As filed with the Securities and Exchange Commission on May 21, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
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:
<TABLE>
<S> <C>
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
</TABLE>
--------------------
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Title of each Class Amount Proposed 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
- -------------------------------------------------------------------------------------------------------------
Class A-2 Asset-Backed Notes $200,000 100% $200,000 $55.60
- -------------------------------------------------------------------------------------------------------------
Class A-3 Asset-Backed Notes $200,000 100% $200,000 $55.60
- -------------------------------------------------------------------------------------------------------------
Class A-4 Asset-Backed Notes $200,000 100% $200,000 $55.60
- ------------------------------------------------------------------------------------------------------------
Asset-Backed Certificates $200,000 100% $200,000 $55.60
============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
--------------------
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 Auto Receivables LLC ----------------
Seller CarMax Logo
CarMax Auto Superstores, Inc. ----------------
Servicer
<TABLE>
<CAPTION>
Underwriting
Discounts Net Proceeds to
Price (1) and Commissions Seller
--------- ---------------- ------------------
<S> <C> <C> <C>
Class A-1 Notes $ ( %) $ ( %) $ ( %)
Class A-2 Notes $ ( %) $ ( %) $ ( %)
Class A-3 Notes $ ( %) $ ( %) $ ( %)
Class A-4 Notes $ ( %) $ ( %) $ ( %)
Certificates $ ( %) $ ( %) $ ( %)
Total $ $ $
</TABLE>
- -------------------------
(1) 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.
The notes represent non-recourse obligations of, and the certificates
represent beneficial ownership interests in, the CarMax Auto Owner Trust
1999-1. The notes and the certificates are backed only by the assets of the
trust. The notes and the certificates do not represent obligations of or
interests in CarMax Auto Receivables LLC, CarMax Auto Superstores, Inc. or
any of their affiliates.
- -------------------------------------------------------------------------------
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 ..................................................................8
THE CARMAX AUTO OWNER TRUST 1999-1 ...........................................12
Formation of the Trust ..............................................12
Issuance of the Securities ..........................................12
The Trust Property ..................................................13
THE ORIGINATOR'S FINANCE OPERATIONS ........................................14
First North American Credit ......................................14
Underwriting Procedures ............................................14
Collection Procedures ..............................................14
Physical Damage Insurance ..........................................15
Allocation of Payments ..............................................15
Delinquency and Credit Loss Experience ..............................16
DESCRIPTION OF THE CONTRACT POOL .............................................19
Selection Criteria ..................................................19
Certain Characteristics of the Contracts ............................20
WEIGHTED AVERAGE LIFE OF THE OFFERED SECURITIES ..............................23
POOL FACTORS AND OTHER INFORMATION ...........................................31
USE OF PROCEEDS ..............................................................31
DESCRIPTION OF THE ORIGINATOR AND THE SELLER .................................32
CarMax Auto Superstores, Inc. .......................................32
CarMax Auto Receivables LLC .........................................33
DESCRIPTION OF THE NOTES .....................................................33
Note Registration ...................................................33
Interest Payments ...................................................33
Principal Payments ..................................................34
Optional Redemption .................................................35
The Indenture Trustee ...............................................35
DESCRIPTION OF THE CERTIFICATES ..............................................36
Certificate Registration ............................................36
Interest Payments ...................................................36
Principal Payments ..................................................36
Optional Prepayment .................................................36
The Owner Trustee ...................................................37
REGISTRATION OF THE OFFERED SECURITIES .......................................37
Book-Entry Registration ................................................37
The Depository Trust Company ...........................................37
Cedelbank and Euroclear ................................................39
Definitive Securities ..................................................41
COLLECTIONS AND PAYMENTS .....................................................41
The Trust Accounts .....................................................41
Advances by the Servicer ...............................................42
Payment Sources ........................................................42
The Reserve Account ....................................................43
The Yield Supplement Account ...........................................44
Subordination of the Certificates ......................................45
Payment Date Distributions (Collection Account) ........................45
Payment Date Distributions (Note Payment Account) ......................46
Payment Date Distributions (Certificate
Payment Account) .................................................46
Application of Collection and Payment
Provisions to First Payment Date .................................47
Statements to Securityholders ..........................................47
[DESCRIPTION OF THE INSURER] .................................................49
[DESCRIPTION OF THE POLICY] ..................................................49
REPORTS TO SECURITYHOLDERS ...................................................49
DESCRIPTION OF THE INDENTURE .................................................50
Events of Default ..................................................50
Rights Upon Event of Default ......................................50
Waiver of Past Defaults .............................................51
Certain Indenture Covenants .......................................52
Replacement of Indenture Trustee ..................................52
Duties of Indenture Trustee .........................................53
Compensation and Indemnification ....................................53
Access to Noteholder List ...........................................53
Annual Compliance Statement; Annual Report ..........................54
Satisfaction and Discharge of the Indenture .........................54
Modification of Indenture ...........................................54
Administration Agreement ............................................55
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS .........................55
Transfer of Contracts ..................................................55
Servicing Procedures ................................................56
Servicing Compensation; Payment of Expenses .........................56
Evidence of Compliance ..............................................56
Certain Matters Regarding the Servicer ..............................57
Events of Default ...................................................57
Rights Upon Event of Default ........................................58
Waiver of Past Defaults .............................................58
Amendment of the Sale and Servicing Agreement .......................58
Termination of the Trust ............................................59
MATERIAL LEGAL ASPECTS OF THE CONTRACTS ......................................59
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .....................................63
ERISA CONSIDERATIONS .........................................................70
UNDERWRITING .................................................................72
LEGAL MATTERS ................................................................73
EXPERTS ......................................................................73
WHERE YOU CAN FIND MORE
INFORMATION ..................................................................73
INDEX OF PRINCIPAL TERMS .....................................................74
ANNEX A: GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES .....................................76
2
<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. We have not authorized anyone to provide you with
additional or different information. We are not offering the notes or the
certificates in any state in which the offer is not permitted.
