As filed with the Securities and Exchange Commission on July 21, 1999
Registration No. 333-79087
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CARMAX AUTO OWNER TRUST 1999-1
(Issuer with respect to the securities)
--------------------
CARMAX AUTO RECEIVABLES LLC
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
-----------------
Virginia 54-1942944
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4900 Cox Road
Glen Allen, Virginia 23060
(804) 747-0422
(Address,including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Michael T. Chalifoux
CarMax Auto Receivables LLC
4900 Cox Road
Glen Allen, Virginia 23060
(804) 747-0422
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
David E. Melson, Esquire Richard S. Fortunato, Esquire
McGuire, Woods, Battle & Boothe LLP Skadden, Arps, Slate, Meagher & Flom LLP
901 East Cary Street 919 Third Avenue
Richmond, Virginia 23219 New York, New York 10022
(804) 775-1000 (212) 735-3000
--------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable on or after the effective date of this Registration
Statement.
If the only securities registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
Proposed
Title of each Class Amount Maximum Proposed Maximum Amount of
of Securities to be to be Offering Aggregate Registration
Registered Registered Price Per Unit(1) Offering Price (1) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 Asset-Backed Notes $200,000 100% $200,000 $55.60(2)
- ------------------------------------------------------------------------------------------------------
Class A-2 Asset-Backed Notes $200,000 100% $200,000 $55.60(2)
- ------------------------------------------------------------------------------------------------------
Class A-3 Asset-Backed Notes $200,000 100% $200,000 $55.60(2)
- ------------------------------------------------------------------------------------------------------
Class A-4 Asset-Backed Notes $200,000 100% $200,000 $55.60(2)
- ------------------------------------------------------------------------------------------------------
Asset-Backed Certificates $200,000 100% $200,000 $55.60(2)
=======================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
(2) Previously paid.
</TABLE>
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
$
CarMax Auto Owner Trust 1999-1
$ % Class A-1 Asset-Backed Notes
$ % Class A-2 Asset-Backed Notes
$ % Class A-3 Asset-Backed Notes
$ % Class A-4 Asset-Backed Notes
$ % Asset-Backed Certificates
[CARMAX LOGO]
CarMax Auto Receivables LLC
Seller
CarMax Auto Superstores, Inc.
Servicer
Underwriting
Discounts Net Proceeds to
Price and Commissions Seller
----- --------------- ------
Class A-1 Notes $ ( %) $ ( %) $ ( %)
Class A-2 Notes $ ( %) $ ( %) $ ( %)
Class A-3 Notes $ ( %) $ ( %) $ ( %)
Class A-4 Notes $ ( %) $ ( %) $ ( %)
Certificates $ ( %) $ ( %) $ ( %)
Total $ $ $
- -------------------------
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 8 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 Capital Markets
Goldman, Sachs & Co.
Underwriter of the Certificates
Banc of America Securities LLC
The date of this Prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
Page
IMPORTANT NOTICE ABOUT
INFORMATION PRESENTED IN THIS
PROSPECTUS ..............3
PROSPECTUS SUMMARY .............4
RISK FACTORS ..................9
DESCRIPTION OF THE TRUST .....15
THE ORIGINATOR'S FINANCE
OPERATIONS ..............17
First North American
Credit...................17
Underwriting Procedures..17
Collection Procedures....18
Physical Damage
Insurance...............19
Allocation of Payments...19
Delinquency and Credit
Loss Experience.........19
Delinquency and Credit
Loss Trends.............21
Year 2000 Compliance.....22
DESCRIPTION OF THE CONTRACT
POOL..........................24
WEIGHTED AVERAGE LIFE OF THE
OFFERED SECURITIES ......28
ALLOCATION OF PRINCIPAL
BALANCES; MONTHLY
REPORTS ................36
USE OF PROCEEDS................36
DESCRIPTION OF CARMAX AUTO
SUPERSTORES AND CARMAX
AUTO RECEIVABLES ........37
CarMax Auto Superstores..37
CarMax Auto Receivables..38
DESCRIPTION OF THE NOTES.......40
Note Registration .......40
Interest Payments........40
Principal Payments.......41
Optional Redemption .....42
The Indenture Trustee....42
DESCRIPTION OF THE
CERTIFICATES..................42
Certificate Registration.42
Interest Payments........42
Principal Payments.......42
Optional Prepayment......43
The Owner Trustee........43
REGISTRATION OF THEOFFERED
SECURITIES...............44
COLLECTIONS ANDPAYMENTS........49
The Trust Accounts.......49
Advances by the Servicer.49
Payment Sources..........49
The Reserve Account......50
The Yield Supplement
Account.................51
Subordination of the
Certificates............51
Payment Date
Distributions -- Collection
Account...............51
Payment Date
Distributions -- Note
Payment Account.......53
Payment Date Distributions
-- Certificate Payment
Account.................54
Application of Collection
and Payment Provisions
to First Payment Date...54
Statements to
Noteholders.............55
Statements to
Certificateholders......56
[DESCRIPTION OF THE INSURER]...57
[DESCRIPTION OF THE INSURANCE
POLICY] .................57
REPORTS TO SECURITYHOLDERS.....57
DESCRIPTION OF THE INDENTURE...58
DESCRIPTION OF THE TRUST
AGREEMENT................64
DESCRIPTION OF THE PURCHASE
AGREEMENT AND THE SALE
AND SERVICING AGREEMENT..67
MATERIAL LEGAL ASPECTS OF THE
TRANSACTION..............72
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES.............77
ERISA CONSIDERATIONS...........86
UNDERWRITING...................88
LEGAL MATTERS..................89
EXPERTS........................89
WHERE YOU CAN FIND MORE
INFORMATION..............90
GLOSSARY.......................91
ANNEX A: GLOBAL CLEARANCE,
SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES.96
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
This prospectus describes the specific terms of the notes and the
certificates, including:
o the amount and other terms, including interest rates, for each class of
notes and for the certificates;
o the timing of interest and principal payments;
o information about the contracts;
o information about the credit enhancement for each class of notes and
for the certificates;
o the credit ratings for each class of notes and for the certificates;and
o 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.
3
<PAGE>
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
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Certificates
----- ----- ----- ----- ------------
Initial Principal
Amount $ $ $ $ $
Interest Rate Per
Annum % % % % %
Interest Accrual
Method actual/360 30/360 30/360 30/360 30/360
Payment Dates
(monthly) 15th 15th 15th 15th 15th
First Payment Date , , , , ,
1999 1999 1999 1999 1999
Final Payment Date , , , , ,
200 200 200 200 200
Anticipated
Ratings
(Moody's/S&P) P-1/A-1+ Aaa/AAA Aaa/AAA Aaa/AAA
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:
o 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;
o amounts received on or in respect of the contracts after ,
1999;
o security interests in the vehicles financed under the contracts;
o any proceeds from claims on or refunds of premiums with respect to insurance
policies relating to the financed vehicles or the related obligors;
o funds on deposit in a collection account, a note payment account, a
certificate payment account, a yield supplement account and a reserve
account;
o [an unconditional and irrevocable insurance policy issued
by guaranteeing payments of monthly
interest and monthly principal on the notes [and the certificates]];
o 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
o 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
4
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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. The principal balance of the contracts was
$ as of , 1999.
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, Glen Allen, Virginia 23060, and its telephone number is (804)
747-0422.
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 owner trustee 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.
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 owner trustee 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 , 1999. Interest will be payable on each payment
date to noteholders and certificateholders of record as of the day before that
payment date; 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 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:
o the principal balance of the notes as of the day preceding that payment date;
and
o 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
5
<PAGE>
preceding month plus supplemental note principal for that payment date, to
the extent excess collections on the contracts are available on that payment
date to pay supplemental note principal.
The outstanding 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:
o the principal balance of the certificates as of the day preceding that
payment date; and
o 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 outstanding principal balance of the certificates will be payable in full on
the final scheduled payment date applicable to the certificates.
Payment Sources
On each payment date, payments on the notes and the certificates will be made
from the following sources:
o obligor payments received with respect to the contracts during the preceding
month;
o advances made by the servicer in respect of interest on delinquent contracts;
o liquidation proceeds received with respect to the contracts during the
preceding month;
o interest earned on funds on deposit in the collection account;
o payments made by CarMax Auto Superstores or the servicer in connection with
the required repurchase or purchase of contracts;
o amounts withdrawn on that payment date from the yield supplement account or
the reserve account; and
o [amounts paid on that payment date under the insurance policy].
Credit Enhancement
The notes will benefit from the following sources of credit enhancement:
o [amounts available to be paid under the insurance policy];
o 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];
o the subordination of the certificates;
o the payment of supplemental note principal based on a specified
overcollateralization amount, which payment will cause the outstanding
principal balance of the notes to decrease faster than the outstanding
principal balance of the contracts; and
o funds on deposit in the yield supplement account, which funds will also be
available to make required payments to the certificateholders.
The certificates will benefit from the following sources of credit enhancement:
o [amounts available to be paid under the insurance policy];
o 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];
and
o funds on deposit in the yield supplement account.
6
<PAGE>
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
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]. In
general, the insurer will pay under the insurance policy with respect to each
payment date the amount, if any, by which:
o 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
o the funds otherwise available on that payment date to pay those amounts,
including amounts available to be withdrawn from the yield supplement account
or the reserve account.
All amounts paid under the insurance policy will be deposited in the collection
account.]
The Reserve Account
On the closing date, the servicer will establish with the 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 Superstores will deposit $
in the reserve account on the closing date. On each payment date, the servicer
will deposit in the reserve account the amount, if any, by which:
o the amount collected on or in respect of the contracts during the preceding
month plus any amount withdrawn on that payment date from the yield
supplement account exceeds
o the amount which the trust is required to pay on that payment date to the
noteholders, the certificateholders, the servicer [and the insurer].
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:
o to the servicer, the aggregate amount of unreimbursed advances made by the
servicer in respect of contracts that became defaulted contracts during the
preceding month or that the servicer has otherwise determined to be
unrecoverable plus the monthly servicing fee for that preceding month plus
any overdue monthly servicing fees for previous months;
o to the noteholders, monthly interest and monthly principal for that payment
date plus any overdue monthly interest for previous payment dates;
o to the certificateholders, monthly interest and monthly principal for that
payment date plus any overdue monthly interest for previous payment dates;
and
o [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.]
In general, the amount required to be on deposit in the reserve account on any
payment date will equal the greater of $ and % of the principal balance of
the contracts as of the last day of the preceding month.
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 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
7
<PAGE>
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, the
certificateholders will not be entitled to receive monthly interest until the
notes have been paid in full.
