<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-79087
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PROSPECTUS
$643,957,759.72
CarMax Auto Owner Trust 1999-1
$155,250,000.00 6.2025% Class A-1 Asset-Backed Notes
$208,650,000.00 6.47% Class A-2 Asset-Backed Notes
$178,900,000.00 6.76% Class A-3 Asset-Backed Notes
$ 88,278,000.00 6.88% Class A-4 Asset-Backed Notes
$ 12,879,759.72 7.12% Asset-Backed Certificates
CarMax Auto Receivables LLC
Seller
[CARMAX LOGO APPEARS HERE]
CarMax Auto Superstores, Inc.
Servicer
<TABLE>
<CAPTION>
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Underwriting Discounts
Price and Commissions Net Proceeds to Seller
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1 Notes......... $155,250,000.00 (100.00000%) $ 310,500.00 (0.20%) $154,939,500.00 (99.80000%)
- -----------------------------------------------------------------------------------------------------------
Class A-2 Notes......... $208,642,092.17 (99.99621%) $ 500,760.00 (0.24%) $208,141,332.17 (99.75621%)
- -----------------------------------------------------------------------------------------------------------
Class A-3 Notes......... $178,890,750.87 (99.99483%) $ 483,030.00 (0.27%) $178,407,720.87 (99.72483%)
- -----------------------------------------------------------------------------------------------------------
Class A-4 Notes......... $ 88,259,285.06 (99.97880%) $ 256,006.20 (0.29%) $ 88,003,278.86 (99.68880%)
- -----------------------------------------------------------------------------------------------------------
Certificates............ $ 12,879,373.33 (99.99700%) $ 64,398.80 (0.50%) $ 12,814,974.53 (99.49700%)
- -----------------------------------------------------------------------------------------------------------
Total................ $643,921,501.43 $1,614,695.00 $642,306,806.43
</TABLE>
The price of the notes and the certificates will also include any interest
accrued on the notes and the certificates from the date of issuance.
Consider carefully the Risk Factors beginning on page 10 in this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Underwriters of the Notes
Banc of America Securities LLC
First Union Securities, Inc.
Goldman, Sachs & Co.
Underwriter of the Certificates
Banc of America Securities LLC
The date of this Prospectus is October 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS............ 3
PROSPECTUS SUMMARY......................................................... 4
RISK FACTORS............................................................... 10
DESCRIPTION OF THE TRUST................................................... 20
THE ORIGINATOR'S FINANCE OPERATIONS........................................ 22
First North American Credit.............................................. 22
Underwriting Procedures.................................................. 22
Collection Procedures.................................................... 23
Physical Damage Insurance................................................ 25
Allocation of Payments................................................... 25
Delinquency and Credit Loss Experience................................... 25
Delinquency and Credit Loss Trends....................................... 27
Year 2000 Compliance..................................................... 28
DESCRIPTION OF THE CONTRACT POOL........................................... 30
WEIGHTED AVERAGE LIFE OF THE OFFERED SECURITIES............................ 33
ALLOCATION OF PRINCIPAL BALANCES; MONTHLY REPORTS.......................... 39
USE OF PROCEEDS............................................................ 39
DESCRIPTION OF CARMAX AUTO SUPERSTORES AND CARMAX AUTO RECEIVABLES......... 40
CarMax Auto Superstores.................................................. 40
CarMax Auto Receivables.................................................. 41
DESCRIPTION OF THE NOTES................................................... 43
Note Registration........................................................ 43
Interest Payments........................................................ 43
Principal Payments....................................................... 44
Optional Redemption...................................................... 45
The Indenture Trustee.................................................... 45
DESCRIPTION OF THE CERTIFICATES............................................ 46
Certificate Registration................................................. 46
Interest Payments........................................................ 46
Principal Payments....................................................... 46
Optional Prepayment...................................................... 47
The Owner Trustee........................................................ 47
REGISTRATION OF THE OFFERED SECURITIES..................................... 47
COLLECTIONS AND PAYMENTS................................................... 54
The Trust Accounts....................................................... 54
Payment Sources.......................................................... 54
The Reserve Account...................................................... 55
Subordination of the Certificates........................................ 56
Payment Date Distributions--Collection Account........................... 56
Payment Date Distributions--Note Payment Account......................... 58
Payment Date Distributions--Certificate Payment Account.................. 59
Application of Collection and Payment Provisions to First Payment
Date.................................................................... 59
Statements to Noteholders................................................ 60
Statements to Certificateholders......................................... 61
DESCRIPTION OF THE INSURER................................................. 62
DESCRIPTION OF THE INSURANCE POLICY........................................ 64
REPORTS TO SECURITYHOLDERS................................................. 65
DESCRIPTION OF THE INDENTURE............................................... 65
DESCRIPTION OF THE TRUST AGREEMENT......................................... 74
DESCRIPTION OF THE PURCHASE AGREEMENT AND THE SALE AND SERVICING
AGREEMENT................................................................. 77
MATERIAL LEGAL ASPECTS OF THE TRANSACTION.................................. 84
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................... 90
ERISA CONSIDERATIONS....................................................... 102
UNDERWRITING............................................................... 105
LEGAL MATTERS.............................................................. 107
EXPERTS.................................................................... 108
WHERE YOU CAN FIND MORE INFORMATION........................................ 108
GLOSSARY................................................................... 109
INDEPENDENT AUDITORS' REPORT............................................... 114
ANNEX A: GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES..... 117
</TABLE>
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IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS
This prospectus describes the specific terms of the notes and the
certificates, including:
. the amount and other terms, including interest rates, for each class of
notes and for the certificates;
. the timing of interest and principal payments;
. information about the contracts;
. information about the credit enhancement for each class of notes and for
the certificates;
. the credit ratings for each class of notes and for the certificates; and
. the method for selling the notes and the certificates.
You should rely only on the information provided or incorporated by
reference in this prospectus. CarMax Auto Receivables has not authorized
anyone to provide you with additional or different information. CarMax Auto
Receivables is not offering the notes or the certificates in any state in
which the offer is not permitted.
This prospectus includes a number of cross references to captions under
which you can find additional, related discussions. The preceding table of
contents provides the pages at which these captions are located.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that you should consider in making your
investment decision. To understand all of the terms of this offering, you
should read carefully this prospectus in its entirety.
The Terms of the Offered Securities
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Certificates
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Initial Principal
Amount................. $155,250,000.00 $208,650,000.00 $178,900,000.00 $88,278,000.00 $12,879,759.72
Interest Rate Per
Annum.................. 6.2025% 6.47% 6.76% 6.88% 7.12%
Interest Accrual
Method................. actual/360 actual/360 30/360 30/360 30/360
Payment Dates
(monthly).............. 15th 15th 15th 15th 15th
First Payment Date...... December 15, 1999 December 15, 1999 December 15, 1999 December 15, 1999 December 15, 1999
Final Payment Date...... November 15, 2000 May 15, 2002 August 15, 2003 August 16, 2004 February 15, 2006
Anticipated Ratings
(Moody's/S&P).......... P-1/A-1+ Aaa/AAA Aaa/AAA Aaa/AAA Aaa/AAA
</TABLE>
It is a condition to the offering of the notes and the certificates that
these ratings be obtained. However, a rating agency may in its discretion lower
or withdraw its rating in the future.
The Trust
The CarMax Auto Owner Trust 1999-1 will issue the notes and the certificates.
The notes will be non-recourse obligations of, and the certificates will
represent beneficial ownership interests in, the trust. The notes and the
certificates will not represent interests in or obligations of CarMax Auto
Superstores, CarMax Auto Receivables or any other person or entity.
The Trust Property
The property of the trust will include:
. a pool of simple interest retail installment sale contracts originated by
CarMax Auto Superstores in the ordinary course of business in connection with
the sale of new and used motor vehicles;
. amounts received on or in respect of the contracts after September 30, 1999;
. security interests in the vehicles financed under the contracts;
. any proceeds from claims on or refunds of premiums with respect to insurance
policies relating to the financed vehicles or the related obligors;
. funds on deposit in a collection account, a note payment account, a
certificate payment account and a reserve account;
. an unconditional and irrevocable insurance policy issued by MBIA Insurance
Corporation guaranteeing payments of monthly interest and monthly principal
on the notes and the certificates and payments of the monthly servicing fee
to the servicer;
. rights under the purchase agreement to cause CarMax Auto Superstores to
repurchase contracts affected materially and adversely by breaches of the
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representations and warranties of CarMax Auto Superstores made in the
purchase agreement; and
. rights under the sale and servicing agreement to cause the servicer to
purchase contracts affected materially and adversely by breaches of the
representations and warranties of the servicer made in the sale and servicing
agreement.
The contracts were selected from the retail installment sale contract portfolio
of CarMax Auto Superstores based on the criteria specified in the sale and
servicing agreement and described in this prospectus. The contracts do not
include "sub-prime" contracts or contracts that do not conform to CarMax Auto
Superstores' underwriting standards.
CarMax Auto Superstores, under its trade name First North American Credit
Corporation, First North American Credit or FNAC, is the registered lienholder
on the certificate of title for each of the financed vehicles. Payment of the
amount due to the registered lienholder under each contract is secured by a
first perfected security interest in the related financed vehicle.
The Originator of the Contracts
CarMax Auto Superstores will originate the contracts and sell them to CarMax
Auto Receivables. CarMax Auto Superstores' principal executive offices are
located at 4900 Cox Road, Glen Allen, Virginia 23060, and its telephone number
is (804) 747-0422.
The Seller of the Contracts
CarMax Auto Receivables will transfer the contracts and related property to the
trust. CarMax Auto Receivables' principal executive offices are located at 4900
Cox Road, Suite 200, Glen Allen, Virginia 23060, and its telephone number is
(804) 935-4512.
The Servicer of the Contracts
CarMax Auto Superstores will act as servicer of the contracts. The servicer's
principal executive offices are located at 4900 Cox Road, Glen Allen, Virginia
23060, and its telephone number is (804) 747-0422.
The Owner Trustee
First Union Trust Company, National Association, will act as trustee of the
trust.
The Indenture Trustee
Bankers Trust Company will act as trustee with respect to the notes.
The Purchase Agreement
CarMax Auto Superstores and CarMax Auto Receivables will enter into a purchase
agreement under which CarMax Auto Superstores will sell the contracts to CarMax
Auto Receivables.
The Sale and Servicing Agreement
CarMax Auto Receivables, the servicer and the trust will enter into a sale and
servicing agreement under which CarMax Auto Receivables will transfer the
contracts to the trust and the servicer will agree to service, manage, maintain
custody of and collect amounts due under the contracts for a monthly servicing
fee.
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The Trust Agreement
CarMax Auto Receivables and the owner trustee will enter into a trust agreement
under which the trust will issue the certificates.
The Indenture
The trust and the indenture trustee will enter into an indenture under which
the trust will issue the notes.
Interest Payments
Interest will be payable on the notes and the certificates monthly on the 15th
day of each month or, if the 15th day is not a business day, on the following
business day, beginning December 15, 1999. Interest will be payable on each
payment date to noteholders and certificateholders of record as of the
preceding business day; provided, however, that if the notes or the
certificates, as applicable, are issued in fully registered, certificated form,
the record date will be the last business day of the month immediately
preceding the month in which the related payment date occurs.
Principal Payments
Principal will be payable on the notes on each payment date to the noteholders
of record as of the related record date. In general, the amount of principal
payable to the noteholders on each payment date will equal the lesser of:
. the principal balance of the notes as of the day preceding that payment date;
and
. the amount necessary to reduce the principal balance of the notes and the
certificates as of the day preceding that payment date to the principal
balance of the contracts as of the last day of the preceding month.
The principal balance of any class of notes will be payable in full on the
final scheduled payment date applicable to that class.
In general, principal will be paid to the noteholders in the order of the
numerical designation of the notes, starting with the class A-1 notes and
ending with the class A-4 notes. For example, no principal will be paid to the
holders of the class A-2 notes until the principal balance of the class A-1
notes has been paid in full.
Principal will be payable on the certificates on each payment date to the
certificateholders of record as of the related record date; provided, however,
that no principal will be paid to the certificateholders until the principal
balance of the notes has been paid in full. In general, the amount of principal
payable to the certificateholders on each payment date on or after which the
principal balance of the notes has been paid in full will equal the lesser of:
. the principal balance of the certificates as of the day preceding that
payment date; and
. the amount necessary to reduce the principal balance of the certificates as
of the day preceding that payment date to the principal balance of the
contracts as of the last day of the preceding month.
The principal balance of the certificates will be payable in full on the final
scheduled payment date applicable to the certificates.
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Payment Sources
On each payment date, payments on the notes and the certificates will be made
from the following sources:
. obligor payments received with respect to the contracts during the preceding
month;
. liquidation proceeds received with respect to the contracts during the
preceding month;
. interest earned on funds on deposit in the collection account;
. payments made by CarMax Auto Superstores or the servicer in connection with
the required repurchase or purchase of contracts;
. amounts withdrawn on that payment date from the reserve account; and
. amounts paid on that payment date under the insurance policy.
Credit Enhancement
The notes will benefit from the following sources of credit enhancement:
. amounts available to be paid under the insurance policy;
. funds on deposit in the reserve account, which funds will also be available
to make required payments to the servicer, the certificateholders and the
insurer; and
. the subordination of the certificates.
The certificates will benefit from the following sources of credit enhancement:
. amounts available to be paid under the insurance policy; and
. funds on deposit in the reserve account, which funds will also be available
to make required payments to the servicer, the noteholders and the insurer.
The credit enhancement for the notes and the certificates is intended to
protect you against losses or delays in payments on your notes and your
certificates by absorbing losses on the contracts and other shortfalls in cash
flow.
The Insurance Policy
MBIA Insurance Corporation will issue an insurance policy for the benefit of
the noteholders and the certificateholders under which the insurer will
unconditionally and irrevocably guarantee the payment of monthly interest and
monthly principal to the noteholders and the certificateholders and the payment
of the monthly servicing fee to the servicer. In general, the insurer will pay
under the insurance policy with respect to each payment date the amount, if
any, by which:
. the monthly servicing fee for the preceding month plus any overdue monthly
servicing fees for previous months plus the monthly interest and monthly
principal for that payment date payable to the noteholders and the
certificateholders plus any overdue monthly interest for previous payment
dates payable to the noteholders and the certificateholders exceeds
. the funds otherwise available on that payment date to pay those amounts,
including amounts available to be withdrawn from the reserve account.
All amounts paid under the insurance policy will be deposited in the collection
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account; provided, however, that, if the notes have been declared immediately
due and payable following an event of default under the indenture, amounts paid
under the insurance policy in respect of monthly interest or monthly principal
payable to the certificateholders will be deposited in the certificate payment
account. The indenture trustee will continue to submit claims under the
insurance policy with respect to the notes and the certificates following an
event of default under the indenture.
The Reserve Account
On the closing date, the servicer will establish with the indenture trustee,
for the benefit of the noteholders, the certificateholders, the servicer and
the insurer, a reserve account into which excess collections on the contracts
will be deposited and from which amounts may be withdrawn to make required
payments on the notes and the certificates. CarMax Auto Receivables will
deposit $16,098,944.00 in the reserve account on the closing date. On each
payment date, the indenture trustee will deposit in the reserve account, from
amounts collected on or in respect of the contracts during the preceding month
and not used on that payment date to make required payments to the servicer,
the noteholders, the certificateholders or the insurer, the amount, if any, by
which:
. the amount required to be on deposit in the reserve account on that payment
date exceeds
. the amount on deposit in the reserve account on that payment date.
On each payment date, the indenture trustee will withdraw funds from the
reserve account, up to the amount on deposit in the reserve account, to the
extent needed to make the following payments:
. to the servicer, the monthly servicing fee for the preceding month plus any
overdue monthly servicing fees for previous months;
. to the noteholders, monthly interest and monthly principal for that payment
date plus any overdue monthly interest for previous payment dates;
. to the certificateholders, monthly interest and monthly principal for that
payment date plus any overdue monthly interest for previous payment dates;
and
. to the insurer, the monthly insurance premium for the preceding month plus
any overdue monthly insurance premiums for previous months plus the aggregate
amount of any unreimbursed payments under the insurance policy.
The amount required to be on deposit in the reserve account on any payment date
will equal the greater of $6,439,577.60 and an amount equal to 3.75% of the
principal balance of the contracts as of the last day of the preceding month.
The amount required to be on deposit in the reserve account on any payment date
may be increased if delinquencies or cumulative net losses on the contracts
exceed levels specified in the insurance agreement.
If the amount on deposit in the reserve account on any payment date exceeds the
amount required to be on deposit in the reserve account on that payment date,
after giving effect to all required deposits to and withdrawals from the
reserve account on that payment date, that excess will be paid to CarMax Auto
Receivables. Any amount
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paid to CarMax Auto Receivables will no longer be an asset of the trust.
Subordination of the Certificates
The certificateholders will not be entitled to receive monthly interest on any
payment date until the noteholders have received monthly interest on that
payment date. In addition, the certificateholders will not be entitled to
receive monthly principal on any payment date until the notes have been paid in
full. If the notes have been declared immediately due and payable following an
event of default under the indenture, amounts received on or in respect of the
contracts will not be applied to pay monthly interest on the certificates on
any payment date until the notes have been paid in full; provided, however,
that the indenture trustee will continue to withdraw available amounts from the
reserve account and to submit claims under the insurance policy in respect of
monthly interest on the certificates following an event of default under the
indenture.
Optional Purchase of the Contracts
The servicer will be permitted, at its option, to purchase all remaining
contracts in the contract pool from the trust if the principal balance of the
contracts is 10% or less of the initial principal balance of the contracts. The
exercise of this right will effect the early retirement of the notes and the
certificates.
Eligibility of Class A-1 Notes for Purchase by Money Market Funds
The class A-1 notes will be eligible securities for purchase by money market
funds under Rule 2a-7 of the Investment Company Act of 1940, as amended.
Tax Status
In the opinion of special tax counsel to CarMax Auto Receivables, the trust
will not be treated as an association taxable as a corporation or as a publicly
traded partnership taxable as a corporation and the notes will be characterized
as debt for federal income tax purposes. If you purchase a note, you agree to
treat it as debt for tax purposes. CarMax Auto Receivables, the servicer and
the certificateholders will agree to treat the trust as a partnership for
federal income tax purposes. As a partnership, the trust will not be subject to
federal income tax and the certificateholders will be required to report their
respective shares of the trust's taxable income, deductions and other tax
attributes. See "Material Federal Income Tax Consequences" beginning on page 90
of this prospectus for a further discussion of the tax consequences of
acquiring, holding and disposing of the notes or the certificates.
ERISA Considerations
The notes may be eligible for purchase by employee benefit plans subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended. Any
benefit plan fiduciary considering the purchase of the notes should consult
with experienced legal counsel in determining whether all required conditions
for that purchase have been satisfied. The certificates are not eligible for
purchase by employee benefit plans subject to Title I of ERISA. See "ERISA
Considerations" beginning on page 102 of this prospectus for a further
discussion of the ERISA considerations applicable to a purchase of the notes or
the certificates.
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RISK FACTORS
You should carefully consider the following risk factors, as well as the
other investment considerations described in this prospectus, as you decide
whether to purchase the notes or the certificates.
The Insurance Policy May
Not Be Available to Assure
Payment of Your Notes or
Your Certificates..........
The insurer will unconditionally guarantee the
payment of monthly interest and monthly principal
to the noteholders and the certificateholders
with respect to each payment date if payments
received on or in respect of the contracts,
including amounts recovered in connection with
the repossession and sale of financed vehicles
that secure defaulted contracts, and the amount
on deposit in the reserve account are not
sufficient to make that payment. CarMax Auto
Receivables cannot assure you, however, that the
insurer will perform its obligations under the
insurance policy. The insurer may not perform its
obligations under the insurance policy for a
variety of reasons. These reasons include, but
are not limited to, the occurrence of an event of
bankruptcy, insolvency, receivership or
liquidation with respect to the insurer or a
dispute as to the basis for a policy claim. If
contract payments and the amount on deposit in
the reserve account are not sufficient on any
payment date to pay in full the monthly interest
and monthly principal due on that payment date,
and if there is a default under the insurance
policy, you will experience payment delays with
respect to your notes or your certificates. If
the amount of that insufficiency is not offset by
excess contract payments on subsequent payment
dates, you will experience losses with respect to
your notes or your certificates. See "Description
of the Insurer" beginning on page 62 of this
prospectus and "Description of the Insurance
Policy" beginning on page 64 of this prospectus
for a further discussion of the insurer and the
insurance policy.
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The Amount on Deposit in
the Reserve Account May
Not Be Sufficient to
Assure Payment of Your
Notes or Your
Certificates...............
The amount on deposit in the reserve account will
be used to fund the payment of monthly interest
and monthly principal to the noteholders and the
certificateholders on each payment date if
payments received on or in respect of the
contracts, including amounts recovered in
connection with the repossession and sale of
financed vehicles that secure defaulted
contracts, are not sufficient to make that
payment. CarMax Auto Receivables cannot assure
you, however, that the amount on deposit in the
reserve account will be sufficient on any payment
date to assure payment of your notes or your
certificates. If the contracts experience higher
losses than were projected in determining the
amount required to be on deposit in the reserve
account and the principal balance of the
certificates, the amount on deposit in the
reserve account may be less than projected. If
contract payments and the amount on deposit in
the reserve account are not sufficient on any
payment date to pay in full the monthly interest
and monthly principal due on that payment date,
and if there is a default under the insurance
policy, you will experience payment delays with
respect to your notes or your certificates. If
the amount of that insufficiency is not offset by
excess contract payments on subsequent payment
dates, you will experience losses with respect to
your notes or your certificates. See "Collections
and Payments--The Reserve Account" beginning on
page 55 of this prospectus for a further
discussion of the reserve account.
The Subordination of the
Certificates May Not Be
Adequate to Assure Payment
of the Notes...............
The subordination of the certificates will
increase the likelihood that amounts owed on the
notes will be paid in full. CarMax Auto
Receivables cannot assure the noteholders,
however, that the subordination of the
certificates will be sufficient to assure payment
of the notes. If the contracts experience higher
losses than were projected in determining the
amount required to be on deposit in the reserve
account and the principal balance of the
certificates, the funds available on any payment
date may not be sufficient to pay in full the
monthly interest
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and monthly principal due to the noteholders on
that payment date, even if those funds are not
used to pay monthly interest or monthly principal
due to the certificateholders. If payments
received on or in respect of the contracts,
including amounts recovered in connection with
the repossession and sale of financed vehicles
that secure defaulted contracts, and the amount
on deposit in the reserve account are not
sufficient on any payment date to pay in full the
monthly interest and monthly principal due on
that payment date, and if there is a default
under the insurance policy, the noteholders will
experience payment delays with respect to the
notes. If the amount of that insufficiency is not
offset by excess contract payments on subsequent
payment dates, the noteholders will experience
losses with respect to the notes. See
"Collections and Payments--Subordination of the
Certificates" beginning on page 56 of this
prospectus for a further discussion of the
subordination of the certificates.
The Collateral Value of
the Financed Vehicles May
Not Be Adequate to Assure
Payment of Your Notes or
Your Certificates..........
If the trust must rely on recoveries to collect
the outstanding principal balance of a defaulted
contract, you could experience losses or payment
delays with respect to your notes or your
certificates. The amount recovered in connection
with the repossession and sale of a financed
vehicle is often less than the outstanding
principal balance of the related defaulted
contract. The market value of most motor vehicles
declines with age, particularly in the case of
new motor vehicles during the first year, and
repossession and sale expenses must be paid out
of the amount recovered. In addition, limitations
on the manner in which a motor vehicle may be
repossessed and laws requiring that the obligor
on a defaulted contract be given notice of the
default and an opportunity to cure the default or
to redeem the financed vehicle may delay the
recovery process. See "Material Legal Aspects of
the Transaction--Repossession of Vehicles"
beginning on page 86 of this prospectus and "--
Notice of Sale; Redemption Rights" beginning on
page 86 of this prospectus for a further
discussion of the limitations on the manner in
which motor vehicles may be repossessed and sold.
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<PAGE>
The risk that the amount recovered will be less
than the amount due may be increased with respect
to the contracts because CarMax Auto Superstores'
underwriting procedures allow creditworthy
obligors to finance amounts that exceed the value
of the related financed vehicles. See "The
Originator's Finance Operations--Underwriting
Procedures" beginning on page 22 of this
prospectus for a further discussion of the
circumstances under which the amount financed by
CarMax Auto Superstores might exceed the value of
the related financed vehicle.
Third Parties Could
Acquire Interests in the
Contracts that Would
Reduce the Funds Available
to Make Payments on Your
Notes or Your
Certificates...............
To facilitate servicing and to reduce
administrative burden and expense, the servicer
will act as custodian of the contracts and the
contracts will not be segregated or otherwise
marked to reflect their transfer to the trust. In
the absence of a notation on the contracts
reflecting the interest of the trust, a third
party could acquire an interest in one or more of
the contracts that would be superior to the
interest of the trust. If that were to happen,
payments received on or in respect of those
contracts, including amounts recovered in
connection with the repossession and sale of the
related financed vehicles, would not be available
to make payments on the notes or the
certificates. See "Material Legal Aspects of the
Transaction--Interest in Contracts" beginning on
page 84 of this prospectus for a further
discussion of the trust's interest in the
contracts.
Third Parties Could
Acquire Interests in the
Financed Vehicles that
Would Reduce the Funds
Available to Make Payments
on Your Notes or Your
Certificates...............
To facilitate servicing and to reduce
administrative burden and expense, the
certificates of title for the financed vehicles
will not be marked to reflect the trust's
security interest in the financed vehicles. In
the absence of a notation on the certificates of
title reflecting the interest of the trust, the
trust may not have a perfected security
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interest in one or more of the financed vehicles
in some states and a third party could acquire an
interest in one or more of the financed vehicles
that would be superior to the interest of the
trust. If that were to happen, amounts received
in connection with a sale or other disposition of
those financed vehicles would not be available to
make payments on the notes or the certificates.
See "Material Legal Aspects of the Transaction--
Security Interest in Vehicles" beginning on page
84 of this prospectus for a further discussion of
the trust's security interest in the financed
vehicles.
A Bankruptcy of CarMax
Auto Superstores Could
Result in Losses or
Payment Delays With
Respect to Your Notes or
Your Certificates..........
CarMax Auto Superstores will represent and
warrant in the purchase agreement that the
transfer of the contracts from CarMax Auto
Superstores to CarMax Auto Receivables is a sale
rather than a financing. If CarMax Auto
Superstores were to become the subject of a
bankruptcy proceeding, however, the bankruptcy
court could conclude that:
. the transfer of the contracts from CarMax Auto
Superstores to CarMax Auto Receivables should
be characterized as a financing and that the
contracts should be included as part of CarMax
Auto Superstores' bankruptcy estate; or
. the transfer of the contracts from CarMax Auto
Superstores to CarMax Auto Receivables should
be characterized as a sale but the assets and
liabilities of CarMax Auto Receivables should
be consolidated with the assets and liabilities
of CarMax Auto Superstores for purposes of the
bankruptcy proceeding.
If a bankruptcy court were to reach either of
these conclusions, you could experience losses or
payment delays with respect to your notes or your
certificates because:
. the trustees would not be permitted to exercise
remedies against CarMax Auto Superstores on
your behalf without the permission of the
bankruptcy court;
. the bankruptcy court could require the trustees
to accept property in exchange for the
contracts that has less
14
<PAGE>
value than the contracts or could reduce the
amount of collateral held by the trust;
. a tax or government lien on property of CarMax
Auto Superstores that arose before the transfer
of the contracts to CarMax Auto Receivables
could be paid from amounts received on or in
respect of the contracts before those amounts
were used to make payments on your notes or
your certificates; and
. the trustees might not have a perfected
security interest in one or more of the
financed vehicles or amounts collected on or in
respect of the contracts held by CarMax Auto
Superstores at the time of the commencement of
the bankruptcy proceeding.
CarMax Auto Receivables has taken steps in
structuring the transaction described in this
prospectus to reduce the risk that a bankruptcy
court would conclude that the transfer of the
contracts from CarMax Auto Superstores to CarMax
Auto Receivables should be characterized as a
financing rather than a sale or that the assets
and liabilities of CarMax Auto Receivables should
be consolidated with the assets and liabilities
of CarMax Auto Superstores for purposes of a
bankruptcy proceeding. See "Material Legal
Aspects of the Transaction--Bankruptcy Matters"
beginning on page 89 of this prospectus for a
further discussion of the possibility that the
transfer of the contracts from CarMax Auto
Superstores to CarMax Auto Receivables would be
characterized as a financing rather than a sale.
See "Description of CarMax Auto Superstores and
CarMax Auto Receivables--CarMax Auto Receivables"
beginning on page 41 of this prospectus for a
further discussion of the possibility that the
assets and the liabilities of CarMax Auto
Receivables would be consolidated with the assets
and liabilities of CarMax Auto Superstores.
Contract Prepayments Could
Require You to Reinvest
Your Principal Earlier
than Expected at a Lower
Rate of Return.............
The contracts can be prepaid in full or in part
at any time by the related obligor without
penalty. In addition, prepayments can occur as a
result of rebates of extended warranty contract
costs and insurance premiums,
15
<PAGE>
liquidations due to obligor payment defaults,
receipts of proceeds from physical damage, theft,
credit life and credit disability insurance
policies and payments made by CarMax Auto
Superstores or the servicer in connection with
breaches of representations and warranties. If
prepayments on the contracts are more rapid than
expected, you may have to reinvest principal
earlier than expected at a rate of interest that
is less than the rate of interest on the notes or
the certificates. The rate of prepayment on the
contracts may be influenced by a variety of
economic, social, legal and other factors. These
factors include, but are not limited to,
inflation rates, interest rates offered for other
loan products, changes in consumer confidence,
changes in employment status and restrictions on
transfers of financed vehicles. See "Weighted
Average Life of the Offered Securities" beginning
on page 33 of this prospectus for a further
discussion of contract prepayments.
The Geographic
Concentration of the
Contracts Could Result in
Losses or Payment Delays
With Respect to Your Notes
or Your Certificates.......
As of September 30, 1999, 17.87%, 17.62%, 16.45%,
13.73%, 12.18%, 10.16% and 7.67% of the
contracts, based on outstanding principal
balance, related to obligors with mailing
addresses in Texas, Georgia, Florida, Illinois,
North Carolina, Maryland and Virginia,
respectively. As a result of this geographic
concentration, economic, social, legal and other
factors affecting these states could cause the
number of delinquent or defaulted contracts or
the rate of prepayments on the contracts to
increase or could cause the amount recovered with
respect to defaulted contracts to decrease. These
factors include, but are not limited to:
. unemployment rates: for example, if a material
number of obligors located in one or more
concentration states were to lose their jobs,
the number of delinquent or defaulted contracts
could increase;
. changes in consumer debt levels: for example,
if uncertain economic conditions in one or more
concentration states were to cause a material
number of obligors located in those states to
begin prepaying
16
<PAGE>
outstanding loans, the rate of prepayments on
the contracts could increase;
. the enactment of new laws that further regulate
the motor vehicle lending industry: for
example, if one or more concentration states
were to enact legislation imposing additional
restrictions on the repossession and sale of
financed vehicles, the amount recovered with
respect to defaulted contracts governed by the
laws of those states could decrease; and
. natural disasters: for example, if a hurricane
or other natural disaster affecting one or more
concentration states were to materially
adversely affect commercial and financial
activities in those states, the number of
delinquent or defaulted contracts could
increase.