We include cross references in this prospectus to captions under which you
can find additional, related discussions. The preceding table of contents
provides the pages at which these captions are located.
You can find a listing of the pages on which capitalized terms used in
this prospectus are defined under the caption "Index of Principal Terms"
beginning on page 74.
In this prospectus, "we" refers to the seller, CarMax Auto Receivables
LLC, and "you" refers to any prospective investor in the notes or the
certificates.
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 actual/360 30/360 30/360 30/360 30/360
Method
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 (1) P-1/A-1+ Aaa/AAA Aaa/AAA Aaa/AAA
(Moody's/S&P)
- -------------------------
(1) 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 Originator
CarMax Auto Superstores, Inc. will originate the contracts and sell them to
the seller. The originator's principal executive offices are located at 4900
Cox Road, Glen Allen, Virginia 23060, and its telephone number is (804)
747-0422.
The Seller
CarMax Auto Receivables LLC will transfer the contracts and related property to
the trust. The seller's principal executive offices are located at 4900 Cox
Road, Glen Allen, Virginia 23060, and its telephone number is (804) 747-0422.
The Servicer
CarMax Auto Superstores, Inc. 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
will act as trustee of the trust.
The Indenture Trustee
will act as trustee with respect to the notes.
The Purchase Agreement
The originator and the seller will enter into a purchase agreement under which
the originator will sell the contracts to the seller.
The Sale and Servicing Agreement
The seller, the servicer and the owner trustee will enter into a sale and
servicing agreement under which the seller 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
The seller and the owner trustee will enter into a trust agreement under which
the trust will issue the certificates.
4
<PAGE>
The Indenture
The owner trustee and the indenture trustee will enter into an indenture under
which the trust will issue the notes.
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, Inc. in connection with the sale of new and used
motor vehicles;
o certain 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 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 the originator to repurchase
contracts affected materially and adversely by breaches of the
representations and warranties of the originator 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 the originator based on the criteria specified in the sale and servicing
agreement and described in this prospectus. The aggregate outstanding principal
balance of the contracts was $ as of , 1999.
CarMax Auto Superstores, Inc. (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 Offered Securities
The trust will issue the notes and the certificates on or about , 1999. We are
offering the notes and the certificates for sale by this prospectus.
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, to holders of record of the notes and the
certificates as of the day before the payment date; provided, however, that if
the notes or the certificates, as applicable, are issued in definitive 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 holders of
record of the notes as of the related record date. In general, the amount of
principal payable to the holders of the notes on each payment date will equal
the lesser of (1) the aggregate outstanding principal balance of the notes as of
the day preceding that payment date and (2) the sum of (A) the amount necessary
to reduce the aggregate outstanding principal balance of the notes and the
certificates as of the day preceding that payment date to the aggregate
outstanding principal balance of the contracts as of the last day of the
preceding month plus (B) 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 holders of the notes 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
holders of record of the certificates as of the related record date; provided,
however, that no principal will be paid to the holders of the certificates until
the principal balance of the notes has been paid in full. In general, the amount
of principal payable to the holders of the certificates on each payment date on
or after which the principal balance of the notes has been paid in full will
equal the lesser of (1) the aggregate outstanding principal balance of the
certificates as of the day preceding that payment date and (2) the amount
necessary to reduce the aggregate outstanding principal balance of the
certificates as of the day preceding that payment date to the aggregate
outstanding 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.
5
<PAGE>
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 certain 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 the originator 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 certain payments owed to the servicer, the holders of the
certificates [and the insurer]);
o the subordination of the certificates;
o the payment of supplemental note principal based on a specified
overcollateralization amount (which 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 certain payments owed to the holders of the certificates).
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 certain payments owed to the servicer, the holders of the notes
[and the insurer]); and
o funds on deposit in the yield supplement account.
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 holders of the notes [and the certificates] under which the
insurer will unconditionally and irrevocably guarantee the payment of monthly
interest and monthly principal to the holders of the notes [and the
certificates]. In general, the insurer will pay under the insurance policy the
amount, if any, by which (1) the sum of the monthly servicing fee for the
preceding month (plus any overdue monthly servicing fees) and the monthly
interest and monthly principal for that payment date (plus any overdue monthly
interest) payable to the holders of the notes [and the holders of the
certificates] exceeds (2) the funds otherwise available on that payment date to
pay such 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 holders of the notes, the holders of the certificates, the
servicer [and the insurer], a reserve account into which certain 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. The
originator 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 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 the amount which the trust is required to
pay on that payment date to the holders of the notes, the holders of the
ertificates, the servicer [and the insurer].