The Yield Supplement Account
On the closing date, the servicer will establish with the trustee, for the
benefit of the noteholders, the certificateholders, the servicer [and the
insurer], a yield supplement account from which amounts may be withdrawn to
supplement the yield on contracts with annual percentage rates below a specified
rate. CarMax Auto Superstores will deposit $ in the yield supplement account
on the closing date. On each payment date, the indenture trustee will withdraw
from the yield supplement account with respect to each contract the amount, if
any, by which the interest payable on that contract for one month at % would
exceed the interest payable on that contract for one month at the annual
percentage rate applicable to that contract.
[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 77
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 86 of this prospectus for a further discussion
of the ERISA considerations applicable to a purchase of the notes or the
certificates.
8
<PAGE>
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, other than supplemental note
principal, to the noteholders [and the
certificateholders] with respect to each payment
date if the funds otherwise available on that
payment date are insufficient 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 the insurer fails to perform its
obligations 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, amounts transferred
from the yield supplement account and amounts on
deposit in the reserve account. CarMax Auto
Receivables cannot assure you that these sources
of funds will be sufficient on any payment date to
pay in full the monthly interest and monthly
principal due on that payment date. See
"Description of the Insurer" beginning on page 57
of this prospectus and "Description of the
Insurance Policy" beginning on page 57 of this
prospectus for a further discussion of the insurer
and the insurance policy.]
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, other
than supplemental note principal, to the
noteholders [and the certificateholders] on each
payment date if the funds otherwise available on
that payment date are insufficient 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 connection with the
rating of the notes and the certificates, the
amount on deposit in the reserve account may be
less than projected. 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, and amounts
transferred from the yield supplement account.
CarMax Auto Receivables cannot assure you that the
amount on deposit in the reserve account will be
sufficient on any payment date to pay in full the
monthly interest and monthly principal
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<PAGE>
due on that payment date. See "Collections and
Payments -- The Reserve Account" beginning on page
50 of this prospectus for a further discussion of
the reserve account.
The Subordination of the
Certificates May Not Be Adequate
to Assure Payment of Your 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 you,
however, that the subordination of the
certificates will be sufficient to assure payment
of your notes or your certificates. If the
contracts experience higher losses than were
projected in connection with the rating of the
notes, 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 on that payment date, even if those
funds are not used to pay monthly interest or
monthly principal due to the certificateholders.
See "Collections and Payments -- Subordination of
the Certificates" beginning on page 51 of this
prospectus for a further discussion of the
subordination of the certificates.
The Payments Received On or In
Respect of the Contracts May Not
Be Sufficient to Assure Payment
of Supplemental Note Principal . . . . . . The noteholders will only be
entitled to receive supplemental note principal on
any payment date to the extent that funds are
available on that payment date after all required
payments have been made to the servicer [and the
insurer] and all required deposits have been made
to the note payment account, the certificate
payment account and the reserve account. If the
contracts experience higher losses than were
projected in connection with the rating of the
notes and the certificates, the funds available on
any payment date may not be sufficient to pay in
full the supplemental note principal due to the
noteholders on that payment date. See
"Description of the Notes -- Principal Payments"
beginning on page 41 of this prospectus for a
further discussion of supplemental note principal.
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 74
10
<PAGE>
of this prospectus and "-- Notice of Sale;
Redemption Rights" beginning on page 74 of this
prospectus for a further discussion of the
limitations on the manner in which motor vehicles
may be repossessed and sold.
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 17 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 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 72 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
interests 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 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 72 of this
prospectus for a further discussion of the trust's
security interest in the financed vehicles.
11
<PAGE>
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:
o 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
o 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:
o the trustees would not be permitted to exercise
remedies against CarMax Auto Superstores on
your behalf without the permission of the
bankruptcy court;
o the bankruptcy court could require the trustees
to accept property in exchange for the contracts
that has less value than the contracts or could
reduce the amount of collateral held by the trust;
o 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
o 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 76 of this prospectus for a
further discussion of the
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<PAGE>
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 38 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, liquidations due to obligor payment
defaults, receipts of proceeds from physical
damage, 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 28 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 ,
1999, %, %, %, %, %, %, %
and % of the contracts, based on outstanding
principal balance, related to obligors with
mailing addresses in Florida, Georgia, Illinois,
Maryland, North Carolina, Texas, Virginia and
Wisconsin, respectively. As a result of this
geographic concentration, economic, social, legal
and other factors affecting these states could
have a significant effect on the delinquency or
credit loss experience of the contracts and could
adversely affect the timing and amount of
payments on the certificates. 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.
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<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 is in the final stages of 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 expects its computerized
information systems to be year 2000 compliant by
August 1999. 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 their computer
systems relating to the year 2000. See "CarMax
Auto Superstores' Finance Operations -- Year 2000
Compliance" beginning on page 22 of this
prospectus for a further discussion of the year
2000 problem.
14
<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 91 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 will be formed as a 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. See "Description of the Trust Agreement" beginning on page 64 of this
prospectus for a further discussion of the 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 $ as of the Cutoff Date. See
"Description of the Contract Pool" beginning on page 24 of this prospectus for a
further discussion of the contract pool.
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. CarMax Auto Receivables, CarMax Auto Superstores, as
servicer, and the owner trustee 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. See "Description of
the Purchase Agreement and the Sale and Servicing Agreement" beginning on page
67 of this prospectus for a further discussion of the purchase agreement and the
sale and servicing agreement.
Issuance of the Securities
The notes will be issued on or about , 1999 under an indenture between
owner trustee and Bankers Trust Company, as indenture trustee. The principal
balance of the notes will equal $ 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 40 of this prospectus for a further discussion of the notes.
See "Description of the Indenture" beginning on page 58 of this prospectus for a
further discussion of the indenture.
The certificates will be issued on or about , 1999 under the trust
agreement. The principal balance of the certificates will equal $ on the date
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 42 of this
prospectus for a further discussion of the certificates.
CarMax Auto Receivables is offering the notes and the certificates for
sale by this prospectus.
On the closing date, each class of notes 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., and the certificates must be rated
at least by Moody's and at least by Standard & Poor's. A rating is not a
recommendation to buy, sell or hold 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
15
<PAGE>
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:
o the contracts;
o amounts received on or in respect of the contracts after the Cutoff
Date;
o security interests in the vehicles financed under the contracts;
o 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;
o funds on deposit in the collection account, the note payment account,
the certificate payment account, the yield supplement account and the
reserve account;
o [an unconditional and irrevocable insurance policy issued
by guaranteeing payments of
monthly interest and monthly principal on the notes [and the
certificates]];
o 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
o 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 it is not anticipated
that the trust will have any need for additional capital resources. Because the
trust will have no operating history upon its formation 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, no historical or pro
forma financial information with respect to the trust is included in this
prospectus.
16
<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 35 stores in 10 states and provides its customers with a full 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 principal balance of
all motor vehicle retail installment sale contracts originated through FNAC was
$ as of , 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, 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.
Futhermore, 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
17
<PAGE>
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 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:
o the last 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;
18
<PAGE>
o if FNAC has repossessed the motor vehicle securing the contract, the
last day of the month during which the motor vehicle is liquidated; and
o the last 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 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 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 loss experience of the contract pool will be comparable to that
set forth below.
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<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
At June 30, At June 30, At December 31, At December 31, At December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
Number of Number of Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount Contracts Amount Contracts Amount
--------- ----- --------- ------ ---------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Contract
Portfolio 68,186 $701,961,714 39,180 $393,246,870 51,129 $528,585,348 26,272 $259,517,771 14,803 $147,637,677
Delinquencies as
a Percentage of
Total Contract
Portfolio
31-60 Days 0.79% 0.63% 0.97% 0.58% 0.97% 0.76% 1.23% 0.85% 1.34% 1.09%
61-90 Days 0.16% 0.10% 0.29% 0.11% 0.23% 0.17% 0.39% 0.18% 0.43% 0.36%
91 Days or More 0.08% 0.07% 0.13% 0.03% 0.11% 0.06% 0.23% 0.08% 0.21% 0.16%
Total
Delinquencies as
a Percentage of
Total Contract
Portfolio 1.03% 0.80% 1.39% 0.72% 1.31% 0.99% 1.85% 1.11% 1.98% 1.61%
Total
Delinquencies 701 $5,595,721 544 $2,855,969 685 $ 5,243,832 485 $ 2,894,712 294 $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.
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<PAGE>
Credit Loss Experience
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Number of
Contracts
Outstanding at
Period End 68,186 39,180 52,129 26,272 14,803
Average Number of
Contracts
Outstanding
During the Period...... 60,158 32,726 39,201 20,538 11,487
Outstanding
Principal Amount
at Period End.......... $701,961,714 $393,246,870 $528,585,348 $ 259,517,771 $147,637,677
Average
Outstanding
Principal Amount
During the Period (1) $617,114,153 $321,473,146 $392,753,294 $ 194,539,224 $117,361,052
Gross Charge-Offs (2) $ 2,269,663 $ 1,155,128 $ 2,726,477 $ 2,110,135 $ 1,181,456
Recoveries (3)......... $ 826,809 $ 377,616 $ 808,926 $ 665,576 $ 273,024
Net Losses............. $ 1,442,854 $ 777,512 $ 1,917,551 $ 1,444,559 $ 908,432
Net Losses as a
Percentage of the
Average
Outstanding
Principal Amount....... 0.47% 0.48% 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, net of collection
expenses.
(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, net of collection expenses.
The percentages for the six-month periods ended June 30, 1998 and June
30, 1999 are annualized. The six-month periods ended June 30 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 1.11% at December 31, 1997 to 0.99% at December 31, 1998 to 0.80% at
June 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 0.47%
for the six months ended June 30, 1999.
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<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:
o consistent credit underwriting, provided by empirically derived credit
scoring models which help FNAC quantify credit risk and implement risk
adjusted pricing;
o 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
o 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
resultin 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. Replacement work and enterprise-level testing is scheduled to
be completed by approximately August 1999. With regard to embedded systems,
CarMax Auto Superstores has identified many distinct makes and models used for
environmental controls, fire detection and monitoring, burglar detection and
monitoring, elevators, office equipment and uninterruptible power supplies. As
of June 30, 1999, approximately 70% of these embedded systems were believed to
be year 2000 compliant. The remaining 30% are expected to be compliant by
November 1999, except for low-impact embedded systems that will be left untested
because the cost of compliance testing is believed to far exceed the risk or
cost of an outage.
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.
22
<PAGE>
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 and the dates on which CarMax Auto
Superstores plans to complete its year 2000 modifications 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.