If the contracts experience higher delinquencies
or losses as a result of these factors, or if the
amount recovered with respect to defaulted
contracts decreases as a result of these factors,
the funds available on any payment date may not
be sufficient to pay in full the monthly interest
and monthly principal due to the noteholders or
the certificateholders on that payment date and
you may experience payment delays or losses with
respect to your notes or your certificates. If
prepayments on the contracts are more rapid than
expected as a result of these factors, you may
have to reinvest principal earlier than expected
at a rate of interest that is less than the rate
of interest on the notes or the certificates.
The Insurer Will Be
Entitled to Exercise the
Voting and Other Rights of
the Noteholders and the
Certificateholders Under
the Indenture Prior to an
Insurer Default............
If a default shall not have occurred and be
continuing under the insurance policy, the
insurer, rather than the noteholders or the
certificateholders, will be entitled to exercise
the voting and other rights of the noteholders
and the certificateholders under the indenture;
provided, however, that the insurer will not be
entitled to exercise those rights to amend the
indenture in any manner that requires the consent
of all noteholders affected by the amendment.
17
<PAGE>
See "Description of the Indenture--Modification
of Indenture" beginning on page 71 of this
prospectus for a further discussion of the
circumstances under which the consent of all
noteholders is required for an amendment of the
indenture.
The Insurer May Control
the Declaration and
Consequences of an Event
of Default Under the
Indenture..................
If an event of default shall have occurred and be
continuing under the indenture and a default
shall not have occurred and be continuing under
the insurance policy, the insurer, rather than
the indenture trustee or the noteholders, will
control whether the notes are declared
immediately due and payable and which rights or
remedies under the indenture are exercised
following that declaration. The remedies
available under the indenture following an event
of default include the sale of all or a portion
of the property of the trust and the distribution
of the sale proceeds to the noteholders and the
certificateholders in accordance with the
indenture. In addition, if an event of default
shall have occurred and be continuing under the
indenture and a default shall not have occurred
and be continuing under the insurance policy, the
insurer may elect to prepay the notes or, if the
notes have been paid in full, the certificates in
whole or in part. If the notes or the
certificates are prepaid through the distribution
of sale proceeds or directly by the insurer, you
may have to reinvest principal earlier than
expected at a rate of interest that is less than
the rate of interest on the notes or the
certificates. See "Description of the Indenture--
Rights Upon Event of Default" beginning on page
66 of this prospectus for a further discussion of
default remedies under the indenture.
18
<PAGE>
Computer Program Problems
Beginning in the Year 2000
Could Result in Payment
Delays With Respect to
Your Notes or Your
Certificates...............
A number of existing computer systems use two
rather than four digits to identify a year. These
systems could fail or produce erroneous results
during transition from the year 1999 to the year
2000 and thereafter. The servicer has completed a
year 2000 conversion project designed to ensure
that its computerized information systems will be
able to process accurately information that may
be date sensitive. The servicer has also
identified its key third-party business partners
and is coordinating with them to address
potential year 2000 issues. The payment of
interest and principal on your notes or your
certificates could be delayed if the servicer,
the owner trustee, the indenture trustee or The
Depository Trust Company were to experience
problems with its computer systems relating to
the year 2000. See "The Originator's Finance
Operations--Year 2000 Compliance" beginning on
page 28 of this prospectus for a further
discussion of the year 2000 problem.
19
<PAGE>
The remaining portions of this prospectus include a number of capitalized
terms that have meanings not evident from their context and that cannot be
defined concisely when they are first used. The glossary beginning on page 109
of this prospectus contains the definitions of these capitalized terms.
DESCRIPTION OF THE TRUST
Formation of the Trust
The CarMax Auto Owner Trust 1999-1 was formed on October 8, 1999 as a
statutory business trust under the laws of the State of Delaware under a trust
agreement between CarMax Auto Receivables and First Union Trust Company,
National Association, as owner trustee. The trust agreement will be amended and
restated on the closing date in connection with the issuance of the notes and
the certificates. See "Description of the Trust Agreement" beginning on page 74
of this prospectus for a further discussion of the amended and restated trust
agreement.
The property of the trust will include a pool of simple interest retail
installment sale contracts originated by CarMax Auto Superstores in the
ordinary course of business in connection with the sale of new and used motor
vehicles and payments due or received on or in respect of the contracts after
the Cutoff Date. The principal balance of the contracts was $643,957,759.72 as
of the Cutoff Date. See "Description of the Contract Pool" beginning on page 30
of this prospectus for a further discussion of the contract pool.
Issuance of the Securities
The notes will be issued on October 28, 1999 under an indenture between the
trust and Bankers Trust Company, as indenture trustee. The principal balance of
the notes will equal $631,078,000.00 on the date of issuance. CarMax Auto
Receivables cannot assure you that a secondary market for the notes will
develop or, if a secondary market does develop, that it will continue or be
sufficiently liquid to allow you to resell your notes. See "Description of the
Notes" beginning on page 43 of this prospectus for a further discussion of the
notes. See "Description of the Indenture" beginning on page 65 of this
prospectus for a further discussion of the indenture.
The certificates will be issued on October 28, 1999 under the trust
agreement. The principal balance of the certificates will equal $12,879,759.72
on the date of issuance. CarMax Auto Receivables cannot assure you that a
secondary market for the certificates will develop or, if a secondary market
does develop, that it will continue or be sufficiently liquid to allow you to
resell your certificates. See "Description of the Certificates" beginning on
page 46 of this prospectus for a further discussion of the certificates.
On the closing date, each class of notes and the certificates must be rated
in the highest applicable category by Moody's Investors Service, Inc. and
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A rating is
not a recommendation to buy, sell or hold
20
<PAGE>
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. A rating does not comment as to market price or
suitability for a particular investor. The ratings of the offered securities
address the likelihood of the payment of principal and interest on the offered
securities pursuant to their terms. CarMax Auto Receivables cannot assure you
that any rating will remain for a given period of time or that any rating will
not be lowered or withdrawn entirely by a rating agency.
The Trust Property
The property of the trust will include:
. the contracts;
. amounts received on or in respect of the contracts after the Cutoff
Date;
. security interests in the vehicles financed under the contracts;
. any proceeds from claims on or refunds of premiums with respect to
various physical damage, theft, credit life and credit disability
insurance policies relating to the financed vehicles or the related
obligors;
. the contract files;
. funds on deposit in the collection account, the note payment account,
the certificate payment account and the reserve account;
. an unconditional and irrevocable insurance policy issued by MBIA
Insurance Corporation guaranteeing payments of monthly interest and
monthly principal on the notes and the certificates and payments of the
monthly servicing fee to the servicer;
. rights under the purchase agreement to cause CarMax Auto Superstores to
repurchase contracts affected materially and adversely by breaches of
the representations and warranties of CarMax Auto Superstores made in
the purchase agreement; and
. rights under the sale and servicing agreement to cause the servicer to
purchase contracts affected materially and adversely by breaches of the
representations and warranties of the servicer made in the sale and
servicing agreement.
The trust will not acquire any other assets and will not engage in any
business other than acquiring and holding the trust property and issuing and
distributing payments on the notes and the certificates. It is not anticipated
that the trust will have any need for additional capital resources after the
closing date. An audited balance sheet for the trust as of the date of its
formation is included on page 115 of this prospectus. The servicer will file
with the SEC all reports required with respect to the trust under the
Securities Exchange Act of 1934, as amended.
21
<PAGE>
THE ORIGINATOR'S FINANCE OPERATIONS
First North American Credit
CarMax Auto Superstores is a leading retailer of new and used motor
vehicles in the United States. CarMax Auto Superstores sells motor vehicles
through 37 stores in 11 states and provides its customers with a wide range of
related services, including the financing of vehicle purchases through its own
financing unit, FNAC, and through third parties, and the sale of extended
service contracts and automotive electronic products. The outstanding principal
balance of all motor vehicle retail installment sale contracts originated
through FNAC was $808,621,842 as of September 30, 1999.
Underwriting Procedures
FNAC credit applications are accepted at all CarMax Auto Superstores
locations. Each application requires that the applicant provide current
information regarding his or her employment history, bank accounts, income,
debts, credit references and other factors that are relevant to an assessment
of creditworthiness. This information is entered into a local terminal and
transmitted electronically to FNAC for review. In addition, FNAC obtains one or
more credit reports from major credit reporting agencies summarizing each
applicant's credit history and payment habits, including such items as open
accounts, delinquent payments, bankruptcies, repossessions, lawsuits and
judgments. FNAC uses credit scoring models developed for FNAC by Fair Issac &
Co. to assess objectively an applicant's creditworthiness and to help FNAC
quantify credit risk and implement risk adjusted pricing. The credit scoring
models, in use since September 1993, are statistically derived from prior
credit granting experience and analyze predictive information from the credit
applications and credit bureau reports to generate a numerical credit score for
each applicant. This numerical credit score indicates the risk associated with
extending credit to the applicant. The accuracy and effectiveness of the models
are periodically validated by one or more independent third parties, and the
models are periodically updated to include current statistical data.
The majority of all credit applications are accepted or declined
automatically. If an applicant meets the minimum credit score requirements
using the credit scoring models, the related application is immediately
approved. If the applicant does not meet these requirements, the related
application is declined. The credit scoring models are also used to identify
irregularities in an application or credit file. If FNAC receives an
application deemed to be irregular or incomplete or an applicant requests that
an application be manually reviewed, that application will be reviewed by an
experienced credit underwriter. FNAC's credit underwriters manually approve or
decline applications in accordance with credit policies established by senior
management.
Each installment sale contract originated by FNAC in connection with the
sale of a new or used motor vehicle is secured by that vehicle. The maximum
loan amount for each financed vehicle is determined based upon the
creditworthiness of the related obligor and is between 90% and 120% of the
selling price of the financed vehicle, including sales tax,
22
<PAGE>
license fees and title fees. In most cases, the selling price does not exceed
the manufacturer's suggested retail price, in the case of a new vehicle, or the
"average blue book value" published by Kelley Blue Book Co., a standard
reference source for dealers in used cars, in the case of a used vehicle. The
amount financed is often less than the maximum loan amount, however, depending
upon the credit needs of the obligor. Furthermore, in each case where the
amount financed exceeds the value of the related financed vehicle, FNAC has
determined that the creditworthiness of the related obligor supports the
additional loan amount. FNAC also finances service and extended warranty
contracts purchased with respect to financed vehicles.
FNAC believes that the resale value of a new vehicle purchased by an
obligor will decline below the manufacturer's suggested retail price and, in
some cases, may decline for a period of time below the principal balance
outstanding on the related installment sale contract. FNAC also believes that
the resale value of a used vehicle purchased by an obligor will decline, but
believes that the amount of the decline, expressed as a percentage of the
resale value of the vehicle at the time of purchase, will be less than the
amount of the decline, expressed as a percentage of the manufacturer's
suggested retail price, in the resale value of a new vehicle. FNAC regularly
reviews the quality of its installment sale contracts and periodically conducts
quality audits to ensure compliance with its established policies and
procedures.
Collection Procedures
FNAC measures delinquencies by the number of days elapsed from the date a
payment is due under an installment sale contract. FNAC considers a contract to
be delinquent when the related obligor fails to make a scheduled payment on or
before the related due date. If a partial payment is received that is less than
the regular monthly payment by more than five dollars, or such other nominal
amount as may be determined by senior management, and that deficiency is not
cured on or before the related due date, the account will be considered
delinquent. FNAC mails a computer-generated delinquency notice to all
delinquent obligors when their contracts become 11 days delinquent. FNAC also
uses an automated delinquency monitoring system, which assigns delinquent
contracts to different categories of collection priority based on the level of
delinquency.
FNAC manages its delinquencies using software that offers the ability to
alter collections strategy according to individual account behavior and
historical performance. Account risk is determined through the analysis of
behavioral factors, such as credit risk at the initiation of the loan, the
number of payments made, the level of historical delinquency and the number of
times the obligor has failed to keep payment arrangements. FNAC reviews its
collections strategy on a daily basis and uses optimization techniques to
evaluate its collections strategy.
FNAC's collection efforts are divided into specific areas depending upon
the level of delinquency. Accounts that are fewer than 30 days past due are
assigned to the Early Collections Group. The collectors in this group attempt
to contact delinquent obligors by telephone or letter based on the level of
delinquency and the history of the account. In
23
<PAGE>
addition, FNAC's customer service representatives are trained to handle
accounts that are fewer than 30 days past due when receiving incoming calls.
Accounts that reach a level of delinquency of greater than 30 days past due are
assigned to the Late Collections Group, where they are reviewed by senior-level
collectors who analyze each account to determine collateral risk. If a
collector is unable to confirm payment on an account prior to 45 days
delinquency, or if a collector determines that the collateral securing an
account is at risk, the collector will recommend repossession of the related
vehicle. All repossession recommendations must be reviewed and accepted by a
member of management before being forwarded to the repossession department in
the Specialty Collections Group.
Once a vehicle is in FNAC's possession, the related obligor has a
redemption period during which he may redeem the vehicle by paying off the
related contract in full or by paying off all past due amounts. In either case,
the obligor is also required to pay to FNAC the reasonable expenses incurred by
FNAC in repossessing, holding and preparing the financed vehicle for
disposition and arranging for its sale. In those states in which the Uniform
Commercial Code governs the redemption of financed vehicles, the obligor must
be given reasonable notice of the date, time and place of any proposed public
sale of a repossessed vehicle, or the date after which any proposed private
sale of a repossessed vehicle may be held, and may redeem the vehicle at any
time prior to sale. In most states in which laws other than the UCC govern the
redemption of financed vehicles, the obligor must be given a specified period
of time, usually between 10 and 30 days, to redeem a repossessed vehicle. At
the conclusion of the redemption period, FNAC sells the vehicle and the
remaining principal balance is charged off. All repossession activities are
carried out in accordance with applicable state law and related procedures
adopted by FNAC. Other departments in the Specialty Collections Group include
recovery collections, remarketing, skip tracing, legal and bankruptcy.
In general, FNAC charges off a contract on the earliest of:
. the last business day of the month during which any payment, or any part
of any payment, due under the contract becomes 120 days or more
delinquent, whether or not FNAC has repossessed the motor vehicle
securing the contract;
. if FNAC has repossessed the motor vehicle securing the contract, the
last business day of the month during which the motor vehicle is
liquidated; and
. the last business day of the month during which FNAC determines in
accordance with its customary practices that the contract is
uncollectible.
FNAC may extend the due date for a current or past due payment for up to 30
days if the related contract has been in existence for at least six months and
at least six monthly payments have been made. The total number of extensions an
obligor may receive equals the number of years in the original term of the
related contract, except that no more than two extensions will be granted
during any 12-month period. FNAC will grant extensions only with respect to
amounts that are fewer than 30 days past due and only if all other past due
amounts are paid in full. In general, if a contract has been confirmed or
reaffirmed in a bankruptcy proceeding and the related obligor has thereafter
made three consecutive monthly
24
<PAGE>
payments, FNAC will return the contract to current status. All exceptions to
the extension policy must be approved by FNAC's senior management.
Physical Damage Insurance
In general, each installment sale contract requires the related obligor to
obtain physical damage insurance covering loss or damage to the related
financed vehicle. FNAC tracks the status of insurance and attempts to cause
obligors to reinstate insurance if the insurance is allowed to lapse. CarMax
Auto Receivables cannot assure you, however, that each financed vehicle will at
all times be covered by physical damage insurance.
Allocation of Payments
The contracts will be simple interest contracts. A simple interest contract
provides for equal monthly payments that are applied, first, to interest
accrued to the date of payment, then to any applicable late charges, then to
principal due on the date of payment, then to any other fees due under the
contract and then to reduce further the outstanding principal balance of the
contract. Accordingly, if an obligor pays a fixed monthly installment before
its due date under a simple interest contract, the portion of the payment
allocable to interest for the period since the preceding payment will be less
than it would have been had the payment been made on the contractual due date,
and the portion of the payment applied to reduce the principal balance of the
contract will be correspondingly greater. Conversely, if an obligor pays a
fixed monthly installment under a simple interest contract after its
contractual due date, the portion of the payment allocable to interest for the
period since the preceding payment will be greater than it would have been had
the payment been made when due, and the portion of the payment applied to
reduce the principal balance of the contract will be correspondingly less, in
which case a larger portion of the principal balance may be due on the final
scheduled payment date. If a contract is liquidated or a financed vehicle is
repossessed, amounts recovered are applied first to unpaid interest and
principal and any applicable late charges or other fees and then to the
expenses of repossession.
Delinquency and Credit Loss Experience
The following tables set forth delinquency and credit loss information with
respect to the motor vehicle retail installment sale contracts originated by
CarMax Auto Superstores. CarMax Auto Receivables cannot assure you that the
delinquency and credit loss experience of the contract pool will be comparable
to that set forth below.
25
<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
At September 30, 1999 At September 30, 1998 At December 31, 1998 At December 31, 1997
---------------------- ---------------------- ---------------------- ----------------------
Number of Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount Contracts Amount
--------- ------------ --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Contract
Portfolio......... 77,860 $808,621,842 46,184 $467,031,927 52,129 $528,585,348 26,272 $259,517,771
Delinquencies as a
Percentage
of Total Contract
Portfolio
31-60 Days...... 0.86% 0.70% 0.89% 0.63% 0.97% 0.76% 1.23% 0.85%
61-90 Days...... 0.15% 0.09% 0.23% 0.11% 0.23% 0.17% 0.39% 0.18%
91 Days or
More............ 0.10% 0.07% 0.13% 0.06% 0.11% 0.06% 0.23% 0.08%
Total
Delinquencies as a
Percentage of
Total Contract
Portfolio......... 1.12% 0.87% 1.26% 0.80% 1.31% 0.99% 1.85% 1.12%
Total
Delinquencies..... 870 $ 7,026,256 582 $ 3,746,369 685 $ 5,243,832 485 $ 2,894,712
<CAPTION>
At December 31, 1996
-----------------------
Number of
Contracts Amount
--------- -------------
<S> <C> <C>
Total Contract
Portfolio......... 14,803 $147,637,677
Delinquencies as a
Percentage
of Total Contract
Portfolio
31-60 Days...... 1.34% 1.09%
61-90 Days...... 0.43% 0.36%
91 Days or
More............ 0.21% 0.16%
Total
Delinquencies as a
Percentage of
Total Contract
Portfolio......... 1.99% 1.61%
Total
Delinquencies..... 294 $ 2,371,184
</TABLE>
The amounts included in the delinquency experience table represent principal
amounts only. The delinquency periods included in the delinquency experience
table are calculated based on the number of days a payment is contractually
past due. All contracts are written off not later than the last business day
of the month during which they become 120 days delinquent. As a result, no
contract reported as delinquent in the delinquency experience table was more
than 119 days delinquent at September 30 or December 31, as applicable.
26
<PAGE>
Credit Loss Experience
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Number of
Contracts Outstanding
at Period End.......... 77,860 46,184 52,129 26,272 14,803
Average Number of
Contracts Outstanding
During the Period...... 64,995 36,228 39,201 20,538 11,487
Outstanding Principal
Amount at Period End... $808,621,842 $467,031,927 $528,585,348 $259,517,771 $147,637,677
Average Outstanding
Principal Amount During
the Period (1)......... $663,390,230 $357,366,975 $392,753,294 $194,539,224 $117,361,052
Gross Charge-Offs (2)... $ 3,304,678 $ 1,790,149 $ 2,726,477 $ 2,110,135 $ 1,181,456
Recoveries (3).......... $ 1,228,182 $ 591,449 $ 808,926 $ 665,576 $ 272,884
Net Losses.............. $ 2,076,496 $ 1,198,700 $ 1,917,551 $ 1,444,559 $ 908,572
Net Losses as a
Percentage of the
Average Outstanding
Principal Amount....... 0.42% 0.45% 0.49% 0.74% 0.77%
</TABLE>
- --------
(1) The average outstanding principal amount for any period equals the average
of the monthly average outstanding principal amount of the retail
installment sale contracts during that period.
(2) The gross charge-offs for any period equal the total principal amount due
on all installment sale contracts determined to be uncollectible during
that period minus the total amount recovered during that period from the
repossession and sale of financed vehicles.
(3) The recoveries for any period equal the total amount recovered during that
period on installment sale contracts previously charged off, including the
fair market value of unsold vehicles repossessed during that period.
The percentages for the nine months ended September 30, 1998 and September
30, 1999 are annualized and are not necessarily indicative of a full year's
actual results.
Delinquency and Credit Loss Trends
As indicated in the delinquency experience table, delinquencies on CarMax
Auto Superstores' motor vehicle installment sale contract portfolio, based on
principal balances more than 30 days past due and expressed as a percentage of
the total contract portfolio, decreased from 1.61% at December 31, 1996 to
1.12% at December 31, 1997 to 0.99% at December 31, 1998 to 0.87% at September
30, 1999.
As indicated in the credit loss experience table, net losses on CarMax Auto
Superstores' motor vehicle installment sale contract portfolio, expressed as a
percentage of the average outstanding principal balance of the contracts,
decreased from 0.77% for the year ended December 31, 1996 to 0.74% for the year
ended December 31, 1997 to 0.49% for the year ended December 31, 1998 to 0.42%
for the nine months ended September 30, 1999.
27
<PAGE>
CarMax Auto Superstores believes that this improvement in delinquency and
credit loss performance over the past three years is attributable to a number
of factors, including the following:
. consistent credit underwriting, provided by empirically derived credit
scoring models which help FNAC quantify credit risk and implement risk
adjusted pricing;
. consistent collateral quality, achieved through selective vehicle
acquisition and a thorough reconditioning process to meet CarMax Auto
Superstores' high mechanical, electrical and safety standards; and
. innovative collection strategies, including the use of behavioral models
to manage the collection processes and periodic default risk reviews
through risk score updates on outstanding loans.
CarMax Auto Superstores' expectations with respect to delinquency and
credit loss trends constitute forward-looking statements and are subject to
important economic, social, legal and other factors that could cause actual
results to differ materially from those projected. These factors include, but
are not limited to, inflation rates, unemployment rates, changes in consumer
debt levels, changes in the market for used vehicles and the enactment of new
laws that further regulate the motor vehicle lending industry.
Year 2000 Compliance
A number of existing computer systems use two rather than four digits to
identify a year. Using two digits to define dates after January 1, 2000 could
result in system failures or miscalculations that disrupt operations including
a temporary inability to process transactions, process invoices or engage in
similar normal business activities. In addition to computer systems, any
equipment with embedded systems that involve date-sensitive functions are at
risk if two digits have been used rather than four. Embedded systems are
specialized microchips used to control, monitor or assist the operation of
electrical equipment.
In 1997, CarMax Auto Superstores, as part of the more wide-ranging year
2000 compliance efforts of its corporate parent, Circuit City Stores, Inc.,
began a year 2000 date conversion project to address any necessary code
changes, testing and implementation for its systems. This project includes
internally developed information technology systems, purchased and leased
software and hardware, embedded systems and electronic data interchange
transaction processing. CarMax Auto Superstores has employed internal
resources, including management information systems developers and operations
personnel, to reprogram or replace, where necessary, and test its software for
year 2000 compliance.
CarMax Auto Superstores has completed its remediation, forward-date testing
and implementation efforts for its internally developed and externally
purchased systems. CarMax Auto Superstores has also completed replacement work
and enterprise-level testing. With regard to embedded systems, CarMax Auto
Superstores has identified 204 distinct makes and models used for environmental
controls, fire detection and monitoring, burglar
28
<PAGE>
detection and monitoring, elevators, office equipment and uninterruptible power
supplies. All of these embedded systems have been vendor certified as capable
of appropriate function in year 2000 or are no longer in use by CarMax Auto
Superstores.
CarMax Auto Superstores also has identified its key third-party business
partners and is coordinating with them to address potential year 2000 issues.
CarMax Auto Superstores has communicated with all key third-party business
partners, and no material potential problems have been identified. Risks and
business impacts have been assigned to all vendor products and services.
Current action statements and contingency plans have been developed by CarMax
Auto Superstores for products and services believed to be at high or medium
risk of non-compliance.
Because CarMax Auto Superstores' computer systems were developed in recent
years, CarMax Auto Superstores does not expect to incur any additional material
costs related to the year 2000 issue. The trust, the noteholders and the
certificateholders will not bear any of CarMax Auto Superstores' costs in
connection with year 2000 remediation.
With respect to year 2000 risks, CarMax Auto Superstores believes it has
identified all critical areas and is in the process of developing contingency
plans and conducting end-to-end testing for those critical areas identified.
Critical is defined as any business process or application failure that would
result in a material financial, legal or operational impact. If CarMax Auto
Superstores' remediation efforts and the remediation efforts of third parties
fail, which CarMax Auto Superstores believes is the most reasonably likely
worst case scenario, CarMax Auto Superstores' contingency plans include
performing processes manually while working to assess and correct any errors in
the current systems and possibly changing suppliers. These plans are intended
to enable CarMax Auto Superstores to continue operating even if a degree of
business interruption occurs on January 1, 2000. CarMax Auto Superstores
believes that the risks presented by the year 2000 issue are unique given the
pervasive nature of the problem and the higher likelihood that year 2000 risk
may present itself in multiple, simultaneous impacts. Accordingly, CarMax Auto
Superstores' contingency planning process is an ongoing one that will require
further modifications as CarMax Auto Superstores obtains additional
information.
The costs of the year 2000 project are based on management's estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of resources, third-party modification plans and
other factors. Year 2000 issues, however, present a number of risks that are
beyond CarMax Auto Superstores' reasonable control, such as the failure of
utility companies to deliver electricity, the failure of telecommunications
companies to provide voice and data services, the failure of financial
institutions to process transactions and transfer funds and the collateral
effects on CarMax Auto Superstores of the effects of year 2000 issues on the
economy in general or on CarMax Auto Superstores' business partners and
customers. Although CarMax Auto Superstores believes that its year 2000
compliance program is designed to appropriately identify and address those year
2000 issues that are subject to its reasonable control, CarMax Auto Superstores
can make no assurance that its efforts will be fully effective or that the year
2000 issues will not have a material adverse effect on its ability to act as
servicer.
29
<PAGE>
DESCRIPTION OF THE CONTRACT POOL
Selection Criteria
The contracts were originated by CarMax Auto Superstores in the ordinary
course of business in connection with the sale of new and used motor vehicles.
The contracts were selected from CarMax Auto Superstores' portfolio of motor
vehicle retail installment sale contracts based on several criteria, including
that each contract:
. is secured by a new or used motor vehicle;
. had an original principal balance of not more than $50,000 and a
remaining principal balance as of the Cutoff Date of not less than $500;
. had an original term to maturity of not more than 72 months and not less
than 12 months and a remaining term to maturity as of the Cutoff Date of
not more than 70 months and not less than three months;
. is a simple interest contract;
. has a contract rate of interest of at least 5% and not more than 25%;
. provides for level monthly payments that fully amortize the amount
financed over the original term to maturity of the contract, except that
the period between the contract date and the first installment date may
be less than or greater than one month and the first and last payments
may be less than or minimally greater than the level payments;
. relates to an obligor who has made at least two payments as of the
Cutoff Date;
. was not delinquent more than 30 days as of the Cutoff Date;
. is not secured by a financed vehicle that had been repossessed as of the
Cutoff Date;
. does not relate to an obligor that was the subject of a bankruptcy
proceeding as of the Cutoff Date;
. is evidenced by only one original document; and
. was not selected using selection procedures believed by CarMax Auto
Superstores or CarMax Auto Receivables to be adverse to the noteholders
or the certificateholders.
CarMax Auto Receivables will not be permitted or required to add contracts
to the contract pool or remove contracts from the contract pool after the
Cutoff Date other than in connection with the repurchase of contracts as to
which there has been a breach of a representation or warranty under the
purchase agreement or the sale and servicing agreement.
30
<PAGE>
Characteristics of the Contracts
The following tables set forth information with respect to the contracts as
of the Cutoff Date. If there is a material adverse change in the
characteristics of the contracts between the Cutoff Date and the date on which
the offering price for the notes and the certificates is determined, CarMax
Auto Receivables will send you updated information with respect to the
contracts. In each case where information in the following tables is presented
as a percentage of the aggregate principal balance of the contracts or as a
percentage of the total number of contracts, the sum of the percentages
presented may be less than or greater than 100% due to rounding.
Composition of the Contracts
as of the Cutoff Date
<TABLE>
<CAPTION>
Number of Aggregate Original Weighted Average
Contracts Principal Balance Principal Balance Contract Rate
--------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
New Motor Vehicles...... 2,176 $ 32,304,744.61 $ 39,063,009.51 8.98%
Used Motor Vehicles..... 61,380 611,653,015.11 777,570,766.73 10.66%
------ --------------- --------------- -----
Total................. 63,556 $643,957,759.72 $816,633,776.24 10.58%
====== =============== =============== =====
</TABLE>
<TABLE>
<CAPTION>
Weighted Percentage of
Weighted Average Average Aggregate
Remaining Term Original Term Principal Balance
---------------- ------------- -----------------
<S> <C> <C> <C>
New Motor Vehicles..... 52 months 62 months 5.02%
Used Motor Vehicles.... 46 58 94.98
--------- --------- ------
Total................ 47 months 58 months 100.00%
========= ========= ======
</TABLE>
As used in the composition table, weighted average remaining term and
weighted average original term are calculated based on the scheduled maturities
of the contracts and assuming no prepayments of the contracts.
Distribution of the Contracts by Remaining Term
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Total Number of Aggregate Aggregate
Remaining Term Range Contracts Contracts Principal Balance Principal Balance
-------------------- --------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1 to 12 months......... 1,642 2.58% $ 3,797,160.58 0.59%
13 to 24 months......... 5,651 8.89 27,176,242.85 4.22
25 to 36 months......... 11,772 18.52 88,046,917.68 13.67
37 to 48 months......... 19,838 31.21 198,323,855.92 30.80
49 to 60 months......... 20,848 32.80 267,819,606.20 41.59
61 to 72 months......... 3,805 5.99 58,793,976.49 9.13
------ ------ --------------- ------
Total................. 63,556 100.00% $643,957,759.72 100.00%
====== ====== =============== ======
</TABLE>
31
<PAGE>
Distribution of the Contracts by Obligor Mailing Address
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Total Number of Aggregate Aggregate
Obligor Mailing Address Contracts Contracts Principal Balance Principal Balance
----------------------- --------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
District of Columbia
(D.C.)................. 291 0.46% $ 2,898,053.39 0.45%
Florida................. 10,678 16.80 105,907,769.93 16.45
Georgia................. 11,633 18.30 113,489,260.75 17.62
Illinois................ 7,958 12.52 88,446,782.24 13.73
Maryland................ 5,978 9.41 65,445,071.01 10.16
North Carolina.......... 8,475 13.33 78,412,852.95 12.18
South Carolina.......... 702 1.10 7,539,752.93 1.17
Texas................... 10,738 16.90 115,056,235.31 17.87
Virginia................ 5,321 8.37 49,371,803.27 7.67
Wisconsin............... 270 0.42 3,686,783.35 0.57
Other................... 1,512 2.38 13,703,394.59 2.13
------ ------ --------------- ------
Total................. 63,556 100.00% $643,957,759.72 100.00%
====== ====== =============== ======
</TABLE>
Each state included in the "other" category in the distribution by obligor
mailing address table accounted for less than 0.30% of the total number of
contracts and less than 0.30% of the aggregate principal balance of the
contracts as of the Cutoff Date.