6
<PAGE>
On each payment date, the indenture trustee will withdraw funds from the reserve
account (up to the amount on deposit in the reserve account) if and to the
extent needed to make the following payments:
o to the servicer, (1) 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 and (2) the monthly servicing fee for that preceding month
(plus any overdue monthly servicing fees);
o to the holders of the notes, monthly interest and monthly principal for that
payment date (plus any overdue monthly interest); and
o to the holders of the certificates, monthly interest and monthly principal
for that payment date (plus any overdue monthly interest).
o [to the insurer, (1) the monthly insurance premium for the preceding month
(plus any overdue insurance premiums) and (2) 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 (1) $ and (2) % of the
aggregate outstanding 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 the seller. Any amount
paid to the seller will no longer be an asset of the trust.
The Yield Supplement Account
On the closing date, the servicer will establish with the trustee, for the
benefit of the holders of the notes, the holders of the certificates, 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. The originator 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 the seller, 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.
The seller, the servicer and the holders of the certificates 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 holders of the
certificates 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" for further information.
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, among other
things, consult with experienced legal counsel in determining whether all
required conditions for such purchase have been satisfied. The certificates are
not eligible for purchase by employee benefit plans subject to Title I of ERISA.
See "ERISA Considerations" for further information.
7
<PAGE>
RISK FACTORS
You should carefully consider the risk factors set forth below as well as the
other investment considerations described in this prospectus as you decide
whether to purchase the notes or the certificates.
<TABLE>
<CAPTION>
<S> <C>
The Absence of a Secondary
Market Could Limit Your Ability
to Resell Your Notes or Your
Certificates........................ The underwriters may assist in resales of the
notes and the certificates, but they are not
required to do so. A secondary market for the
notes or the certificates may not develop. If a
secondary market for the notes or the
certificates does develop, that market may not
continue or may not be sufficiently liquid to
allow you to resell your notes or your
certificates. The notes and the certificates
will not be listed on a United States
securities exchange.
The Limited Nature of the Trust
Assets Could Result in Losses or
Payment Delays With Respect to
Your Notes or Your Certificates......The trust will not have significant assets
or sources of funds other than the
contracts, the amounts on deposit in the
yield supplement account, the amounts on
deposit in the reserve account [and the
insurance policy]. The notes are
non-recourse obligations of, and the
certificates represent beneficial ownership
interests in, the trust only and do not
represent interests in or obligations of
the originator, the seller, the servicer,
the owner trustee, the indenture trustee or
any other person or entity. The notes [and
the certificates] have not been insured or
guaranteed by any person or entity [other
than the insurer]. If the sources of funds
described above are insufficient to pay in
full the monthly interest and monthly
principal due on any payment date, you
could experience losses or payment delays
with respect to your notes or your
certificates. See "Collections and
Payments."
The Credit Enhancement
Arrangements May Not Be
Adequate to Assure Payment of
Your Notes or Your Certificates......[The insurance policy and the reserve
account will serve as the principal sources
of credit enhancement for the notes [and
the 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, other than the yield
supplement account, will be payments
received on or in respect of the contracts
(including proceeds received from the
repossession and sale of the financed
vehicles that secure defaulted contracts).
We 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 due on that payment date or that
the insurer will perform its obligations
under the insurance policy. See
"Collections and Payments -- The Reserve
Account" and ["Description of the
Policy"].]
8
<PAGE>
[The reserve account and the subordination
of the certificates will serve as the
principal sources of credit enhancement for
the notes. The reserve account will serve
as the principal source of credit
enhancement for the 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 and the
subordination of the certificates may be
inadequate to protect you against losses.
If the amount on deposit in the reserve
account is reduced to zero, 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 proceeds received from the
repossession and sale of the financed
vehicles that secure defaulted contracts).
We 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 due on that payment date or that
the subordination of the certificates will
be adequate to assure payment of the notes.
See "Collections and Payments -- The
Reserve Account" and "-- Subordination of
the Certificates."]
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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 minimize
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.
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 minimize
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 Contracts -- Security Interest in
Vehicles."
A Bankruptcy of the Originator
Could Result in Losses or
Payment Delays With Respect to
Your Notes or Your Certificates......The originator will represent and warrant
in the purchase agreement that the transfer
of the contracts from the originator to the
seller is a sale rather than a financing.
If the originator were to become the
subject of a bankruptcy proceeding,
however, the bankruptcy court could
conclude that (1) the transfer of the
contracts from the originator to the seller
should be characterized as a financing and
that the contracts should be included as
part of the originator's bankruptcy estate
or (2) the transfer of the contracts from
the originator to the seller should be
characterized as a sale but the assets and
liabilities of the seller should be
consolidated with the assets and
liabilities of the originator 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:
</TABLE>
9
<PAGE>
o the trustees would not be permitted to
exercise remedies against the originator
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
the originator that arose before the
transfer of the contracts to the seller
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 may 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 the originator at the time of the
commencement of the bankruptcy
proceeding.
We have taken steps in structuring the
transaction described in this prospectus to
minimize the risk that a bankruptcy court
would conclude that the transfer of the
contracts from the originator to the seller
should be characterized as a financing
rather than a sale or that the assets and
liabilities of the seller should be
consolidated with the assets and
liabilities of the originator for purposes
of a bankruptcy proceeding.
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 the originator 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 and other factors, including the
fact that an obligor generally may not sell
or transfer the financed vehicle securing a
contract without the consent of the
registered lienholder. See "Weighted
Average Life of the Offered Securities."
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
conditions, legislative changes or other
factors affecting these states could have a
significant effect on the delinquency,
credit loss or repossession experience of
the contracts and could adversely affect
the timing and amount of payments on the
certificates.
10
<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 programs use
only two digits to identify a year. These
programs 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 programs relating to
the year 2000.