23
<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:
o is secured by a new or used motor vehicle;
o had an original principal balance of not more than
$ and a remaining principal balance as of the
Cutoff Date of not less than $ ;
o had an original term to maturity of not more than 72 months and not
less than months and a remaining term to maturity as of the Cutoff
Date of not more than 72 months and not less than months;
o is a simple interest contract;
o has a contract rate of interest of at least % and not more
than %;
o 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 greater than or less than one month and the first and last
payments may be less than or minimally greater than the level payments;
o relates to an obligor who has made at least two payments as of the
Cutoff Date;
o was not delinquent 30 days or more as of the Cutoff Date;
o is not secured by a financed vehicle that had been repossessed as of
the Cutoff Date;
o does not relate to an obligor that was the subject of a bankruptcy
proceeding as of the Cutoff Date;
o is evidenced by only one original document; and
o was not selected using selection procedures believed by CarMax Auto
Superstores or CarMax Auto Receivables to be adverse to the noteholders
or the certificateholders.
24
<PAGE>
Characteristics of the Contracts
The following tables set forth information with respect to the contracts
as of the Cutoff Date. In each case where information 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
Aggregate Original Weighted
Number of Principal Principal Average
Contracts Balance Balance Contract Rate
--------- ---------- --------- ------------
New Motor Vehicles...
Used Motor
Vehicles..........
All Contracts........
Weighted Weighted Percentage of
Average Average Aggregate
Remaining Term Original Term Principal Balance
-------------- ------------- -----------------
New Motor Vehicles...
Used Motor
Vehicles..........
All Contracts........
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
Percentage of
Percentage of Aggregate Aggregate
Remaining Number of Total Number Principal Principal
Term Range Contracts of Contracts Balance Balance
---------- --------- ------------- ---------- -------------
1 to 12 months.....
13 to 24 months....
25 to 36 months....
37 to 48 months....
49 to 60 months....
61 to 72 months....
Total.....
25
<PAGE>
Distribution of the Contracts by Obligor Mailing Address
as of the Cutoff Date
Percentage of Percentage of
Total Number Aggregate Aggregate
Obligor Number of of Principal Principal
Mailing Address Contracts Contracts Balance Balance
--------------- --------- --------- ------- -------
Florida...........
Georgia...........
Illinois..........
Maryland..........
North Carolina....
Texas.............
Virginia..........
Wisconsin.........
Other.............
Total.......
Each state included in the "other" category in the distribution by obligor
mailing address table accounted for less than % of the total number of
contracts and less than % 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
Percentage of
Percentage of Aggregate Aggregate
Number of Total Number Principal Principal
Model Year Contracts of Contracts Balance Balance
---------- --------- ------------- ---------- -------------
1988 and earlier....
1989................
1990................
1991................
1992................
1993................
1994................
1995................
1996................
1997................
1998................
1999................
2000................
Total..........
26
<PAGE>
Distribution of the Contracts by Contract Rate
as of the Cutoff Date
Percentage of
Percentage of Aggregate Aggregate
Contract Rate Number of Total Number Principal Principal
Range Contracts of Contracts Balance Balance
------------- --------- ------------- ---------- -------------
5.000 to 5.999%.....
6.000 to 6.999%.....
7.000 to 7.999%.....
8.000 to 8.999%.....
9.000 to 9.999%.....
10.000 to 10.999%...
11.000 to 11.999%...
12.000 to 12.999%...
13.000 to 13.999%...
14.000 to 14.999%...
15.000 to 15.999%...
16.000 to 16.999%...
17.000 to 17.999%...
More than 17.999%...
Total.......
27
<PAGE>
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 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 30 to 35 have been prepared on the basis of various
assumptions, including that:
o the Yield Supplement Amount for each Payment Date is transferred from
the yield supplement account to the collection account on that Payment
Date;
o the contracts prepay in full at the specified monthly ABS percentage;
o 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;
o distributions on the notes and the certificates are paid in cash on
each Payment Date commencing , 1999, and each
Payment Date occurs on the 15th day of a month;
o the closing date for the notes and the certificates occurs
on , 1999;
o no defaults or delinquencies occur in the payment of any of the
contracts;
o no contracts are repurchased due to a breach of any representation or
warranty or for any other reason; and
o 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:
28
<PAGE>
o 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
o 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
hypothetical pools with all of the contracts within each pool having the
following characteristics:
Weighted Weighted
Average Average
Cutoff Date Original Term Remaining Term
Pool Principal Weighted Average to Maturity, in to Maturity,
Number Balance Contract Rate Months) in Months)
------ ----------- ---------------- --------------- --------------
Total
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.
29
<PAGE>
- -------------------------------------------------------------------------------
Important notice regarding calculation of the weighted average life and the
assumptions upon which the tables on pages 30 to 35 are based
The weighted average life of each class of notes is determined by:
o multiplying the amount of each principal payment on that class by
the number of years from the closing date to the related Payment Date;
o adding the results; and
o dividing the sum by the initial principal balance of that class.
The weighted average life of the certificates is determined by:
o multiplying the amount of each principal payment on the certificates
by the number of years from the closing date to the related Payment
Date;
o adding the results; and
o dividing the sum by the initial principal balance of the certificates.
The tables on pages 30 to 35 have been prepared based on, and should be
read in conjunction with, the assumptions described on page 28, 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.
- -------------------------------------------------------------------------------
Percent of Initial Note Balance
at Various ABS Percentages
Class A-1 Notes Class A-2 Notes
--------------- ---------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5% 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Closing Date......
1 August, 1999......
2 September, 1999...
3 October, 1999.....
4 November, 1999....
5 December, 1999....
6 January, 2000.....
7 February, 2000....
8 March, 2000.......
9 April, 2000.......
10 May, 2000.........
11 June, 2000........
12 July, 2000........
13 August, 2000......
14 September, 2000...
15 October, 2000.....
16 November, 2000....
17 December, 2000....
18 January, 2001.....
19 February, 2001....
20 March, 2001.......
- --------------------------------------------------------------------------------
30
<PAGE>
21 April, 2001.......
22 May, 2001.........
23 June, 2001........
24 July, 2001........
25 August, 2001......
26 September, 2001...
27 October, 2001.....
28 November, 2001....
29 December, 2001....
30 January, 2002.....
31 February, 2002....
32 March, 2002.......
33 April, 2002.......
34 May, 2002.........
35 June, 2002........
36 July, 2002........
37 August, 2002......
38 September, 2002...
39 October, 2002.....
40 November, 2002....
41 December, 2002....
42 January, 2003.....
43 February, 2003....
44 March, 2003.......
45 April, 2003.......
Class A-1 Notes Class A-2 Notes
--------------- ---------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5% 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
46 May, 2003.........
47 June, 2003........
48 July, 2003........
49 August, 2003......
50 September, 2003...
51 October, 2003.....
52 November, 2003....
53 December, 2003....
54 January, 2004.....
55 February, 2004....
56 March, 2004.......
57 April, 2004.......
58 May, 2004.........
59 June, 2004........
Weighted Average
Life (In Years)
31
<PAGE>
Percent of Initial Note Balance
at Various ABS Percentages
Class A-3 Notes Class A-4 Notes
--------------- ---------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5% 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Closing Date......
1 August, 1999......
2 September, 1999...
3 October, 1999.....
4 November, 1999....
5 December, 1999....
6 January, 2000.....
7 February, 2000....
8 March, 2000.......
9 April, 2000.......
10 May, 2000.........
11 June, 2000........
12 July, 2000........
13 August, 2000......
14 September, 2000...
15 October, 2000.....
16 November, 2000....
17 December, 2000....
18 January, 2001.....
19 February, 2001....
20 March, 2001.......
21 April, 2001.......
22 May, 2001.........
23 June, 2001........
24 July, 2001........
25 August, 2001......
26 September, 2001...
27 October, 2001.....
28 November, 2001....
29 December, 2001....
30 January, 2002.....
31 February, 2002....
32 March, 2002.......
33 April, 2002.......
34 May, 2002.........
35 June, 2002........
36 July, 2002........
37 August, 2002......
38 September, 2002...
39 October, 2002.....
40 November, 2002....
41 December, 2002....
42 January, 2003.....
43 February, 2003....
44 March, 2003.......
45 April, 2003.......
32
<PAGE>
Class A-3 Notes Class A-4 Notes
--------------- ---------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5% 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
46 May, 2003.........
47 June, 2003........
48 July, 2003........
49 August, 2003......
50 September, 2003...
51 October, 2003.....
52 November, 2003....
53 December, 2003....
54 January, 2004.....
55 February, 2004....
56 March, 2004.......
57 April, 2004.......
58 May, 2004.........
59 June, 2004........
Weighted Average
Life (In Years)
33
<PAGE>
Percent of Initial Certificate Balance
at Various ABS Percentages
Certificates
------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ----
Closing Date..........
1 August, 1999..........
2 September, 1999.......
3 October, 1999.........
4 November, 1999........
5 December, 1999........
6 January, 2000.........
7 February, 2000........
8 March, 2000...........
9 April, 2000...........
10 May, 2000.............
11 June, 2000............
12 July, 2000............
13 August, 2000..........
14 September, 2000.......
15 October, 2000.........
16 November, 2000........
17 December, 2000........
18 January, 2001.........
19 February, 2001........
20 March, 2001...........
21 April, 2001...........
22 May, 2001.............
23 June, 2001............
24 July, 2001............
25 August, 2001..........
26 September, 2001.......
27 October, 2001.........
28 November, 2001........
29 December, 2001........
30 January, 2002.........
31 February, 2002........
32 March, 2002...........
33 April, 2002...........
34 May, 2002.............
35 June, 2002............
36 July, 2002............
37 August, 2002..........
38 September, 2002.......
39 October, 2002.........
40 November, 2002........
41 December, 2002........
42 January, 2003.........
43 February, 2003........
44 March, 2003...........
45 April, 2003...........
34
<PAGE>
Class A-1 Notes
---------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ----
46 May, 2003..............
47 June, 2003.............
48 July, 2003.............
49 August, 2003...........
50 September, 2003........
51 October, 2003..........
52 November, 2003.........
53 December, 2003.........
54 January, 2004..........
55 February, 2004.........
56 March, 2004............
57 April, 2004............
58 May, 2004..............
59 June, 2004.............
Weighted Average
Life (In Years)
35
<PAGE>
ALLOCATION OF PRINCIPAL BALANCES; MONTHLY REPORTS
A portion of the outstanding 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
outstanding 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 outstanding 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
outstanding principal balance of that class. The portion of the outstanding
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 outstanding 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 outstanding
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 outstanding 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
outstanding principal balance of the certificates. The portion of the
outstanding 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 55 of this prospectus and "-- Statements to Certificateholders" beginning
on page 56 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 the purchase of 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.