Distribution of the Contracts by Financed Vehicle Model Year
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Total Number of Aggregate Aggregate
Model Year Contracts Contracts Principal Balance Principal Balance
---------- --------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1988 and earlier........ 69 0.11% $ 226,426.14 0.04%
1989.................... 232 0.37 879,911.48 0.14
1990.................... 477 0.75 2,282,296.21 0.35
1991.................... 864 1.36 4,544,983.64 0.71
1992.................... 1,700 2.67 10,020,036.29 1.56
1993.................... 3,828 6.02 24,385,409.80 3.79
1994.................... 7,635 12.01 58,247,897.93 9.05
1995.................... 17,301 27.22 165,672,320.06 25.73
1996.................... 16,657 26.21 186,996,529.87 29.04
1997.................... 10,521 16.55 127,799,657.19 19.85
1998.................... 2,862 4.50 38,722,037.70 6.01
1999.................... 1,342 2.11 23,169,824.11 3.60
2000.................... 68 0.11 1,010,429.30 0.16
------ ------ --------------- ------
Total................. 63,556 100.00% $643,957,759.72 100.00%
====== ====== =============== ======
</TABLE>
32
<PAGE>
Distribution of the Contracts by Contract Rate
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Total Number of Aggregate Aggregate
Contract Rate Range Contracts Contracts Principal Balance Principal Balance
------------------- --------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
5.000 to 5.999%........ 1,009 1.59% $ 10,061,793.19 1.56%
6.000 to 6.999%........ 695 1.09 7,768,647.12 1.21
7.000 to 7.999%........ 4,663 7.34 56,071,303.85 8.71
8.000 to 8.999%........ 8,801 13.85 94,659,650.03 14.70
9.000 to 9.999%........ 19,370 30.48 198,200,150.01 30.78
10.000 to 10.999%....... 8,798 13.84 92,992,993.54 14.44
11.000 to 11.999%....... 4,329 6.81 44,695,193.15 6.94
12.000 to 12.999%....... 3,851 6.06 37,595,741.78 5.84
13.000 to 13.999%....... 3,407 5.36 30,224,602.09 4.69
14.000 to 14.999%....... 2,430 3.82 21,622,634.81 3.36
15.000 to 15.999%....... 2,398 3.77 22,842,978.50 3.55
16.000 to 16.999%....... 1,658 2.61 12,408,040.15 1.93
17.000 to 17.999%....... 1,273 2.00 8,850,194.74 1.37
More than 17.999%....... 874 1.38 5,963,836.76 0.93
------ ------ --------------- ------
Total................. 63,556 100.00% $643,957,759.72 100.00%
====== ====== =============== ======
</TABLE>
WEIGHTED AVERAGE LIFE OF THE OFFERED SECURITIES
The weighted average life of the offered securities will be influenced by
the rate at which the principal balances of the contracts are paid. The
contracts can be prepaid in full or in part at any time by the related obligor
without penalty. In addition, prepayments can occur as a result of rebates of
extended warranty contract costs and insurance premiums, liquidations due to
obligor payment defaults, receipts of proceeds from physical damage, theft,
credit life and credit disability insurance policies and payments made by
CarMax Auto Superstores or the servicer in connection with breaches of
representations and warranties under the purchase agreement or the sale and
servicing agreement. The rate of prepayment on the contracts may be influenced
by a variety of economic, social, legal and other factors. These factors
include, but are not limited to, inflation rates, interest rates offered for
other loan products, changes in consumer confidence, changes in employment
status and restrictions on transfers of financed vehicles. In light of these
factors, CarMax Auto Receivables cannot assure you as to the amount of
principal payments to be made on the offered securities on any Payment Date or
that the offered securities will not be paid earlier than the applicable final
scheduled Payment Date. You will bear the risk of not being able to reinvest
early principal payments on the offered securities at yields at least equal to
the yield on your offered securities.
Prepayments on retail installment sale contracts, such as the contracts,
can be measured relative to a prepayment standard or model. The model used in
this prospectus is the ABS model. The ABS model represents an assumed rate of
prepayment each month relative to the original number of contracts in a pool.
The ABS model further assumes that all of the contracts are the same size and
amortize at the same rate and that each will be paid as
33
<PAGE>
scheduled or will be prepaid in full. For example, in a pool of contracts
originally containing 100 contracts, a 1.0% ABS percentage means that one
contract prepays in full each month. The ABS model, like any prepayment model,
does not claim to be either a description of historical prepayment experience
or a prediction of future prepayment experience.
The tables on pages 36 to 38 have been prepared on the basis of various
assumptions, including that:
. the contracts prepay in full at the specified monthly ABS percentage;
. each scheduled payment on the contracts is made on the last day of each
month and includes a full month of interest, and each month has 30 days;
. distributions on the notes and the certificates are paid in cash on each
Payment Date commencing December 15, 1999, and each Payment Date occurs
on the 15th day of a month;
. the closing date for the notes and the certificates occurs on October
27, 1999;
. no defaults or delinquencies occur in the payment of any of the
contracts;
. no contracts are repurchased due to a breach of any representation or
warranty or for any other reason; and
. the servicer exercises on the first possible Payment Date its right to
purchase from the trust all remaining contracts in the contract pool.
The tables indicate the projected weighted average life of the notes and
the certificates. The tables set forth:
. the percentage of the initial principal balance of each class of notes
that is projected to be outstanding after each of the Payment Dates
shown at specified ABS percentages; and
. the percentage of the initial principal balance of the certificates that
is projected to be outstanding after each of the Payment Dates shown at
specified ABS percentages.
The tables also assume that the contracts have been aggregated into 13
hypothetical pools with all of the contracts within each pool having the
following characteristics:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Cutoff Date Original Term Remaining Term
Pool Principal Weighted Average to Maturity to Maturity
Number Balance Contract Rate (in Months) (in Months)
------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 19,018,158.88 9.995% 34 28
2 5,828,899.04 12.406% 35 18
3 77,544,804.57 11.126% 47 41
4 28,144,714.70 11.630% 47 29
5 5,833,990.84 10.834% 47 16
6 195,581,687.36 10.015% 60 54
7 100,191,541.83 10.570% 59 42
8 25,358,510.93 10.454% 59 30
9 7,439,469.80 10.785% 58 17
10 115,146,825.12 10.933% 67 60
11 49,870,262.18 10.766% 66 49
12 9,980,991.89 9.660% 66 36
13 4,017,902.58 10.189% 66 23
---------------
Total $643,957,759.72
===============
</TABLE>
34
<PAGE>
The information included in the following tables consists of forward-
looking statements and involves risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements.
These tables are provided to illustrate how the principal balances of the notes
and the certificates may decline. The actual characteristics and performance of
the contracts will differ from the assumptions used in constructing the tables,
however, and it is highly unlikely that the contracts will prepay at a constant
ABS percentage until maturity or that all of the contracts will prepay at the
same ABS percentage. In addition, the diverse terms of the contracts within
each of the hypothetical pools could produce slower or faster rates of
principal payments than indicated in the tables at the various specified ABS
percentages. Any difference between the assumptions and the actual
characteristics, performance and prepayment experience of the contracts will
affect the weighted average lives of the notes and the certificates.
IMPORTANT NOTICE REGARDING CALCULATION OF THE WEIGHTED AVERAGE LIFE AND THE
ASSUMPTIONS UPON WHICH THE TABLES ON PAGES 36 TO 38 ARE BASED
The weighted average life of each class of notes is determined by:
. multiplying the amount of each principal payment on that class by the
number of years from the closing date to the related Payment Date;
. adding the results; and
. dividing the sum by the initial principal balance of that class.
The weighted average life of the certificates is determined by:
. multiplying the amount of each principal payment on the certificates by
the number of years from the closing date to the related Payment Date;
. adding the results; and
. dividing the sum by the initial principal balance of the certificates.
The tables on pages 36 to 38 have been prepared based on, and should be
read in conjunction with, the assumptions described on page 34, including
the assumptions regarding the characteristics and performance of the
contracts. The assumed characteristics and performance of the contracts will
differ from the actual characteristics and performance of the contracts.
35
<PAGE>
Percent of Initial Note Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes
--------------------------- ---------------------------
Payment Date 0.50% 1.00% 1.50% 1.80% 0.50% 1.00% 1.50% 1.80%
------------------------ ------ ------ ------ ------ ------ ------ ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
1 December, 1999.......... 79.8% 75.0% 69.2% 65.0% 100.0% 100.0% 100.0% 100.0%
2 January, 2000........... 69.7% 62.6% 54.2% 48.0% 100.0% 100.0% 100.0% 100.0%
3 February, 2000.......... 59.7% 50.4% 39.4% 31.3% 100.0% 100.0% 100.0% 100.0%
4 March, 2000............. 49.6% 38.3% 24.9% 15.1% 100.0% 100.0% 100.0% 100.0%
5 April, 2000............. 39.6% 26.3% 10.6% 0.0% 100.0% 100.0% 100.0% 99.4%
6 May, 2000............... 29.6% 14.5% 0.0% 0.0% 100.0% 100.0% 97.5% 87.9%
7 June, 2000.............. 19.6% 2.8% 0.0% 0.0% 100.0% 100.0% 87.3% 76.6%
8 July, 2000.............. 9.7% 0.0% 0.0% 0.0% 100.0% 93.5% 77.3% 65.7%
9 August, 2000............ 0.0% 0.0% 0.0% 0.0% 99.8% 84.9% 67.5% 55.0%
10 September, 2000......... 0.0% 0.0% 0.0% 0.0% 92.4% 76.5% 57.9% 44.7%
11 October, 2000........... 0.0% 0.0% 0.0% 0.0% 85.1% 68.2% 48.5% 34.6%
12 November, 2000.......... 0.0% 0.0% 0.0% 0.0% 77.7% 60.0% 39.4% 24.9%
13 December, 2000.......... 0.0% 0.0% 0.0% 0.0% 70.4% 51.9% 30.5% 15.5%
14 January, 2001........... 0.0% 0.0% 0.0% 0.0% 63.1% 43.9% 21.8% 6.4%
15 February, 2001.......... 0.0% 0.0% 0.0% 0.0% 55.8% 36.0% 13.3% 0.0%
16 March, 2001............. 0.0% 0.0% 0.0% 0.0% 48.7% 28.4% 5.1% 0.0%
17 April, 2001............. 0.0% 0.0% 0.0% 0.0% 41.8% 21.0% 0.0% 0.0%
18 May, 2001............... 0.0% 0.0% 0.0% 0.0% 35.1% 13.9% 0.0% 0.0%
19 June, 2001.............. 0.0% 0.0% 0.0% 0.0% 28.4% 6.9% 0.0% 0.0%
20 July, 2001.............. 0.0% 0.0% 0.0% 0.0% 21.7% 0.0% 0.0% 0.0%
21 August, 2001............ 0.0% 0.0% 0.0% 0.0% 15.0% 0.0% 0.0% 0.0%
22 September, 2001......... 0.0% 0.0% 0.0% 0.0% 8.4% 0.0% 0.0% 0.0%
23 October, 2001........... 0.0% 0.0% 0.0% 0.0% 1.8% 0.0% 0.0% 0.0%
24 November, 2001.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
25 December, 2001.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
26 January, 2002........... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
27 February, 2002.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
28 March, 2002............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
29 April, 2002............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
30 May, 2002............... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
31 June, 2002.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
32 July, 2002.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
33 August, 2002............ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
34 September, 2002......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
35 October, 2002........... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
36 November, 2002.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
37 December, 2002.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
38 January, 2003........... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
39 February, 2003.......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
40 March, 2003............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
41 April, 2003............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
42 May, 2003............... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
43 June, 2003.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
44 July, 2003.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Weighted Average Life
(In Years).............. 0.43 0.36 0.30 0.27 1.42 1.20 1.00 0.89
</TABLE>
36
<PAGE>
Percent of Initial Note Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-3 Notes Class A-4 Notes
--------------------------- ---------------------------
Payment Date 0.50% 1.00% 1.50% 1.80% 0.50% 1.00% 1.50% 1.80%
------------------------ ------ ------ ------ ------ ------ ------ ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
1 December, 1999.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
2 January, 2000........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
3 February, 2000.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
4 March, 2000............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
5 April, 2000............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
6 May, 2000............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
7 June, 2000.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
8 July, 2000.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
9 August, 2000............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
10 September, 2000......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
11 October, 2000........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
12 November, 2000.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
13 December, 2000.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
14 January, 2001........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
15 February, 2001.......... 100.0% 100.0% 100.0% 97.3% 100.0% 100.0% 100.0% 100.0%
16 March, 2001............. 100.0% 100.0% 100.0% 87.4% 100.0% 100.0% 100.0% 100.0%
17 April, 2001............. 100.0% 100.0% 96.8% 77.9% 100.0% 100.0% 100.0% 100.0%
18 May, 2001............... 100.0% 100.0% 88.0% 68.8% 100.0% 100.0% 100.0% 100.0%
19 June, 2001.............. 100.0% 100.0% 79.4% 60.1% 100.0% 100.0% 100.0% 100.0%
20 July, 2001.............. 100.0% 100.0% 71.1% 51.6% 100.0% 100.0% 100.0% 100.0%
21 August, 2001............ 100.0% 92.0% 63.0% 43.4% 100.0% 100.0% 100.0% 100.0%
22 September, 2001......... 100.0% 84.2% 55.2% 35.6% 100.0% 100.0% 100.0% 100.0%
23 October, 2001........... 100.0% 76.6% 47.6% 28.1% 100.0% 100.0% 100.0% 100.0%
24 November, 2001.......... 94.5% 69.1% 40.3% 21.0% 100.0% 100.0% 100.0% 100.0%
25 December, 2001.......... 86.9% 61.7% 33.2% 14.2% 100.0% 100.0% 100.0% 100.0%
26 January, 2002........... 79.4% 54.5% 26.4% 7.8% 100.0% 100.0% 100.0% 100.0%
27 February, 2002.......... 71.8% 47.3% 19.9% 1.7% 100.0% 100.0% 100.0% 100.0%
28 March, 2002............. 64.7% 40.7% 13.8% 0.0% 100.0% 100.0% 100.0% 92.2%
29 April, 2002............. 58.1% 34.5% 8.2% 0.0% 100.0% 100.0% 100.0% 81.7%
30 May, 2002............... 51.9% 28.8% 3.0% 0.0% 100.0% 100.0% 100.0% 71.8%
31 June, 2002.............. 45.8% 23.1% 0.0% 0.0% 100.0% 100.0% 95.8% 62.4%
32 July, 2002.............. 39.7% 17.6% 0.0% 0.0% 100.0% 100.0% 86.0% 0.0%
33 August, 2002............ 33.6% 12.2% 0.0% 0.0% 100.0% 100.0% 76.6% 0.0%
34 September, 2002......... 27.6% 6.9% 0.0% 0.0% 100.0% 100.0% 67.7% 0.0%
35 October, 2002........... 21.5% 1.7% 0.0% 0.0% 100.0% 100.0% 59.3% 0.0%
36 November, 2002.......... 15.7% 0.0% 0.0% 0.0% 100.0% 93.5% 0.0% 0.0%
37 December, 2002.......... 9.8% 0.0% 0.0% 0.0% 100.0% 83.6% 0.0% 0.0%
38 January, 2003........... 4.0% 0.0% 0.0% 0.0% 100.0% 74.0% 0.0% 0.0%
39 February, 2003.......... 0.0% 0.0% 0.0% 0.0% 96.4% 64.6% 0.0% 0.0%
40 March, 2003............. 0.0% 0.0% 0.0% 0.0% 84.7% 0.0% 0.0% 0.0%
41 April, 2003............. 0.0% 0.0% 0.0% 0.0% 75.0% 0.0% 0.0% 0.0%
42 May, 2003............... 0.0% 0.0% 0.0% 0.0% 68.0% 0.0% 0.0% 0.0%
43 June, 2003.............. 0.0% 0.0% 0.0% 0.0% 60.9% 0.0% 0.0% 0.0%
44 July, 2003.............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Weighted Average Life
(In Years).............. 2.64 2.34 2.00 1.80 3.62 3.31 2.95 2.64
</TABLE>
37
<PAGE>
Percent of Initial Certificate Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Certificates
---------------------------
Payment Date 0.50% 1.00% 1.50% 1.80%
---------------------------------------------- ------ ------ ------ ------
<C> <S> <C> <C> <C> <C>
Closing Date.................................. 100.0% 100.0% 100.0% 100.0%
1 December, 1999................................ 100.0% 100.0% 100.0% 100.0%
2 January, 2000................................. 100.0% 100.0% 100.0% 100.0%
3 February, 2000................................ 100.0% 100.0% 100.0% 100.0%
4 March, 2000................................... 100.0% 100.0% 100.0% 100.0%
5 April, 2000................................... 100.0% 100.0% 100.0% 100.0%
6 May, 2000..................................... 100.0% 100.0% 100.0% 100.0%
7 June, 2000.................................... 100.0% 100.0% 100.0% 100.0%
8 July, 2000.................................... 100.0% 100.0% 100.0% 100.0%
9 August, 2000.................................. 100.0% 100.0% 100.0% 100.0%
10 September, 2000............................... 100.0% 100.0% 100.0% 100.0%
11 October, 2000................................. 100.0% 100.0% 100.0% 100.0%
12 November, 2000................................ 100.0% 100.0% 100.0% 100.0%
13 December, 2000................................ 100.0% 100.0% 100.0% 100.0%
14 January, 2001................................. 100.0% 100.0% 100.0% 100.0%
15 February, 2001................................ 100.0% 100.0% 100.0% 100.0%
16 March, 2001................................... 100.0% 100.0% 100.0% 100.0%
17 April, 2001................................... 100.0% 100.0% 100.0% 100.0%
18 May, 2001..................................... 100.0% 100.0% 100.0% 100.0%
19 June, 2001.................................... 100.0% 100.0% 100.0% 100.0%
20 July, 2001.................................... 100.0% 100.0% 100.0% 100.0%
21 August, 2001.................................. 100.0% 100.0% 100.0% 100.0%
22 September, 2001............................... 100.0% 100.0% 100.0% 100.0%
23 October, 2001................................. 100.0% 100.0% 100.0% 100.0%
24 November, 2001................................ 100.0% 100.0% 100.0% 100.0%
25 December, 2001................................ 100.0% 100.0% 100.0% 100.0%
26 January, 2002................................. 100.0% 100.0% 100.0% 100.0%
27 February, 2002................................ 100.0% 100.0% 100.0% 100.0%
28 March, 2002................................... 100.0% 100.0% 100.0% 100.0%
29 April, 2002................................... 100.0% 100.0% 100.0% 100.0%
30 May, 2002..................................... 100.0% 100.0% 100.0% 100.0%
31 June, 2002.................................... 100.0% 100.0% 100.0% 100.0%
32 July, 2002.................................... 100.0% 100.0% 100.0% 0.0%
33 August, 2002.................................. 100.0% 100.0% 100.0% 0.0%
34 September, 2002............................... 100.0% 100.0% 100.0% 0.0%
35 October, 2002................................. 100.0% 100.0% 100.0% 0.0%
36 November, 2002................................ 100.0% 100.0% 0.0% 0.0%
37 December, 2002................................ 100.0% 100.0% 0.0% 0.0%
38 January, 2003................................. 100.0% 100.0% 0.0% 0.0%
39 February, 2003................................ 100.0% 100.0% 0.0% 0.0%
40 March, 2003................................... 100.0% 0.0% 0.0% 0.0%
41 April, 2003................................... 100.0% 0.0% 0.0% 0.0%
42 May, 2003..................................... 100.0% 0.0% 0.0% 0.0%
43 June, 2003.................................... 100.0% 0.0% 0.0% 0.0%
44 July, 2003.................................... 0.0% 0.0% 0.0% 0.0%
Weighted Average Life
(In Years).................................... 3.72 3.38 3.05 2.72
</TABLE>
38
<PAGE>
ALLOCATION OF PRINCIPAL BALANCES; MONTHLY REPORTS
A portion of the principal balance of each class of notes will be allocated
to each holder of that class based on a pool factor for that class calculated
by the servicer prior to each Payment Date. The pool factor for each class of
notes as of the last day of any month will equal the remaining principal
balance of that class as of the following Payment Date, after giving effect to
all payments of principal to be made to the holders of that class on that
Payment Date, divided by the initial principal balance of that class. The pool
factor for each class of notes will be 1.0000000 as of the closing date and
thereafter will decline to reflect reductions in the principal balance of that
class. The portion of the principal balance of any class of notes allocable to
each holder of that class will equal the product of the original denomination
of the note held by that holder and the pool factor for that class at the time
of determination.
A portion of the principal balance of the certificates will be allocated to
each certificateholder based on a certificate pool factor calculated by the
servicer prior to each Payment Date. The certificate pool factor as of the last
day of any month will equal the remaining principal balance of the certificates
as of the following Payment Date, after giving effect to all payments of
principal to be made to the certificateholders on that Payment Date, divided by
the initial principal balance of the certificates. The certificate pool factor
will be 1.0000000 as of the closing date and thereafter will decline to reflect
reductions in the principal balance of the certificates. The portion of the
principal balance of the certificates allocable to each certificateholder will
equal the product of the original denomination of the certificate held by that
holder and the certificate pool factor at the time of determination.
The noteholders and the certificateholders will receive reports on or about
each Payment Date concerning payments received on the contracts, the principal
balance of the contracts, each pool factor for each class of notes and the
certificate pool factor. In addition, the noteholders and the
certificateholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Collections and Payments--Statements to Noteholders" beginning on
page 60 of this prospectus and "--Statements to Certificateholders" beginning
on page 61 of this prospectus for a further discussion of the information to be
furnished to securityholders.
USE OF PROCEEDS
On the closing date, CarMax Auto Receivables will transfer the contracts to
the trust in exchange for the net proceeds from the sale of the notes and the
certificates. CarMax Auto Receivables will apply the net proceeds from the sale
of the notes and the certificates to make an initial deposit to the reserve
account on the closing date and to purchase the contracts from CarMax Auto
Superstores. CarMax Auto Superstores will use the proceeds from the sale of the
contracts to CarMax Auto Receivables to repay existing debt and for general
corporate purposes. The price the trust will pay to CarMax Auto Receivables for
the contracts will represent the net proceeds received from the sale of the
notes and the certificates. CarMax Auto Superstores will apply the amounts
received by it from CarMax Auto Receivables to pay down certificates issued by
it and owned by a commercial paper vehicle administered by an affiliate of Banc
of America Securities LLC.
39
<PAGE>
DESCRIPTION OF CARMAX AUTO SUPERSTORES
AND CARMAX AUTO RECEIVABLES
CarMax Auto Superstores
CarMax Auto Superstores is a leading retailer of new and used motor
vehicles in the United States. CarMax Auto Superstores opened its first store
in Richmond, Virginia in September 1993 and currently operates 37 stores in 11
states. CarMax Auto Superstores was incorporated in Virginia and is a wholly-
owned subsidiary of Circuit City Stores, Inc., a leading national retailer of
brand-name consumer electronics, personal computers, major appliances and
entertainment software. CarMax Auto Superstores was the first used vehicle
retailer to offer a large selection of quality used vehicles at low, fixed
prices using a customer-friendly sales process in an attractive, modern sales
facility. CarMax Auto Superstores has designed a strategy to better serve the
market by addressing the major sources of dissatisfaction with traditional used
car retailing and to maximize operating efficiencies with sophisticated systems
and standardized operating procedures and store formats.
CarMax Auto Superstores purchases and sells used motor vehicles at each of
its stores and sells new motor vehicles at 12 of its stores under franchise
agreements with various manufacturers. In addition, CarMax Auto Superstores
provides its customers with a full range of related products and services,
including the financing of vehicle purchases through FNAC, the sale of extended
service contracts and the sale of automotive electronic products. In general,
the used motor vehicles offered by CarMax Auto Superstores are one to six years
old with fewer than 60,000 miles and range in price from $9,000 to $30,000.
Each store also offers a limited selection of used motor vehicles that are more
than six years old or have more than 60,000 miles. These vehicles range in
price from $3,000 to $12,000. All used vehicles are thoroughly reconditioned to
meet high mechanical, electrical, safety and cosmetic standards and must pass a
comprehensive inspection before being offered for sale. All inspections are
performed by qualified service technicians, most of whom are certified by the
National Institute for Automotive Service Excellence.
CarMax Auto Superstores acquires a significant portion of its used-vehicle
inventory through its appraisal process in which it appraises and makes an
offer to purchase any properly documented vehicle from the public. CarMax Auto
Superstores also acquires a significant portion of its used vehicles through
auctions and, to a lesser extent, directly from other sources, including
wholesalers, dealers and fleet owners. AutoMation(R), a computerized database
which is the central feature of CarMax Auto Superstores' inventory management
and control system, enables each vehicle to be tracked throughout the sales
process. Using the information provided by AutoMation, and applying
sophisticated statistical modeling techniques, CarMax Auto Superstores is able
to optimize its inventory mix and display by store, anticipate future inventory
needs at each store, evaluate sales consultant performance and refine its
vehicle pricing strategy. CarMax Auto Superstores maintains strict inventory
aging policies under which it disposes of any vehicle that has not been sold at
retail within specified periods.
40
<PAGE>
CarMax Auto Superstores began offering on-site financing to its customers
through FNAC in September 1993 and currently originates installment sale
contracts at all of its stores. For the fiscal years ended February 28, 1995,
1996, 1997, 1998 and 1999, FNAC originated installment sale contracts
aggregating approximately $46 million, $98 million, $150 million, $315 million
and $615 million, respectively. Of the approximately $809 million of contracts
in CarMax Auto Superstores' servicing portfolio as of September 30, 1999,
approximately 94% represented contracts originated in connection with the sale
of used motor vehicles and approximately 6% represented contracts originated in
connection with the sale of new motor vehicles.
As of September 30, 1999, CarMax Auto Superstores operated stores in the
following markets:
<TABLE>
<CAPTION>
Number of
Market Stores
------ ---------
<S> <C>
Washington D.C./Baltimore, Maryland............................. 4
Chicago, Illinois............................................... 4
Dallas, Texas................................................... 4
Los Angeles, California......................................... 3
Atlanta, Georgia................................................ 3
South Florida................................................... 3
Houston, Texas.................................................. 3
Orlando, Florida................................................ 2
Tampa, Florida.................................................. 2
Kenosha, Wisconsin.............................................. 2
Charlotte, North Carolina....................................... 1
Raleigh, North Carolina......................................... 1
Greenville, South Carolina...................................... 1
Nashville, Tennessee............................................ 1
San Antonio, Texas.............................................. 1
Dulles, Virginia................................................ 1
Richmond, Virginia.............................................. 1
</TABLE>
CarMax Auto Superstores is not a party to any legal proceeding that could
reasonably be expected to have a material impact on the trust or the interests
of the securityholders.
CarMax Auto Receivables
CarMax Auto Receivables was organized on May 19, 1999 as a Virginia limited
liability company. CarMax Auto Receivables was organized for the limited
purpose of purchasing motor vehicle retail installment sale contracts from
CarMax Auto Superstores, transferring the contracts to the trust and other
third parties and conducting activities incidental to these limited purposes.
CarMax Auto Receivables has taken steps in structuring the transactions
described in this prospectus that are intended to ensure that the voluntary or
involuntary application for relief by CarMax Auto Superstores under the United
States Bankruptcy Code or any similar applicable state law will not result in
the consolidation of the assets and liabilities of CarMax Auto Receivables with
those of CarMax Auto Superstores. These steps include the creation of CarMax
Auto Receivables as a separate, limited-purpose company under articles
41
<PAGE>
of organization containing various limitations, including restrictions on the
nature of CarMax Auto Receivables' business, and restrictions on CarMax Auto
Receivables' ability to commence a voluntary case or proceeding under the
United States Bankruptcy Code or any similar applicable state law without the
unanimous affirmative vote of all of the directors of CarMax Auto Receivables'
corporate manager. CarMax Auto Receivables cannot assure you, however, that the
activities of CarMax Auto Receivables or the nature of its relationship with
CarMax Auto Superstores would not result in a court concluding that the assets
and liabilities of CarMax Auto Receivables should be consolidated with those of
CarMax Auto Superstores in a proceeding under the United States Bankruptcy Code
or any similar applicable state law.
CarMax Auto Receivables will receive at closing an opinion of McGuire,
Woods, Battle & Boothe LLP to the effect that it would not be a proper exercise
of equitable discretion for a court to disregard the separate existence of
CarMax Auto Superstores and CarMax Auto Receivables and to require the
consolidation of the assets and liabilities of CarMax Auto Receivables with
those of CarMax Auto Superstores if CarMax Auto Superstores were to become the
subject of a proceeding under the federal bankruptcy laws. McGuire, Woods,
Battle & Boothe LLP will assume that CarMax Auto Receivables will follow
procedures in the conduct of its affairs that support its treatment as a
separate legal entity, including maintaining records and books of account
separate from those of CarMax Auto Superstores and refraining from holding
itself out as having agreed to pay, or being liable for, the debts of CarMax
Auto Superstores. CarMax Auto Receivables has represented that it will follow
these and other procedures related to maintaining its separate identity. If
CarMax Auto Receivables does not follow these procedures, CarMax Auto
Receivables cannot assure you that a court would not conclude that the assets
and liabilities of CarMax Auto Receivables should be consolidated with those of
CarMax Auto Superstores in a proceeding under the United States Bankruptcy Code
or any similar applicable state law. If a court were to reach that conclusion,
or a filing were made under the United States Bankruptcy Code or any similar
applicable state law by or against CarMax Auto Receivables, or if an attempt
were made to litigate the issue of consolidation, you could experience losses
or payment delays with respect to your notes or your certificates.
CarMax Auto Receivables is not a party to any legal proceeding that could
reasonably be expected to have a material impact on the trust or the interests
of the securityholders.
42
<PAGE>
DESCRIPTION OF THE NOTES
The notes will be issued under the indenture. The following summary
describes the material terms of the notes.
Note Registration
The notes will be available for purchase in denominations of $1,000 and
integral multiples of $1,000. The notes will initially be issued only in book-
entry form. See "Registration of the Offered Securities" beginning on page 47
of this prospectus for a further discussion of the book-entry registration
system.
Interest Payments
Interest will be payable on each class of notes monthly on each Payment
Date, commencing December 15, 1999. Interest will be payable on each Payment
Date to the noteholders of record as of the preceding Record Date.
The notes will bear interest at the following rates per annum:
. in the case of the class A-1 notes, 6.2025% per annum;
. in the case of the class A-2 notes, 6.47% per annum;
. in the case of the class A-3 notes, 6.76% per annum; and
. in the case of the class A-4 notes, 6.88% per annum.
The interest payable on the class A-1 notes on the initial Payment Date
will equal $1,283,917.50. The interest payable on the class A-2 notes on the
initial Payment Date will equal $1,799,954.00. The interest payable on the
class A-1 notes or the class A-2 notes, as applicable, on each Payment Date
thereafter will equal the product of:
. the actual number of days elapsed during the period from and including
the preceding Payment Date to but excluding that Payment Date divided by
360;
. the interest rate applicable to that class; and
. the principal balance of that class as of the preceding Payment Date
after giving effect to all principal payments made with respect to the
notes on that preceding Payment Date.
The interest payable on the class A-3 notes on the initial Payment Date
will equal $1,578,891.89. The interest payable on the class A-4 notes on the
initial Payment Date will equal $792,932.61. The interest payable on the class
A-3 notes or the class A-4 notes, as applicable, on each Payment Date
thereafter will equal one-twelfth of the product of:
. the interest rate applicable to that class; and
. the principal balance of that class as of the preceding Payment Date
after giving effect to all principal payments made with respect to the
notes on that preceding Payment Date.
43
<PAGE>
Interest due but not paid on any class of notes on any Payment Date will be
due on the following Payment Date together with interest on the unpaid amount
at the interest rate applicable to that class to the extent permitted by law.
