-------------------------
Gregory Willis
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Torrance, State of California, on
October 30, 1998.
<TABLE>
<S> <C> <C>
TOYOTA LEASE TRUST
By: TOYOTA MOTOR CREDIT CORPORATION, solely as
originator of the Toyota Lease Trust
By: /s/ GEORGE BORST*
-----------------------------------------
George Borst
DIRECTOR, SENIOR VICE PRESIDENT AND
GENERAL MANAGER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GEORGE BORST* Director, Senior Vice October 30, 1998
- ------------------------------ President and General
George Borst Manager of TMCC
(principal executive
officer)
/s/ ROBERT PITTS* Director and Secretary of October 30, 1998
- ------------------------------ TMCC
Robert Pitts
/s/ NOBU SHIGEMI* Director, Senior Vice October 30, 1998
- ------------------------------ President and Treasurer
Nobu Shigemi of TMCC (principal
financial officer)
/s/ DOUGLAS WEST* Director of TMCC October 30, 1998
- ------------------------------
Douglas West
/s/ YALE GIESZL* Director of TMCC October 30, 1998
- ------------------------------
Yale Gieszl
/s/ GREGORY WILLIS Vice President of Finance October 30, 1998
- ------------------------------ and Administration of
Gregory Willis TMCC (principal
accounting officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ GREGORY WILLIS October 30, 1998
-------------------------
Gregory Willis
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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 , as Trustee (including forms
of Class A Certificates)*
5.1 Opinion of O'Melveny & Myers LLP with respect to legality*
8.1 Opinion of O'Melveny & Myers LLP 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 U.S. Bank National Association ("U.S. 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 U.S. Bank, as Trust Agent, dated October 1, 1996 (including form of UTI Certificate)*
10.3 Form of SUBI Supplement 1998-C to Amended and Restated Trust Agreement among TMCC, TMTT, Inc., as Trustee
and U.S. Bank, as Trust Agent (including form of SUBI Certificate)*
10.4 Form of 1998-C SUBI Servicing Supplement to Amended and Restated Trust and Servicing Agreement between
TMTT, Inc., TMCC and Toyota Leasing, Inc.*
10.5 Form of SUBI Certificate Purchase and Sale Agreement between TMCC and Toyota Leasing, Inc.*
10.6 Form of Indenture with respect to TMCC Demand Notes between TMCC and , as Trustee*
15.1 Awareness Letter of PricewaterhouseCoopers LLP*
23.1 Consent of O'Melveny & Myers LLP (included as part of Exhibit 5.1)*
23.2 Consent of O'Melveny & Myers LLP (included as part of Exhibit 8.1)*
23.3 Consent of PricewaterhouseCoopers LLP*
24.1 Powers of Attorney**
25.1 Statement of Eligibility on Form T-1 of *
</TABLE>
- ---------
* To be filed by amendment.
** Included on pages II-4 through II-7.