36
<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 35 stores in 10
states. CarMax Auto Superstores was incorporated in Virginia and is a
wholly-owned subsidiary of Circuit City Stores, Inc., the nation's largest
retailer of brand-name consumer electronics and major appliances and a leading
retailer of personal computers and music 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, reconditions 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.
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 $ million of contracts in CarMax Auto
Superstores' servicing portfolio as of , 1999, approximately % represented
contracts originated in connection with the sale of used motor vehicles and
approximately % represented contracts originated in connection with the sale
of new motor vehicles.
37
<PAGE>
CarMax Auto Superstores operates stores in the following markets:
Market Number of Stores
------ ----------------
Washington D.C./Baltimore, Maryland 4
Chicago, Illinois 4
Dallas, Texas 4
Atlanta, Georgia 3
South Florida 3
Houston, Texas 3
Los Angeles, California 2
Orlando, Florida 2
Tampa, Florida 2
Kenosha, Wisconsin 2
Charlotte, North Carolina 1
Raleigh, North Carolina 1
Greenville, South Carolina 1
San Antonio, Texas 1
Dulles, Virginia 1
Richmond, Virginia 1
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 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 the 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 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
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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.
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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
44 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 , 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:
o in the case of the class A-1 notes, % per annum;
o in the case of the class A-2 notes, % per annum;
o in the case of the class A-3 notes, % per annum; and
o in the case of the class A-4 notes, % per annum.
The notes will accrue interest:
o in the case of the class A-1 notes, from and including each Payment
Date, or, in the case of the accrual period for the first Payment Date,
from and including the closing date, to but excluding the following
Payment Date; and
o in the case of the class A-2 notes, the class A-3 notes and the class
A-4 notes, from and including the 15th day of the month preceding each
Payment Date, or, in the case of the accrual period for the first
Payment Date, from and including the closing date, to but excluding the
15th day of the following month.
Interest payable on the notes will be calculated as follows:
o in the case of the class A-1 notes, based on the actual number of days
elapsed and a 360-day year; and
o in the case of the class A-2 notes, the class A-3 notes and the class
A-4 notes, based on a 360-day year consisting of twelve 30-day months.
Interest payable on each class of notes on any Payment Date will be calculated
based on the outstanding principal balance of that class as of the preceding
Payment Date after giving effect to all payments of Monthly Note Principal on
that preceding Payment Date or, in the case of the first interest payment, based
on the initial outstanding principal balance of that class. 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.
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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 an event of default shall have occurred
and be continuing under the indenture, the certificateholders will not be
entitled to receive payments of interest 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 plus the
Supplemental Note Principal, if any, for that Payment Date. Monthly Note
Principal and Supplemental Note Principal, if any, will be paid in the following
order of priority:
(1) to the holders of the class A-1 notes until the outstanding 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 outstanding 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 outstanding 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 outstanding 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 plus the Supplemental 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
outstanding principal balance of that class as of that Payment Date.
The payment of Supplemental Note Principal will provide additional credit
enhancement for the notes by causing the principal balance of the notes to
decrease faster than the principal balance of the contracts. The Supplemental
Note Principal for any Payment Date will only be paid, however, to the extent
that the Available Funds for that Payment Date exceed the amount needed on that
Payment Date to make all required payments to the servicer [and the insurer] and
to make all required deposits to the note payment account, the certificate
payment account and the reserve account. If excess Available Funds are not
sufficient on any Payment Date to pay the Supplemental Note Principal for that
Payment Date in full, that shortfall will not be payable on subsequent Payment
Dates.
The final scheduled Payment Dates for the notes are as follows:
o , 200 for the class A-1 notes;
o , 200 for the class A-2 notes;
o , 200 for the class A-3 notes; and
o , 200 for the class A-4 notes.
The certificateholders will not be entitled to receive payments of
principal until the notes have been paid in full.
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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 outstanding 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 -- Termination of the Trust" beginning on page 71
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 58 of this
prospectus for a further discussion of the rights and duties of the indenture
trustee.
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 44 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 , 1999; provided, however, that if an event of default shall have
occurred and be continuing under the indenture, the certificateholders will not
be entitled to receive payments of interest 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 certificates will accrue interest during each period from and
including a Payment Date to but excluding the following Payment Date at % per
annum. Interest on the certificates will be calculated based on a 360-day year
consisting of twelve 30-day months. Interest payable on the certificates on any
Payment Date will be calculated based on the outstanding principal balance of
the certificates as of the preceding Payment Date after giving effect to all
payments of Monthly Certificate Principal on that preceding Payment Date or, in
the case of the first interest payment, based on the initial outstanding
principal balance of the certificates. 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
payments of principal until the notes have been paid in full.
The final scheduled Payment Date for the certificates is , 200 . 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
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Life of the Offered Securities" beginning on page 28 of this prospectus for a
further discussion of contract prepayments.
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 --
Termination of the Trust" beginning on page 71 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, 1st Floor, 920 King Street, Wilmington, Delaware 19801-7475,
Attention: Corporate Trust Department. The owner trustee will have various
rights and duties with respect to the certificates. See "Description of the
Purchase Agreement and the Sale and Servicing Agreement" beginning on page 67 of
this prospectus for a further discussion of the rights and duties of the owner
trustee with respect to the certificates.
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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
participants, 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 46 of this prospectus
for a further discussion of Cedelbank and the Euroclear system.
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
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participating in Cedelbank or the Euroclear system may not deliver instructions
directly to the Cedelbank or Euroclear depositaries.
Because of time-zone differences, credits or 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 these credits or any
transactions in these securities settled during this 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 96 of this prospectus
for additional information regarding clearance and settlement procedures. See
Annex A beginning on page 96 of this prospectus, "Material Federal Income Tax
Consequences -- Tax Consequences to Foreign Note Owners" beginning on page 80 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 85 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 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
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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.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that CarMax Auto Receivables believes to be
reliable, but CarMax Auto Receivables assumes no responsibility for its
accuracy.
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 income
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.
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
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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.
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.
The information in this section concerning Cedelbank and Euroclear has
been obtained from sources that CarMax Auto Receivables believes to be reliable,
but CarMax Auto Receivables assumes no responsibility for its accuracy.
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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:
o the owner trustee 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 owner trustee or the indenture trustee, as applicable, is
unable to locate a qualified successor;
o the owner trustee or the indenture trustee, as applicable, elects, at
its option, to terminate the book-entry system through DTC; or
o 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.
Upon the occurrence of any of the events described in the preceding
paragraph, 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:
o 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 the yield supplement account [or paid under the insurance
policy] will be deposited;
o 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
o 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 will be deposited and from which all payments to the
certificateholders will be made.
The servicer will also establish and maintain the reserve account and the
yield supplement account. See "-- The Reserve Account" beginning on page 50 of
this prospectus for a further discussion of the reserve account and "-- The
Yield Supplement Account" beginning on page 51 of this prospectus for a further
discussion of the yield supplement 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.
Advances by the Servicer
The servicer will advance funds to cover 30 days of interest due on any
contract that is more than 30 days delinquent at the end of any month. The
servicer will make an advance only if it expects, in its sole discretion, to
recover the amount of the advance from subsequent payments on the related
contract. The servicer will deposit the amount of each advance in the collection
account on or before the Determination Date following the end of the related
month. The servicer will recover advances made with respect to any contract from
subsequent payments on that contract or, if that contract becomes a Defaulted
Contract or the servicer otherwise determines that the advances made with
respect to that contract are unrecoverable, from amounts withdrawn from the
reserve account or from payments received on or in respect of other contracts.
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:
o CarMax Auto Superstores is the servicer;
o no event of servicing termination shall have occurred and be continuing
under the sale and servicing agreement; and
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o each other condition to making deposits less frequently than daily as
may be specified by 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 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" beginning on page 50 of this prospectus for
a further discussion of the reserve account [and "Description of the Insurance
Policy" beginning on page 57 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 make required payments
on the notes and the certificates. CarMax Auto Superstores will deposit $ in
reserve account on the closing date. On each Payment Date, the servicer will
deposit in the reserve account the amount, if any, by which the Available Funds
for that Payment Date exceed the amount which the trust is required to pay on
that Payment Date to the noteholders, the certificateholders, the servicer [and
the insurer]. 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 Required
Payment Amount [and the Insurance Payment Amount] for the following Payment
Date. If [the sum of] the Required Payment Amount [and the Insurance Payment
Amount] for any Payment Date exceeds the Available Funds for that Payment Date,
the indenture trustee will withdraw the amount of that excess, up to the amount
on deposit in the reserve account, from the reserve account and transfer the
amount withdrawn to the collection 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 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 and after the
payment of expenses and distributions to the noteholders and the
certificateholders.
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, other
than the yield supplement account, 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
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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 74 of this prospectus
and "-- Notice of Sale; Redemption Rights" beginning on page 74 of this
prospectus for a further discussion of the limitations on the manner in which
motor vehicles may be repossessed and sold.
The Yield Supplement 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 yield supplement account from which amounts may be withdrawn to
supplement the yield on contracts with annual percentage rates below a specified
rate. On the closing date, CarMax Auto Superstores will deposit in the yield
supplement account the Required Yield Supplement Account Amount as of the first
Payment Date. On each Payment Date, the indenture trustee will withdraw from the
yield supplement account and deposit in the collection account the Yield
Supplement Amount for that Payment Date. The amounts on deposit in the yield
supplement account will be invested by the servicer in Eligible Investments. The
yield supplement account must be maintained as an Eligible Deposit Account.
On each Determination Date, the servicer will calculate the Required Yield
Supplement Account Amount as of the following Payment Date. If the amount on
deposit in the yield supplement account on any Determination Date exceeds the
Required Yield Supplement Account Amount as of the following Payment Date, that
excess will be paid to CarMax Auto Superstores on that Determination Date.
If CarMax Auto Superstores obtains a Yield Supplement Letter of Credit or
enters into an alternative arrangement satisfactory to Moody's and Standard &
Poor's which will not result in a downgrade or withdrawal of the ratings of the
offered securities, the amount on deposit in the yield supplement account will
be released to CarMax Auto Superstores and the Required Yield Supplement Account
Amount will be reduced to zero. If the Required Yield Supplement Account Amount
is reduced to zero, CarMax Auto Superstores will deposit in the yield supplement
account on the business day preceding each Payment Date the Yield Supplement
Amount for that Payment Date.
The Yield Supplement Letter of Credit, if any, will be issued by a bank
that has a debt rating sufficient to maintain the rating of the offered
securities at the level at which they were initially rated by Moody's and
Standard & Poor's. If the rating of the bank that issues any Yield Supplement
Letter of Credit is reduced below the required rating and CarMax Auto
Superstores does not obtain a suitable replacement Yield Supplement Letter of
Credit or deposit the Required Yield Supplement Account Amount in the yield
supplement account, the indenture trustee will draw the full amount available
under the Yield Supplement Letter of Credit and deposit the amount drawn in the
yield supplement account.