Each class of notes will have an equal right to receive its share of the
Monthly Note Interest for any Payment Date. If the amount available to pay
interest on the notes on any Payment Date is less than the aggregate amount of
interest, including overdue interest, payable on the notes on that Payment
Date, the available amount will be paid to the holders of each class of notes
pro rata based on the aggregate amount of interest, including overdue interest,
payable to that class on that Payment Date. If the notes have been declared
immediately due and payable following an event of default under the indenture,
amounts received on or in respect of the contracts will not be applied to pay
Monthly Certificate Interest on any Payment Date until the notes have been paid
in full.
Principal Payments
Principal will be payable on the notes monthly on each Payment Date in an
amount equal to the Monthly Note Principal for that Payment Date; provided,
however, that if the notes have been declared immediately due and payable
following an event of default under the indenture, the note principal payable
on that Payment Date will equal the lesser of the amount available to be
applied on that Payment Date with respect to note principal and the principal
balance of the notes. If the notes have been declared immediately due and
payable following an event of default under the indenture, the amount available
to be applied on any Payment Date with respect to note principal will equal the
Available Funds for that Payment Date plus any amounts withdrawn in respect of
principal from the reserve account or paid in respect of principal under the
insurance policy on that Payment Date, in each case to the extent not needed to
pay accrued but unpaid monthly servicing fees or accrued but unpaid interest on
the notes. If the notes have not been declared immediately due and payable,
Monthly Note Principal will be paid in the following order of priority:
(1) to the holders of the class A-1 notes until the principal balance of
the class A-1 notes has been reduced to zero;
(2) to the holders of the class A-2 notes until the principal balance of
the class A-2 notes has been reduced to zero;
(3) to the holders of the class A-3 notes until the principal balance of
the class A-3 notes has been reduced to zero; and
(4) to the holders of the class A-4 notes until the principal balance of
the class A-4 notes has been reduced to zero;
provided, however, that, if the amount available to pay principal of the notes
on any Payment Date is less than the Monthly Note Principal for that Payment
Date, the available amount will be paid to the holders of each class of notes
pro rata based on the principal balance of that class as of that Payment Date.
If the notes have been declared immediately
44
<PAGE>
due and payable following an event of default under the indenture, the note
principal payable on any Payment Date will be paid to the holders of each class
of notes pro rata based on the principal balance of that class as of that
Payment Date.
The final scheduled Payment Dates for the notes are as follows:
. November 15, 2000 for the class A-1 notes;
. May 15, 2002 for the class A-2 notes;
. August 15, 2003 for the class A-3 notes; and
. August 16, 2004 for the class A-4 notes.
The date on which each class of notes is paid in full is expected to be
earlier than the final scheduled Payment Date for that class and could be
significantly earlier depending upon the rate at which the principal balances
of the contracts are paid. See "Weighted Average Life of the Offered
Securities" beginning on page 33 of this prospectus for a further discussion of
contract prepayments.
The certificateholders will not be entitled to receive Monthly Certificate
Principal on any Payment Date until the notes have been paid in full.
Optional Redemption
The notes will be redeemed in full on any Payment Date on which the
servicer exercises its option to purchase all remaining contracts in the
contract pool from the trust. The redemption price payable to the holders of
each class of notes in connection with the exercise of this option will equal
the principal balance of that class as of the purchase date plus accrued but
unpaid interest on that principal balance at the interest rate applicable to
that class. See "Description of the Purchase Agreement and the Sale and
Servicing Agreement--Optional Purchase of Contracts" beginning on page 83 of
this prospectus for a further discussion of the circumstances under which the
servicer may exercise this option.
The Indenture Trustee
Bankers Trust Company will act as trustee under the indenture. The
indenture trustee is a New York banking corporation. The principal corporate
trust office of the indenture trustee is located at Four Albany Street, New
York, New York 10006, Attention: Corporate Trust and Agency Group--Structured
Finance. The indenture trustee will have various rights and duties with respect
to the notes. See "Description of the Indenture" beginning on page 65 of this
prospectus for a further discussion of the rights and duties of the indenture
trustee.
45
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued under the trust agreement. The following
summary describes the material terms of the certificates.
Certificate Registration
The certificates will be available for purchase in denominations of $1,000
and integral multiples of $1,000. The certificates will initially be issued
only in book-entry form. See "Registration of the Offered Securities" beginning
on page 47 of this prospectus for a further discussion of the book-entry
registration system.
Interest Payments
Interest will be payable on the certificates monthly on each Payment Date,
commencing December 15, 1999; provided, however, that if the notes have been
declared immediately due and payable following an event of default under the
indenture, amounts received on or in respect of the contracts will not be
applied to pay Monthly Certificate Interest on any Payment Date until the notes
have been paid in full. Interest will be payable on each Payment Date to the
certificateholders of record as of the preceding Record Date.
The interest payable on the certificates on the initial Payment Date will
equal $119,724.52. The interest payable on the certificates on each Payment
Date thereafter will equal one-twelfth of the product of:
. 7.12% per annum; and
. the principal balance of the certificates as of the preceding Payment
Date after giving effect to all principal payments made with respect to
the certificates on that preceding Payment Date.
Interest due but not paid on the certificates on any Payment Date will be
due on the following Payment Date together with interest on the unpaid amount
at the interest rate applicable to the certificates to the extent permitted by
law.
Principal Payments
Principal will be payable on the certificates monthly on each Payment Date
in an amount equal to the Monthly Certificate Principal for that Payment Date;
provided, however, that the certificateholders will not be entitled to receive
Monthly Certificate Principal on any Payment Date until the notes have been
paid in full.
The final scheduled Payment Date for the certificates is February 15, 2006.
The date on which the certificates are paid in full is expected to be earlier
than the final scheduled Payment Date, however, and could be significantly
earlier depending upon the rate at which the principal balances of the
contracts are paid. See "Weighted Average Life of the Offered Securities"
beginning on page 33 of this prospectus for a further discussion of contract
prepayments.
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Optional Prepayment
The certificates will be prepaid in full on any Payment Date on which the
servicer exercises its option to purchase all remaining contracts in the
contract pool from the trust. The price payable to the certificateholders in
connection with the exercise of this option will equal the principal balance of
the certificates as of the purchase date plus accrued but unpaid interest on
that principal balance at the interest rate applicable to the certificates. See
"Description of the Purchase Agreement and the Sale and Servicing Agreement--
Optional Purchase of Contracts" beginning on page 83 of this prospectus for a
further discussion of the circumstances under which the servicer may exercise
this option.
The Owner Trustee
First Union Trust Company, National Association, will act as owner trustee
under the trust agreement. The owner trustee is a national banking association.
The principal corporate trust office of the owner trustee is located at One
Rodney Square, Suite 102, 920 King Street, Wilmington, Delaware 19801,
Attention: Corporate Trust Administration. The owner trustee will have various
rights and duties with respect to the certificates. See "Description of the
Trust Agreement" beginning on page 74 of this prospectus for a further
discussion of the rights and duties of the owner trustee with respect to the
certificates.
REGISTRATION OF THE OFFERED SECURITIES
Book-Entry Registration
Each class of offered securities initially will be represented by one or
more certificates, in each case registered in the name Cede & Co., the nominee
of The Depository Trust Company. Cede is expected to be the holder of record of
the offered securities. Unless and until the securities are issued is fully
registered, certificated form, no holder of an offered security will be
entitled to receive a physical certificate representing that offered security.
All references in this prospectus to actions by securityholders refer to
actions taken by DTC or its nominee, as the case may be, upon instructions from
the participants in the DTC system, and all references in this prospectus to
payments, notices, reports and statements to securityholders refer to payments,
notices, reports and statements to DTC or its nominee, as the case may be, as
the registered holder of the offered securities, for distribution to
securityholders in accordance with DTC's procedures. The beneficial owners of
the offered securities will not be recognized by the owner trustee or the
indenture trustee, as applicable, as securityholders, and the beneficial owners
of the offered securities will be permitted to exercise the rights of
securityholders only indirectly through DTC and its participating
organizations. The beneficial owners of the offered securities may hold offered
securities in Europe through Cedelbank or Euroclear, which in turn will hold
through DTC, if they participate in DTC, or indirectly through organizations
participating in DTC. See "--Cedelbank and Euroclear" beginning on page 51 of
this prospectus for a further discussion of Cedelbank and the Euroclear system.
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The Depository Trust Company
DTC is a limited-purpose trust company organized under the New York Banking
Law, 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 Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act
of 1934, as amended. DTC holds securities for its participating organizations
and facilitates the clearance and settlement among those organizations of
securities transactions, such as transfers and pledges, in deposited securities
through electronic book-entry changes in their accounts. The electronic book-
entry system eliminates the need for physical movement of securities. The
organizations that participate in DTC include securities brokers and dealers,
who may include the underwriters of the offered securities, banks, trust
companies, clearing corporations and other organizations. Indirect access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with an organization participating in DTC, either directly or
indirectly. Transfers between organizations participating in DTC will occur in
accordance with DTC rules. The rules applicable to DTC and its participating
organizations are on file with the Securities and Exchange Commission.
Cedelbank and Euroclear will hold omnibus positions on behalf of their
respective participating organizations through customers' securities accounts
in the name of Cedelbank and Euroclear on the books of their respective
depositaries. The depositaries will in turn hold those positions in customers'
securities accounts in the depositaries' names on the books of DTC. Transfers
between organizations participating in Cedelbank and organizations
participating in the Euroclear system will occur in accordance with their
respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through organizations participating in Cedelbank or the Euroclear system, on
the other, will be effected in DTC in accordance with DTC rules on behalf of
the relevant European international clearing system by its depositary; however,
these cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines. The relevant European 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. Organizations participating in Cedelbank or the Euroclear system may not
deliver instructions directly to the Cedelbank or Euroclear depositaries.
Because of time-zone differences, credits of securities in Cedelbank or
Euroclear as a result of a transaction with an organization participating in
DTC will be made during the subsequent securities settlement processing, dated
the business day following the DTC settlement date, and those credits or any
transactions in those securities settled during that
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processing will be reported to the relevant organization participating in
Cedelbank or the Euroclear system on that business day. Cash received in
Cedelbank or the Euroclear system as a result of sales of securities by or
through an organization participating in Cedelbank or the Euroclear system to
an organization participating in DTC will be received with value on the DTC
settlement date but will be available in the relevant Cedelbank or Euroclear
cash account only as of the business day following settlement in DTC. See Annex
A beginning on page 117 of this prospectus for additional information regarding
clearance and settlement procedures. See Annex A beginning on page 117 of this
prospectus, "Material Federal Income Tax Consequences--Tax Consequences to
Foreign Note Owners" beginning on page 94 of this prospectus and "Material
Federal Income Tax Consequences--Tax Consequences to Holders of the
Certificates--Tax Consequences to Foreign Certificate Owners" beginning on page
100 of this prospectus for a discussion of tax documentation procedures
relating to the offered securities. The information contained in Annex A is an
integral part of this prospectus.
Purchases of offered securities under the DTC system must be made by or
through an organization participating in DTC, which organization will receive a
credit for the offered securities on DTC's records. The ownership interests of
the beneficial owners of the offered securities are in turn to be recorded on
the records of that organization or, in the case of a purchase made indirectly
through an organization participating in DTC, on the records of the indirect
participant. The beneficial owners of the offered securities will not receive
written confirmation from DTC of their purchase, but they are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the organization through which they
entered into the transaction. Transfers of ownership interests in the offered
securities are to be accomplished by entries made on the books of organizations
participating in DTC acting on behalf of the beneficial owners of the offered
securities.
To facilitate subsequent transfers, all offered securities deposited with
DTC by its participating organizations are registered in the name of Cede. The
deposit of offered securities with DTC and their registration in the name of
Cede effects no change in beneficial ownership. DTC has no knowledge of the
identity of the beneficial owners of the offered securities. DTC's records
reflect only the identity of the organizations participating in DTC to whose
accounts the offered securities are credited, which may or may not be the
beneficial owners of the offered securities. Those organizations will remain
responsible for keeping account of their holdings on behalf of their customers.
Because DTC can only act on behalf of its participating organizations, who
in turn act on behalf of organizations participating indirectly in DTC and
certain banks, the ability of the beneficial owners of the offered securities
to pledge those securities to persons or entities that do not participate in
the DTC system, or otherwise take action in respect of the offered securities,
may be limited due to lack of a physical certificate for the offered
securities.
Conveyance of notices and other communications by DTC to its participating
organizations, by those organizations to indirect participants in DTC, and by
direct or indirect participants in DTC to the beneficial owners of the offered
securities will be
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governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Neither DTC nor Cede will
consent or vote with respect to the offered securities. Under its usual
procedures, DTC mails an omnibus proxy to the issuer as soon as possible after
the record date, which assigns Cede's consenting or voting rights to those
organizations participating in DTC to whose accounts the offered securities are
credited on the record date as identified in a listing attached to the omnibus
proxy. Principal and interest payments on the offered securities will be made
to DTC. DTC's practice is to credit the accounts of its participating
organizations on the Payment Date in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not
receive payment on the Payment Date. Payments by organizations participating in
DTC to the beneficial owners of the offered securities 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 those organizations and not of DTC,
the owner trustee, the indenture trustee or CarMax Auto Receivables, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payments of principal and interest to DTC is the responsibility of the owner
trustee or the indenture trustee, as applicable, disbursement of those payments
to organizations participating in DTC is the responsibility of DTC, and
disbursement of those payments to the beneficial owners of the offered
securities is the responsibility of those organizations or indirect
participants in DTC. Accordingly, the beneficial owners of the offered
securities may experience some delay in their receipt of principal and interest
payments.
DTC management is aware that some computer applications and systems used
for processing data were written using two digits rather than four to define
the applicable year, and therefore may not recognize a date using "00" as the
year 2000. This could result in the inability of these systems to properly
process transactions with dates during and after the year 2000. DTC has
developed and is implementing a program to address this problem so that its
applications and systems relating to the payment of distributions, including
principal and interest payments, to securityholders, book-entry deliveries and
settlement of trades within DTC continue to function properly. This program
includes a technical assessment and a remediation plan, each of which is
complete. DTC plans to implement a testing phase of this program which is
expected to be completed within appropriate time frames.
In addition, DTC is contacting, and will continue to contact, third-party
vendors that provide services to DTC to determine the extent of their year 2000
compliance, and DTC will develop contingency plans as it deems appropriate to
address failures in year 2000 compliance on the part of third-party vendors.
However, there can be no assurance that the systems of third-party vendors will
be timely converted and will not adversely affect the proper functioning of
DTC's services.
The information set forth in the preceding two paragraphs has been provided
by DTC for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind. CarMax Auto
Receivables makes no representations as to the accuracy or completeness of this
information.
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Cedelbank and Euroclear
Cedelbank, societe anonyme, is incorporated under the laws of Luxembourg as
a professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between those organizations through electronic book-entry changes
in their accounts. The electronic book-entry system eliminates the need for
physical movement of certificates. Transactions may be settled by Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to
its participating organizations services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedelbank interfaces with domestic markets in several
countries. As a registered bank in Luxembourg, Cedelbank is subject to
regulation by the Luxembourg Commission for the Supervision of the Financial
Sector. Organizations participating in Cedelbank are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations and may include
the underwriters of the offered securities. Indirect access to Cedelbank is
also available to others, such as banks, brokers, dealers and trust companies,
that clear through or maintain a custodial relationship with an organization
participating in Cedelbank, either directly or indirectly.
The Euroclear system was created in 1968 to hold securities for
organizations participating in the Euroclear system and to clear and settle
transactions between those organizations through simultaneous electronic book-
entry delivery against payment. The electronic book-entry system eliminates the
need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled
through the Euroclear system 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 under arrangements generally similar to the arrangements for
cross-market transfers with DTC.
The Euroclear system is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York under a contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation. All operations are conducted
by that office, and all Euroclear securities clearance accounts and Euroclear
cash accounts are maintained with that office, not Euroclear Clearance System,
S.C. Euroclear Clearance System, S.C. establishes policy for the Euroclear
system on behalf of organizations participating in the Euroclear system. Those
organizations include banks, including central banks, securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of the offered securities. Indirect access to the Euroclear system
is also available to other firms that clear through or maintain a custodial
relationship with organizations participating in the Euroclear system, either
directly or indirectly.
Morgan Guaranty is a New York banking corporation and a member bank of the
Federal Reserve System. Morgan Guaranty is regulated and examined by the Board
of Governors of the Federal Reserve System and the New York State Banking
Department. The Brussels, Belgium office of Morgan Guaranty is regulated and
examined by the Belgian Banking Commission.
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The Terms and Conditions Governing Use of Euroclear, the related Operating
Procedures of the Euroclear system and applicable Belgian law govern the
securities clearance accounts and cash accounts maintained with the operator of
the Euroclear system, transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The operator of the Euroclear system acts only on behalf of organizations
participating in the Euroclear system and has no record of or relationship with
persons holding through those organizations.
Distributions with respect to offered securities held through Cedelbank or
Euroclear will be credited to the cash accounts of organizations participating
in Cedelbank or Euroclear in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. These distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. Cedelbank or the operator of the Euroclear system, as the case
may be, will take any other action permitted to be taken by a securityholder
under the sale and servicing agreement, the trust agreement or the indenture,
as applicable, on behalf of an organization participating in Cedelbank or the
Euroclear system only in accordance with its relevant rules and procedures and
subject to its depositary's ability to effect those actions on its behalf
through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the offered securities among
participants in DTC, Cedelbank and the Euroclear system, they are under no
obligation to perform or continue to perform these procedures, and these
procedures may be discontinued at any time.
Definitive Securities
The offered securities will be issued in fully registered, certificated
form to the beneficial owners of the offered securities or their respective
nominees, rather than to DTC or its nominee, only if:
. the administrator or the indenture trustee, as applicable, determines
that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the offered securities
and the administrator or the indenture trustee, as applicable, is unable
to locate a qualified successor;
. CarMax Auto Receivables, as depositor, or the indenture trustee, as
applicable, elects, at its option, to terminate the book-entry system
through DTC; or
. after the occurrence of an event of servicing termination under the sale
and servicing agreement or an event of default under the indenture, as
applicable, the beneficial owners of the offered securities representing
at least a majority of the outstanding principal amount of the
applicable offered securities advise the owner trustee or the indenture
trustee, as applicable, through DTC that the continuation of a book-
entry system through DTC, or a successor to DTC, is no longer in the
best interests of the beneficial owners of the offered securities.
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Upon the occurrence of any of the events described in the preceding
paragraph, the administrator, the owner trustee or the indenture trustee, as
applicable, will be required to notify the applicable beneficial owners of the
offered securities, through organizations participating in DTC, of the
availability of fully registered, certificated securities. Upon surrender by
DTC of the certificates representing the offered securities and the receipt of
instructions for re-registration, the owner trustee or the indenture trustee,
as applicable, will issue fully registered, certificated securities to the
beneficial owners of the offered securities. Each payment of interest and
principal on each fully registered, certificated security will be made by the
owner trustee or the indenture trustee, as applicable, on each Payment Date
directly to the holder in whose name that security was registered at the close
of business on the preceding Record Date; provided, however, that the final
payment on any fully registered, certificated security will be made only upon
presentation and surrender of that security at the office or agency specified
in the notice of final distribution mailed to the securityholders.
Each security issued in fully registered, certificated form will be
transferable and exchangeable at the offices of the owner trustee or the
indenture trustee, as applicable, or any security registrar appointed by the
owner trustee or the indenture trustee, as applicable. No service charge will
be imposed for any registration of transfer or exchange, but the owner trustee
or the indenture trustee, as applicable, may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with any transfer or exchange.
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COLLECTIONS AND PAYMENTS
The Trust Accounts
The servicer will establish and maintain the following accounts:
. the collection account, an account in the name of the indenture trustee,
for the benefit of the noteholders, the certificateholders, the servicer
and the insurer, into which all payments made on or in respect of the
contracts and certain amounts withdrawn from the reserve account or paid
under the insurance policy will be deposited;
. the note payment account, an account in the name of the indenture
trustee, for the benefit of the noteholders, into which all amounts
released from the collection account for payment to the noteholders will
be deposited and from which all payments to the noteholders will be
made; and
. the certificate payment account, an account in the name of the owner
trustee, for the benefit of the certificateholders, into which all
amounts released from the collection account for payment to the
certificateholders and, if the notes have been declared immediately due
and payable following an event of default under the indenture, all
amounts withdrawn from the reserve account or paid under the insurance
policy in respect of Monthly Certificate Interest or Monthly Certificate
Principal will be deposited and from which all payments to the
certificateholders will be made.
The servicer will also establish and maintain the reserve account. See "--
The Reserve Account" beginning on page 55 of this prospectus for a further
discussion of the reserve account.
The amounts on deposit in the collection account will be invested by the
indenture trustee in Eligible Investments. The collection account, the note
payment account and the certificate payment account must be maintained as
Eligible Deposit Accounts.
Payment Sources
The servicer will deposit all amounts received on or in respect of the
contracts, from whatever source, during each month into the collection account
not later than two business days after receipt of those amounts; provided,
however, that the servicer will not be required to deposit those amounts into
the collection account until the business day preceding the following Payment
Date at any time that and for so long as:
. CarMax Auto Superstores is the servicer;
. no event of servicing termination shall have occurred and be continuing
under the sale and servicing agreement; and
. each condition to making deposits less frequently than daily as may be
specified by the insurer, Moody's and Standard & Poor's has been
satisfied.
Amounts received on or in respect of the contracts may be invested by the
servicer at its own risk and for its own benefit, pending deposit into the
collection account, and will not
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be segregated from its own funds. The servicer may, in order to satisfy the
monthly remittance requirements, obtain a letter of credit or other security
for the benefit of the trust to secure timely remittances of collections on the
contracts and payment of the aggregate purchase price for contracts purchased
by the servicer.
On or before each Determination Date, the servicer will determine the
amount of Available Funds for the following Payment Date and the amount
required to be paid to the servicer, the noteholders, the certificateholders
and the insurer on that Payment Date. If the amount required to be paid on any
Payment Date exceeds the amount of Available Funds for that Payment Date, all
or a portion of that excess will be covered first through the withdrawal of
funds from the reserve account and then through a payment under the insurance
policy. See "--The Reserve Account" below on this page for a further discussion
of the reserve account and "Description of the Insurance Policy" beginning on
page 64 of this prospectus for a further discussion of the insurance policy.
The Reserve Account
The servicer will establish and maintain with the indenture trustee, for
the benefit of the noteholders, the certificateholders, the servicer and the
insurer, a reserve account into which excess collections on the contracts will
be deposited and from which amounts may be withdrawn to pay monthly servicing
fees to the servicer and to make required payments on the notes and the
certificates. CarMax Auto Receivables will deposit $16,098,944.00 in the
reserve account on the closing date. On each Payment Date, the indenture
trustee will deposit in the reserve account, from amounts collected on or in
respect of the contracts during the preceding month and not used on that
Payment Date to make required payments to the servicer, the noteholders, the
certificateholders or the insurer, the amount, if any, by which the Required
Reserve Account Amount for that Payment Date exceeds the amount on deposit in
the reserve account on that Payment Date after giving effect to all required
withdrawals from the reserve account on that Payment Date. The amounts on
deposit in the reserve account will be invested by the servicer in Eligible
Investments. The reserve account must be maintained as an Eligible Deposit
Account.
On each Determination Date, the servicer will determine the Reserve Account
Draw Amount, if any, for the following Payment Date. If the Reserve Account
Draw Amount for any Payment Date is greater than zero, the indenture trustee
will withdraw that amount, up to the amount on deposit in the reserve account,
from the reserve account and transfer the amount withdrawn to the collection
account; provided, however, that, if the notes have been declared immediately
due and payable following an event of default under the indenture, amounts
withdrawn from the reserve account in respect of Monthly Certificate Interest
or Monthly Certificate Principal will be deposited directly in the certificate
payment account.
If the amount on deposit in the reserve account on any Payment Date exceeds
the Required Reserve Account Amount for that Payment Date, after giving effect
to all required deposits to and withdrawals from the reserve account on that
Payment Date, that excess will be paid to CarMax Auto Receivables. Any amount
paid to CarMax Auto Receivables will no
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longer be an asset of the trust. On or after the termination of the trust,
CarMax Auto Receivables will be entitled to receive any amounts remaining in
the reserve account after all required payments to the servicer and the insurer
are made, after the payment of expenses and distributions to the noteholders
and the certificateholders and after the insurance policy has been terminated
and returned to the insurer for cancellation.
CarMax Auto Receivables intends for the amount on deposit in the reserve
account to increase over time up to the Required Reserve Account Amount. CarMax
Auto Receivables cannot assure you that the amount on deposit in the reserve
account will increase to the Required Reserve Account Amount, however, or that
the amount on deposit in the reserve account will be sufficient on any Payment
Date to pay in full the Monthly Note Interest, Monthly Note Principal, Monthly
Certificate Interest and Monthly Certificate Principal due on that Payment
Date. If the amount on deposit in the reserve account is reduced to zero and
there is a default under the insurance policy, the trust's sole source of funds
will be payments received on or in respect of the contracts, including amounts
recovered in connection with the repossession and sale of financed vehicles
that secure Defaulted Contracts. In addition, because the market value of most
motor vehicles declines with age and because of limitations on the manner in
which motor vehicles may be repossessed and sold, the servicer may not recover
the entire amount due on a Defaulted Contract if the related financed vehicle
is repossessed and sold. If the amount on deposit in the reserve account is
reduced to zero and there is a default under the insurance policy, you could
experience losses or payment delays with respect to your notes or your
certificates. See "Material Legal Aspects of the Transaction--Repossession of
Vehicles" beginning on page 86 of this prospectus and "--Notice of Sale;
Redemption Rights" beginning on page 86 of this prospectus for a further
discussion of the limitations on the manner in which motor vehicles may be
repossessed and sold.
Subordination of the Certificates
The certificateholders will not be entitled to receive Monthly Certificate
Interest on any Payment Date until the noteholders have received Monthly Note
Interest on that Payment Date. In addition, the certificateholders will not be
entitled to receive Monthly Certificate Principal on any Payment Date until the
notes have been paid in full. If the notes have been declared immediately due
and payable following an event of default under the indenture, amounts received
on or in respect of the contracts will not be applied to pay Monthly
Certificate Interest on any Payment Date until the notes have been paid in
full; provided, however, that the indenture trustee will continue to withdraw
available amounts from the reserve account and to submit claims under the
insurance policy in respect of Monthly Certificate Interest following an event
of default under the indenture. The subordination of the certificates is
intended to enhance the likelihood that amounts owed on the notes will be paid
in full.
Payment Date Distributions--Collection Account
On each Payment Date, the indenture trustee will apply or cause to be
applied the Available Funds for that Payment Date, plus any amounts withdrawn
from the reserve account or paid under the insurance policy on that Payment
Date, in each case to the extent deposited in the collection account, to make
the following payments in the following order of priority:
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(1) to the servicer, the monthly servicing fee for the preceding
month plus any overdue monthly servicing fees for previous months;
(2) to the note payment account, the Monthly Note Interest for that
Payment Date plus any overdue Monthly Note Interest for previous Payment
Dates plus interest on any overdue Monthly Note Interest payable to any
class of notes at the interest rate applicable to that class;
(3) if the notes have not been declared immediately due and payable
following an event of default under the indenture, to the certificate
payment account, the Monthly Certificate Interest for that Payment Date
plus any overdue Monthly Certificate Interest for previous Payment Dates
plus interest on any overdue Monthly Certificate Interest at the interest
rate applicable to the certificates;
(4) to the note payment account, the Monthly Note Principal for that
Payment Date; provided, however, that if the notes have been declared
immediately due and payable following an event of default under the
indenture, the amount to be deposited in the note payment account pursuant
to this clause (4) will equal the lesser of the amount available to be
applied on that Payment Date pursuant to this clause (4) and the principal
balance of the notes;
(5) if the notes have been declared immediately due and payable
following an event of default under the indenture, to the certificate
payment account, the Monthly Certificate Interest for that Payment Date
plus any overdue Monthly Certificate Interest for previous Payment Dates
plus interest on any overdue Monthly Certificate Interest at the interest
rate applicable to the certificates;
(6) to the certificate payment account, the Monthly Certificate
Principal for that Payment Date;
(7) to the insurer, the premium payable under the insurance agreement
for that Payment Date plus any overdue premiums payable under the
insurance agreement for previous Payment Dates;
(8) to the insurer, the aggregate amount of any unreimbursed payments
under the insurance policy, to the extent payable to the insurer under the
insurance agreement, plus accrued interest on any unreimbursed payments
under the insurance policy at the rate provided in the insurance agreement
plus any other amounts due to the insurer under the insurance agreement
and the insurance policy;
(9) to the reserve account, the amount, if any, by which the Required
Reserve Account Amount for that Payment Date exceeds the amount on deposit
in the reserve account on that Payment Date after giving effect to all
required withdrawals from the reserve account on that Payment Date; and
(10) to CarMax Auto Receivables, any remaining amount of Available
Funds.
If the notes have been declared immediately due and payable following an
event of default under the indenture, any amounts withdrawn from the reserve
account or paid under the insurance policy, in each case in respect of Monthly
Certificate Interest or Monthly Certificate Principal, will be deposited
directly in the certificate payment account.
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Payment Date Distributions--Note Payment Account
On each Payment Date preceding the date on which the notes are declared
immediately due and payable following an event of default under the indenture,
the indenture trustee will apply or cause to be applied the amount on deposit
in the note payment account on that Payment Date to make the following payments
in the following order of priority:
(1) to the holders of each class of notes, the portion of the Monthly
Note Interest payable to that class for that Payment Date plus any overdue
Monthly Note Interest payable to that class for previous Payment Dates
plus interest on any overdue Monthly Note Interest payable to that class
at the interest rate applicable to that class;
(2) to the holders of the class A-1 notes, the Monthly Note Principal
for that Payment Date until the class A-1 notes have been paid in full;
(3) following payment in full of the class A-1 notes, to the holders
of the class A-2 notes, the Monthly Note Principal for that Payment Date
until the class A-2 notes have been paid in full;
(4) following payment in full of the class A-2 notes, to the holders
of the class A-3 notes, the Monthly Note Principal for that Payment Date
until the class A-3 notes have been paid in full; and
(5) following payment in full of the class A-3 notes, to the holders
of the class A-4 notes, the Monthly Note Principal for that Payment Date
until the class A-4 notes have been paid in full.
If the amount on deposit in the note payment account on any Payment Date
preceding the date on which the notes are declared immediately due and payable
is less than the amount described in clause (1) above for that Payment Date,
the available amount will be paid to the holders of each class of notes pro
rata based on the aggregate amount of interest, including overdue interest,
payable to that class on that Payment Date. If the amount available to pay
principal of the notes on any Payment Date preceding the date on which the
notes are declared immediately due and payable is less than the Monthly Note
Principal for that Payment Date, the available amount will be paid to the
holders of each class of notes pro rata based on the principal balance of that
class as of that Payment Date.
On each Payment Date following the date on which the notes are declared
immediately due and payable following an event of default under the indenture,
the indenture trustee will apply or cause to be applied the amount on deposit
in the note payment account on that Payment Date to make the following payments
in the following order of priority:
(1) to the holders of each class of notes, the portion of the Monthly
Note Interest payable to that class for that Payment Date plus any overdue
Monthly Note Interest payable to that class for previous Payment Dates
plus interest on any overdue Monthly Note Interest payable to that class
at the interest rate applicable to that class; and
(2) to the holders of each class of notes, the amount remaining on
deposit in the note payment account on that Payment Date pro rata based on
the principal balance of that class as of that Payment Date.
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If the amount on deposit in the note payment account on any Payment Date is
less than the amount described in clause (1) above for that Payment Date, the
available amount will be paid to the holders of each class of notes pro rata
based on the aggregate amount of interest, including overdue interest, payable
to that class on that Payment Date.