11
<PAGE>
THE CARMAX AUTO OWNER TRUST 1999-1
Formation of the Trust
The CarMax Auto Owner Trust 1999-1 (the "Trust") will be formed as a business
trust under the laws of the State of Delaware under a Trust Agreement (the
"Trust Agreement") between CarMax Auto Receivables LLC (the "Seller") and ,
as owner trustee (in its capacity as owner trustee, the "Owner Trustee"). The
property of the Trust will include a pool (the "Contract Pool") of simple
interest retail installment sale contracts originated by CarMax Auto
Superstores, Inc. (the "Originator") in connection with the sale of new and used
motor vehicles (collectively, the "Contracts") and certain payments due or
received on or in respect of the Contracts after , 1999 (the "Cutoff
Date"). The aggregate outstanding principal balance of the Contracts (the "Pool
Balance") was $ as of the Cutoff Date. See "Description of the Contract
Pool."
The Originator and the Seller will enter into a Purchase Agreement (the
"Purchase Agreement") under which the Originator will sell the Contracts to the
Seller. The Seller, CarMax Auto Superstores, Inc., as servicer (in its capacity
as servicer, the "Servicer"), and the Owner Trustee will enter into a Sale and
Servicing Agreement (the "Sale and Servicing Agreement") under which the Seller
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 "The Originator's Finance Operations" and
"Description of the Transfer and Servicing Agreements."
Issuance of the Securities
The Trust will issue the following asset backed securities:
o % Class A-1 Asset-Backed Notes in the initial aggregate
principal amount of $ (the "Class A-1 Notes");
o % Class A-2 Asset-Backed Notes in the initial aggregate
principal amount of $ (the "Class A-2 Notes");
o % Class A-3 Asset-Backed Notes in the initial aggregate
principal amount of $ (the "Class A-3 Notes");
o % Class A-4 Asset-Backed Notes in the initial aggregate
principal amount of $ (the "Class A-4 Notes"
and, collectively with the Class A-1 Notes, the Class A-2 Notes
and the Class A-3 Notes, the "Notes"); and
o % Asset-Backed Certificates in the initial aggregate principal
amount of $ (the "Certificates").
The Notes will be issued under an Indenture (the "Indenture") between
the Owner Trustee and , as indenture trustee (in its capacity as
indenture trustee, the "Indenture Trustee"). The Certificates will be issued
under the Trust Agreement. The Trust will issue the Notes and the Certificates
on or about , 1999 (the "Closing Date"). We are offering the Notes and
the Certificates (collectively, the "Offered Securities") for sale by
this prospectus. The aggregate outstanding principal balance of the Notes (the
"Note Balance") will equal $ on the date of issuance. The aggregate
outstanding principal balance of the Certificates (the "Certificate Balance")
will equal $ on the date of issuance. See "Description of the Notes" and
"Description of the Certificates."
On the Closing Date, each class of Notes must be rated in the highest
applicable category by Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's")
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 terms. We 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.
12
<PAGE>
The Trust Property
The property of the trust will include:
o the Contracts;
o certain amounts received on or in respect of the Contracts after the
Cutoff Date;
o security interests in the vehicles financed under the Contracts (the
"Financed Vehicles");
o any proceeds from claims on or refunds of premiums with respect to
various physical damage, 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 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 the Originator to
repurchase Contracts affected materially and adversely by breaches of
the representations and warranties of the Originator 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 assets other than the assets described
above, 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 assets described above 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.
13
<PAGE>
THE ORIGINATOR'S FINANCE OPERATIONS
First North American Credit
The Originator is a leading retailer of new and used motor vehicles in the
United States. The Originator sells motor vehicles through 35 stores in ten
states and provides its customers with a full range of related services,
including the financing of vehicle purchases through its own financing unit,
First North American Credit ("FNAC"), and through third parties, and the sale of
extended service contracts and automotive electronic products. The aggregate
outstanding 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 CarMax Auto Superstores, Inc.
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 experienced
independent firms to analyze the information provided in the credit applications
and obtained from the credit bureau reports and to derive a credit score for
each applicant. The credit scoring models, in use since September 1993, are used
to assess objectively an applicant's creditworthiness and to help FNAC quantify
credit risk and implement risk adjusted pricing. 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. FNAC's
underwriting standards emphasize the prospective obligor's creditworthiness and
the value of the vehicle that will secure the related contract. Although FNAC
does not adhere to specific loan-to-value ratios, the amount financed under an
installment sale contract generally will not exceed certain amounts. In the case
of new vehicles, the amount financed generally will not exceed the
manufacturer's suggested retail price of the financed vehicle, including sales
tax, license fees and title fees, plus the cost of service and warranty
contracts. In the case of used vehicles, the amount financed generally will not
exceed the "average blue book value" (as published by Kelley Blue Book Co., a
standard reference source for dealers in used cars) of the financed vehicle,
including sales tax, license fees and title fees, plus the cost of service and
warranty contracts. FNAC believes that generally 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 generally the amount of such decline (expressed
as a percentage of the resale value of the vehicle at the time of purchase) will
be less than the amount of the decline (expressed as a percentage of the
manufacturer's suggested retail price) in the resale value of a new vehicle.
FNAC regularly reviews the quality of its installment sale contracts and
periodically conducts quality audits to ensure compliance with its established
policies and procedures.