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 and 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 the
occurrence of an event of default under the indenture, the certificateholders
will not be entitled to receive Monthly Certificate Interest until the notes
have been paid in full. 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
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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, in the case of amounts to be applied other than in
accordance with clause (1) below, paid under the insurance policy] on that
Payment Date, to make the following payments in the following order of priority:
(1) to the servicer, an amount equal to the aggregate amount of
unreimbursed advances made by the servicer in respect of contracts that
became Defaulted Contracts during the preceding month or that the
servicer has otherwise determined to be unrecoverable;
(2) to the servicer, the monthly servicing fee for the preceding month plus
any overdue monthly servicing fees for previous months;
(3) 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;
(4) 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;
(5) to the note payment account, the Monthly Note Principal for that
Payment Date;
(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 servicer, the amount received on or in respect of contracts in
respect of which the servicer has made an advance but for which the
servicer has not been reimbursed in accordance with clause (1) above;
(9) [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;]
(10) to the reserve account, the amount, if any, by which the Required
Reserve Account Amount for that Payment Date exceeds the amount o
deposit in the reserve account on that Payment Date after giving effect
to all required withdrawals from the reserve account on that Payment
Date;
(11) to the note payment account, the Supplemental Note Principal
for that Payment Date; and
(12) to CarMax Auto Receivables, any remaining amount of Available
Funds;
provided, however, that if the notes have been declared immediately due and
payable following the occurrence of an event of default under the indenture:
o the amount otherwise applied in accordance with clause (3) above shall
be increased by an amount equal to the lesser of the remaining amount
available to be applied on that Payment Date and the principal balance
of the notes; and
o no amount will be applied on that Payment Date in accordance with
clause (5) above.
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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 the occurrence of an event of default
under the indenture, the indenture trustee will apply or cause to be applied the
amount transferred to 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 plus the Supplemental 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 plus
the Supplemental 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 plus
the Supplemental 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 plus
the Supplemental 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.
On each Payment Date following the date on which the notes are declared
immediately due and payable following the occurrence of an event of default
under the indenture, the indenture trustee will apply or cause to be applied the
amount transferred to 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
outstanding principal balance of that class as of that Payment Date.
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
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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 transferred to 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 and the aggregate
advances for or with respect to 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 , 1999:
, 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 and all advance
reimbursements to be received on the following Payment
Date from these deposits.
, 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 to be distributed on
the following Payment Date and the amount of any
deficiencies. [If necessary, the indenture trustee
notifies the insurer of any payments required under the
insurance policy.]
, 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.
, 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
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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:
o 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;
o 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;
o the amount of that payment allocable to Monthly Note Principal for that
Payment Date for each class of notes;
o the amount of that payment allocable to Supplemental Note Principal for
that Payment Date for each class of notes;
o the monthly servicing fee payable to the servicer for that month;
o the Yield Supplement Amount for that Payment Date;
o the outstanding 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 Monthly Note Principal and Supplemental Note Principal made on that
Payment Date;
o the principal balance of the contracts as of the last day of that
month;
o 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;
o the amount on deposit in the yield supplement account, after giving
effect to all required deposits to and withdrawals from the yield
supplement account on that Payment Date;
o the aggregate purchase price for contracts repurchased by CarMax Auto
Receivables or purchased by the servicer during that month;
o 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
o 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
indenture trustee will mail to each person who was a registered noteholder at
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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:
o 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;
o 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;
o the amount of that payment allocable to Monthly Certificate Principal
for that Payment Date;
o the monthly servicing fee payable to the servicer for that month;
o the Yield Supplement Amount for that Payment Date;
o 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;
o the principal balance of the contracts as of the last day of that
month;
o 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;
o the amount on deposit in the yield supplement account, after giving
effect to all required deposits to and withdrawals from the yield
supplement account on that Payment Date;
o the aggregate purchase price for contracts repurchased by CarMax Auto
Receivables or purchased by the servicer during that month;
o 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
o 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
owner trustee 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]
[DESCRIPTION OF THE INSURANCE POLICY]
[On the closing date, , 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. 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 servicer, and the insurer.
The insurer will be entitled to receive amounts withdrawn from the reserve
account and to receive the monthly premiums payable under the insurance
agreement and various other amounts on each Payment Date, in each case as
described under "-- Payment Date Distributions -- Collection Account" beginning
on page 51 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.]
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 48 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.
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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:
o the trust shall fail to make any required interest payment on the notes
and that failure shall continue unremedied for five business days;
o the trust shall fail to make any required principal payment on the
notes;
o the trust shall fail to observe or perform any material covenant or
agreement 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;
o 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;
o an event of bankruptcy, insolvency, receivership or liquidation shall
occur with respect to the trust; or
o [a claim shall be made under the insurance policy];
[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 principal of 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 [and
the certificates] 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, the indenture trustee
[and the owner trustee] will continue to submit claims under the insurance
policy for any shortfalls in amounts available to make required payments on the
notes [or the certificates]. 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].]
If an event of default shall have occurred and be continuing under the
indenture [, other than an event of default arising solely as a result of a
claim being made under the insurance policy, and an Insurer Default shall have
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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 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 due and payable 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 business days in the payment of
interest on the notes or a default in the payment of principal of the notes,
unless:
o 100% of the noteholders consent to the sale;
o the proceeds of the sale are sufficient to pay in full the principal
amount of and accrued but unpaid interest on the notes; or
o 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 indenture trustee obtains the consent of the
holders of notes evidencing not less than 66-2/3% of the principal
balance of the notes 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 at the direction of the indenture
trustee or the noteholders under the circumstances described in the preceding
paragraph, 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 as compensation or indemnity
payments 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 under the insurance agreement and then] to CarMax Auto Receivables.
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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 the rights or powers under the indenture at the request or
direction of any 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.
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 maturity 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 modified or amended
without the unanimous consent of the noteholders.
Covenants
The trust will not:
o 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;
o 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 Code or applicable state law, or assert
any claim against any present or former holder of notes or the
certificates because of the payment of taxes levied or assessed upon
the trust;
o dissolve or liquidate in whole or in part;
o permit the validity or effectiveness of the indenture to be impaired;
o 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;
o 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;
o 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 or other liens arising by operation of law;
o 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
o 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 otherwise acceptable to
Moody's and Standard & Poor's.
The indenture trustee may resign at any time by notifying the trust and
the noteholders of that resignation. The trust will be required to remove the
indenture trustee if the indenture trustee:
o ceases to be eligible to continue as the trustee under the indenture;
o is adjudged to be bankrupt or insolvent;
o comes under the charge of a receiver or other public officer; or
o 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:
o will perform those duties and only those duties that are specifically
set forth in the indenture;
o 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
o 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.
Compensation; Indemnification
The trust will pay to the indenture trustee from time to time reasonable
compensation for its services, reimburse the indenture trustee for all expenses,
advances and disbursements reasonably incurred 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
performance of its duties under the indenture. The indenture trustee will
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not be indemnified against any loss, liability or expense incurred by it through
its own willful misconduct, negligence or bad faith, except that the indenture
trustee will not be liable:
o for any error of judgment made by it in good faith unless it is proved
that the indenture trustee was negligent in ascertaining the pertinent
facts;
o 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
o for interest on any money received by it except as the indenture
trustee and the trust may agree in writing.
The indenture trustee will not be deemed to have knowledge of any event 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
20 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 ten 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.
Satisfaction and Discharge of Indenture
The indenture will be discharged with respect to the collateral securing
the notes:
o upon delivery to the indenture trustee for calcellation 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 all accrued but unpaid interest on the notes;
o upon delivery to the indenture trustee 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
o 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 Moody's and Standard & Poor's, enter into one or more
supplemental indentures for the purpose of adding to the covenants of the trust,
curing any ambiguity, correcting or supplementing any provision of the indenture
which may be inconsistent with any other provision of the indenture or making
any other provision with respect to matters or questions arising under the
indenture which will not be inconsistent with other provisions of the indenture;
provided, however, that:
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o the proposed action will not, as evidenced by an opinion of counsel,
which may be internal counsel to CarMax Auto Receivables or the
servicer, materially adversely affect the interests of any noteholder
or, as confirmed by Moody's and Standard & Poor's, cause the then
current rating assigned to any class of notes to be withdrawn, reduced
or qualified; and
o an opinion of counsel, which may be internal counsel to CarMax Auto
Receivables or the servicer, is delivered to the effect that the
proposed action 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.
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 be continuing], with prior written
notice to 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 of modifying in any
manner the rights of the noteholders; provided, however, that:
o the proposed action will not, as evidenced by an opinion of counsel,
which may be internal counsel to CarMax Auto Receivables or the
servicer, materially adversely affect the interests of any noteholder
or, as confirmed by Moody's and Standard & Poor's, cause the then
current rating assigned to any class of notes to be withdrawn, reduced
or qualified; and
o an opinion of counsel, which may be internal counsel to CarMax Auto
Receivables or the servicer, is delivered to the effect that the
proposed action 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; and,
provided further, that no supplemental indenture may, without the consent of all
noteholders affected by that supplemental indenture:
o change the final 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;
o impair the right to institute suit for the enforcement of the
provisions of the indenture regarding payment;
o 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;
o modify or alter the provisions of the indenture regarding the voting of
notes held by the trust, CarMax Auto Receivables, the servicer, an
affiliate of any of them or any obligor on the notes;
o 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 and the certificates;
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o modify any provision of the indenture specifying a percentage of the
principal balance of the notes necessary to amend the indenture, the
trust agreement or the sale and servicing agreement except to increase
any percentage specified in the indenture or to provide that additional
provisions of the indenture, the trust agreement or the sale and
servicing agreement cannot be modified or waived without the consent of
the holders of each outstanding note affected by the modification or
waiver;
o modify any provisions of the indenture in such a manner as to affect
the calculation of the amount of any payment of interest or principal
due on any note on any Payment Date or to affect the rights of the
noteholders to the benefit of any provisions for the mandatory
redemption of the notes contained in the indenture; or
o permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture with respect to any of the 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.
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.
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 the closing date, CarMax Auto Receivables will form the trust and
appoint 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 of
that resignation. The administrator may remove the owner trustee if the owner
trustee:
o ceases to be eligible to continue as the trustee under the trust
agreement;
o is adjudged to be bankrupt or insolvent;
o comes under the charge of a receiver or other public officer; or
o otherwise becomes incapable of acting.
Upon the resignation or removal of the owner trustee, the administrator
will be required promptly to appoint a successor trustee under the trust
agreement.