Payment Date Distributions--Certificate Payment Account
On each Payment Date, the owner trustee will apply or cause to be applied
the amount on deposit in the certificate payment account on that Payment Date
to make the following payments in the following order of priority:
(1) to the certificateholders, the Monthly Certificate Interest for
that Payment Date plus any overdue Monthly Certificate Interest for
previous Payment Dates plus interest on any overdue Monthly Certificate
Interest at the interest rate applicable to the certificates; and
(2) to the certificateholders, the Monthly Certificate Principal for
that Payment Date until the certificates have been paid in full.
As an administrative convenience, the servicer will be permitted to deposit
the amounts received on or in respect of the contracts for any month net of
distributions to be made to the servicer on the following Payment Date. The
servicer will account to the indenture trustee, the owner trustee, the
noteholders and the certificateholders, however, as if all deposits and
distributions were made individually.
Application of Collection and Payment Provisions to First Payment Date
The following chart describes the application of the collection and payment
provisions to the first Payment Date on December 15, 1999:
October 1 through
November 30, 1999........ The servicer receives monthly payments,
prepayments and other amounts in respect of the
contracts and deposits them in the collection
account. The servicer may deduct the monthly
servicing fee to be received on the following
Payment Date from these deposits.
December 9, 1999
(Determination Date)..... On or before this date, the servicer delivers a
certified report to the indenture trustee and
the owner trustee setting forth the amounts, if
any, to be withdrawn from the reserve account
and paid under the insurance policy on the
following Payment Date and the amounts to be
distributed to the noteholders and the
certificateholders on that Payment Date. If
necessary, the indenture trustee withdraws
amounts from the reserve account and notifies
the insurer of any payments required under the
insurance policy.
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December 14, 1999
(Record Date)............
Distributions on the following Payment Date are
made to noteholders and certificateholders of
record at the close of business on this date.
December 15, 1999
(Payment Date)...........
The indenture trustee applies Available Funds
to make all required payments to the servicer
and the insurer and to make all required
deposits to the note payment account and the
certificate payment account. If Available Funds
are not sufficient to make various required
payments, the indenture trustee withdraws funds
from the reserve account, up to the amount on
deposit in the reserve account, to cover the
deficiency. If Available Funds and withdrawals
from the reserve account are not sufficient to
pay the monthly servicing fee, Monthly Note
Interest, Monthly Note Principal, Monthly
Certificate Interest and Monthly Certificate
Principal in full, the insurer makes a payment
under the insurance policy to cover the
deficiency. The indenture trustee applies
amounts on deposit in the note payment account
to make all required payments to the
noteholders. The owner trustee applies amounts
on deposit in the certificate payment account
to make all required payments to the
certificateholders.
Statements to Noteholders
On or before each Payment Date, the servicer will prepare and forward to
the indenture trustee a statement, to be included with the payment to be made
to each noteholder on that Payment Date, setting forth for that Payment Date or
the preceding month, as applicable, the following information:
. the amount of that payment allocable to Monthly Note Interest for that
Payment Date, overdue Monthly Note Interest for previous Payment Dates
and interest on overdue Monthly Note Interest, in each case for each
class of notes;
. the aggregate amount for each class of notes of Monthly Note Interest
for that Payment Date and overdue Monthly Note Interest for previous
Payment Dates due but not paid on that Payment Date;
. the amount of that payment allocable to principal for each class of
notes;
. the monthly servicing fee payable to the servicer for that month and any
overdue monthly servicing fees for previous months;
. the principal balance and the pool factor for each class of notes as of
that Payment Date and the principal balance of the notes as of that
Payment Date, in each case after giving effect to all payments of
principal made on that Payment Date;
. the principal balance of the contracts as of the last day of that month;
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. the amount on deposit in the reserve account, after giving effect to all
required deposits to and withdrawals from the reserve account on that
Payment Date;
. the aggregate purchase price for contracts repurchased by CarMax Auto
Receivables or purchased by the servicer during that month;
. the number and aggregate principal balance of contracts that were 31-60
days, 61-90 days or 91 days or more delinquent as of the last day of
that month; and
. the net losses on the contracts for that month.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the trust, the
administrator will mail to each person who was a registered noteholder at any
time during that calendar year a statement containing information to be used by
that person in preparing its federal income tax returns.
Statements to Certificateholders
On or before each Payment Date, the servicer will prepare and forward to
the owner trustee a statement, to be included with the payment to be made to
each certificateholder on that Payment Date, setting forth for that Payment
Date or the preceding month, as applicable, the following information:
. the amount of that payment allocable to Monthly Certificate Interest for
that Payment Date, overdue Monthly Certificate Interest for previous
Payment Dates and interest on overdue Monthly Certificate Interest;
. the aggregate amount of Monthly Certificate Interest for that Payment
Date and overdue Monthly Certificate Interest for previous Payment Dates
due but not paid on that Payment Date;
. the amount of that payment allocable to Monthly Certificate Principal
for that Payment Date;
. the monthly servicing fee payable to the servicer for that month and any
overdue monthly servicing fees for previous months;
. the principal balance of the certificates and the certificate pool
factor as of that Payment Date, in each case after giving effect to all
payments of Monthly Certificate Principal made on that Payment Date;
. the principal balance of the contracts as of the last day of that month;
. the amount on deposit in the reserve account, after giving effect to all
required deposits to and withdrawals from the reserve account on that
Payment Date;
. the aggregate purchase price for contracts repurchased by CarMax Auto
Receivables or purchased by the servicer during that month;
. the number and aggregate principal balance of contracts that were 31-60
days, 61-90 days or 91 days or more delinquent as of the last day of
that month; and
. the net losses on the contracts for that month.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the trust, the
administrator will mail to each person who was a registered certificateholder
at any time during that calendar year a statement containing information to be
used by that person in preparing its federal income tax returns.
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DESCRIPTION OF THE INSURER
MBIA Insurance Corporation
MBIA Insurance Corporation is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to
pay the debts of or claims against MBIA Insurance Corporation. MBIA Insurance
Corporation is domiciled in the State of New York and licensed to do business
in and subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. MBIA Insurance Corporation has two European branches, one in the Republic
of France and the other in the Kingdom of Spain. New York has laws prescribing
minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by MBIA Insurance Corporation, changes in
control and transactions among affiliates. In addition, MBIA Insurance
Corporation is required to maintain contingency reserves on its liabilities in
certain amounts and for certain periods of time.
MBIA Insurance Corporation does not accept any responsibility for the
accuracy or completeness of this prospectus or any information or disclosure
contained in this prospectus, or omitted from this prospectus, other than with
respect to the accuracy of the information regarding MBIA Insurance Corporation
set forth under the heading "Description of the Insurer." In addition, MBIA
Insurance Corporation makes no representations regarding the notes or the
certificates or the advisability of investing in the notes or the certificates.
The insurance policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
MBIA Insurance Corporation Financial Information
The consolidated financial statements of MBIA Insurance Corporation, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of December 31,
1998 and December 31, 1997 and for each of the three years in the period ended
December 31, 1998, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc. for the
year ended December 31, 1998 and the consolidated financial statements of MBIA
Insurance Corporation and its subsidiaries as of June 30, 1999 and for the six
month periods ended June 30, 1999 and June 30, 1998 included in the Quarterly
Report on Form 10-Q of MBIA Inc. for the period ended June 30, 1999, are
incorporated by reference into this prospectus and shall be deemed to be a part
of this prospectus. Any statement contained in a document incorporated by
reference in this prospectus shall be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is incorporated by
reference in this prospectus modifies or supersedes that statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
All financial statements of MBIA Insurance Corporation and its subsidiaries
included in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities
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Exchange Act of 1934, as amended, subsequent to the date of this prospectus and
prior to the termination of the offering of the notes and the certificates
shall be deemed to be incorporated by reference into this prospectus and to be
a part of this prospectus from the respective dates of filing those documents.
The tables below present selected financial information of MBIA Insurance
Corporation determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities and generally
accepted accounting principles.
<TABLE>
<CAPTION>
Statutory Accounting
Practices
------------------------
December 31, June 30,
1998 1999
------------ -----------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Admitted Assets.................................. $6,521 $6,807
Liabilities...................................... $4,231 $4,468
Capital and Surplus.............................. $2,290 $2,339
</TABLE>
<TABLE>
<CAPTION>
Generally Accepted
Accounting Principles
------------------------
December 31, June 30,
1998 1999
------------ -----------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Assets........................................... $7,488 $7,429
Liabilities...................................... $3,211 $3,234
Shareholder's Equity............................. $4,277 $4,195
</TABLE>
Where You Can Obtain Additional Information About MBIA Insurance Corporation
Copies of the financial statements of MBIA Insurance Corporation
incorporated by reference in this prospectus and copies of MBIA Insurance
Corporation's 1998 year-end audited financial statements prepared in accordance
with statutory accounting practices are available, without charge, from MBIA
Insurance Corporation. The address of MBIA Insurance Corporation is 113 King
Street, Armonk, New York 10504. The telephone number of MBIA Insurance
Corporation is (914) 273-4545.
Year 2000 Readiness Disclosure
MBIA Inc. is actively managing a high-priority year 2000 program. MBIA Inc.
has established an independent year 2000 testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the
project. MBIA Inc. has a budget of $1.13 million for its 1998-2000 year 2000
efforts. Expenditures are proceeding as anticipated, and MBIA Inc. does not
expect the project budget to materially exceed this amount. MBIA Inc. has
initiated a comprehensive year 2000 plan that includes assessment, remediation,
testing and contingency planning. This plan covers important internally
developed systems, vendor software, hardware and third-party entities,
including financial institutions and the telephone company, through which MBIA
Inc. conducts its business. Testing to date indicates that functions critical
to the financial guarantee business, both domestic and international, were year
2000-ready as of December 31, 1998. Additional testing will continue throughout
1999.
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Financial Strength Ratings of MBIA Insurance Corporation
Moody's rates the financial strength of MBIA Insurance Corporation "Aaa."
Standard & Poor's rates the financial strength of MBIA Insurance Corporation
"AAA." Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the financial strength of MBIA Insurance Corporation "AAA."
Each rating of MBIA Insurance Corporation should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of MBIA Insurance Corporation and its
ability to pay claims on its policies of insurance. Any further explanation as
to the significance of the above ratings may be obtained only from the
applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the offered
securities, and the ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the offered
securities. MBIA Insurance Corporation does not guaranty the market price of
the offered securities, nor does it guaranty that the ratings on the offered
securities will not be revised or withdrawn.
DESCRIPTION OF THE INSURANCE POLICY
On the closing date, MBIA Insurance Corporation, as insurer, will issue an
insurance policy for the benefit of the noteholders and the certificateholders
under which the insurer will unconditionally and irrevocably guarantee the
payment of the monthly servicing fee, Monthly Note Interest, Monthly Note
Principal, Monthly Certificate Interest and Monthly Certificate Principal for
each Payment Date. The insurer will pay any amount payable under the insurance
policy no later than 12:00 noon, Eastern Time, on the later of the related
Payment Date and the second business day following receipt by the insurer of a
notice specifying the Policy Claim Amount for that Payment Date. All amounts
paid under the insurance policy will be deposited in the collection account;
provided, however, that, if the notes have been declared immediately due and
payable following an event of default under the indenture, amounts paid under
the insurance policy in respect of Monthly Certificate Interest or Monthly
Certificate Principal will be deposited directly in the certificate payment
account. The insurance policy will be issued under an insurance and
reimbursement agreement among CarMax Auto Receivables, CarMax Auto Superstores,
in its individual capacity and as seller and servicer, and the insurer.
The insurer will be entitled to receive on each Payment Date, from the
Available Funds for that Payment Date plus any amounts withdrawn from the
reserve account on that Payment Date, the premium payable under the insurance
agreement for that Payment Date, the aggregate amount of any unreimbursed
payments under the insurance policy and various other amounts, in each case as
described under "Collections and Payments--Payment Date Distributions--
Collection Account" beginning on page 56 of this prospectus. The insurer will
not be entitled to reimbursement of any amounts paid under the insurance policy
from the noteholders or the certificateholders. The insurer will have no
obligations to the noteholders, the certificateholders, the indenture trustee
or the owner trustee other than its obligations under the insurance policy.
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REPORTS TO SECURITYHOLDERS
Unless and until the notes or the certificates, as applicable, are issued
in fully registered, certificated form, the indenture trustee will provide
monthly and annual statements concerning the trust and the offered securities
to Cede, the nominee of DTC, as registered holder of the offered securities.
These statements will not constitute financial statements prepared in
accordance with generally accepted accounting principles. A copy of the most
recent monthly or annual statement concerning the trust and the offered
securities may be obtained by contacting the servicer at CarMax Auto
Superstores, Inc., c/o Circuit City Stores, Inc., 9954 Mayland Drive, Richmond,
Virginia 23233, Attention: Treasury Department, telephone: (804) 527-4000. See
"Registration of the Offered Securities--Definitive Securities" beginning on
page 52 of this prospectus for a further discussion of the limited
circumstances under which the notes or the certificates will be issued in fully
registered, certificated form.
DESCRIPTION OF THE INDENTURE
The following summary describes the material terms of the indenture. A form
of the indenture has been filed as an exhibit to the registration statement of
which this prospectus forms a part.
Events of Default
The following events will constitute events of default under the indenture:
. the trust shall fail to make any required interest payment on the notes
and that failure shall continue unremedied for five business days;
. the trust shall fail to make any required principal payment on the
notes;
. the trust shall fail to observe or perform any material covenant or
agreement of the trust made in the indenture and that failure shall
continue unremedied for 60 days after written notice of that failure
shall have been given to the trust by the indenture trustee or the
insurer or to the trust and the indenture trustee by the holders of
notes evidencing not less than 25% of the principal balance of the
notes;
. any representation or warranty of the trust made in the indenture or in
any certificate delivered under the indenture shall prove to have been
incorrect in any material respect as of the time when made and that
breach shall continue unremedied for 30 days after written notice of
that breach shall have been given to the trust by the indenture trustee
or the insurer or to the trust and the indenture trustee by the holders
of notes evidencing not less than 25% of the principal balance of the
notes;
. an event of bankruptcy, insolvency, receivership or liquidation shall
occur with respect to the trust or any substantial part of the trust
assets; or
. a claim shall be made under the insurance policy;
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provided, however, that, unless an Insurer Default shall have occurred and be
continuing, neither the indenture trustee nor the noteholders may declare an
event of default under the indenture. If an Insurer Default shall not have
occurred and be continuing, an event of default will occur under the indenture
only upon delivery by the insurer to the indenture trustee of notice that an
event of default has occurred under the indenture.
Rights Upon Event of Default
If an event of default shall have occurred and be continuing under the
indenture and an Insurer Default shall not have occurred and be continuing, the
insurer may declare the notes to be immediately due and payable and cause the
indenture trustee to sell the property of the trust in whole or in part and to
distribute the proceeds of that sale in accordance with the indenture. The
insurer may not, however, cause the indenture trustee to sell the property of
the trust in whole or in part following an event of default under the indenture
if the proceeds of that sale would not be sufficient to pay in full the
principal amount of and accrued but unpaid interest on the notes unless the
event of default arose from a claim being made under the insurance policy or
from an event of bankruptcy, insolvency, receivership or liquidation with
respect to the trust. If an event of default shall have occurred and be
continuing under the indenture and an Insurer Default shall not have occurred
and be continuing, the insurer, at its option, may elect to prepay all or any
portion of the principal amount of and accrued but unpaid interest on the notes
and, if the notes have been paid in full, the certificates. The indenture
trustee will continue to submit claims under the insurance policy with respect
to the notes and the certificates following an event of default under the
indenture.
If an event of default shall have occurred and be continuing under the
indenture and an Insurer Default shall have occurred and be continuing, the
indenture trustee or the holders of notes evidencing not less than 66 2/3% of
the principal balance of the notes may declare the notes to be immediately due
and payable. Any declaration of acceleration by the indenture trustee or the
noteholders may be rescinded by the holders of notes evidencing not less than
66 2/3% of the principal balance of the notes at any time before a judgment or
decree for payment of the amount due has been obtained by the indenture trustee
if the trust has deposited with the indenture trustee an amount sufficient to
pay all principal of and interest on the notes as if the event of default
giving rise to the declaration of acceleration had not occurred and all events
of default under the indenture, other than the nonpayment of principal of the
notes that has become due solely as a result of the acceleration, have been
cured or waived.
If the notes have been declared immediately due and payable by the
indenture trustee or the noteholders following an event of default under the
indenture, the indenture trustee may institute proceedings to collect amounts
due, exercise remedies as a secured party, including foreclosure or sale of the
property of the trust, or elect to maintain the property of the trust and
continue to apply proceeds from the property of the trust as if there had been
no declaration of acceleration. The indenture trustee may not, however, sell
the property of the trust following an event of default under the indenture,
other than a default for five or more
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business days in the payment of interest on the notes or a default in the
payment of any required principal payment on the notes unless:
. 100% of the noteholders consent to the sale;
. the proceeds of the sale are sufficient to pay in full the principal
amount of and accrued but unpaid interest on the notes and all amounts
due to the insurer under the insurance agreement; or
. the indenture trustee determines that the property of the trust would
not be sufficient on an ongoing basis to make all payments on the notes
as those payments would have become due had the notes not been declared
due and payable and the holders of notes evidencing not less than 66
2/3% of the principal balance of the notes consent to the sale.
The indenture trustee may, but need not, obtain and rely upon an opinion of an
independent accountant or investment banking firm as to the sufficiency of the
property of the trust to pay principal of and interest on the notes on an
ongoing basis.
If the property of the trust is sold following an event of default under
the indenture, the indenture trustee will apply or cause to be applied the
proceeds of that sale to make the following payments in the following order of
priority:
(1) to the indenture trustee, all amounts due to the indenture trustee
as compensation under the terms of the indenture;
(2) to the servicer, all accrued but unpaid monthly servicing fees;
(3) to the noteholders, all accrued but unpaid interest on the notes;
(4) to the noteholders, the principal balance of the notes;
(5) to the certificateholders, all accrued but unpaid interest on the
certificates; and
(6) to the certificateholders, the principal balance of the
certificates.
Any remaining amounts will be distributed first to the insurer for amounts
due to the insurer under the insurance agreement and then to CarMax Auto
Receivables.
If the property of the trust is sold following an event of default under
the indenture and the proceeds of that sale are not sufficient to pay in full
the principal balance of and all accrued but unpaid interest on the notes and
the certificates, the indenture trustee will withdraw available amounts from
the reserve account and submit claims under the insurance policy in respect of
that shortfall.
If an event of default shall have occurred and be continuing under the
indenture, subject to the provisions of the indenture relating to the duties
of the indenture trustee, 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 the noteholders if the indenture trustee reasonably believes that
it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with that request or
direction.
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Waiver of Past Defaults
The insurer, if an Insurer Default shall not have occurred and be
continuing, or the holders of notes evidencing not less than 51% of the
principal balance of the notes, with the consent of the insurer if an Insurer
Default shall not have occurred and be continuing, may, on behalf of all
noteholders, waive any past default or event of default under the indenture
prior to the acceleration of the notes, other than a default in payment of
principal of or interest on any of the notes or in respect of any covenant or
other provision in the indenture that cannot be amended, supplemented or
modified without the unanimous consent of the noteholders.
Covenants
The trust will not:
. except as expressly permitted by the purchase agreement, the trust
agreement, the sale and servicing agreement or the indenture, sell,
transfer, exchange or otherwise dispose of any of the assets of the
trust;
. claim any credit on or make any deduction from the interest or principal
payable in respect of the notes or the certificates, other than amounts
withheld under the Internal Revenue Code or applicable state law, or
assert any claim against any present or former noteholder because of the
payment of taxes levied or assessed upon the trust;
. dissolve or liquidate in whole or in part;
. permit the validity or effectiveness of the indenture to be impaired;
. permit any person to be released from any covenants or obligations with
respect to the notes under the indenture except as may be expressly
permitted by the indenture;
. permit the creation of any lien with respect to any of the assets of the
trust, other than the lien of the indenture and except for tax liens,
mechanics' liens and other liens arising by operation of law;
. permit the lien of the indenture not to constitute a valid, first
priority security interest in the assets of the trust, except for tax
liens, mechanics' liens and other liens arising by operation of law;
. engage in any activities other than financing, acquiring, owning,
pledging and managing the contracts as contemplated by the purchase
agreement, the trust agreement, the sale and servicing agreement and the
indenture and activities incidental to those activities; or
. incur, assume or guarantee any indebtedness other than indebtedness
evidenced by the notes or indebtedness otherwise permitted by the
purchase agreement, the trust agreement, the sale and servicing
agreement or the indenture.
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Replacement of Indenture Trustee
The insurer, if an Insurer Default shall not have occurred and be
continuing, or the holders of notes evidencing not less than 51% of the
principal balance of the notes, with the consent of the insurer if an Insurer
Default shall not have occurred and be continuing, may remove the indenture
trustee without cause by notifying the indenture trustee and the trust of that
removal and, following that removal, may appoint a successor indenture trustee.
Any successor indenture trustee must at all times satisfy the requirements of
Section 310(a) of the Trust Indenture Act of 1939, as amended, and must have a
combined capital and surplus of at least $50,000,000 and a long-term debt
rating of investment grade by Moody's and Standard & Poor's or must otherwise
be acceptable to Moody's and Standard & Poor's.
The indenture trustee may resign at any time by notifying the trust, the
noteholders and the insurer of that resignation. The trust will be required to
remove the indenture trustee if the indenture trustee:
. ceases to be eligible to continue as the trustee under the indenture;
. is adjudged to be bankrupt or insolvent;
. comes under the charge of a receiver or other public officer; or
. otherwise becomes incapable of acting.
Upon the resignation or required removal of the indenture trustee, or the
failure of the noteholders to appoint a successor trustee following the removal
of the indenture trustee without cause, the trust, with the consent of the
insurer if an Insurer Default shall not have occurred and be continuing, will
be required promptly to appoint a successor trustee under the indenture.
Duties of Indenture Trustee
Except upon the occurrence and during the continuation of an event of
default under the indenture, the indenture trustee:
. will perform those duties and only those duties that are specifically
set forth in the indenture;
. may, in the absence of bad faith, rely on certificates or opinions
furnished to the indenture trustee which conform to the requirements of
the indenture as to the truth of the statements and the correctness of
the opinions expressed in those certificates or opinions; and
. will examine any certificates and opinions which are specifically
required to be furnished to the indenture trustee under the indenture to
determine whether or not they conform to the requirements of the
indenture.
Upon the occurrence and during the continuation of an event of default
under the indenture, the indenture trustee will be required to exercise the
rights and powers vested in it by the indenture and use the same degree of care
and skill in the exercise of those rights and powers as a prudent person would
exercise or use under the circumstances in the conduct of that person's own
affairs.
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Compensation; Indemnification
The servicer will pay to the indenture trustee from time to time reasonable
compensation for its services, reimburse the indenture trustee for all expenses
and disbursements reasonably incurred or made by it and indemnify the indenture
trustee for, and hold it harmless against, any and all losses, liabilities or
expenses, including attorneys' fees, incurred by it in connection with the
administration of the trust and the performance of its duties under the
indenture; provided, however, that the indenture trustee will not be
indemnified for, or held harmless against, any loss, liability or expense
incurred by it through its own willful misconduct, negligence or bad faith. The
indenture trustee will not be liable:
. for any error of judgment made by it in good faith unless it is proved
that the indenture trustee was negligent in ascertaining the pertinent
facts;
. for any action it takes or omits to take in good faith in accordance
with directions received by it from the noteholders in accordance with
the terms of the indenture; or
. for interest on any money received by it except as the indenture trustee
and the trust may agree in writing.
The indenture trustee will not be deemed to have knowledge of any event of
default under the indenture unless a responsible officer of the indenture
trustee has actual knowledge of the default or has received written notice of
the default in accordance with the indenture.
Access to Noteholder List
If the notes are issued in fully registered, certificated form and the
indenture trustee is not the registrar for the notes, the trust will furnish or
cause to be furnished to the indenture trustee, within five days after each
Record Date, a list of the names and addresses of the noteholders as of that
Record Date. In addition, if the notes are issued in fully registered,
certificated form and the indenture trustee is not the registrar for the notes,
the trust will furnish or cause to be furnished to the indenture trustee,
within 30 days after receipt by the indenture trustee of a written request for
a list of the names and addresses of the noteholders, a list of the names and
addresses of the noteholders as of a date not more than 10 days before the date
that list is furnished.
Annual Compliance Statement; Annual Report
The trust will file annually with the indenture trustee a written statement
as to the fulfillment of its obligations under the indenture. The indenture
trustee will mail annually to all noteholders a brief report relating to its
eligibility and qualification to continue as indenture trustee, any amounts
advanced by it under the indenture, the amount, interest rate and maturity date
of any material indebtedness owing by the trust to the indenture trustee in its
individual capacity, the property and funds physically held by the indenture
trustee and any action taken by the indenture trustee that materially affects
the notes and that has not previously been reported.
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Satisfaction and Discharge of Indenture
If the insurance policy has been terminated and returned to the insurer for
cancellation, the indenture will be discharged with respect to the collateral
securing the notes:
. upon delivery to the indenture trustee for cancellation of all the notes
or, if all notes not delivered to the indenture trustee for cancellation
have become due and payable, upon deposit with the indenture trustee of
funds sufficient for the payment in full of the principal amount of and
accrued but unpaid interest on the notes;
. upon delivery to the indenture trustee and the insurer of an officer's
certificate and an opinion of counsel, which may be internal counsel to
CarMax Auto Receivables or the servicer, stating that all conditions
precedent provided for in the indenture relating to the satisfaction and
discharge of the indenture have been satisfied; and
. upon delivery to the indenture trustee of an opinion of counsel, which
may be internal counsel to CarMax Auto Receivables or the servicer, to
the effect that the satisfaction and discharge of the indenture will not
cause any noteholder to be treated as having sold or exchanged its notes
for purposes of Section 1001 of the Internal Revenue Code.
Modification of Indenture
The owner trustee, on behalf of the trust, and the indenture trustee may,
without the consent of the noteholders but with the consent of the insurer if
an Insurer Default shall not have occurred and be continuing, with prior
written notice to the insurer, Moody's and Standard & Poor's, enter into one or
more supplemental indentures for the purpose of, among other things, adding to
the covenants of the trust for the benefit of the noteholders, curing any
ambiguity, correcting or supplementing any provision of the indenture which may
be inconsistent with any other provision of the indenture or this prospectus or
adding any provisions to or changing in any manner or eliminating any of the
provisions of the indenture which will not be inconsistent with other
provisions of the indenture; provided, however, that no such supplemental
indenture may materially adversely affect the interests of any noteholder or
certificateholder. A supplemental indenture will be deemed not to materially
adversely affect the interests of any noteholder or certificateholder if the
person requesting the supplemental indenture obtains and delivers to the
indenture trustee:
. an opinion of counsel to that effect; or
. a letter from each of Moody's and Standard & Poor's to the effect that
the supplemental indenture would not result in a downgrading or
withdrawal of the rating then assigned by that rating agency to the
notes or the certificates.
The owner trustee, on behalf of the trust, and the indenture trustee may,
with the consent of the holders of notes evidencing not less than 51% of the
principal balance of the notes, and with the consent of the insurer if an
Insurer Default shall not have occurred and
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be continuing, with prior written notice to the insurer, Moody's and Standard &
Poor's, enter into one or more supplemental indentures for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the indenture or modifying in any manner the rights of the
noteholders; provided, however, that no such supplemental indenture consented
to by the insurer on behalf of the noteholders may materially adversely affect
the interests of any noteholder or certificateholder; and, provided further,
that no such supplemental indenture may, without the consent of all noteholders
affected by the supplemental indenture:
. change the final scheduled Payment Date for any class of notes or the
due date of any installment of principal of or interest on any note or
reduce the principal amount of any note, the interest rate specified for
any note or the redemption price with respect to any note, change the
provisions of the indenture relating to the application of collections
on, or the proceeds of the sale of, the assets of the trust to payment
of principal of or interest on the notes, or change any place of payment
where, or the coin or currency in which, any note or any interest on any
note is payable;
. impair the right to institute suit for the enforcement of the provisions
of the indenture regarding payment;
. reduce the percentage of the principal balance of the notes the consent
of the holders of which is required for any supplemental indenture or
for any waiver of compliance with the provisions of the indenture or of
the defaults under the indenture and their consequences as provided in
the indenture;
. modify the provisions of the indenture regarding the voting of notes
held by the trust, any other obligor upon the notes, CarMax Auto
Receivables, the servicer or any affiliate of any of them;
. reduce the percentage of the principal balance of the notes the consent
of the holders of which is required to direct the indenture trustee to
sell the assets of the trust if the proceeds of that sale would be
insufficient to pay in full the principal amount of and accrued but
unpaid interest on the notes;
. modify the provisions of the indenture in such a manner as to affect the
rights of the noteholders to the benefit of any provisions for the
mandatory redemption of the notes; or
. permit the creation of any lien ranking prior to or on a parity with the
lien of the indenture with respect to any of the assets of the trust or,
except as otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on any collateral or deprive any
noteholder of the security afforded by the lien of the indenture.
A supplemental indenture will be deemed not to materially adversely affect
the interests of any noteholder or certificateholder if the person requesting
the supplemental indenture obtains and delivers to the indenture trustee:
. an opinion of counsel to that effect; or
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. a letter from each of Moody's and Standard & Poor's to the effect that
the supplemental indenture would not result in a downgrading or
withdrawal of the rating then assigned by that rating agency to the
notes or the certificates.
No supplemental indenture will be permitted unless an opinion of counsel is
delivered to the indenture trustee to the effect that the supplemental
indenture will not materially adversely affect the taxation of any note or
certificate, or any noteholder or certificateholder, or adversely affect the
tax status of the trust. No supplemental indenture will be permitted without
the consent of the insurer if the supplemental indenture would reasonably be
expected to materially adversely affect the interests of the insurer.
Administration Agreement
CarMax Auto Receivables, as administrator, the owner trustee, on behalf of
the trust, and the indenture trustee will enter into an administration
agreement under which the administrator will agree to provide notices and to
perform other obligations under the indenture. The administrator will be
entitled to a monthly administrative fee as compensation for the performance of
its obligations under the administration agreement, which fee will be paid by
the servicer. A form of the administration agreement has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
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DESCRIPTION OF THE TRUST AGREEMENT
The following summary describes the material terms of the trust agreement.
A form of the trust agreement has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
Formation of Trust; Issuance of Certificates
On October 8, 1999, CarMax Auto Receivables formed the trust and appointed
the owner trustee as trustee of the trust. The owner trustee will, concurrently
with the transfer of the contracts to the trust under the sale and servicing
agreement, issue the certificates.
Replacement of Owner Trustee
The owner trustee may resign at any time by notifying the administrator and
the insurer of that resignation. The administrator may remove the owner trustee
if the owner trustee:
. ceases to be eligible to continue as the trustee under the trust
agreement;
. is adjudged to be bankrupt or insolvent;
. comes under the charge of a receiver or other public officer; or
. otherwise becomes incapable of acting.
Upon the resignation or removal of the owner trustee, the administrator,
with the consent of the insurer if an Insurer Default shall not have occurred
and be continuing, will be required promptly to appoint a successor trustee
under the trust agreement.
Duties of Owner Trustee
The owner trustee will agree to administer the trust in the interest of the
certificateholders, subject to the lien of the indenture, and in accordance
with the provisions of the trust agreement. The owner trustee will not be
required to take any action that it has reasonably determined is likely to
result in liability on the part of the owner trustee or that is contrary to the
terms of the trust agreement or applicable law.