Collection Procedures
FNAC measures delinquencies by the number of days elapsed from the date a
payment is due under an installment sale contract (the "Due Date"). 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 a nominal
amount, as determined by senior management (currently five dollars), and
additional payments are not made prior to the 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.
14
<PAGE>
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
undergo a formal review process before being forwarded to the repossession
department in the Specialty Collections Group. Once a vehicle is in FNAC's
possession, the obligor has a redemption period to pay off the vehicle or bring
the account to a current status, including payment of the repossession fees. 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 specific 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 (1) the last
day of the month during which any payment, or part thereof, due under the
contract becomes 120 days or more delinquent (whether or not FNAC has
repossessed the motor vehicle securing the contract), (2) if the motor vehicle
securing the contract has been repossessed, the last day of the month during
which the motor vehicle is liquidated and (3) the last day of the month during
which the contract has been determined to be uncollectible in accordance with
FNAC's customary practices.
FNAC may extend the due date for a current or past due payment for up to
30 days under certain limited circumstances. In general, FNAC will only grant an
extension if a 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 in the event that the insurance is allowed to lapse. We can
not assure you, however, that each Financed Vehicle will at all times be covered
by physical damage insurance.
15
<PAGE>
Allocation of Payments
The Contracts will be Simple Interest Contracts. "Simple Interest
Contracts" provide for equal monthly payments that are applied, first, to
interest accrued to the date of such payment, then to any applicable late
charges, then to principal due on such date, 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 such 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 such 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. In the event
of the liquidation of a Contract or the repossession of a Financed Vehicle,
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
We have set forth below certain delinquency and loss information with
respect to the motor vehicle retail installment sale contracts originated by the
Originator. We cannot assure you that the delinquency and loss experience of the
Contracts will be comparable to that set forth in the following tables.
16
<PAGE>
Delinquency Experience (1)
<TABLE>
<CAPTION>
At April 30, At April 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...........
Delinquencies as
a Percentage of
Total Contract
Portfolio (2)
31-60 Days........
61-90 Days........
91 Days or More...
Total Delinquencies
as a Percentage of
Total Contract
Portfolio...........
Total
Delinquencies.......
</TABLE>
- -------------------------
(1) Amounts represent principal amounts only.
(2) The period of delinquency is based on the number of days a payment is
contractually past due.
17
<PAGE>
<TABLE>
<CAPTION>
Credit Loss Experience
Four Months Ended April 30, Year Ended December 31,
--------------------------- -----------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Number of Contracts
Outstanding at Period End
Average Number of
Contracts Outstanding
During the Period.......................
Outstanding Principal
Amount at Period End....................
Average Outstanding
Principal Amount During
the Period (1)..........................
Gross Charge-Offs (2)...................
Recoveries (3)..........................
Net Losses..............................
Number of Repossessions (4)(5)..........
Number of Repossessions
as a Percentage of the
Average Number of
Contracts Outstanding (5)(6)............
Net Losses as a Percentage
of the Average
Outstanding Principal
Amount..................................
</TABLE>
- -------------------------
(1) The Average Outstanding Principal Amount is calculated by taking the
average of the monthly average outstanding principal amounts during the
period presented.
(2) Gross Charge-Offs represents the total principal amount due on all
installment sale contracts determined to be uncollectible during the
period presented, less amounts recovered from the disposition of
related vehicles, net of collection expenses (other than recoveries
described in footnote (3) below).
(3) Recoveries represents amounts recovered on installment sale contracts
previously charged off (including unsold repossessed assets carried at
fair market value), net of collection expenses.
(4) Number of Repossessions represents the number of motor vehicles
repossessed during the period presented.
(5) Repossession data is unavailable for periods prior to 1997. (6) The
percentages for the four-month periods ended April 30, 1998 and April
30, 1999 are annualized. The four-month period ended April 30 is not
necessarily indicative of a full year's actual results.
The Originator's expectations with respect to delinquency and credit loss
trends constitute forward-looking statements and are subject to important
factors that could cause actual results to differ materially from those
projected. Such factors include, but are not limited to, general economic
factors affecting obligors' abilities to make timely payments on their
indebtedness, such as employment status, rates of consumer bankruptcy, consumer
debt levels generally and consumer debt interest rates. In addition, credit
losses are affected by the Originator's ability to realize on recoveries of
repossessed vehicles, including, but not limited to, the market for used cars at
any given time.
18
<PAGE>
DESCRIPTION OF THE CONTRACT POOL
Selection Criteria
The Contracts were originated by the Originator in the ordinary course of
business in connection with the sale of new and used motor vehicles. The
Contracts were selected from the Originator's 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 (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) that fully amortize the
amount financed over the original term to maturity of the Contract;
o relates to an obligor who has made at least two payments as of the
Cutoff Date;
o was not more than 30 days delinquent 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 the Originator
or the Seller to be adverse to the Noteholders or the
Certificateholders.
19
<PAGE>
Certain Characteristics of the Contracts
We have set forth below certain information with respect to the Contracts
as of the Cutoff Date.
<TABLE>
<CAPTION>
Composition of the Contracts
as of the Cutoff Date
Number of Aggregate Original Weighted Average
Contracts Principal Balance Principal Balance Contract Rate
--------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
New Motor Vehicles........
Used Motor Vehicles.......
All Contracts.............
</TABLE>
Weighted Average Weighted Percentage of
Remaining Average Aggregate
Term (1) Original Term (1) Principal Balance (2)
-------- ---------------- -------------------
New Motor Vehicles....
Used Motor............
Vehicles..............