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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. The owner trustee will not be
liable for any error of judgment made in good faith by a responsible officer of
the owner trustee, unless it is proved that the owner trustee was negligent in
ascertaining the pertinent facts, and will not be liable with respect to any
action taken or omitted to be taken in good faith by the owner trustee in
accordance with the provisions of the trust agreement at the instructions of the
certificateholders, the indenture trustee, CarMax Auto Receivables, the
administrator or the servicer.
Compensation; Indemnification
CarMax Auto Receivables will pay to the owner trustee from time to time
reasonable compensation for its services, reimburse the owner trustee for all
expenses, advances and disbursements reasonably incurred 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
performance of its duties under the indenture. 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, except that the owner trustee
will not be liable:
o 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;
o 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;
o 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
o for the default or misconduct of the servicer, the administrator,
CarMax Auto Receivables or the indenture trustee.
Termination of Trust
The trust agreement and the trust will terminate and be of no further
force or effect:
o upon the payment to the noteholders and the certificateholders of all
amounts required to be paid to them under the purchase agreement, the
trust agreement, the sale and servicing agreement and the indenture; or
o on the payment date following the month which is one year after the
maturity or other liquidation of the last contract 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 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
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may be inconsistent with any other provision of the trust agreement or adding
any provisions to or changing in any manner or eliminating any of the provisions
of the trust agreement; provided, however, that:
o the proposed action will not, as evidenced by an opinion of counsel,
which may be internal counsel to CarMax Auto Receivables or the
servicer, materially adversely affect the interests of any noteholder
or certificateholder or, as confirmed by Moody's and Standard & Poor's,
cause the then current rating assigned to any class of notes or to the
certificates to be withdrawn, reduced or qualified; and
o an opinion of counsel, which may be internal counsel to CarMax Auto
Receivables or the servicer, is delivered to the effect that the
proposed action 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.
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 and the 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 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 of
modifying in any manner the rights of the noteholders or the certificateholders;
provided, however, that:
o the proposed action will not, as evidenced by an opinion of counsel,
which may be internal counsel to CarMax Auto Receivables or the
servicer, materially adversely affect the interests of any noteholder
or certificateholder or, as confirmed by Moody's and Standard & Poor's,
cause the then current rating assigned to any class of notes or to the
certificates to be withdrawn, reduced or qualified; and
o an opinion of counsel, which may be internal counsel to CarMax Auto
Receivables or the servicer, is delivered to the effect that the
proposed action 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; and,
provided further, that no amendment may, without the consent of all noteholders
and certificateholders affected by the amendment:
o 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 the contracts or distributions that are required to be made
on any note, or change the interest rate applicable to any class of
notes, without the consent of all noteholders affected by the
amendment;
o reduce the percentage of the principal balance of the notes the consent
of the holders of which is required for any amendment without the
consent of all noteholders affected by the amendment; or
o adversely affect the ratings assigned by Moody's or Standard & Poor's
to any class of notes without the consent of the holders of notes
evidencing not less than 66-2/3% of the principal balance of that
class.
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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:
o the information provided by CarMax Auto Superstores with respect to the
contracts is correct in all material respects;
o 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;
o 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;
o 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
o 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 any contract as to which CarMax Auto
Superstores 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 following the discovery by or notice to CarMax Auto
Superstores of that breach or, if CarMax Auto Superstores so elects, on or
before the last day of the preceding month. Each contract to be repurchased by
CarMax Auto Superstores must be repurchased on or before 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
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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.
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 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
as it deems necessary or advisable to realize upon any contracts with respect to
which the servicer determines that eventual payment in full is unlikely. The
servicer may sell the financed vehicle securing any 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.
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 first day of that month. The servicer will also collect and retain any late
fees, prepayment charges, other administrative fees or other similar charges
allowed by applicable law with respect to the contracts and will 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,
making advances, 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
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and Agency Group - Structured Finance, or to the owner trustee at One Rodney
Square, 1st Floor, 920 King Street, Wilmington, Delaware 19801-7475, Attention:
Corporate Trust Department.
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 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:
o 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;
o the servicer shall fail to deliver to 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;
o the servicer shall fail duly 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 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 or the owner
trustee [or the insurer] or to the servicer and to 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;
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o 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, 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, as
applicable, by the indenture trustee or the owner trustee [or the
insurer] or to the servicer and to 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; and
o an event of bankruptcy, insolvency, receivership or liquidation shall
occur with respect to the servicer.
Rights Upon Event of Servicing Termination
If an event of servicing termination shall have occurred and be continuing
under the sale and servicing agreement, the indenture trustee or the owner
trustee, upon direction to do so by [the insurer, unless an Insurer Default
shall have occurred and be continuing, or] 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, whereupon
the indenture trustee or a successor servicer appointed by [the insurer or, with
the consent of the insurer,] the indenture trustee or the owner 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 the indenture trustee, the noteholders, the owner trustee or the
certificateholders from effecting 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.
[The insurer will also be entitled to appoint a successor servicer and to
redirect payments made on or in respect of the contracts to the indenture
trustee upon the occurrence of various additional events involving a failure of
performance by the servicer or a material misrepresentation made by the servicer
under the insurance agreement.]
Waiver of Past Defaults
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, 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, except a default in
making any required deposits to or payments from the collection account, the
note payment account, the certificate payment account, the yield supplement
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.
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[Unless an Insurer Default shall have occurred and be continuing, the
insurer may, on behalf of the securityholders, 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, 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 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
amendment to the sale and servicing agreement may materially and adversely
affect the interests of any noteholder or any certificateholder. Any amendment
shall be deemed not to materially and adversely affect the interests of any
noteholder or certificateholder if the person requesting the amendment obtains
letters from Moody's and Standard & Poor's to the effect that the amendment
would not result in a downgrading or withdrawal of the ratings then assigned to
the notes or the certificates by Moody's and Standard & Poor's or an opinion of
counsel satisfactory to the indenture trustee to that effect.
The sale and servicing agreement may also be amended from time to time by
CarMax Auto Receivables, the servicer and the owner trustee, 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 and 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 amendment may, without the consent of the holders of all of the
outstanding notes:
o 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 adversely
affected noteholders or certificateholders;
o reduce the percentage of the principal balance of the notes or the
principal balance of the certificates that is required to consent to
any amendment to the sale and servicing agreement without the consent
of all adversely affected noteholders or certificateholders; or
o adversely affect the rating of 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 the notes 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 proposed 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, unless an Insurer Default shall have occurred and be
continuing, if the proposed amendment would reasonably be expected to have a
materially adverse effect upon the rights of the insurer.]
Termination of the Trust
The obligations of the servicer, CarMax Auto Receivables and the owner
trustee under the sale and servicing agreement will terminate upon the earlier
to occur of:
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o the maturity or other liquidation of the last contract in the contract
pool and the disposition of any amounts received upon liquidation of
any remaining contracts; and
o the payment to the certificateholders of all amounts required to be
paid to them under the sale and servicing agreement.
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. The exercise of this right will
effect the early retirement of the notes and the certificates.
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.
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In most states, an assignment of a security interest in a motor vehicle
such as the assignment made under the sale and servicing agreement is effective
to convey that security interest without amendment of any lien noted on the
related certificate of title and the assignee succeeds by that assignment to the
assignor's rights as secured party. In several states in which the contracts
were originated, the laws governing certificates of title are silent on the
question of the effect of an assignment on the continued validity and perfection
of a security interest in a motor vehicle. In those states in which a security
interest in personal property is perfected by a central filing, however, the
related UCC provides that a security interest continues to be valid and
perfected even though the security interest has been assigned to a third party
and no amendments or other filings are made to reflect the assignment. An
official comment to the UCC states that this rule should control a security
interest in a motor vehicle which is perfected by the notation of the lien on
the related certificate of title. Although the comment does not have the force
of law, official comments are typically given substantial weight by the courts.
The other states in which the contracts were originated have statutory
provisions that address or could be interpreted as addressing assignments. In
general, however, these statutory provisions either do not require compliance
with the procedure outlined to insure the continued validity and perfection of
the lien or are ambiguous on the issue of whether the procedure must be
followed. Under the official comment noted above, if these procedures for noting
an assignee's name on a certificate of title are determined to be merely
permissive in nature, the procedures would not have to be followed as a
condition to the continued validity and perfection of the security interest.
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
there are any financed vehicles as to which CarMax Auto Superstores has failed
to obtain a perfected security interest, the security interest of CarMax Auto
Superstores would be subordinate to, among others, subsequent purchasers of
those financed vehicles and holders of perfected security interests in those
financed 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 67 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 have been 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 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
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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 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
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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 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 to the effect that, if CarMax Auto Superstores were to
become the subject of a voluntary or involuntary case under the United Stated
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 State Bankruptcy Code. McGuire, Woods, Battle & Boothe 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 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 made to litigate this issue, you could experience
losses or payment delays with respect to your notes or your certificates.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the material federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates. The discussion reflects the opinion of McGuire, Woods, Battle &
Boothe, special tax counsel to CarMax Auto Receivables, to the extent the
discussion contains statements that constitute matters of law or legal
conclusions. The discussion 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 discussion, 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. You should consult your own tax advisers in determining
the federal, state, local and foreign tax consequences to you of the purchase,
ownership and disposition of the offered securities.
Tax Treatment of the Notes and the Trust under Federal Income Tax Law
Tax Status of the Notes and the Trust. On the closing date, McGuire,
Woods, Battle & Boothe will render its opinion, under existing law and subject
to customary assumptions and qualifications, that:
o the notes will be treated as debt federal income tax purposes; and
o the trust will not be classified as an association or publicly traded
partnership taxable as a corporation 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.
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"
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payments. A qualified stated interest payment is any one of a series of payments
equal to the product of the outstanding 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
%. 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 prior
periods, other than qualified stated interest payments. The present value of the
remaining payments is determined on the basis of three factors:
o 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;
o events which have occurred before the end of the accrual period; and
o 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
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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.
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:
o 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;
o the note was issued on the date of its acquisition by the beneficial
owner; and
o 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 78 of
this prospectus and "-- Amortizable Bond Premium" beginning on page 79 of this
prospectus for a further discussion of these elections.
Disposition of Notes. In general, the beneficial owner of the 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 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 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
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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 by
Noteholders
The indenture permits the noteholders to waive any past default or event
of default under the indenture or to rescind an acceleration of the notes in
certain circumstances upon a vote of the holders of a specified percentage of
the principal balance of the notes. 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 58 of this prospectus, " -- Waiver of
Past Defaults" beginning on page 60 of this prospectus and " -- Modification of
Indenture" beginning on page 62 of this prospectus for a further discussion of
the circumstances under which the noteholders may rescind an acceleration of the
notes or waive any past default or event of default under the indenture 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 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:
o 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
o 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.