Compensation; Indemnification
The servicer will pay to the owner trustee from time to time reasonable
compensation for its services, reimburse the owner trustee for all expenses and
disbursements reasonably incurred or made by it and indemnify the owner trustee
for, and hold it harmless against, any and all losses, liabilities or expenses,
including attorneys' fees, incurred by it in connection with the administration
of the trust or the performance of its duties under the trust agreement;
provided, however, that the owner trustee will not be indemnified against any
loss, liability or expense incurred by it through its own willful misconduct,
negligence or bad faith. The owner trustee will not be liable:
. for any error of judgment made by it in good faith unless it is proved
that the owner trustee was negligent in ascertaining the pertinent
facts;
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. for any action it takes or omits to take in good faith in accordance
with directions received by it from the certificateholders, the
indenture trustee, CarMax Auto Receivables, the administrator or the
servicer;
. for indebtedness evidenced by or arising under the trust agreement or
any of the related documents, including the principal of or interest on
the notes or the certificates; or
. for the default or misconduct of the servicer, the administrator, CarMax
Auto Receivables, the indenture trustee or any agent or attorney
selected by the owner trustee with reasonable care.
Termination of Trust
If the insurance policy has been terminated and returned to the insurer for
cancellation, the trust agreement, except for provisions relating to
compensation, reimbursement and indemnification of the owner trustee, and the
trust will terminate and be of no further force or effect:
. upon the payment to the insurer, the noteholders and the
certificateholders of all amounts required to be paid to them under the
insurance agreement, the trust agreement and the indenture, as
applicable; or
. on the Payment Date following the month which is one year after the
maturity or other liquidation of the last contract in the contract pool
and the disposition of any amounts received upon liquidation of any
property remaining in the trust.
Amendment of Trust Agreement
The owner trustee, on behalf of the trust, and CarMax Auto Receivables may,
without the consent of the noteholders or the certificateholders but with the
consent of the insurer if an Insurer Default shall not have occurred and be
continuing, with prior written notice to the insurer, Moody's and Standard &
Poor's, amend the trust agreement for the purpose of curing any ambiguity,
correcting or supplementing any provision of the trust agreement which may be
inconsistent with any other provision of the trust agreement or this prospectus
or adding any provisions to or changing in any manner or eliminating any of the
provisions of the trust agreement which will not be inconsistent with other
provisions of the trust agreement; provided, however, that no such amendment
may materially adversely affect the interests of any noteholder or
certificateholder. An amendment will be deemed not to materially adversely
affect the interests of any noteholder or certificateholder if the person
requesting the amendment obtains and delivers to the owner trustee:
. an opinion of counsel to that effect; or
. a letter from each of Moody's and Standard & Poor's to the effect that
the amendment would not result in a downgrading or withdrawal of the
rating then assigned by that rating agency to the notes or the
certificates.
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The owner trustee, on behalf of the trust, and CarMax Auto Receivables may,
with the consent of the holders of notes evidencing not less than 51% of the
principal balance of the notes or, if the notes have been paid in full, holders
of certificates evidencing not less than 51% of principal balance of the
certificates, and with the consent of the insurer if an Insurer Default shall
not have occurred and be continuing, with prior written notice to the insurer,
Moody's and Standard & Poor's, amend the trust agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the trust agreement or modifying in any manner the rights of the
noteholders or the certificateholders; provided, however, that no amendment
may:
. increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of
payments on or in respect of the contracts or distributions that are
required to be made for the benefit of the noteholders or the
certificateholders, or change the interest rate applicable to any class
of notes or the interest rate applicable to the certificates without the
consent of all noteholders and certificateholders adversely affected by
the amendment;
. reduce the percentage of the principal balance of the notes or the
principal balance of the certificates the consent of the holders of
which is required for any amendment to the trust agreement without the
consent of all noteholders and certificateholders adversely affected by
the amendment; or
. adversely affect the rating assigned by Moody's or Standard & Poor's to
any class of notes or the certificates without the consent of the
holders of notes evidencing not less than 66 2/3% of the principal
balance of that class or the holders of certificates evidencing not less
than 66 2/3% of the principal balance of the certificates, as
applicable.
No amendment to the trust agreement will be permitted unless an opinion of
counsel is delivered to the owner trustee to the effect that the amendment will
not materially adversely affect the taxation of any note or certificate, or any
noteholder or certificateholder, or adversely affect the tax status of the
trust. No amendment to the trust agreement will be permitted without the
consent of the insurer if the amendment would reasonably be expected to
materially adversely affect the interests of the insurer.
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DESCRIPTION OF THE PURCHASE AGREEMENT
AND THE SALE AND SERVICING AGREEMENT
The following summary describes the material terms of the purchase
agreement and the sale and servicing agreement. A form of the purchase
agreement and a form of the sale and servicing agreement have been filed as
exhibits to the registration statement of which this prospectus forms a part.
Transfer of Contracts
On the closing date, CarMax Auto Superstores will sell its entire right in
the contracts, including its security interests in the financed vehicles, to
CarMax Auto Receivables under the purchase agreement, and CarMax Auto
Receivables will transfer its entire right in the contracts, including its
security interests in the financed vehicles, to the trust under the sale and
servicing agreement. Each contract will be identified in a schedule appearing
as an exhibit to the purchase agreement and the sale and servicing agreement.
The indenture trustee and the owner trustee will, concurrently with the
transfer of the contracts to the trust, execute, authenticate and deliver the
notes and the certificates to CarMax Auto Receivables in exchange for the
contracts.
In the purchase agreement, CarMax Auto Superstores will represent and
warrant to CarMax Auto Receivables that:
. the information provided by CarMax Auto Superstores with respect to the
contracts is correct in all material respects;
. each obligor under a contract has obtained or agreed to obtain and has
agreed to maintain physical damage insurance covering the related
financed vehicle in accordance with CarMax Auto Superstores' normal
requirements;
. as of the closing date, the contracts were free and clear of all
security interests, liens, charges and encumbrances, other than the lien
of CarMax Auto Receivables, and no offsets, defenses or counterclaims
against CarMax Auto Superstores or CarMax Auto Receivables had been
asserted or threatened with respect to the contracts;
. as of the closing date, each contract was secured by a first perfected
security interest in the related financed vehicle in favor of CarMax
Auto Superstores, as registered lienholder, or CarMax Auto Superstores
had taken all necessary action with respect to each contract to secure a
first perfected security interest in the related financed vehicle; and
. each contract complied in all material respects, as of the date on which
it was originated and as of the closing date, with applicable federal
and state laws, including, without limitation, consumer credit, truth in
lending, equal credit opportunity and disclosure laws.
CarMax Auto Superstores will agree under the purchase agreement to
repurchase from CarMax Auto Receivables or the trust any contract as to which
CarMax Auto Superstores
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has breached a representation or warranty if that breach materially and
adversely affects the interest of CarMax Auto Receivables or its assignee in
that contract and CarMax Auto Superstores has not cured that breach on or
before the last day of the month which includes the 30th day after the date of
discovery by or notice to CarMax Auto Superstores of that breach. Each contract
to be repurchased by CarMax Auto Superstores must be repurchased on or before
the Payment Date following that last day for a price equal to the outstanding
principal balance of that contract plus accrued interest on that balance at the
applicable contract rate to the date of repurchase. CarMax Auto Receivables
will assign to the trust under the sale and servicing agreement certain of its
rights under the purchase agreement, including its right to cause CarMax Auto
Superstores to repurchase contracts as to which there has been a breach of a
representation or warranty. The repurchase obligation of CarMax Auto
Superstores under the purchase agreement, as assigned to the trust under the
sale and servicing agreement, will constitute the sole remedy available to the
noteholders, the indenture trustee, the certificateholders or the owner trustee
for any uncured breach of a representation or warranty contained in the
purchase agreement. Circuit City Stores, Inc., the corporate parent of CarMax
Auto Superstores, will unconditionally guaranty the repurchase obligation of
CarMax Auto Superstores under the purchase agreement.
Servicing Procedures
The servicer will agree under the sale and servicing agreement to service,
manage, maintain custody of and collect amounts due under the contracts. The
servicer will agree to make reasonable efforts to collect all payments due
under the contracts and will, consistent with the sale and servicing agreement,
follow the collection practices and procedures it follows with respect to
comparable motor vehicle retail installment sale contracts that it owns or
services for others. The servicer will continue to follow its normal collection
practices and procedures to the extent necessary or advisable to realize upon
any defaulted contracts. The servicer may sell the financed vehicle securing
any defaulted contract at a public or private sale or take any other action
permitted by applicable law.
The servicer may, in its sole discretion but consistent with its normal
practices and procedures, extend or modify the payment schedule applicable to
any contract; provided, however, that if the extension of a payment schedule
causes a contract to remain outstanding on the final scheduled Payment Date for
the certificates, the servicer will agree under the sale and servicing
agreement to purchase that contract as of the last day of the month preceding
that final scheduled Payment Date. The purchase obligation of the servicer
under the sale and servicing agreement will constitute the sole remedy
available to the noteholders, the indenture trustee, the certificateholders or
the owner trustee for any extension of a payment schedule that causes a
contract to remain outstanding on the final scheduled Payment Date for the
certificates.
Circuit City Stores will unconditionally guaranty the performance by CarMax
Auto Superstores of its obligations as servicer under the sale and servicing
agreement, including its obligation to purchase contracts that remain
outstanding on the final scheduled payment date for the certificates because of
a payment extension.
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Servicing Compensation
The servicer will be entitled to receive a monthly fee for servicing the
contracts. The monthly servicing fee for any month will equal the product of
one-twelfth of 1.00% per annum and the principal balance of the contracts as of
the last day of the preceding month. The servicer will also be entitled to
reimbursement from the trust for various liabilities.
The monthly servicing fee will compensate the servicer for performing the
functions of a third-party servicer of motor vehicle retail installment sale
contracts as agent for the trust, including collecting and posting all
payments, responding to inquiries of obligors on the contracts, investigating
delinquencies, sending payment coupons to obligors and overseeing collateral in
cases of obligor default. The monthly servicing fee will also compensate the
servicer for administering the contract pool, including accounting for
collections, furnishing monthly and annual statements to the indenture trustee
and the owner trustee with respect to distributions and generating federal
income tax information for the trust and for the noteholders and the
certificateholders. The monthly servicing fee also will reimburse the servicer
for taxes, accounting fees, outside auditor fees, data processing costs and
other costs incurred in connection with administering the contract pool.
Evidence of Compliance
The sale and servicing agreement will provide that a firm of independent
public accountants will furnish annually to the indenture trustee and the owner
trustee a statement as to compliance by the servicer during the preceding
twelve months with applicable standards relating to the servicing of the
contracts. The sale and servicing agreement will also provide for delivery to
the indenture trustee and the owner trustee each year of a certificate signed
by an officer of the servicer stating that the servicer has fulfilled its
obligations under the sale and servicing agreement throughout the preceding
twelve months or, if there has been a default in the fulfillment of any
obligation, describing that default. The servicer will agree to give the
indenture trustee and the owner trustee notice of the occurrence of an event of
servicing termination under the sale and servicing agreement. Copies of these
statements and certificates may be obtained by the noteholders and the
certificateholders by a request in writing addressed to the indenture trustee
at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and
Agency Group--Structured Finance, or to the owner trustee at One Rodney Square,
920 King Street, Suite 102, Wilmington, Delaware 19801, Attention: Corporate
Trust Administration.
Resignation; Merger or Consolidation
The sale and servicing agreement will provide that CarMax Auto Superstores
may not resign from its obligations and duties as servicer except upon a
determination that its performance of its duties as servicer is no longer
permissible under applicable law. Any resignation by CarMax Auto Superstores
will become effective only when the indenture trustee or a successor servicer
has assumed CarMax Auto Superstores' servicing obligations and duties under the
sale and servicing agreement.
Any corporation or other entity into which CarMax Auto Superstores may be
merged or consolidated, or any corporation or other entity resulting from any
merger or consolidation to
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which CarMax Auto Superstores is a party, or any corporation or other entity
succeeding to the motor vehicle financing and contract servicing business of
CarMax Auto Superstores, which corporation or other entity assumes the
obligations of the servicer, will be the successor to the servicer under the
sale and servicing agreement.
Limitation on Liability
The sale and servicing agreement will provide that neither the servicer nor
any of its directors, officers, employees or agents will be under any liability
to the trust, the noteholders or the certificateholders for taking any action
or for refraining from taking any action under the sale and servicing agreement
or for errors in judgment; provided, however, that neither the servicer nor any
of its directors, officers, employees or agents will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of the servicer's duties or by
reason of reckless disregard of its obligations and duties under the sale and
servicing agreement. In addition, the sale and servicing agreement will provide
that the servicer is under no obligation to appear in, prosecute or defend any
legal action that is not incidental to its servicing responsibilities under the
sale and servicing agreement and that, in its opinion, may cause it to incur
any expense or liability.
Events of Servicing Termination
The following events will constitute events of servicing termination under
the sale and servicing agreement:
. the servicer shall fail to make any required payment or deposit under
the sale and servicing agreement and that failure shall continue
unremedied beyond the earlier of five business days following the date
that payment or deposit was due and, in the case of a payment or deposit
to be made no later than a Payment Date, that Payment Date;
. the servicer shall fail to deliver to the insurer, the indenture trustee
or the owner trustee, as applicable, the monthly report relating to the
payment of amounts on deposit in the collection account, the note
payment account or the certificate payment account and that failure
shall continue unremedied beyond the earlier of three business days
following the date that report was due and the related Payment Date;
. the servicer shall fail to observe or perform in any material respect
any other covenant or agreement in the sale and servicing agreement and
that failure shall materially and adversely affect the rights of the
insurer, the noteholders or the certificateholders and shall continue
unremedied for 60 days after written notice of that failure shall have
been given to the servicer by the indenture trustee, the owner trustee
or the insurer or to the servicer, the indenture trustee and the owner
trustee by the holders of notes evidencing not less than 25% of the
principal balance of the notes or, if the notes have been paid in full,
by the holders of certificates evidencing not less than 25% of the
principal balance of the certificates;
. any representation or warranty of the servicer made in the sale and
servicing agreement or in any certificate delivered under the sale and
servicing agreement,
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other than any representation or warranty relating to a contract that
has been purchased by the servicer, shall prove to have been incorrect
in any material respect as of the time when made and that breach shall
continue unremedied for 30 days after written notice of that breach
shall have been given to the servicer by the indenture trustee, the
owner trustee or the insurer or to the servicer, the indenture trustee
and the owner trustee by the holders of notes evidencing not less than
25% of the principal balance of the notes or, if the notes have been
paid in full, by the holders of certificates evidencing not less than
25% of the principal balance of the certificates;
. an event of bankruptcy, insolvency, receivership or liquidation shall
occur with respect to the servicer; or
. the servicer shall cease to be eligible to continue as servicer under
the sale and servicing agreement.
Rights Upon Event of Servicing Termination
If an event of servicing termination shall have occurred and be continuing
under the sale and servicing agreement and an Insurer Default shall not have
occurred and be continuing, the insurer may terminate all of the rights and
obligations of the servicer under the sale and servicing agreement. If an event
of servicing termination shall have occurred and be continuing under the sale
and servicing agreement and an Insurer Default shall have occurred and be
continuing, the holders of notes evidencing not less than 51% of the principal
balance of the notes or, if the notes have been paid in full, the holders of
certificates evidencing not less than 51% of the principal balance of the
certificates, may terminate all of the rights and obligations of the servicer
under the sale and servicing agreement. If the rights and obligations of the
servicer under the sale and servicing agreement have been terminated, the
indenture trustee, or a successor servicer appointed by the insurer or, with
the consent of the insurer, by the indenture trustee, will succeed to all of
the responsibilities, duties and liabilities of the servicer under the sale and
servicing agreement and will be entitled to similar compensation arrangements.
If, however, a bankruptcy trustee or similar official has been appointed for
the servicer, and no event of servicing termination other than that appointment
has occurred and is continuing under the sale and servicing agreement, that
trustee or similar official may have the power to prevent a transfer of
servicing. If the indenture trustee is unwilling or unable to act as successor
servicer, the insurer or, with the consent of the insurer, the indenture
trustee may appoint, or may petition a court of competent jurisdiction to
appoint, a successor servicer with assets of at least $50,000,000 and whose
regular business includes the servicing of motor vehicle retail installment
sale contracts. The indenture trustee may arrange for compensation to be paid
to the successor servicer, which in no event may be greater than the servicing
compensation paid to the servicer under the sale and servicing agreement.
Right of Insurer to Terminate Servicer
The insurance agreement sets forth additional termination events applicable
to the servicer, including a material failure of performance by the servicer
under the sale and
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servicing agreement and an increase in the delinquencies or cumulative net
losses on the contracts above specified levels. If a termination event shall
have occurred and be continuing under the insurance agreement and an Insurer
Default shall not have occurred and be continuing, the insurer may terminate
all of the rights and obligations of the servicer under the sale and servicing
agreement.
Waiver of Past Defaults
The holders of notes evidencing not less than 51% of the principal balance
of the notes may, on behalf of all noteholders and certificateholders, or, if
the notes have been paid in full, the holders of certificates evidencing not
less than 51% of the principal balance of the certificates may, on behalf of
all certificateholders, waive any default by the servicer in the performance of
its obligations under the sale and servicing agreement and all consequences of
that default, except a default in making any required deposits to or payments
from the collection account, the note payment account, the certificate payment
account or the reserve account in accordance with the sale and servicing
agreement; provided, however, that the provisions of the sale and servicing
agreement cannot be waived without the consent of the insurer if the waiver
would reasonably be expected to have a materially adverse effect upon the
rights of the insurer. No waiver of a default by the servicer in the
performance of its obligations under the sale and servicing agreement will
impair the rights of the noteholders, the certificateholders or the insurer
with respect to subsequent events of servicing termination under the sale and
servicing agreement.
The insurer, if an Insurer Default shall not have occurred and be
continuing, may, on behalf of all noteholders and certificateholders, waive any
default by the servicer in the performance of its obligations under the sale
and servicing agreement and all consequences of that default.
Amendment of the Sale and Servicing Agreement
The sale and servicing agreement may be amended from time to time by CarMax
Auto Receivables, the servicer and the owner trustee, on behalf of the trust,
with the consent of the indenture trustee but without the consent of the
noteholders or the certificateholders, to cure any ambiguity, to correct or
supplement any provision in the sale and servicing agreement that may be
inconsistent with any other provisions in the sale and servicing agreement or
this prospectus or to add, change or eliminate any other provisions with
respect to matters or questions arising under the sale and servicing agreement
that are not inconsistent with the provisions of the sale and servicing
agreement; provided, however, that no such amendment to the sale and servicing
agreement may materially adversely affect the interests of any noteholder or
any certificateholder. An amendment will be deemed not to materially adversely
affect the interests of any noteholder or any certificateholder if the person
requesting the amendment obtains and delivers to the indenture trustee:
. an opinion of counsel to that effect; or
. a letter from each of Moody's and Standard & Poor's to the effect that
the amendment would not result in a downgrading or withdrawal of the
rating then assigned by that rating agency to the notes or the
certificates.
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The sale and servicing agreement may also be amended from time to time by
CarMax Auto Receivables, the servicer and the owner trustee, on behalf of the
trust, with the consent of the indenture trustee, the consent of the holders of
notes evidencing not less than 51% of the principal balance of the notes or, if
the notes have been paid in full, the holders of certificates evidencing not
less than 51% of the principal balance of the certificates, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the sale and servicing agreement or of modifying in any manner
the rights of the noteholders or the certificateholders; provided, however,
that no such amendment may:
. increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of
payments on or in respect of the contracts or distributions that are
required to be made for the benefit of the noteholders or the
certificateholders, or change the interest rate applicable to any class
of notes, the interest rate applicable to the certificates or the
Required Reserve Account Amount, without the consent of all noteholders
and certificateholders adversely affected by the amendment;
. reduce the percentage of the principal balance of the notes or the
principal balance of the certificates the consent of the holders of
which is required for any amendment to the sale and servicing agreement
without the consent of all noteholders and certificateholders adversely
affected by the amendment; or
. adversely affect the rating assigned by Moody's or Standard & Poor's to
any class of notes or the certificates without the consent of the
holders of notes evidencing not less than 66 2/3% of the principal
balance of that class or the holders of certificates evidencing not less
than 66 2/3% of the principal balance of the certificates, as
applicable.
No amendment to the sale and servicing agreement will be permitted unless
an opinion of counsel is delivered to the indenture trustee to the effect that
the amendment will not adversely affect the tax status of the trust. No
amendment to the sale and servicing agreement will be permitted without the
consent of the insurer if the amendment would reasonably be expected to
materially adversely affect the interests of the insurer.
Optional Purchase of Contracts
In order to avoid excessive administrative expense, the servicer will be
permitted, at its option, to purchase all remaining contracts in the contract
pool from the trust as of any Payment Date if the principal balance of the
contracts as of the close of business on the last day of any previous month was
10% or less of the initial principal balance of the contracts; provided,
however, that the purchase price paid by the servicer for the remaining
contracts must equal or exceed the principal balance of the notes and the
certificates as of the purchase date plus accrued but unpaid interest on that
principal balance as of the purchase date plus all amounts due to the insurer
under the insurance agreement. The exercise of this right will effect the early
retirement of the notes and the certificates.
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MATERIAL LEGAL ASPECTS OF THE TRANSACTION
Interest in Contracts
The contracts constitute "chattel paper" under the Uniform Commercial Code.
In most cases, a sale of chattel paper is treated under the UCC in a manner
similar to a transaction creating a security interest in chattel paper. CarMax
Auto Superstores and CarMax Auto Receivables will cause financing statements to
be filed with the appropriate governmental authorities to perfect the interest
of CarMax Auto Receivables and the trust, as the case may be, in the contracts.
Under the sale and servicing agreement, the servicer will hold the
contracts as custodian for the indenture trustee and the trust following the
transfer of the contracts to the trust. CarMax Auto Receivables will take such
action as is required to perfect the rights of the indenture trustee and the
trust in the contracts. The contracts will not, however, be segregated or
otherwise marked to reflect their transfer to the trust. If, through
inadvertence or otherwise, a third party purchases or takes a security interest
in the contracts for new value in the ordinary course of business and takes
possession of the contracts without actual knowledge of the trust's interest,
that purchaser or secured party will acquire an interest in the contracts that
is superior to the interest of the trust.
Under the sale and servicing agreement, the servicer will be obligated from
time to time to take such actions as are necessary to protect and perfect the
trust's interest in the contracts and the proceeds of the contracts.
Security Interest in Vehicles
The contracts evidence the credit sale of motor vehicles. The contracts
also constitute personal property security agreements and include grants of
security interests in the financed vehicles under the UCC. In most states, the
perfection of a security interest in a motor vehicle is governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
of the states where CarMax Auto Superstores currently originates contracts, a
security interest in a motor vehicle is perfected by notation of the secured
party's lien on the vehicle's certificate of title. In the case of the financed
vehicles, the lien is or will be perfected in the name of CarMax Auto
Superstores, as registered lienholder. The terms of each contract prohibit the
sale or transfer of the related financed vehicle without the consent of the
registered lienholder.
On the closing date, CarMax Auto Superstores will assign its security
interests in the financed vehicles to CarMax Auto Receivables under the
purchase agreement and CarMax Auto Receivables will assign its security
interests in the financed vehicles to the trust under the sale and servicing
agreement. To facilitate servicing and to reduce administrative burden and
expense, the certificates of title for the financed vehicles will not be marked
to reflect the security interests of CarMax Auto Receivables or the trust in
the financed vehicles.
In most states, an assignment of a security interest in a motor vehicle is
effective to convey that security interest to the assignee without noting the
assignment on the related
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certificate of title. In some states, however, including several states in
which the contracts were originated, an assignment of a security interest in a
motor vehicle may not be effective to convey that security interest to the
assignee unless the assignment is noted on the related certificate of title. If
the trust fails to obtain a perfected security interst in any financed
vehicles, the interest of the trust in those vehicles would be subordinate to,
among others, holders of perfected security interests in those vehicles.
By not identifying the trust as the secured party on the certificates of
title for the financed vehicles, the security interests of the trust in the
financed vehicles could be defeated through fraud or negligence. In the absence
of fraud or forgery by the vehicle owner or the registered lienholder, or
administrative error by state or local agencies, the notation of CarMax Auto
Superstores' lien on the certificates of title should be sufficient to protect
the trust against the rights of a subsequent purchaser of a financed vehicle or
a subsequent lender who takes a security interest in a financed vehicle. If
CarMax Auto Superstores has failed to obtain a perfected security interest in
any financed vehicles, the interest of CarMax Auto Superstores in those
vehicles would be subordinate to, among others, subsequent purchasers of those
vehicles and holders of perfected security interests in those vehicles. Any
failure to obtain a perfected security interest would constitute a breach of a
representation and warranty under the purchase agreement and would create an
obligation of CarMax Auto Superstores to repurchase the related contract,
unless the breach were cured in a timely manner. See "Description of the
Purchase Agreement and the Sale and Servicing Agreement--Transfer of Contracts"
beginning on page 77 of this prospectus for a further discussion of the
representations and warranties made by CarMax Auto Superstores in the purchase
agreement.
Under the laws of most states, including most of the states in which the
contracts were originated, a perfected security interest in a motor vehicle
continues for four months after the vehicle is moved to a state other than the
state which issued the related certificate of title and thereafter until the
vehicle owner re-registers the vehicle in the new state. A majority of states
require surrender of a certificate of title to re-register a vehicle. Because
CarMax Auto Superstores will have its lien noted on the certificates of title
for the financed vehicles and the servicer will retain possession of the
certificates of title issued by most states in which contracts were originated,
the servicer would ordinarily learn of an attempt to re-register a financed
vehicle. As a result, the trust would ordinarily have the opportunity to re-
perfect its security interest in the financed vehicle in the new state. In
states that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection.
In the ordinary course of servicing contracts, the servicer takes steps to
effect re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor sells a financed
vehicle, the servicer must surrender possession of the related certificate of
title or will receive notice of the sale as a result of the notation of CarMax
Auto Superstores' lien on the certificate of title and accordingly will have an
opportunity to require satisfaction of the related contract before release of
the lien. Under the sale and servicing agreement, the servicer is obligated to
take appropriate steps, at its own expense, to maintain perfection of the
security interests in the financed vehicles.
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Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over a security interest in
the motor vehicle, even if that security interest is perfected. In some states,
a perfected security interest in a motor vehicle may take priority over liens
for repairs.
CarMax Auto Superstores will represent and warrant in the purchase
agreement and the sale and servicing agreement that, as of the date of issuance
of the notes and the certificates, the security interest in each financed
vehicle is prior to all other present liens upon and security interests in that
financed vehicle, other than tax liens, mechanics' liens and other liens that
arise by operation of law. CarMax Auto Superstores is not required to give
notice to the indenture trustee or the owner trustee, or to the noteholders or
the certificateholders, if a tax lien, mechanics' lien or other permitted lien
arises with respect to a financed vehicle during the term of a contract.
Repossession of Vehicles
If an obligor defaults under a motor vehicle retail installment sale
contract, the holder of that contract has all of the remedies of a secured
party under the UCC, except where specifically limited by other state laws. The
remedy employed by the servicer in most cases of default is self-help
repossession and is accomplished simply by taking possession of the financed
vehicle. The self-help repossession remedy is available under the UCC in most
of the states in which contracts have been originated as long as the
repossession can be accomplished without a breach of the peace. In cases where
the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court prior to initiating repossession. The vehicle must then
be repossessed in accordance with that order.
Notice of Sale; Redemption Rights
If an obligor defaults under a motor vehicle retail installment sale
contract, some jurisdictions require that the obligor be notified of the
default and be given a time period within which the obligor may cure the
default prior to repossession. In most states, this right of reinstatement may
be exercised on a limited number of occasions during any one-year period.
The UCC and other state laws require the secured party to provide an
obligor with reasonable notice of the date, time and place of any public sale
and the date after which any private sale of the collateral may be held. In
most states, the obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation
plus reasonable expenses for repossessing, holding and preparing the collateral
for disposition and arranging for its sale, and, to the extent provided in the
related retail installment sale contract, and as permitted by law, reasonable
attorneys' fees.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of any financed vehicle will be applied first to the
expenses of resale and repossession and then to the satisfaction of the related
contract. If the net proceeds
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from resale do not cover the full amount of the indebtedness, a deficiency
judgment may be sought. The deficiency judgment would be a personal judgment
against the obligor for the shortfall, however, and a defaulting obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of a lien with respect to the vehicle
or, if no lienholder exists, to remit the surplus to the former owner of the
vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and state motor vehicle retail installment sales acts, and other
similar laws. In addition, state laws impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, this liability could affect an assignee's ability to
enforce consumer finance contracts such as the contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission,
most of the provisions of which are duplicated by the Uniform Consumer Credit
Code, other state statutes or state common law, has the effect of subjecting a
seller to all claims and defenses that the obligor in the transaction could
assert against the seller of the goods. Liability under the FTC rule is limited
to the amounts paid by the obligor under the contract, and the holder of the
contract may also be unable to collect any balance remaining due from the
obligor. Most of the contracts will be subject to the requirements of the FTC
rule. Accordingly, the owner trustee, as holder of the contracts, will be
subject to any claims or defenses that the obligor of the related financed
vehicle may assert against the seller of the vehicle. These claims, to the
extent based on the FTC rule, are limited to a maximum liability equal to the
amounts paid by the obligor on the contract. Claims not based on the FTC rule,
such as assignee direct liability for Truth-In-Lending Act violations apparent
on the face of the required disclosure statement, may not be so limited.
Under most state motor vehicle dealer licensing laws, dealers of motor
vehicles are required to be licensed to sell motor vehicles at retail sale. In
addition, with respect to used vehicles, the Federal Trade Commission's Rule on
Sale of Used Vehicles requires that all sellers of used vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
those vehicles. Furthermore, Federal Odometer Regulations
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promulgated under the Motor Vehicle Information and Cost Savings Act requires
that all sellers of used vehicles furnish a written statement signed by the
seller certifying the accuracy of the odometer reading. If a seller is not
properly licensed or if either a Buyer's Guide or Odometer Disclosure Statement
was not provided to the purchaser of a vehicle, the purchaser may be able to
assert a defense against the seller of the vehicle. If an obligor under the
contracts were successful in asserting any claim or defense of this type, the
claim or defense would constitute a breach of a representation and warranty
under the purchase agreement and would create an obligation of CarMax Auto
Superstores to repurchase the related contract, unless the breach were cured in
a timely manner.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. In most cases, courts have upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by
the creditor do not involve sufficient state action to afford constitutional
protection to the consumers.
CarMax Auto Superstores will represent and warrant in the purchase
agreement that each contract complies with all requirements of law in all
material respects. Accordingly, if an obligor has a claim against the trust for
violation of any law and the claim materially and adversely affects the trust's
interest in a contract, the violation would constitute a breach of a
representation and warranty under the purchase agreement and would create an
obligation of CarMax Auto Superstores to repurchase the related contract,
unless the breach were cured in a timely manner.
Other Limitations
In addition, tax and various other statutory liabilities, such as
liabilities to the Pension Benefit Guaranty Corporation, if any, relating to
the underfunding of pension plans of CarMax Auto Superstores or its affiliates,
could be asserted against CarMax Auto Receivables. To the extent that any of
these liabilities arise after the transfer of the contracts to the trust, the
trust's interest in the contracts would be prior to the interest of the
claimant with respect to any of these liabilities. The existence of a claim
against CarMax Auto Receivables, however, could permit the claimant to subject
CarMax Auto Receivables to an involuntary proceeding under the United States
Bankruptcy Code or any similar applicable state law.