All Contracts.........
- -------------------------
(1) Based on scheduled maturity and assuming no prepayments of the Contracts.
(2) Sum may not equal 100% due to rounding.
<TABLE>
<CAPTION>
Distribution of the Contracts by Remaining Term
as of the Cutoff Date
Percentage of Total Percentage of
Remaining Number of Number of Aggregate Aggregate
Term Range Contracts Contracts (1) Principal Balance Principal Balance (1)
---------- --------- ------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
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.............
</TABLE>
- -------------------------
(1) Sum may not equal 100% due to rounding.
20
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Contracts by Obligor Mailing Address
as of the Cutoff Date
Percentage of Total Percentage of
Obligor Number of Number of Aggregate Aggregate
Mailing Address Contracts Contracts (1) Principal Balance Principal Balance (1)
- ----------------- --------- ------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Florida .............
Georgia..............
Illinois.............
Maryland.............
North Carolina.......
Texas................
Virginia.............
Wisconsin............
Other (2)............
Total..........
</TABLE>
- ------------------------
(1) Sum may not equal 100% due to rounding.
(2) None of the remaining states accounts for more than % of the total
number of Contracts or more than % of the Aggregate Principal Balance.
<TABLE>
<CAPTION>
Distribution of the Contracts by Financed Vehicle Model Year
as of the Cutoff Date
Percentage of Total Percentage of
Number of Number of Aggregate Aggregate
Model Year Contracts Contracts (1) Principal Balance Principal Balance (1)
---------- --------- ------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1988 and earlier.....
1989.................
1990.................
1991.................
1992.................
1993.................
1994.................
1995.................
1996.................
1997.................
1998.................
1999.................
2000.................
Total............
</TABLE>
- -------------------------
(1) Sum may not equal 100% due to rounding.
21
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Contracts by Contract Rate
as of the Cutoff Date
Percentage of Total Percentage of
Number of Number of Aggregate Aggregate
Contract Rate Range Contracts Contracts (1) Principal Balance Principal Balance (1)
- ------------------- --------- ------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
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 18.000%....
Total ..........
</TABLE>
- -------------------------
(1) Sum may not equal 100% due to rounding.
22
<PAGE>
WEIGHTED AVERAGE LIFE OF THE OFFERED SECURITIES
In general, 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,
credit life and credit disability insurance policies and payments made by the
Originator 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 and other factors, including the fact that an obligor generally may not
sell or transfer the Financed Vehicle securing a Contract without the consent of
the Originator in its capacity as registered lienholder (in such capacity, the
"Registered Lienholder"). In light of these considerations, we 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 Absolute Prepayment Model ("ABS"). 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 rate 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 25 to 30 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;
o each scheduled payment on the Contracts is made on the last day
of each Collection Period and includes a full month of interest
(and each Collection Period 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 its rights with respect to the Optional
Sale on the first possible Payment Date.
The tables indicate the projected weighted average life of the Notes and
the Certificates. The tables set forth (1) the percentage of the initial
aggregate outstanding 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 (2) the percentage of the initial aggregate outstanding
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 such pool having the characteristics described
below:
23
<PAGE>
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Pool Cutoff Date Weighted Average Original Term to Remaining Term to
Number Principal Balance Contract Rate Maturity (in Months) Maturity (in Months)
------ ----------------- ----------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Total
</TABLE>
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. The actual characteristics and performance of the Contracts will
differ from the assumptions used in constructing the tables on pages 25 to 30.
We have provided these hypothetical illustrations using the assumptions listed
above to give you a general illustration of how the principal balances of the
Notes and the Certificates may decline. However, it is highly unlikely that the
Contracts will prepay at a constant ABS until maturity or that all of the
Contracts will prepay at the same ABS. 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 rates. Any difference between the assumptions and the actual
characteristics, performance and prepayment experience of the Contracts will
affect the weighted average lives of the Notes and the Certificates.
- -------------------------------------------------------------------------------
Important notice regarding calculation of the weighted average life and the
assumptions upon which the tables on pages 25 to 30 are based
The weighted average life of each class of Notes is determined by: (1)
multiplying the amount of each principal payment on that class by the number
ofyears from the Closing Date to the related Payment Date; (2) adding the
results; and (3) dividing the sum by the initial aggregate outstanding principal
balance of that class.
The weighted average life of the Certificates is determined by: (1)
multiplying the amount of each principal payment on the Certificates by the
number of years from the Closing Date to the related Payment Date; (2) adding
the results; and (3) dividing the sum by the initial aggregate outstanding
principal balance of the Certificates.
The tables on pages 25 to 30 have been prepared based on (and should be
read in conjunction with) the assumptions described on page 23 (including the
assumptions regarding the characteristics and performance of the Contracts,
which will differ from the actual characteristics and performance of the
Contracts).