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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:
o 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
o 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. You should consult your own
tax advisors regarding the effect, if any, of the regulations on your purchase,
ownership and disposition of the notes.
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 certificate Owner 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:
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o 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;
o 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;
o prepayment premium payable to the beneficial owners for that month; and
o any other amounts of income payable to the beneficial owners for that
month.
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 certificate Owner might be disallowed in
whole or in part and might result in the certificate Owner being taxed on an
amount of income that exceeds the amount of cash actually distributed to the
certificate 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.
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.
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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 owner trustee 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 owner trustee 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 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:
o the name, address and taxpayer identification number of the nominee;
and
o 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
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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 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. Potential investors who are not U.S.
Persons should 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.
The federal income tax discussions set forth above may not apply to you
depending upon your particular tax situation. You should consult your own tax
advisors with respect to the tax consequences of acquiring, holding and
disposing of notes or certificates, including the tax consequences under state,
local, foreign and other tax laws and the possible effects of changes in federal
or other tax laws.
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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, 114 S.
Ct. 517 (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 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
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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. Furthermore, purchasers of certificates that are insurance
companies should consult with their counsel to determine whether the John
Hancock decision affects their ability to purchase the certificates.
A Benefit Plan fiduciary considering the purchase of notes or certificates
should consult its 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
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 Plan invested in
a separate account. Benefit Plan investors considering the purchase of any notes
on behalf of an insurance company general account should 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
Prior to making an investment in the notes, prospective investors who are
Benefit Plans should 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, dated , 1999,
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:
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Total
-------- -------- --------- -------- ------
Bank of America
Securities LLC .....
First Union
Capital Markets
Corp. ..............
Goldman, Sachs &
Co. ................
Certificates
------------
Bank of America
Securities LLC .....
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 % of the
denominations of the class A-1 notes, % of the denominations of the class A-2
notes, % of the denominations of the class A-3 notes, % of the denominations
of the class A-4 notes or % of the denominations of the certificates. The
underwriters may allow and the dealers may reallow a concession not in excess of
% of the denominations of the class A-1 notes, % of the denominations of the
class A-2 notes, % of the denominations of the class A-3 notes, % of the
denominations of the class A-4 notes or % 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.
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 advisory or commercial relationships with CarMax
Auto Superstores, CarMax Auto Receivables and their affiliates.
CarMax Auto Receivables will receive proceeds of $ from the sale of
the notes, representing approximately % of the principal amount of the notes,
after paying the underwriting discount of $ , representing approximately %
of the principal amount of the notes. CarMax Auto Receivables will receive
proceeds of $ from the sale of the certificates, representing approximately
% of the principal amount of the certificates, after paying the underwriting
discount of $ , representing approximately % of the principal amount of
the certificates. Additional offering expenses are estimated to be $ .
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.
[EXPERTS]
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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 exhibits to the
documents, 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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GLOSSARY
Collection and Payment Definitions
"Available Funds" means the following:
o obligor payments received with respect to the contracts during the
preceding month;
o advances made by the servicer in respect of contracts that were more
than 30 days delinquent at the end of the preceding month;
o liquidation proceeds received with respect to the contracts during the
preceding month;
o interest earned on funds on deposit in the collection account;
o the aggregate purchase price for all contracts that became Purchased
Contracts during the preceding month; and
o amounts withdrawn on that Payment Date from the yield supplement
account.
"Cutoff Date" means , 1999.
"Defaulted Contract" means a contract as to which any of the following has
occurred:
o 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;
o the servicer has repossessed and sold the related financed vehicle; or
o 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
accrued on the certificates during the preceding interest accrual period at the
interest rate applicable to the certificates.
"Monthly Certificate Principal" means, for any Payment Date on or after
which the notes have been paid in full, the lesser of:
o the principal balance of the certificates as of the day preceding that
Payment Date; and
o 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
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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:
o the interest accrued on the class A-1 notes during the preceding
interest accrual period at the interest rate applicable to the class
A-1 notes;
o the interest accrued on the class A-2 notes during the preceding
interest accrual period at the interest rate applicable to the class
A-2 notes;
o the interest accrued on the class A-3 notes during the preceding
interest accrual period at the interest rate applicable to the class
A-3 notes; and
o the interest accrued on the class A-4 notes during the preceding
interest accrual period at the interest rate applicable to the class
A-4 notes.
"Monthly Note Principal" means, for any Payment Date, the lesser of:
o the principal balance of the notes as of the day preceding that Payment
Date; and
o 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 outstanding 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:
o a contract to be repurchased by CarMax Auto Superstores from CarMax
Auto Receivables because of a breach of a representation and warranty
under the purchase agreement; or
o a contract to be repurchased by CarMax Auto Receivables from the trust
because of a breach of a representation and warranty under the sale and
servicing agreement.
"Record Date" means, with respect to any Payment Date, the preceding
business day or, if the notes 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) through
(6) under "-- Payment Date Distributions -- Collection Account" beginning on
page 51 of this prospectus.
"Required Reserve Account Amount" means, for any Payment Date, the greater
of $ and % of the principal balance of the contracts as of the last day
of the preceding month; provided, however, that the Required Reserve Account
Amount for any Payment Date will not exceed the principal balance of the notes
and the
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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.
"Supplemental Note Principal" means, for any Payment Date, the
greatest of:
o $ ;
o % of the principal balance of the contracts as of the last day
of the preceding month; and
o the aggregate principal balance of the contracts, other than Defaulted
Contracts, that were 91 days or more delinquent as of the end of the
preceding month;
provided, however, that the Supplemental Note Principal 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.
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:
o direct obligations of, and obligations guaranteed by, the United
States, the Federal National Mortgage Association or any
instrumentality of the United States;
o 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;
o repurchase obligations with respect to any security issued or
guaranteed by an 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;
o 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;
o commercial paper rated P-1 by Moody's or A-1+ by Standard & Poor's at
the time of the investment;
o a guaranteed investment contract issued by an insurance company or
other corporation acceptable to Moody's and Standard & Poor's;
o interests in a money market fund having a rating of Aaa by Moody's or
AAAm by Standard & Poor's; and
o any other investment approved in advance in writing by Moody's and
Standard & Poor's.
"Eligible Deposit Account" means:
o a segregated account with the corporate trust department of the
indenture trustee;
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o 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 either a long-term unsecured debt rating of at least Baa3 from
Moody's or a long-term unsecured debt rating, a short-term unsecured
debt rating or a certificate of deposit rating acceptable to Moody's
and Standard & Poor's, and whose deposits are insured by the FDIC; or
o a segregated trust account with the corporate trust department of 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, having corporate trust powers and
acting as trustee for funds deposited in the related account, so long
as any of the securities of that depository institution has a credit
rating from each of Moody's and Standard & Poor's in one of its generic
rating categories that signifies investment grade.
[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 the Deficiency Amount for any Payment Date will not exceed the aggregate
amount to be applied on that Payment Date in accordance with clauses [(2), (3)
and (5)] [(2) through (6)] under "-- Payment Date Distributions -- Collection
Account" beginning on page 51 in this prospectus.]
["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.]
Yield Supplement Definitions
"Individual Contract Yield Supplement Amount" means, for any contract and
any Payment Date, one-twelfth of the product of the Interest Rate Deficiency for
that contract and that Payment Date and the outstanding principal balance of
that contract as of the last day of the preceding month.
"Interest Rate Deficiency" means, for any contract and any Payment Date,
% minus the annual percentage rate applicable to that contract; provided,
however, that the Interest Rate Deficiency will be zero if the annual percentage
rate applicable to that contract exceeds %.
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"Projected Yield Supplement Amount" means, for any contract and any
Payment Date, the Individual Contract Yield Supplement Amount for that contract
and that Payment Date calculated assuming that all principal payments on that
contract and all principal payments on the notes and the certificates are made
as scheduled.
"Required Yield Supplement Account Amount" means, as of any Payment Date,
the Yield Supplement Amount for that Payment Date plus the sum of the Projected
Yield Supplement Amounts for the contracts for all future Payment Dates;
provided, however, that the Required Yield Supplement Account Amount will be
reduced to zero for so long as CarMax Auto Superstores maintains a Yield
Supplement Letter of Credit or an alternative arrangement satisfactory to
Moody's and Standard & Poor's which will not result in a downgrade or withdrawal
of the ratings of the offered securities.
"Yield Supplement Amount" means, for any Payment Date, the sum of the
Individual Contract Yield Supplement Amounts for the contracts for that Payment
Date.
"Yield Supplement Letter of Credit" means a letter of credit securing
timely remittance to the indenture trustee of the Yield Supplement Amount for
each Payment Date which will not result in a downgrade or withdrawal of the
ratings of the offered securities
Tax and ERISA Definitions
"Benefit Plans" means:
o employee benefit plans, as defined in Section 3(3) of ERISA, that are
subject to Title I of ERISA;
o 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
o 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:
o a citizen or resident of the United States;
o a corporation, partnership or other entity organized in or under the
laws of the United States, any state of the United States or the
District of Columbia, unless, in the case of a partnership, Treasury
regulations provide otherwise;
o an estate the income of which is includible in gross income for federal
income tax purposes, regardless of its source; or
o 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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ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally-offered securities
to be issued from time to time will 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 the ordinary way
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 according to 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.
Non-U.S. holders of globally-offered securities will be subject to U.S.
withholding taxes unless those holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
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 "lock-up" or 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.
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.
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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, on the basis of actual days
elapsed and a 360-day year. 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 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, on the basis of actual days elapsed and a 360-day year. 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
97
<PAGE>
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 on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
o borrowing through 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;
o 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
o staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Cedelbank
participant or the Euroclear system participant.
Certain 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, or
registered debt issued by U.S. Persons unless:
o each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between the beneficial owner and the
U.S. entity required to withhold tax complies with applicable
certification requirements; and
o the beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of offered
securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8, Certificate of Foreign Status. If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of that change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of the
globally-offered securities residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate, depending on the
treaty terms, by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
98
<PAGE>
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.
Exemption for U.S. Person (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The 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.
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. You should consult your own tax advisors for specific tax advice
concerning your holding and disposing of the globally-offered securities.
<PAGE>
- --------------------------------------------------------------------------------
$
CarMax Auto Owner Trust 1999-1
CarMax Auto Receivables LLC
Seller
CarMax Auto Superstores, Inc.
Servicer
$ % Class A-1 Asset-Backed Notes
$ % Class A-2 Asset-Backed Notes
$ % Class A-3 Asset-Backed Notes
$ % Class A-4 Asset-Backed Notes
$ % Asset-Backed Certificates
---------------------
Prospectus
Dated , 1999
---------------------
Underwriters of the Notes
Banc of America Securities LLC
First Union Capital Markets
Goldman, Sachs & Co.