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value, as
determined by the court, of the vehicle at the time of bankruptcy, leaving the
party providing
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financing as a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due under
a contract or change the rate of interest and time of repayment of the
indebtedness.
Bankruptcy Matters
CarMax Auto Superstores will represent and warrant to CarMax Auto
Receivables in the purchase agreement that the sale of the contracts by CarMax
Auto Superstores to CarMax Auto Receivables is a sale of the contracts to
CarMax Auto Receivables. Notwithstanding this representation and warranty, if
CarMax Auto Superstores were to become a debtor in a bankruptcy case and a
creditor or trustee-in-bankruptcy of the applicable debtor or the debtor were
to take the position that the sale of contracts to CarMax Auto Receivables
should instead be treated as a pledge of the contracts to secure a loan to
CarMax Auto Superstores, delays in payments of amounts received on or in
respect of the contracts to the noteholders and the certificateholders could
occur or, should the court rule in favor of any trustee, debtor or creditor,
reductions in the amounts of payments could result. If the transfer of the
contracts to CarMax Auto Receivables is treated as a pledge instead of a sale,
a tax or government lien on property of CarMax Auto Superstores that arose
before the transfer of the contracts to CarMax Auto Receivables may have
priority over the trust's interest in the contracts. If the transfer of the
contracts from CarMax Auto Superstores to CarMax Auto Receivables is treated as
a sale, the contracts would not be part of CarMax Auto Superstores' bankruptcy
estate and would not be available to the bankrupt entity's creditors.
CarMax Auto Receivables will receive at closing an opinion of McGuire,
Woods, Battle & Boothe LLP to the effect that, if CarMax Auto Superstores were
to become the subject of a voluntary or involuntary case under the United
States Bankruptcy Code subsequent to the transfer of the contracts to CarMax
Auto Receivables on the closing date, the transfer of the contracts by CarMax
Auto Superstores to CarMax Auto Receivables under the purchase agreement would
be characterized as a sale of the contracts from CarMax Auto Superstores to
CarMax Auto Receivables and the contracts and the proceeds of the contracts
would not form part of CarMax Auto Superstores' bankruptcy estate under Section
541 of the United States Bankruptcy Code. McGuire, Woods, Battle & Boothe LLP
will assume that CarMax Auto Superstores and CarMax Auto Receivables will
account for and otherwise treat the transfer of the contracts as a sale and
that, except for CarMax Auto Superstores' obligation to repurchase contracts as
to which there has been a breach of a representation or warranty under the
purchase agreement, CarMax Auto Receivables will have no recourse to CarMax
Auto Superstores with respect to the contracts. In addition, McGuire, Woods,
Battle & Boothe LLP will assume that CarMax Auto Superstores did not transfer
the contracts with the intent to hinder, delay or defraud any person or entity
and received reasonably equivalent value and fair consideration for the
contracts and that neither CarMax Auto Superstores nor CarMax Auto Receivables
is insolvent or expects to become insolvent as a result of the transfer. If
these assumptions are incorrect, CarMax Auto Receivables cannot assure you that
a court would not conclude that the transfer of the contracts should be
characterized as a financing rather than a sale in a proceeding under the
United States Bankruptcy Code or any similar applicable state law. If a court
were to reach that conclusion or an attempt were
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made to litigate this issue, you could experience losses or payment delays with
respect to your notes or your certificates.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates. The summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended, existing and proposed Treasury regulations
under the Internal Revenue Code, current administrative rulings, judicial
decisions and other applicable authorities in effect as of the date of this
prospectus, all of which are subject to change, possibly with retroactive
effect. There can be no assurance that the Internal Revenue Service will not
challenge the conclusions reached in the summary, and no ruling from the IRS
has been or will be sought on any of the issues discussed.
The following summary does not deal with all aspects of federal income
taxation that may be relevant to the beneficial owners of the offered
securities in light of their personal investment circumstances nor, except for
limited discussions of particular topics, to those beneficial owners of the
offered securities subject to special treatment under the federal income tax
laws, such as banks and other financial institutions, dealers in securities,
insurance companies and tax-exempt organizations. The following summary is
directed to the beneficial owners of the offered securities who hold the notes
or the certificates as "capital assets" within the meaning of Section 1221 of
the Internal Revenue Code. CarMax Auto Receivables suggests that you consult
your own tax advisors in determining the federal, state, local and foreign tax
consequences to you of the purchase, ownership and disposition of the offered
securities and the possible effects of changes in federal or other tax laws.
Tax Treatment of the Trust
McGuire, Woods, Battle & Boothe LLP is of the opinion that, under existing
law and based on the assumption that the terms of the trust agreement and the
related documents will be complied with, the trust will not be classified as an
association or publicly traded partnership taxable as a corporation for federal
income tax purposes.
Tax Treatment of the Notes
Tax Status of the Notes. McGuire, Woods, Battle & Boothe LLP is of the
opinion that, under existing law and based on the assumption that the terms of
the trust agreement and the related documents will be complied with, the notes
will be treated as debt for federal income tax purposes. CarMax Auto
Receivables, the owner trustee and the indenture trustee have agreed, and the
beneficial owners of the notes will agree by their purchase of notes, to treat
the notes for federal, state and local income and franchise tax purposes as
indebtedness of the trust.
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Stated Interest. Stated interest on the notes will be taxable as ordinary
income for federal income tax purposes when received or accrued in accordance
with the related beneficial owner's method of tax accounting.
Original Issue Discount. A note will be treated as issued with original
issue discount if the excess of the note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
0.25% of the note's stated redemption price at maturity multiplied by the
number of complete years, based on the anticipated weighted average life of a
note, to its maturity.
In most cases, OID, if any, will equal the difference between the stated
redemption price at maturity of a note and its issue price. The beneficial
owner of a note must include OID in gross income as ordinary interest income as
it accrues under a method that takes into account the economic accrual of the
OID, in most cases in advance of the receipt of the cash representing that
income. The amount of OID on a note will be considered to be zero if it is less
than a de minimis amount.
In most cases, the issue price of a note for purposes of computing OID will
be the initial offering price at which a substantial amount of the notes are
sold. The trust intends to treat the issue price as including the amount paid
by the beneficial owner of the note for accrued interest that relates to a
period prior to the closing date. The "stated redemption price at maturity" is
the sum of all payments on the note other than any "qualified stated interest"
payments. A qualified stated interest payment is any one of a series of
payments equal to the product of the principal balance of the note and a single
fixed rate of interest, or a qualified variable rate of interest, that is
unconditionally payable at least annually.
The beneficial owner of a note issued with OID must include in gross
income, for all days during its taxable year on which it holds the note, the
sum of the "daily portions" of the OID. The daily portions are computed by
allocating to each day during a taxable year a pro rata portion of the OID that
accrued during the relevant accrual period. The amount of OID that will accrue
during an accrual period is the excess, if any, of the sum of the present value
of all payments remaining to be made on the note as of the close of the accrual
period and the payments during the accrual period of amounts included in the
stated redemption price at maturity of the note over the "adjusted issue price"
of the note at the beginning of the accrual period. In the case of an
obligation the principal on which is subject to prepayment as a result of
prepayments on the underlying collateral, such as the notes, OID is computed by
taking into account the prepayment rate assumed in pricing the obligation. The
prepayment assumption that will be used in determining the rate of accrual of
OID, premium and market discount, if any, will be determined assuming an ABS
percentage of 1.5%. An "accrual period" is the period over which OID accrues,
and may be of any length, provided that each accrual period is no longer than
one year and each scheduled payment of interest or principal occurs on either
the last day or the first day of an accrual period. The trust intends to report
OID on the basis of an accrual period that corresponds to the interval between
Payment Dates. The adjusted issue price of a note is the sum of its issue price
plus prior accruals of OID, reduced by the total payments made with respect to
the note in all
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prior periods, other than qualified stated interest payments. The present value
of the remaining payments is determined on the basis of three factors:
. the original yield to maturity of the note, determined on the basis of
compounding at the end of each accrual period and properly adjusted for
the length of the accrual period;
. events which have occurred before the end of the accrual period; and
. the assumption that the remaining payments will be made in accordance
with the prepayment rate assumed in pricing the note.
The effect of this method is to increase the portions of OID required to be
included in income by a beneficial owner of the notes to take into account
prepayments on the contracts at a rate that exceeds the prepayment rate assumed
in pricing the notes, and to decrease, but not below zero for any period, the
portions of OID required to be included in income by a beneficial owner of the
notes to take into account prepayments with respect to the contracts at a rate
that is slower than the prepayment rate assumed in pricing the notes. Although
OID will be reported to beneficial owners of the notes based on the prepayment
rate assumed in pricing the notes, no representation is made to the beneficial
owners that the contracts will be prepaid at that rate or at any other rate.
The beneficial owner of a note that acquires the note for an amount that
exceeds the note's stated redemption price at maturity will not include any OID
in gross income. The beneficial owner of a note that acquires the note for an
amount that is less than the note's stated redemption price at maturity will be
required to include OID in gross income, but if the beneficial owner purchases
the note for an amount that exceeds its adjusted issue price, the beneficial
owner will be entitled to reduce the amount of OID otherwise includible in
income in each period by the amount of OID multiplied by a fraction, the
numerator of which is the excess of the beneficial owner's adjusted basis in
the note immediately after purchase over the adjusted issue price of the note,
and the denominator of which is the excess of all amounts remaining to be paid
on the note after the purchase date, other than qualified stated interest
payments, over the adjusted issue price of the note.
Market Discount. The notes, whether or not issued with OID, will be subject
to the "market discount rules" of the Internal Revenue Code. If the beneficial
owner of a note purchases the note at a market discount and thereafter
recognizes gain upon a disposition or receives payments of principal, the
lesser of that gain or principal payment or the accrued market discount will be
taxed as ordinary interest income. A note will have been purchased at a market
discount if the purchase price of the note is less than its stated redemption
price at maturity or, if the notes were issued with OID, is less than its
original issue price plus the amount of OID accrued prior to its purchase. In
general, the accrued market discount will be the total market discount on the
note multiplied by a fraction, the numerator of which is the number of days the
beneficial owner held the note and the denominator of which is the number of
days from the date the beneficial owner acquired the note until the maturity
date of the note. The beneficial owner may elect, however, to determine accrued
market discount under the constant-yield method.
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Limitations imposed by the Internal Revenue Code which are intended to
match deductions with the taxation of income may defer deductions for interest
on indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a note with accrued market discount. The beneficial owner of
a note may elect to include market discount in gross income as it accrues and,
if the beneficial owner makes that election, is exempt from this rule. An
election by a taxpayer to include market discount in gross income as it accrues
will apply to all debt instruments acquired by the taxpayer on or after the
first day of the first taxable year to which the election applies. The adjusted
basis of a note subject to the election will be increased to reflect market
discount included in gross income, which increase will reduce any gain or
increase any loss on a sale or other taxable disposition.
Amortizable Bond Premium. In general, if the beneficial owner of a note
purchases the note for an amount in excess of the amount payable upon the
maturity of the note, the beneficial owner will be considered to have purchased
the note with "amortizable bond premium" equal to the amount of that excess.
The beneficial owner may elect to amortize the bond premium as an offset to
interest income and not as a separate deduction item as it accrues under a
constant-yield method over the remaining term of the note. The beneficial
owner's tax basis in the note will be reduced by the amount of the amortized
bond premium. An election to amortize bond premium as an offset to interest
income will apply to all debt instruments, other than instruments the interest
on which is excludible from gross income, held by the beneficial owner at the
beginning of the first taxable year for which the election applies or
thereafter acquired and is irrevocable without the consent of the IRS. Bond
premium on a note held by a beneficial owner who does not elect to amortize the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium and acquisition premium, the beneficial owner of a
note may elect to include all income that accrues on the note using the
constant yield method. If the beneficial owner makes this election, income on
the note will be calculated as though:
. the issue price of the note was equal to the beneficial owner's adjusted
basis in the note immediately after the note was acquired by the
beneficial owner;
. the note was issued on the date of its acquisition by the beneficial
owner; and
. none of the interest payments on the note was a "qualified stated
interest payment."
The beneficial owner of a note may make this election for a note that has
premium or market discount, respectively, only if the beneficial owner makes,
or has previously made, an election to amortize bond premium or to include
market discount in income currently. See "--Market Discount" beginning on page
92 of this prospectus and "--Amortizable Bond Premium" above on this page for a
further discussion of these elections.
Disposition of Notes. In general, the beneficial owner of a note will
recognize gain or loss on the sale or retirement of the note equal to the
difference between the amount realized on the sale or retirement and the
beneficial owner's adjusted tax basis in the note. The gain
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or loss will be capital gain or loss, except to the extent attributable to OID
not previously accrued or to accrued but unpaid interest, or except as provided
under the market discount rules, and will be long-term capital gain or loss if
the note was held for more than one year. In general, a beneficial owner's
adjusted tax basis in a note will be its cost, increased by the amount of any
OID, market discount and gain previously included in income with respect to the
note, and reduced by the amount of any payment on the note that is not a
qualified stated interest payment and the amount of bond premium previously
amortized with respect to the note. In addition, if the rules applicable to
prepayable obligations apply, any OID that has not accrued at the time of the
payment in full of a note will be treated as ordinary income.
Tax Consequences of Waivers of Events of Default and Amendments of Notes
The indenture permits the waiver of past defaults or events of default
under the indenture and the recision of an acceleration of the notes in certain
circumstances. Any waiver or recision, or any amendment of the terms of the
notes, could be treated, for federal income tax purposes, as a constructive
exchange of the notes by the noteholders for new notes upon which gain or loss
would be recognized. See "Description of the Indenture--Rights Upon Event of
Default" beginning on page 66 of this prospectus, "--Waiver of Past Defaults"
beginning on page 68 of this prospectus and "--Modification of Indenture"
beginning on page 71 of this prospectus for a further discussion of the
circumstances under which an acceleration of the notes may be rescinded or a
past default or event of default under the indenture may be waived and the
circumstances under which the terms of the notes may be amended.
Information Reporting and Backup Withholding of Taxes by Indenture Trustee
The indenture trustee will be required to report annually to the IRS, and
to each beneficial owner of the notes, the amount of interest paid on the notes
and the amount withheld for federal income taxes, if any, for each calendar
year, except as to recipients who are not subject to the reporting requirements
because of their status as corporations, tax-exempt organizations, qualified
pension or profit-sharing trusts, individual retirement account, or nonresident
aliens who provide certification as to their status. Each beneficial owner of
the notes, other than beneficial owners who are not subject to the reporting
requirements, will be required to provide, under penalties of perjury, a
certificate containing the beneficial owner's name, address and correct federal
taxpayer identification number and a statement that the beneficial owner is not
subject to backup withholding. If a non-exempt beneficial owner fails to
provide the required certification or if the IRS notifies the indenture trustee
or the trust that the beneficial owner has provided an incorrect federal
taxpayer identification number or is otherwise subject to backup withholding,
the indenture trustee will be required to withhold, or cause to be withheld,
31% of the interest otherwise payable to the beneficial owner, and remit the
withheld amounts to the IRS as a credit against the beneficial owner's federal
income tax liability.
Tax Consequences to Foreign Note Owners
In general, interest paid or accrued to a beneficial owner of the notes
that is a Foreign Person and that is not effectively connected with the conduct
of a trade or business in the
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United States by the Foreign Person will be considered "portfolio interest" and
will not be subject to United States federal income tax or withholding tax, as
long as the Foreign Person:
. is not actually or constructively a "10 percent shareholder" of the
trust, CarMax Auto Superstores or CarMax Auto Receivables or a
"controlled foreign corporation" with respect to which the trust, CarMax
Auto Superstores or CarMax Auto Receivables is a "related person" within
the meaning of the Internal Revenue Code; and
. provides an appropriate statement, signed under penalties of perjury,
certifying that it is a Foreign Person and providing its name and
address.
If the information in the statement provided by the Foreign Person changes,
the Foreign Person must so inform the indenture trustee within 30 days of the
change. In general, the statement must be provided in the year a payment occurs
or in either of the two preceding years. If interest paid or accrued to a
Foreign Person is not effectively connected with the conduct of a trade or
business in the United States by the Foreign Person and is not portfolio
interest, then it is subject to United States federal income and withholding
tax at a rate of 30 percent unless reduced or eliminated under the provisions
of an applicable income tax treaty.
Any capital gain realized on the sale or other taxable disposition of a
note by a Foreign Person will be exempt from United States federal income and
withholding tax, provided that:
. the gain is not effectively connected with the conduct of a trade or
business in the United States by the Foreign Person and, in the case of
an individual Foreign Person, the Foreign Person is not present in the
United States for 183 days or more in the taxable year and certain other
requirements are met; or
. the gain is exempt under the provisions of an applicable income tax
treaty.
In general, if the interest, gain or income on a note beneficially owned by
a Foreign Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, the Foreign Person,
although exempt from withholding tax if a duly executed Form 4224 is furnished,
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the Foreign Person
is a foreign corporation, it may be subject to a branch profits tax under the
Internal Revenue Code equal to 30 percent of its "effectively connected
earnings and profits" for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under the provisions of an applicable
income tax treaty.
Recent Treasury regulations could affect the procedures to be followed by a
Foreign Person in complying with the United States federal withholding, backup
withholding and information reporting rules. In general, the regulations will
be effective for payments made after December 31, 2000. CarMax Auto Receivables
suggests that you consult your own tax advisors regarding the effect, if any,
of the regulations on your purchase, ownership and disposition of the notes.
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Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. CarMax Auto Receivables and the
servicer will agree, and the beneficial owners of the certificates will agree
by their purchase of certificates, to treat the trust as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the trust, the partners of the partnership being the
beneficial owners of the certificates and CarMax Auto Receivables, in its
capacity as recipient of distributions from the reserve account, and the notes
being debt of the partnership. However, the proper characterization of the
arrangement involving the trust, the certificates, the notes, CarMax Auto
Receivables and the servicer is not clear because there is no authority on
transactions closely comparable to the transaction described in this
prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have some features characteristic of debt, the
certificates might be considered debt of CarMax Auto Receivables or the trust.
This characterization would not result in materially adverse tax consequences
to beneficial owners of the certificates as compared to the consequences from
treatment of the certificates as equity interests in a partnership. The
following discussion assumes that the certificates represent equity interests
in a partnership.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each beneficial owner of a certificate will be
required to separately take into account the holder's allocated share of
income, gains, losses, deductions and credits of the trust. The trust's income
will consist primarily of interest and finance charges earned on the contracts,
including appropriate adjustments for market discount, OID and bond premium,
and any gain upon collection or disposition of contracts. The trust's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of contracts.
Allocation of Partnership Income, Expenses and Losses. The tax items of a
partnership are allocable to its partners in accordance with the Internal
Revenue Code, Treasury regulations and the partnership agreement. If the trust
is treated as a partnership, the trust agreement will be treated as the
partnership agreement. The trust agreement will provide, in general, that the
beneficial owners of the certificates will be allocated taxable income of the
trust for each month equal to the sum of:
. the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the rate applicable
to the certificates for that month and interest on amounts previously
due on the certificates but not yet distributed;
. any trust income attributable to discount on the contracts that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
. prepayment premium payable to the beneficial owners for that month; and
. any other amounts of income payable to the beneficial owners for that
month.
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This allocation will be reduced by any amortization by the trust of premium
on the contracts that corresponds to any excess of the issue price of the
certificates over their principal amount. All remaining taxable income of the
trust will be allocated to CarMax Auto Receivables. Based on the economic
arrangement of the parties, this approach for allocating trust income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to the beneficial owners of the certificates. Moreover, even under the
foregoing method of allocation, the beneficial owners of the certificates might
be allocated income even though the trust might not have sufficient cash to
make current cash distributions of an amount equal to the amount of that
income. Thus, cash basis holders may in effect be required to report income
from the certificates on the accrual basis and the beneficial owners of the
certificates may become liable for taxes on trust income even if they have not
received cash from the trust to pay those taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
beneficial owners of the certificates but beneficial owners may be purchasing
certificates at different times and at different prices, beneficial owners may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the trust.
In general, all of the taxable income allocated to the beneficial owner of
a certificate that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity, including an individual retirement account, will
constitute "unrelated business taxable income" taxable to the beneficial owner
under the Internal Revenue Code.
Servicing fees and other expenses of the trust will be separately allocated
to the beneficial owners of the certificates and CarMax Auto Receivables rather
than deducted by the trust. To the extent these fees and expenses are allocated
to the beneficial owners, an individual taxpayer's share of expenses of the
trust, including fees to the servicer but excluding interest expense, will be
miscellaneous itemized deductions and thus allowable as a deduction only to the
extent that in the aggregate all these expenses exceed two percent of the
individual taxpayer's adjusted gross income. Furthermore, certain otherwise
allowable itemized deductions will be reduced, but not by more than 80%, by an
amount equal to 3% of the individual's adjusted gross income in excess of a
statutorily defined threshold. Therefore, any of these deductions otherwise
allocable to an individual beneficial owner of a certificate might be
disallowed in whole or in part and might result in the beneficial owner being
taxed on an amount of income that exceeds the amount of cash actually
distributed to the beneficial owner over the life of the trust.
Any net loss of the trust will be allocated first to CarMax Auto
Receivables and then to the beneficial owners of the certificates in the
priorities set forth in the trust agreement to the extent of their respective
adjusted capital accounts.
The trust intends to make all tax calculations relating to income and
allocations to the beneficial owners of the certificates on an aggregate basis.
If the IRS were to require that these calculations be made separately for each
contract, the trust might incur additional expenses, but CarMax Auto
Receivables believes that there would not be a material adverse effect on the
beneficial owners of the certificates.
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Discount and Premium. CarMax Auto Receivables believes that the contracts
were not issued with OID, and, therefore, the trust should not have OID income.
However, the purchase price paid by the trust for the contracts may be greater
or less than the remaining principal balance of the contracts at the time of
purchase. If so, the contracts will have been acquired at a premium or
discount, as the case may be.
If the trust acquires the contracts at a market discount or premium, the
trust will elect to include that discount in income currently as it accrues
over the life of the contracts or to offset that premium against interest
income on the contracts. A portion of the market discount income or premium
deduction may be allocated to the beneficial owners of the certificates.
The trust intends to make all tax calculations relating to market discount
income and amortization of premium with respect to the contracts on an
aggregate basis. If the IRS were to require that these calculations be made
separately for each contract, the trust might incur additional expenses, but
CarMax Auto Receivables believes that there would not be a material adverse
effect on the beneficial owners of the certificates.
Section 708 Termination. Under Section 708 of the Internal Revenue Code,
the trust will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the trust are sold or exchanged
within a 12-month period. If a termination occurs, the trust will be considered
to contribute its assets to a new partnership and, immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
partners in liquidation of the terminated partnership, i.e., the trust, which
would not constitute a taxable sale or exchange. The trust will not comply with
certain technical requirements that might apply when a constructive termination
occurs. As a result, the trust may be subject to tax penalties and may incur
additional expenses if it is required to comply with those requirements.
Furthermore, the trust might not be able to comply due to lack of data.
Disposition of Certificates. In general, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates
sold. With respect to noncorporate beneficial owners of the certificates,
capital gain or loss will be long-term, if the certificate has been held for
more than one year. Long-term capital gain tax rates provide a reduction as
compared with short-term capital gains, which are taxed at ordinary income
rates. In general, a beneficial owner's tax basis in a certificate will equal
the beneficial owner's cost increased by the beneficial owner's share of trust
income, includible in income, and decreased by any distributions received with
respect to the certificate. In addition, both the tax basis in the certificates
and the amount realized on a sale of a certificate would include the beneficial
owner's share of the notes and other liabilities of the trust. A beneficial
owner acquiring certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in the certificates, and, upon sale or
other disposition of some of the certificates, allocate a portion of the
aggregate adjusted tax basis to the certificates sold rather than maintaining a
separate tax basis in each certificate for purposes of computing gain or loss
on a sale of that certificate.
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In general, if the trust did not elect to include market discount in income
as it accrues, any gain on the sale of a certificate attributable to the
beneficial owner's share of unrecognized accrued market discount on the
contracts would be treated as ordinary income to the beneficial owner and would
give rise to special tax reporting requirements. The trust will elect to
include market discount in income as it accrues to avoid these special
reporting requirements.
In general, if the beneficial owner of a certificate is required to
recognize an aggregate amount of income, not including income attributable to
disallowed itemized deductions, over the life of the certificate that exceeds
the aggregate cash distributions with respect to the certificate, that excess
will give rise to a capital loss upon the retirement of the certificate.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the beneficial owners of
the certificates in proportion to the principal amount of certificates owned by
them as of the close of the last day of that month. As a result, a purchaser of
certificates may be allocated tax items, which will affect its tax liability
and tax basis, attributable to periods before its purchase of the certificates.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed, or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the trust might be reallocated among the beneficial owners of the
certificates. CarMax Auto Receivables is authorized to revise the trust's
method of allocation between transferors and transferees to conform to a method
permitted by future regulations.
Section 754 Election. If the beneficial owner of a certificate sells the
certificate at a profit, the purchaser will have a higher basis in the
certificate than the beneficial owner had. If the beneficial owner of a
certificate sells the certificate at a loss, the purchaser will have a lower
basis in the certificate than the beneficial owner had. The tax basis of the
trust's assets will not be adjusted to reflect that higher or lower basis
unless the trust were to file an election under Section 754 of the Internal
Revenue Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make this election. As a
result, the beneficial owners of the certificates might be allocated a greater
or lesser amount of trust income than would be appropriate based on their own
purchase price for the certificates if a Section 754 election had been made.
However, because any increase in taxable income will result in a higher tax
basis in the certificates, a lesser amount of taxable gain, or a higher taxable
loss, will result upon eventual disposition of the certificates.
Administrative Matters. The administrator is required to keep or have kept
complete and accurate books of the trust. These books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust is expected to be the calendar year. The administrator will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the trust and will report each certificate Owner's allocable share of
items of trust income and expense to holders and the IRS on Schedule K-1. The
trust will
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provide the Schedule K-1 information to nominees that fail to provide the trust
with the information statement described in the following paragraph, and those
nominees will be required to forward that information to the beneficial owners
of the certificates. In general, holders must file tax returns that are
consistent with the information return filed by the trust or be subject to
penalties unless the holder notifies the IRS of all inconsistencies.
Under Section 6031 of the Internal Revenue Code, any person that holds
certificates as a nominee at any time during a calendar year is required to
furnish the trust with a statement containing information on the nominee, the
beneficial owners and the certificates so held. This information includes:
. the name, address and taxpayer identification number of the nominee; and
. as to each beneficial owner, the name, address and taxpayer
identification number of the beneficial owner, whether the beneficial
owner is a U.S. Person, a tax-exempt entity or a foreign government, an
international organization or any wholly owned agency or instrumentality
of any of the foregoing and information on certificates that were held,
bought or sold on behalf of the beneficial owner throughout the year.
In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Securities Exchange Act is not required to furnish an
information statement to the trust. The information referred to above for any
calendar year must be furnished to the trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the trust
with the required information may be subject to penalties.
CarMax Auto Receivables will be designated as the tax matters partner in
the trust agreement and, as such, will be responsible for representing the
beneficial owners of the certificates in any dispute with the IRS. The Internal
Revenue Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. In general, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
beneficial owners of the certificates, and, under certain circumstances, a
beneficial owner may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a beneficial owner's returns and adjustments of items not related to
the income and losses of the trust.
Tax Consequences to Foreign Certificate Owners. Interest allocable to a
beneficial owner of the certificates that is a Foreign Person will not qualify
for the exemption for portfolio interest under Section 871(h) of the Internal
Revenue Code because the contracts will not be in "registered form" as that
term is defined in applicable Treasury regulations. As a result, the Foreign
Person will be subject to United States withholding tax on its allocable share
of interest or OID attributable to the underlying contracts, whether or not the
interest or OID is distributed, at a rate of 30 percent, unless reduced or
eliminated under the
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provisions of an applicable treaty or unless the Foreign Person holds the
certificates in connection with the conduct of a United States trade or
business. Foreign Persons holding certificates in connection with the conduct
of a United States trade or business will be subject to federal income tax
withholding at the rate of 35% for foreign holders taxable as corporations and
39.6% for all other foreign holders. CarMax Auto Receivables suggests that
potential investors who are not U.S. Persons consult their own tax advisors
regarding the specific tax consequences of owning certificates.
Backup Withholding. In general, distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if the related certificate Owner fails to comply with
certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Internal Revenue Code.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, and
Section 4975 of the Internal Revenue Code impose restrictions on Benefit Plans
and on persons, referred to as parties in interest under ERISA and disqualified
persons under the Internal Revenue Code, who have specified relationships to
Benefit Plans. Moreover, based on the reasoning of the United States Supreme
Court in John Hancock Mut. Life Ins. Co. v. Harris Trust and Sav. Bank, 510
U.S. 86 (1993), an insurance company's general account might be deemed to
include assets of a Benefit Plan investing in the general account, such as
through the purchase of an annuity contract, and the insurance company might be
treated as a party in interest or a disqualified person with respect to the
Benefit Plan by virtue of that investment. ERISA also imposes duties on persons
who are fiduciaries of Benefit Plans subject to ERISA, and ERISA and Section
4975 of the Internal Revenue Code prohibit certain transactions between a
Benefit Plan and parties in interest or disqualified persons with respect to
the Benefit Plan. Violations of these rules may result in the imposition of
excise taxes and other penalties and liabilities under ERISA and the Internal
Revenue Code.
Certain employee benefit plans, such as foreign plans, governmental plans,
as defined in Section 3(32) of ERISA, and certain church plans, as defined in
Section 3(33) of ERISA, are not subject to the restrictions of ERISA.
Accordingly, assets of these plans may be invested in the notes or the
certificates without regard to the ERISA restrictions, subject to the
provisions of any other applicable federal and state law. It should be noted,
however, that any governmental plan or church plan that is qualified and exempt
from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code is
subject to the prohibited transaction rules set forth in Section 503 of the
Internal Revenue Code.
Special Considerations for Benefit Plans
The United States Department of Labor has issued a regulation, 29 C.F.R.
Section 2510.3-101, concerning the definition of what constitutes the assets of
a Benefit Plan with respect to the Benefit Plan's investment in an entity for
purposes of the fiduciary responsibility provisions of Title I of ERISA and
Section 4975 of the Internal Revenue Code. Under the plan asset regulation, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Benefit Plan makes an "equity interest"
investment could be deemed to be assets of the investing Benefit Plan under
certain circumstances unless various exceptions apply. An "equity interest" is
defined under the plan asset regulation as an interest other than an instrument
that is treated as indebtedness under applicable local law and which has no
substantial equity features.
Investments in the Notes. CarMax Auto Receivables believes that the notes
should be treated as indebtedness without substantial equity features for
purposes of the plan asset regulation. However, without regard to whether the
notes are treated as an equity interest for those purposes, the acquisition or
holding of notes by or on behalf of a Benefit Plan could be considered to give
rise to a prohibited transaction if the trust, the owner trustee, the indenture
trustee, any certificateholder or any of their respective affiliates is or
becomes a party in interest or a disqualified person with respect to the
Benefit Plan. In that case, one or
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more exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the Benefit Plan fiduciary making
the decision to invest in any of the notes. Included among these exemptions
are: Prohibited Transaction Class Exemption 90-1, regarding investments by
insurance company pooled separate accounts; Prohibited Transaction Class
Exemption 91-38, regarding investments by bank collective investment funds;
Prohibited Transaction Class Exemption 84-14, regarding transactions effected
by "qualified professional asset managers"; Prohibited Transaction Class
Exemption 95-60, regarding investments by insurance company general accounts;
and Prohibited Transaction Class Exemption 96-23, regarding investments
effected by in-house asset managers. A violation of the prohibited transaction
rules may result in the imposition of an excise tax and other liabilities under
ERISA and the Internal Revenue Code unless one or more statutory or
administrative exemptions is available.