- -------------------------------------------------------------------------------
24
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Note Balance
at Various ABS Percentages (1)
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%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date
1 July, 1999 ..........
2 August, 1999.........
3 September, 1999......
4 October, 1999........
5 November, 1999.......
6 December, 1999.......
7 January, 2000........
8 February, 2000.......
9 March, 2000..........
10 April, 2000..........
11 May, 2000............
12 June, 2000...........
13 July, 2000...........
14 August, 2000.........
15 September, 2000......
16 October, 2000........
17 November, 2000.......
18 December, 2000.......
19 January, 2001........
20 February, 2001.......
21 March, 2001..........
22 April, 2001..........
23 May, 2001............
24 June, 2001...........
25 July, 2001...........
26 August, 2001.........
27 September, 2001 .....
28 October, 2001........
29 November, 2001.......
30 December, 2001.......
31 January, 2002........
32 February, 2002.......
33 March, 2002..........
34 April, 2002..........
35 May, 2002............
36 June, 2002...........
37 July, 2002...........
38 August, 2002.........
39 September, 2002......
40 October, 2002........
41 November, 2002.......
42 December, 2002.......
43 January, 2003........
44 February, 2003.......
45 March, 2003..........
46 April, 2003..........
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
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%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
47 May, 2003............
48 June, 2003...........
49 July, 2003...........
50 August, 2003.........
51 September, 2003......
52 October, 2003........
53 November, 2003.......
54 December, 2003.......
55 January, 2004........
56 February, 2004.......
57 March, 2004..........
58 April, 2004..........
59 May, 2004............
Weighted Average
Life (In Years)......
</TABLE>
- -------------------------
(1) See the important notice on page 24 of this prospectus regarding
calculation of the weighted average life and the assumptions on which
this table is based.
26
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Note Balance
at Various ABS Percentages (1)
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%
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date
1 July, 1999 ..........
2 August, 1999.........
3 September, 1999......
4 October, 1999........
5 November, 1999.......
6 December, 1999.......
7 January, 2000........
8 February, 2000.......
9 March, 2000..........
10 April, 2000..........
11 May, 2000............
12 June, 2000...........
13 July, 2000...........
14 August, 2000.........
15 September, 2000......
16 October, 2000........
17 November, 2000.......
18 December, 2000.......
19 January, 2001........
20 February, 2001.......
21 March, 2001..........
22 April, 2001..........
23 May, 2001............
24 June, 2001...........
25 July, 2001...........
26 August, 2001.........
27 September, 2001 .....
28 October, 2001........
29 November, 2001.......
30 December, 2001.......
31 January, 2002........
32 February, 2002.......
33 March, 2002..........
34 April, 2002..........
35 May, 2002............
36 June, 2002...........
37 July, 2002...........
38 August, 2002.........
39 September, 2002......
40 October, 2002........
41 November, 2002.......
42 December, 2002.......
43 January, 2003........
44 February, 2003.......
45 March, 2003..........
46 April, 2003..........
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
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%
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
47 May, 2003............
48 June, 2003...........
49 July, 2003...........
50 August, 2003.........
51 September, 2003......
52 October, 2003........
53 November, 2003.......
54 December, 2003.......
55 January, 2004........
56 February, 2004.......
57 March, 2004..........
58 April, 2004..........
59 May, 2004............
Weighted Average
Life (In Years)......
</TABLE>
- -------------------------
(1) See the important notice on page 24 of this prospectus regarding
calculation of the weighted average life and the assumptions on which
this table is based.
28
<PAGE>
Percent of Initial Certificate Balance
at Various ABS Percentages (1)
Certificates
-------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- ---- ---- ----
Closing Date
1 July, 1999 ..........
2 August, 1999.........
3 September, 1999......
4 October, 1999........
5 November, 1999.......
6 December, 1999.......
7 January, 2000........
8 February, 2000.......
9 March, 2000..........
10 April, 2000..........
11 May, 2000............
12 June, 2000...........
13 July, 2000...........
14 August, 2000.........
15 September, 2000......
16 October, 2000........
17 November, 2000.......
18 December, 2000.......
19 January, 2001........
20 February, 2001.......
21 March, 2001..........
22 April, 2001..........
23 May, 2001............
24 June, 2001...........
25 July, 2001...........
26 August, 2001.........
27 September, 2001 .....
28 October, 2001........
29 November, 2001.......
30 December, 2001.......
31 January, 2002........
32 February, 2002.......
33 March, 2002..........
34 April, 2002..........
35 May, 2002............
36 June, 2002...........
37 July, 2002...........
38 August, 2002.........
39 September, 2002......
40 October, 2002........
41 November, 2002.......
42 December, 2002.......
43 January, 2003........
44 February, 2003.......
45 March, 2003..........
46 April, 2003..........
29
<PAGE>
Certificates
------------
Payment Date 1.0% 1.4% 1.6% 1.8% 2.5%
------------ ---- ---- --- ---- ----
47 May, 2003............
48 June, 2003...........
49 July, 2003...........
50 August, 2003.........
51 September, 2003......
52 October, 2003........
53 November, 2003.......
54 December, 2003.......
55 January, 2004........
56 February, 2004.......
57 March, 2004..........
58 April, 2004..........
59 May, 2004............
Weighted Average
Life (In Years)......
- -------------------------
(1) See the important notice on page 24 of this prospectus regarding
calculation of the weighted average life and the assumptions on which
this table is based.
30
<PAGE>
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" will be a seven-digit decimal which the Servicer
will compute with respect to each class of Notes prior to each Payment Date and
which will equal (1) the remaining outstanding principal balance of that class
as of that 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 (2) the
initial outstanding principal balance of that class. Each Note 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 related class of Notes.
The portion of the outstanding principal balance of any class allocable to each
holder of that class of Notes will equal the product of (1) the original
denomination of the Note held by that holder and (2) the Note Pool Factor for
that class at the time of determination.