Underwriter of the Certificates
Banc of America Securities LLC
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 , 1999.
- --------------------------------------------------------------------------------
100
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being registered hereunder
other than underwriting discounts and commissions.
SEC Registration Fee............................ $ *
Printing and Engraving.......................... *
Owner Trustee Fees.............................. *
Indenture Trustee Fees.......................... *
Legal Fees and Expenses......................... *
Blue Sky Fees and Expenses...................... *
Accountants' Fees and Expenses.................. *
Rating Agency Fees.............................. *
Miscellaneous Fees.............................. *
-------------
Total .......................................... $ *
=============
------------------
* To be added by amendment.
All fees and expenses other than the SEC Registration Fee are estimated.
Item 15. Indemnification of Directors and Officers
The laws of the Commonwealth of Virginia pursuant to which the Registrant
is organized permit it to indemnify its manager and officers against certain
liabilities. The Articles of Organization of the Registrant provide for the
indemnification of each manager and officer (including former managers and
officers and each person who may have served at the request of the Registrant as
a director, manager or officer of any other legal entity and, in all such cases,
his or her heirs, executors and administrators) against liabilities (including
expenses) reasonably incurred by him or her in connection with any actual or
threatened action, suit or proceeding to which he or she may be made a party by
reason of his or her being or having been a director, manager or officer of the
Registrant, except in relation to any action, suit or proceeding in which he or
she has been adjudged liable because of willful misconduct or a knowing
violation of the criminal law.
The Registrant's officers are covered by officer's liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
officers of the Registrant against certain losses resulting from claims against
them in their capacity as manager and officers to the extent that such losses
are not indemnified by the Registrant and the (2) Registrant to the extent that
it indemnifies officers for losses as permitted under the laws of the
Commonwealth of Virginia.
In the Underwriting Agreement, a proposed form of which is attached as
Exhibit 1.1 hereto, the Underwriters will agree to indemnify, under certain
conditions, the Registrant, its manager, certain of its officers and persons who
control the Registrant within the meaning of the Securities Act against certain
liabilities.
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Organization.*
3.2 -- Limited Liability Company Operating Agreement.*
II-1
<PAGE>
4.1 -- Form of Trust Agreement between CarMax Auto
Receivables LLC, as seller, and the Owner Trustee
(including form of certificates).*
4.2 -- Form of Sale and Servicing Agreement among CarMax Auto
Receivables LLC, as seller, CarMax Auto Superstores,
Inc., as servicer, and the Indenture Trustee.*
4.3 -- Form of Indenture between the Owner Trustee, on behalf of
the Trust, and the Indenture Trustee (including form of
notes).*
4.4 -- Form of Administration Agreement among CarMax Auto
Superstores, Inc., as administrator, the Owner Trustee,
on behalf of the Trust, and the Indenture Trustee.*
5.1 -- Form of Opinion of McGuire, Woods, Battle & Boothe LLP
with respect to legality.*
8.1 -- Form of Opinion of McGuire, Woods, Battle & Boothe LLP
with respect to tax matters.*
10.1 -- Form of Purchase Agreement between CarMax Auto
Superstores, Inc., as seller, and CarMax Auto Receivables
LLC, as purchaser.*
23.1 -- Consent of McGuire, Woods, Battle & Boothe LLP (included
in its opinion filed as Exhibit 5.1).*
23.2 -- Consent of McGuire, Woods, Battle & Boothe LLP (included
in its opinion filed as Exhibit 8.1).*
24.1 -- Powers of Attorney.**
----------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each
purchaser.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
II-2
<PAGE>
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(e) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and that the security rating
requirement set forth in Transaction Requirement B.5 of Form S-3 will be met by
the time of the sale of the securities registered hereunder and has duly caused
this Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, Commonwealth of
Virginia, on July 21, 1999.
CARMAX AUTO RECEIVABLES LLC
as Seller (Registrant)
By:/s/ Michael T. Chalifoux
-------------------------
Name: Michael T. Chalifoux
Title: President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed on July 20, 1999
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Michael T. Chalifoux President and Assistant Secretary July 21, 1999
- ---------------------------------- (Principal Executive Officer)
Michael T. Chalifoux
/s/ Philip J. Dunn Vice President, Treasurer and July 21, 1999
- ---------------------------------- Secretary (Principal Financial
Philip J. Dunn Officer and Principal Accounting
Officer)
CPD, INC.
By:/s/ Michael T. Chalifoux Manager and Member July 21, 1999
------------------------------
Name: Michael T. Chalifoux
Title: President
CARMAX AUTO SUPERSTORES, INC.
By:/s/ Keith D. Browning Member July 21, 1999
-------------------------------
Name: Keith D. Browning
Title: Vice President, Chief
Financial Officer and
Assistant Secretary
</TABLE>
II-4
Exhibit 5.1 - Form of Opinion of McGuire, Woods, Battle & Boothe LLP - Legality
[LETTERHEAD OF MCGUIRE, WOODS, BATTLE & BOOTHE LLP]
[ ], 1999
CarMax Auto Receivables LLC
4900 Cox Road
Glen Allen, Virginia 23060
Registration Statement on Form S-3
Registration No. 333-79087
Ladies and Gentlemen:
We have acted as counsel to CarMax Auto Receivables LLC, a Virginia
limited liability company, as seller (the "Seller") and CarMax Auto Superstores,
Inc., a Virginia corporation, as Servicer (the "Servicer") in connection with
the issuance by the CarMax Auto Owner Trust 1999-1 (the "Issuer") of
$[ ] aggregate principal balance of [ ]% Class A-1 Asset-Backed
Notes, $[ ] aggregate principal balance of [ ]% Class A-2
Asset-Backed Notes, $[ ] aggregate principal balance of [ ]% Class
A-3 Asset-Backed Notes and $[ ] aggregate principal balance of [ ]%
Class A-4 Asset- Backed Notes (collectively, the "Notes") and $[ ]
aggregate principal balance of [ ]% Asset-Backed Certificates (the
"Certificates"). The Notes will be issued pursuant to the terms of an
Indenture, dated as of [ ], 1999 (the "Indenture"), between the Issuer
and Bankers Trust Company, as Indenture Trustee. The Certificates will be
issued pursuant to a Trust Agreement dated as of [ ], 1999 (the
"Trust Agreement") between CarMax Auto Receivables LLC, as Depositor, and First
Union Trust Company, National Association, as Owner Trustee. Terms not
otherwise defined herein have the meaning assigned to them in the Prospectus (as
defined below).
In connection with our engagement, we have examined and relied upon
the Registration Statement on Form S-3 registering the Notes, Registration No.
333-79087, filed with the Securities and Exchange Commission (the "SEC") on May
21, 1999 and Amendment No. 1 thereto filed with the SEC on July 21, 1999
(together, the "Registration Statement"), including (i) the form of Prospectus
included therein (the "Prospectus"), (ii) the form of the Indenture and the
forms of the other documents to be executed in connection therewith and (iii)
such other documents as we have deemed necessary for purposes of this opinion.
We express no opinion as to the laws of any
<PAGE>
jurisdiction other than the laws of the Commonwealth of Virginia and the laws of
the United States of America.
Based upon and subject to the foregoing, we are of the opinion that,
when the Notes have been duly executed and authenticated in accordance with the
terms of the Indenture and delivered and sold as contemplated by the
Registration Statement, the Notes will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to McGuire, Woods, Battle & Boothe
LLP under the captions "CarMax Auto Receivables," "Bankruptcy Matters" and
"Legal Matters" in the Prospectus. We do not admit by giving this consent that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
Exhibit 8.1 - Form of Opinion of McGuire, Woods, Battle & Boothe LLP - Tax
[LETTERHEAD OF MCGUIRE, WOODS, BATTLE & BOOTHE LLP]
[ ], 1999
CarMax Auto Receivables LLC
4900 Cox Road
Glen Allen, Virginia 23060
Registration Statement on Form S-3
Registration No. 333-79087
Ladies and Gentlemen:
We have acted as special tax counsel to CarMax Auto Receivables LLC,
a Virginia limited liability company, as seller (the "Seller") in connection
with the issuance by the CarMax Auto Owner Trust 1999-1 (the "Issuer") of
$[ ] aggregate principal amount of [ ]% Class A-1 Asset-Backed Notes,
$[ ] aggregate principal amount of [ ]% Class A-2 Asset-Backed Notes,
$[ ] aggregate principal amount of [ ]% Class A-3 Asset-Backed Notes
and $[ ] aggregate principal amount of [ ]% Class A-4 Asset-Backed
Notes (collectively, the "Notes") and $[ ] aggregate principal amount
of [ ]% Asset-Backed Certificates (the "Certificates"). The Notes will be
issued pursuant to the terms of an Indenture dated as of [ ], 1999
(the "Indenture") between the Issuer and Bankers Trust Company, as Indenture
Trustee. The Certificates will be issued pursuant to a Trust Agreement dated as
of [ ], 1999 (the "Trust Agreement") between CarMax Auto Receivables
LLC, as Depositor, and First Union Trust Company, National Association, as Owner
Trustee. Terms not otherwise defined herein have the meanings assigned to them
in the Prospectus (as defined below).
In connection with our engagement, we have examined and relied upon
the Registration Statement on Form S-3 registering the Notes, Registration No.
333-79087, filed with the Securities and Exchange Commission (the "SEC") on May
21, 1999 and Amendment No. 1 thereto filed with the SEC on July 21, 1999
(together, the "Registration Statement"), including (i) the form of prospectus
included therein (the "Prospectus"), (ii) the form of the Indenture, (iii) the
form of the Trust Agreement, (iv) the form of the Purchase Agreement, (v) the
form of the Sale and Servicing Agreement and (vi) such other documents as we
have deemed necessary for purposes of this opinion.
The opinion expressed herein is based upon the Internal
<PAGE>
Revenue Code of 1986, as amended, (the "Code"), administrative rulings, judicial
decisions, proposed, temporary and final Treasury regulations and other
applicable authorities. The statutory provisions, regulations and
interpretations upon which such opinion is based are subject to change, and such
changes could apply retroactively. In addition, there can be no assurance that
positions contrary to those stated in our opinion will not be asserted by the
Internal Revenue Service.
Based upon and subject to the foregoing, we are of the opinion that
the statements under the heading "Material Federal Income Tax Consequences" in
the Prospectus, subject to the qualifications set forth therein, accurately
describe the material federal income tax consequences to holders of the Notes,
under existing law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to McGuire, Woods, Battle & Boothe
LLP under the caption "Material Federal Income Tax Consequences" in the
Prospectus. We do not admit by giving this consent that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