Investments in the Certificates. CarMax Auto Receivables believes that the
certificates should be treated as equity interests for purposes of the plan
asset regulation. Accordingly, if Benefit Plans were permitted to purchase
certificates, the trust could be deemed to hold plan assets, unless one of the
exceptions under the plan asset regulation were applicable to the certificates
and the trust. If certificates were acquired and held by a Benefit Plan, or
were acquired with plan assets of a Benefit Plan, and the assets of the trust
were deemed to be plan assets of the Benefit Plan under the plan asset
regulation, certain transactions involving the trust could be deemed to
constitute direct or indirect prohibited transactions under Section 406 of
ERISA and Section 4975 of the Internal Revenue Code with respect to the Benefit
Plan, unless exemptive relief were available. Because of the potential
prohibited transactions issues, certificates may not be purchased or held by or
on behalf of any Benefit Plan or any person investing plan assets of any
Benefit Plan. Each certificate Owner, by its acceptance of a certificate, will
be deemed to have represented and warranted that it is not a Benefit Plan and
that it is not purchasing the certificate on behalf of or with plan assets of
any Benefit Plan. CarMax Auto Receivables suggests that purchasers of
certificates that are insurance companies consult with their counsel to
determine whether the John Hancock decision affects their ability to purchase
the certificates.
CarMax Auto Receivables suggests that Benefit Plan fiduciaries considering
the purchase of notes or certificates consult their tax and/or legal advisors
regarding whether the assets of the trust would be considered plan assets, the
possibility of exemptive relief from the prohibited transaction rules and other
issues and their potential consequences.
Special Considerations Applicable to Insurance Company General Accounts
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general
accounts under ERISA and Section 4975 of the Internal Revenue Code. Under
Section 401(c), the Department of Labor is required to issue final regulations
with respect to insurance policies issued on or before December 31, 1998 that
are supported by an insurer's general account. The general account regulations
are to provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of
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the Internal Revenue Code. Section 401(c) also provides that, except in the
case of avoidance of the general account regulations and actions brought by the
Secretary of Labor relating to various breaches of fiduciary duties that also
constitute breaches of state or federal criminal law, until the date that is 18
months after the general account regulations become final, no liability under
the fiduciary responsibility and prohibited transactions provisions of ERISA
and Section 4975 of the Internal Revenue Code may result on the basis of a
claim that the assets of the general account of an insurance company constitute
the plan assets of any Benefit Plan. The plan asset status of insurance company
separate accounts is unaffected by new Section 401(c) of ERISA, and separate
account assets continue to be treated as the plan assets of any Benefit Plan
invested in a separate account. CarMax Auto Receivables suggests that Benefit
Plan investors considering the purchase of any notes on behalf of an insurance
company general account consult their legal advisors regarding the effect of
the general account regulations on that purchase.
As of the date of this prospectus, the Department of Labor has issued
proposed regulations under Section 401(c). You should note that if the general
account regulations are adopted substantially in the form in which proposed,
those regulations may not exempt the assets of insurance company general
accounts from treatment as "plan assets" after December 31, 1998. The general
account regulations should not, however, adversely affect the applicability of
Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg. 35925 (July 12,
1995), which exempts various transactions involving insurance company general
accounts.
General Investment Considerations
CarMax Auto Receivables suggests that, prior to making an investment in the
notes, prospective investors who are Benefit Plans consult with their legal
advisors concerning the impact of ERISA and the Internal Revenue Code and the
potential consequences of making an investment in any of the notes. Moreover,
each Benefit Plan fiduciary should take into account, among other
considerations, whether the fiduciary has the authority to make the investment,
the composition of the Benefit Plan's portfolio with respect to diversification
by type of asset, the Benefit Plan's funding objectives, the tax effects of the
investment and whether under the general fiduciary standards of investment
prudence and diversification an investment in any of the notes is appropriate
for the Benefit Plan, taking into account the overall investment policy of the
Benefit Plan and the composition of the Benefit Plan's investment portfolio.
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UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement for the sale of the offered securities, CarMax Auto Receivables has
agreed to sell and each of the underwriters named in the following table has
severally agreed to purchase the principal amount of the offered securities set
forth below opposite its name:
<TABLE>
<CAPTION>
Class Class Class Class
A-1 Notes A-2 Notes A-3 Notes A-4 Notes
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Banc of America
Securities LLC......... $ 77,625,000.00 $104,325,000.00 $ 89,450,000.00 $44,139,000.00
First Union Securities,
Inc. .................. 38,812,500.00 52,162,500.00 44,725,000.00 22,069,500.00
Goldman, Sachs & Co..... 38,812,500.00 52,162,500.00 44,725,000.00 22,069,500.00
--------------- --------------- --------------- --------------
Total................. $155,250,000.00 $208,650,000.00 $178,900,000.00 $88,278,000.00
=============== =============== =============== ==============
<CAPTION>
Certificates
---------------
<S> <C>
Banc of America
Securities LLC......... $12,879,759.72
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth in the underwriting agreement, to purchase all
of the offered securities.
The underwriters propose to offer part of the offered securities directly
to you at the prices set forth on the cover page of this prospectus and part to
dealers at a price that represents a concession not in excess of 0.120% of the
denominations of the class A-1 notes, 0.145% of the denominations of the class
A-2 notes, 0.160% of the denominations of the class A-3 notes, 0.175% of the
denominations of the class A-4 notes or 0.300% of the denominations of the
certificates. The underwriters may allow and the dealers may reallow a
concession not in excess of 0.090% of the denominations of the class A-1 notes,
0.110% of the denominations of the class A-2 notes, 0.120% of the denominations
of the class A-3 notes, 0.130% of the denominations of the class A-4 notes or
0.225% of the denominations of the certificates.
CarMax Auto Superstores and CarMax Auto Receivables have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The underwriters have indicated that they intend to make a market in the
offered securities, as permitted by applicable laws and regulations. However,
the underwriters are not obligated to make a market in the offered securities
and any market-making in the offered securities may be discontinued at any time
in the sole discretion of the underwriters. Accordingly, the seller can give no
assurances regarding the liquidity of, or trading markets for, the offered
securities.
Until the distribution of the offered securities is completed, the rules of
the SEC may limit the ability of the underwriters and certain selling group
members to bid for and purchase the offered securities. As an exception to
these rules, the underwriters are permitted to engage in over-allotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids with respect to the offered securities in accordance with
Regulation M under the Securities Exchange Act.
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Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the offered securities as long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of the offered securities in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit the underwriters to reclaim a selling concession from a syndicate member
when the offered securities originally sold by the syndicate member are
purchased in a syndicate covering transaction.
These over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the offered
securities to be higher than they would be in the absence of these
transactions. None of CarMax Auto Superstores, CarMax Auto Receivables, the
trust nor any of the underwriters makes any representation or prediction as to
the direction or magnitude of any effect that these transactions may have on
the price of the offered securities. In addition, none of CarMax Auto
Superstores, CarMax Auto Receivables, the trust nor any of the underwriters
represents that any of the underwriters will engage in any of these
transactions or that any of these transactions, once commenced, will not be
discontinued without notice.
Each underwriter has represented and agreed that:
. it has not offered or sold, and will not offer or sell, any notes or
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 purpose of
their businesses or otherwise in circumstances which do not constitute
an offer to the public in the United Kingdom for the purposes of the
Public Offers of Securities Regulations 1995;
. 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 notes or certificates in, from or otherwise involving
the United Kingdom;
. 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 issue
or sale of notes or certificates to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, as amended, or is a person to
whom the document may otherwise lawfully be issued or passed on; and
. it has only promoted and will only promote, as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991, to any person in the United Kingdom the
scheme described herein if that person is of a kind described either in
Section 76(2) of the Financial Services Act 1986 or in Regulation 1.04
of the Financial Services (Promotion of Unregulated Schemes) Regulations
1991.
In the ordinary course of their businesses, the underwriters and their
affiliates have engaged and may in the future engage in investment banking,
commercial banking and other
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advisory or commercial relationships with CarMax Auto Superstores, CarMax Auto
Receivables and their affiliates. Bank of America, N.A., an affiliate of Banc
of America Securities LLC, is also the agent for a multi-seller asset backed
commercial paper conduit program which provides a receivables purchase facility
for CarMax Auto Superstores.
CarMax Auto Receivables will receive proceeds of $629,491,831.90 from the
sale of the notes, representing approximately 99.75% of the principal amount of
the notes, after paying the underwriting discount of $1,550,296.20,
representing approximately 0.25% of the principal amount of the notes. CarMax
Auto Receivables will receive proceeds of $12,814,974.53 from the sale of the
certificates, representing approximately 99.50% of the principal amount of the
certificates, after paying the underwriting discount of $64,398.80,
representing approximately 0.50% of the principal amount of the certificates.
Additional offering expenses are estimated to be $1,147,020.
LEGAL MATTERS
Certain legal matters relating to the offered securities will be passed
upon for CarMax Auto Receivables by McGuire, Woods, Battle & Boothe LLP,
Richmond, Virginia, and for the underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York. Certain federal income tax consequences with
respect to the offered securities will be passed upon for CarMax Auto
Receivables by McGuire, Woods, Battle & Boothe LLP.
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<PAGE>
EXPERTS
The balance sheet of CarMax Auto Owner Trust 1999-1 as of October 8, 1999
has been included in this prospectus in reliance on the report of KPMG LLP,
independent accountants, given on authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of MBIA Insurance Corporation and its
consolidated subsidiaries as of December 31, 1998 and December 31, 1997 and the
related consolidated statements of income, changes in shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this prospectus, have been incorporated in this
prospectus in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
CarMax Auto Receivables, as originator of the trust, filed a registration
statement relating to the notes and the certificates with the SEC. This
prospectus is part of the registration statement, but the registration
statement includes additional information about the notes and the certificates.
The servicer will file with the SEC all required periodic and special SEC
reports and other information about the trust. You may read and copy any
reports, statements or other information filed by or on behalf of the trust at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference room. The SEC filings made
by or on behalf of the trust are also available to the public on the SEC
Internet site at http://www.sec.gov.
The SEC allows CarMax Auto Receivables to incorporate by reference
information that CarMax Auto Receivables files with the SEC, which means that
CarMax Auto Receivables can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus. Information that CarMax Auto Receivables files
with the SEC after the date of this prospectus which is incorporated by
reference will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus. CarMax Auto Receivables incorporates by reference
any future annual, monthly and special SEC reports, proxy materials and all
other documents required under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act filed by or on behalf of the trust until the offering
of the notes and the certificates is terminated.
As a recipient of this prospectus, you may request a copy of any document
that CarMax Auto Receivables incorporates by reference, except the exhibits to
any document unless the exhibits are specifically incorporated by reference, at
no cost by writing or calling: CarMax Auto Superstores, Inc., c/o Circuit City
Stores, Inc., 9954 Mayland Drive, Richmond, Virginia 23233, Attention: Treasury
Department, telephone: (804) 527-4000.
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<PAGE>
GLOSSARY
Collection and Payment Definitions
"Available Funds" means, for any Payment Date, the following:
. all obligor payments received with respect to the contracts during the
preceding month;
. all liquidation proceeds received with respect to the contracts during
the preceding month;
. all interest earned on funds on deposit in the collection account during
the preceding month;
. the aggregate purchase price for all contracts that became Purchased
Contracts during the preceding month; and
. all prepayments received with respect to the contracts during the
preceding month attributable to any refunded item included in the amount
financed, including amounts received as a result of rebates of extended
warranty contract costs and insurance premiums and proceeds received
under physical damage, theft, credit life and credit disability
insurance policies.
"Cutoff Date" means September 30, 1999.
"Defaulted Contract" means a contract as to which any of the following has
occurred:
. any payment, or any part of any payment, due under the contract has
become 120 days or more delinquent, whether or not the servicer has
repossessed the related financed vehicle;
. the servicer has repossessed and sold the related financed vehicle; or
. the servicer has determined in accordance with its customary practices
that the contract is uncollectible;
provided, however, that a contract will not be classified as a Defaulted
Contract until the last day of the month during which one of these events
first occurs; and, provided further, that any contract which CarMax Auto
Receivables or the servicer is obligated to repurchase or purchase under the
sale and servicing agreement will not be deemed to be a Defaulted Contract.
"Determination Date" means the sixth day preceding each Payment Date or,
if the sixth day is not a business day, the following business day.
"Monthly Certificate Interest" means, for any Payment Date, the interest
payable on the certificates on that Payment Date.
"Monthly Certificate Principal" means, for any Payment Date on or after
which the notes have been paid in full, the lesser of:
. the principal balance of the certificates as of the day preceding that
Payment Date; and
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. the amount necessary to reduce the principal balance of the certificates
as of the day preceding that Payment Date to the principal balance of
the contracts as of the last day of the preceding month;
provided, however, that Monthly Certificate Principal on the final scheduled
Payment Date for the certificates will equal the principal balance of the
certificates as of the day preceding that final scheduled Payment Date; and,
provided further, that, for the purpose of determining Monthly Certificate
Principal, the unpaid principal balance of a Defaulted Contract or a Purchased
Contract will be deemed to be zero on and after the last day of the month
during which that contract became a Defaulted Contract or a Purchased Contract.
"Monthly Note Interest" means, for any Payment Date, the sum of the
interest payable on the class A-1 notes, the class A-2 notes, the class A-3
notes and the class A-4 notes, in each case on that Payment Date.
"Monthly Note Principal" means, for any Payment Date, the lesser of:
. the principal balance of the notes as of the day preceding that Payment
Date; and
. the amount necessary to reduce the principal balance of the notes and
the certificates as of the day preceding that Payment Date to the
principal balance of the contracts as of the last day of the preceding
month;
provided, however, that the portion of the Monthly Note Principal payable to
the holders of any class of notes on the final scheduled Payment Date for that
class will equal the principal balance of that class as of the day preceding
that final scheduled Payment Date; and, provided further, that, for the purpose
of determining Monthly Note Principal, the unpaid principal balance of a
Defaulted Contract or a Purchased Contract will be deemed to be zero on and
after the last day of the month during which that contract became a Defaulted
Contract or a Purchased Contract.
"Payment Date" means the 15th day of each month or, if the 15th day is not
a business day, the following business day.
"Purchased Contract" means a contract repurchased from the trust by CarMax
Auto Receivables or purchased from the trust by CarMax Auto Superstores, in
each case because of a breach of a representation or warranty under the sale
and servicing agreement.
"Record Date" means, with respect to any Payment Date, the preceding
business day or, if the notes and the certificates have been issued in fully
registered, certificated form, the last business day of the preceding month.
"Required Payment Amount" means, for any Payment Date, the aggregate amount
to be applied on that Payment Date in accordance with clauses (1), (2), (3),
(5) and (6) under "Collections and Payments--Payment Date Distributions--
Collection Account" beginning on page 56 of this prospectus plus the Monthly
Note Principal for that Payment Date.
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"Required Reserve Account Amount" means, for any Payment Date, the greatest
of $6,439,577.60, an amount equal to 3.75% of the principal balance of the
contracts as of the last day of the preceding month and the amount required to
be on deposit in the reserve account for that Payment Date under the insurance
agreement; provided, however, that the Required Reserve Account Amount for any
Payment Date will not exceed the principal balance of the notes and the
certificates as of that Payment Date after giving effect to all payments of
principal made to the noteholders and the certificateholders on that Payment
Date.
"Reserve Account Draw Amount" means, for any Payment Date, the amount, if
any, by which the sum of the Required Payment Amount for that Payment Date and
the Insurance Payment Amount for that Payment Date exceeds the Available Funds
for that Payment Date; provided, however, that, if the notes have been declared
immediately due and payable following an event of default under the indenture,
the Reserve Account Draw Amount for any Payment Date will include an amount
sufficient to pay in full the Monthly Certificate Interest for that Payment
Date.
Account Eligibility Definitions
"Eligible Investments" means investments acceptable to Moody's and Standard
& Poor's as being consistent with the ratings of the offered securities.
Eligible Investments will include:
. direct obligations of, and obligations guaranteed by, the United States
or any agency or instrumentality of the United States;
. demand and time deposits in or similar obligations of any depository
institution or trust company, including the indenture trustee or the
owner trustee or any agent of the indenture trustee or the owner
trustee, acting in their respective commercial capacities, rated P-1 by
Moody's or A-1+ by Standard & Poor's or any other deposit which is fully
insured by the Federal Deposit Insurance Corporation;
. repurchase obligations with respect to any security issued or guaranteed
by the United States or any agency or instrumentality of the United
States entered into with a depository institution or trust company,
acting as principal, rated P-1 by Moody's or A-1+ by Standard & Poor's;
. short-term corporate securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States or any state of the United States, the short-term unsecured
obligations of which are rated P-1 by Moody's or A-1+ by Standard &
Poor's at the time of the investment;
. commercial paper rated P-1 by Moody's or A-1+ by Standard & Poor's at
the time of the investment;
. guaranteed investment contracts issued by an insurance company or other
corporation acceptable to Moody's and Standard & Poor's;
. investments in money market funds having a rating of Aaa by Moody's or
AAA by Standard & Poor's; and
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. any other investment approved in advance in writing by Moody's and
Standard & Poor's.
"Eligible Deposit Account" means:
. a segregated account with the corporate trust department of the
indenture trustee; or
. a segregated account with a depository institution organized under the
laws of the United States or any state of the United States or the
District of Columbia, or any domestic branch of a foreign bank, that has
a long-term unsecured debt rating or a short-term unsecured debt rating,
as applicable, acceptable to Moody's and Standard & Poor's, and whose
deposits are insured by the FDIC.
Insurance Policy Definitions
"Deficiency Amount" means, for any Payment Date, the amount, if any, by
which the Required Payment Amount for that Payment Date exceeds the sum of the
Available Funds for that Payment Date and the amount available to be withdrawn
from the reserve account on that Payment Date before giving effect to any
withdrawals from the reserve account on that Payment Date: provided, however,
that, if the notes have been declared immediately due and payable following an
event of default under the indenture, the Deficiency Amount for any Payment
Date will include an amount sufficient to pay in full the Monthly Certificate
Interest for that Payment Date.
"Insurance Payment Amount" means, for any Payment Date, the premium payable
under the insurance agreement for that Payment Date plus any overdue premiums
payable under the insurance agreement for previous Payment Dates plus the
aggregate amount of any unreimbursed payments under the insurance policy, to
the extent payable to the insurer under the insurance agreement, plus accrued
interest on any unreimbursed payments under the insurance policy at the rate
provided in the insurance agreement plus any other amounts due to the insurer
under the insurance agreement.
"Insurer Default" means the insurer shall fail to make any payment required
under the insurance policy in accordance with its terms or an event of
bankruptcy, insolvency, receivership or liquidation shall occur with respect to
the insurer.
"Policy Claim Amount" means, for any Payment Date, the sum of the
Deficiency Amount for that Payment Date and the Preference Amount for that
Payment Date.
"Preference Amount" means, for any Payment Date, any amount previously
distributed to the noteholders or the certificateholders that a trustee in
bankruptcy of CarMax Auto Superstores or CarMax Auto Receivables is seeking to
recover as a voidable preference under the United States Bankruptcy Code
(11 U.S.C.), as amended from time to time, in accordance with a final, non-
appealable order of a court having competent jurisdiction.
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Tax and ERISA Definitions
"Benefit Plans" means:
. employee benefit plans, as defined in Section 3(3) of ERISA, that are
subject to Title I of ERISA;
. plans, as defined in Section 4975(e)(1) of the Internal Revenue Code,
that are subject to Section 4975 of the Internal Revenue Code,
including, without limitation, individual retirement accounts or Keogh
plans; and
. entities whose underlying assets include plan assets by reason of a
plan's investment in those entities, including, without limitation,
insurance company general accounts.
"Foreign Person" means any person other than a U.S. Person.
"U.S. Person" means:
. a citizen or resident of the United States;
. a corporation, partnership or other entity organized in or under the
laws of the United States, any state of the United States or the
District of Columbia, unless, in the case of a partnership, Treasury
regulations provide otherwise;
. an estate the income of which is includible in gross income for federal
income tax purposes, regardless of its source; or
. a trust if a United States court is able to exercise primary supervision
over the administration of the trust and one or more U.S. Persons has
authority to control all substantial decisions of the trust.
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INDEPENDENT AUDITORS' REPORT
First Union Trust Company, National Association, as Owner Trustee for CarMax
Auto Owner Trust 1999-1:
We have audited the accompanying balance sheet of CarMax Auto Owner Trust
1999-1 as of October 8, 1999. This financial statement is the responsibility of
the management of CarMax Auto Owner Trust 1999-1. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CarMax Auto Owner Trust 1999-1 as
of October 8, 1999 in conformity with generally accepted accounting principles.
KPMG LLP
Richmond, Virginia
October 11, 1999
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CARMAX AUTO OWNER TRUST 1999-1
BALANCE SHEET
October 8, 1999
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $1,000
------
Total assets.......................................................... $1,000
======
LIABILITIES & UNDIVIDED TRUST INTERESTS
Undivided trust interests............................................... $1,000
------
Total liabilities and undivided trust interests....................... $1,000
======
</TABLE>
See accompanying notes to balance sheet.
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<PAGE>
CARMAX AUTO OWNER TRUST 1999-1
NOTES TO BALANCE SHEET
October 8, 1999
(1) Organization
CarMax Auto Owner Trust 1999-1, a Delaware business trust, was formed on
October 8, 1999. The purpose and responsibilities of the trust are described in
the trust agreement dated October 8, 1999, between CarMax Auto Receivables LLC,
a Virginia limited liability company, as depositor, and First Union Trust
Company, National Association, a national banking association, as owner
trustee.
The trust is organized under sections 671 to 679 of the Internal Revenue
Code. The purpose of the trust is to conserve trust assets and collect and
disburse the periodic income from such assets. In order to achieve this
purpose, the trust will acquire, among other things, certain motor vehicle
retail installment sale contracts, issue trust certificates, issue notes,
distribute cash to the noteholders and certificateholders, and engage in other
transactions necessary or incidental to accomplishing these things.
On October 8, 1999, CarMax Auto Receivables LLC contributed $1,000 in cash
for 100% of the initial undivided trust interests. The initial undivided trust
interests are uncertificated.
(2) Undivided Trust Interests
The undivided trust interests represent the capital contribution of CarMax
Auto Receivables LLC to the trust.
(3) Income Taxes
The trust does not constitute a separate entity for federal income tax
purposes or for state income or franchise purposes as it is a mere nominee
holder of legal title to the trust assets. CarMax Auto Receivables LLC will be
treated for tax purposes as if it owned the trust assets directly, rather than
through the trust.
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ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
The globally-offered securities to be issued from time to time will
initially be available only in book-entry form. Investors in the globally-
offered securities may hold those securities through any of DTC, Cedelbank or
Euroclear. The globally-offered 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 globally-offered
securities through Cedelbank and Euroclear will be conducted in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice.
Secondary market trading between investors holding globally-offered
securities through DTC will be conducted in accordance with the rules and
procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedelbank or Euroclear and
organizations participating in DTC that hold offered securities will be
effected on a delivery-against-payment basis through the respective
depositaries of Cedelbank and Euroclear, in such capacity, and as DTC
participants.
Initial Settlement
All globally-offered securities will be held in book-entry form by DTC in
the name of Cede as nominee of DTC. Investors' interests in the globally-
offered securities will be represented through financial institutions acting on
their behalf as direct and indirect participants in DTC. As a result, Cedelbank
and Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold positions in accounts as DTC
participants.
Investors electing to hold globally-offered securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold globally-offered securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no distribution compliance period. All globally-offered securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
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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
organizations participating in DTC will be settled using the procedures
applicable to U.S. corporate debt obligations in same-day funds.
Trading Between Cedelbank and/or Euroclear Participants. Secondary market
trading between organizations participating in Cedelbank or the Euroclear
system will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading Between DTC Seller and Cedelbank or Euroclear Purchaser. When
globally-offered securities are to be transferred from the account of an
organization participating in DTC to the account of an organization
participating in Cedelbank or the Euroclear system, the purchaser will send
instructions to Cedelbank or Euroclear through a Cedelbank participant or a
Euroclear system participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective depositary to receive the
globally-offered securities against payment. Payment will include interest
accrued on the globally-offered securities from and including the last coupon
payment date to and excluding the settlement date, calculated, in the case of
the class A-1 notes and the class A-2 notes, on the basis of actual days
elapsed and a 360-day year, and, in the case of the class A-3 notes, the class
A-4 notes and the certificates, on the basis of a 360-day year consisting of
twelve 30-day months. Payment will then be made by the respective depositary to
the account of the DTC participant against delivery of the globally-offered
securities. After settlement has been completed, the globally-offered
securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the account of the
Cedelbank participant or the Euroclear system participant. The globally-offered
securities credit will appear the next day, European Time, and the cash debit
will be back-valued to, and the interest on the globally-offered 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, the Cedelbank or Euroclear cash debit will be valued instead as of
the actual settlement date.
Organizations participating in Cedelbank or the Euroclear system 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 pre-
position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Cedelbank or
Euroclear. Under this approach, they may take on credit exposure to Cedelbank
or Euroclear until the globally-offered securities are credited to their
accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, organizations participating in Cedelbank or the Euroclear system can
elect not to pre-position
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funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedelbank participants or Euroclear system participants
purchasing globally-offered securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the securities were credited to
their accounts. However, interest on the globally-offered securities would
accrue from the value date. Therefore, in many cases the investment income on
the globally-offered securities earned during the one-day period may
substantially reduce or offset the amount of these overdraft charges, although
this result will depend on the particular cost of funds of the organization
participating in Cedelbank or the Euroclear system.
Since the settlement is taking place during New York business hours,
organizations participating in DTC can employ their usual procedures for
sending globally-offered securities to the respective depositary for the
benefit of organizations participating in Cedelbank or the Euroclear system.
The sale proceeds will be available to the DTC seller on the settlement date.
Thus, to the DTC participant, a cross-market transaction will settle no
differently than a trade between two DTC participants.
Trading Between Cedelbank or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, organizations participating in Cedelbank
or the Euroclear system may employ their customary procedures for transactions
in which globally-offered securities are to be transferred by the respective
clearing system, through the respective depositary, to an organization
participating in DTC. The seller will send instructions to Cedelbank or
Euroclear through a Cedelbank participant or Euroclear system participant at
least one business day prior to settlement. In these cases, Cedelbank or
Euroclear will instruct the respective depositary, as appropriate, to deliver
the globally-offered securities to the account of the DTC participant against
payment. Payment will include interest accrued on the globally-offered
securities from and including the last coupon payment date to and excluding the
settlement date, calculated, in the case of the class A-1 notes and the class
A-2 notes, on the basis of actual days elapsed and a 360-day year, and, in the
case of the class A-3 notes, the class A-4 notes and the certificates, on the
basis of a 360-day year consisting of twelve 30-day months. The payment will
then be reflected in the account of the Cedelbank participant or the Euroclear
system participant the following day, and receipt of the cash proceeds in the
account of the Cedelbank participant or Euroclear system participant would be
back-valued to the value date, which would be the preceding day, when
settlement occurred in New York. Should the Cedelbank participant or Euroclear
system participant have a line of credit with its respective clearing system
and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over
that one-day period. If settlement is not completed on the intended value date,
receipt of the cash proceeds in the account of the Cedelbank participant or
Euroclear system participant would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
globally-offered securities from organizations participating in DTC for
delivery to organizations participating in Cedelbank or the Euroclear system
should note that these trades would automatically fail
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on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
. borrowing through Cedelbank or Euroclear for one day, until the purchase
side of the day trade is reflected in their Cedelbank or Euroclear
accounts, in accordance with the clearing system's customary procedures;
. borrowing the globally-offered securities in the U.S. from a DTC
participant no later than one day prior to settlement, which would give
the globally-offered securities sufficient time to be reflected in their
Cedelbank or Euroclear accounts in order to settle the sale side of the
trade; or
. 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 Cedelbank
participant or the Euroclear system participant.
Material U.S. Federal Income Tax Documentation Requirements
A beneficial owner of globally-offered securities holding securities
through Cedelbank 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 usually
applies to payments of interest, including original issue discount, on
registered debt issued by U.S. Persons unless:
. 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 the beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements; and
. the beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption For Non-U.S. Persons. Non-U.S. Persons that are beneficial owners
of the globally-offered securities can obtain a complete exemption from the
withholding tax by filing 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 that change.
Exemption For Non-U.S. Persons With Effectively Connected Income. Non-U.S.
Persons, including non-U.S. corporations or banks with a U.S. branch, that are
beneficial owners of the globally-offered securities and for which the related
interest income is effectively connected with the conduct of a trade or
business in the United States can obtain a complete 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. For payments made after December 31, 2000, Form 4224 will not
apply, and non-U.S. persons will be required to file a Form W-8 ECI to obtain
an exemption for interest payments that are effectively connected with the
conduct of a trade or business in the U.S.
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Exemption or Reduced Rate For Non-U.S. Persons Resident in Treaty
Countries. Non-U.S. Persons that are beneficial owners of the globally-offered
securities and reside 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 beneficial owner or his agent. For payments made after December 31,
2000, Form 1001 will not apply, and non-U.S. persons will be required to file a
Form W-8 BEN to claim the benefit of an applicable tax treaty.
Exemption For U.S. Persons. U.S. Persons that are beneficial owners of the
globally-offered securities 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 beneficial owner of a
globally-offered 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 through whom
he holds, which person would be the clearing agency in the case of persons
holding directly on the books of the clearing agency. Form W-8 and Form 1001
are effective for three calendar years and Form 4224 is effective for one
calendar year. For payments made after December 31, 2000, Form 4224 and Form
1001 will be replaced by Form W-8 ECI and Form W-8 BEN, respectively, each of
which will be effective from the date the form is signed through the end of the
third succeeding calendar year.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the globally-offered
securities. CarMax Auto Receivables suggests that you consult your own tax
advisors with respect to the tax consequences of holding or disposing of the
globally-offered securities. The information contained in this Annex A is an
integral part of the prospectus to which it is attached and an integral part of
the registration statement of which that prospectus forms a part.
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CarMax Auto Owner Trust 1999-1
CarMax Auto Receivables LLC
Seller
CarMax Auto Superstores, Inc.
Servicer
$643,957,759.72
$155,250,000.00 6.2025% Class A-1 Asset-Backed Notes
$208,650,000.00 6.47% Class A-2 Asset-Backed Notes
$178,900,000.00 6.76% Class A-3 Asset-Backed Notes
$ 88,278,000.00 6.88% Class A-4 Asset-Backed Notes
$ 12,879,759.72 7.12% Asset-Backed Certificates
----------------
PROSPECTUS
----------------
You should rely only on the information contained or incorporated by reference
in this prospectus. CarMax Auto Receivables has not authorized anyone to
provide you with additional or different information. CarMax Auto Receivables
is not offering the notes or the certificates in any state in which the offer
is not permitted.
Dealers will deliver a prospectus when acting as underwriters of the notes and
the certificates and with respect to their unsold allotments or subscriptions.
In addition, all dealers selling the notes and the certificates will deliver a
prospectus until January 19, 2000.
Underwriters of the Notes
Banc of America Securities LLC
First Union Securities, Inc.
Goldman, Sachs & Co.
Underwriter of the Certificates
Banc of America Securities LLC
Dated October 21, 1999