The "Certificate Pool Factor" will be a seven-digit decimal which the
Servicer will compute with respect to the Certificates prior to each Payment
Date and which will equal (1) the remaining outstanding principal balance of the
Certificates as of that Payment Date after giving effect to all payments of
principal to be made to the holders of the Certificates on that Payment Date
divided by (2) 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
(1) the original denomination of the Certificate held by that Certificateholder
and (2) 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 Pool
Balance, each Note Pool Factor 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
Securityholders."
USE OF PROCEEDS
On the Closing Date, the Seller will transfer the Contracts to the Trust
in exchange for the net proceeds from the sale of the Notes and the
Certificates. The Seller will apply the net proceeds from the sale of the Notes
and the Certificates to the purchase of the Contracts from the Originator. The
Originator will use the proceeds from the sale of the Contracts to the Seller to
repay existing debt and for general corporate purposes.
31
<PAGE>
DESCRIPTION OF THE ORIGINATOR AND THE SELLER
CarMax Auto Superstores, Inc.
CarMax Auto Superstores, Inc. (the "Originator") is a leading retailer of
new and used motor vehicles in the United States. The Originator opened its
first store in Richmond, Virginia in September 1993 and currently operates 35
stores in ten states. The Originator 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. The Originator 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. The Originator 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. The
Originator's principal executive offices are located at 4900 Cox Road, Glen
Allen, Virginia 23060, and its telephone number is (804) 747-0422.
The Originator 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, the Originator
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 the Originator 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.
The Originator 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. The Originator 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 the Originator's 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, the Originator 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. The Originator
maintains strict inventory aging policies under which it disposes of any vehicle
that has not been sold at retail within specified periods.
The Originator 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, CarMax originated installment sale contracts aggregating
approximately $46 million, $98 million, $150 million, $315 million and $615
million, respectively. Of the $ million of contracts in the Originator's
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.
The Originator 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
32
<PAGE>
CarMax Auto Receivables LLC
CarMax Auto Receivables LLC (the "Seller"), a wholly-owned subsidiary of
the Originator, was organized on May , 1999 as a Virginia limited liability
company. The Seller was organized for the limited purpose of purchasing motor
vehicle retail installment sale contracts from the Originator, transferring the
contracts to the Trust and other third parties and conducting activities
incidental to these limited purposes. The Seller's principal executive offices
are located at 4900 Cox Road, Glen Allen, Virginia 23060, and its telephone
number is (804) 747-0422.
The Seller 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 the Originator under the United States Bankruptcy Code
or similar applicable state laws ("Insolvency Laws") will not result in the
consolidation of the assets and liabilities of the Seller with those of the
Originator. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to articles of organization containing
various limitations, including restrictions on the nature of the Seller's
business, as described above, and restrictions on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
unanimous affirmative vote of all of the directors of the Seller's corporate
manager. We cannot assure you, however, that the activities of the Seller or the
nature of its relationship with the Originator would not result in a court
concluding that the assets and liabilities of the Seller should be consolidated
with those of the Originator in a proceeding under an Insolvency Law. See
"Material Legal Aspects of the Contracts -- Bankruptcy Matters."
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise of equitable discretion for a court to disregard the separate existence
of the Originator and the Seller and to require the consolidation of the assets
and liabilities of the Seller with those of the Originator in the event that the
Originator were to become the subject of a proceeding under the federal
bankruptcy laws. Among other things, counsel has assumed that the Seller will
follow certain procedures in the conduct of its affairs, including maintaining
records and books of account separate from those of the Originator and
refraining from holding itself out as having agreed to pay, or being liable for,
the debts of the Originator. The Seller has represented that it will follow
these and other procedures related to maintaining its separate identity. In the
event that the Seller did not follow these procedures, we cannot assure you that
a court would not conclude that the assets and liabilities of the Seller should
be consolidated with those of the Originator in a proceeding under an Insolvency
Law. If a court were to reach such a conclusion, or a filing were made under any
Insolvency Law by or against the Seller, or if an attempt were made to litigate
any of the issues described above, you could experience losses or payment delays
with respect to your Notes or your Certificates.
DESCRIPTION OF THE NOTES
The Notes will be issued under the Indenture. The following summary of
certain terms of the Notes does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Notes and the Indenture. A
form of the Indenture has been filed as an exhibit to the Registration Statement
of which this prospectus forms a part.
Note Registration
The Notes will be available for purchase in minimum denominations of
$1,000 and integral multiples in excess thereof. The Notes will initially be
issued only in book-entry form. See "Registration of the Offered Securities."
Interest Payments
Interest will be payable on each class of Notes monthly on the 15th day of
each month (or, if the 15th day is not a business day, on the following business
day) (each, a "Payment Date"), commencin , 1999. Interest will be payable
on each Payment Date to the holders of record of the Notes (the "Noteholders")
as of the preceding business day or, if the Notes have been issued in definitive
form, as of the last business day of the preceding month (each, a "Record
Date").
33
<PAGE>
The Notes will bear interest at the following rates per annum (each, a
"Note Interest Rate"):
(1) in the case of the Class A-1 Notes, % per annum (the "Class
A-1 Rate");
(2) in the case of the Class A-2 Notes, % per annum (the "Class A-2
Rate");
(3) in the case of the Class A-3 Notes, % per annum (the "Class
A-3 Rate"); and
(4) in the case of the Class A-4 Notes, % per annum (the "Class
A-4 Rate").
The Notes will accrue interest during the period from and including a
Payment Date (or, in the case of the accrual period for the first Payment Date,
the Closing Date) to but excluding the following Payment Date (each, an
"Interest Accrual Period").
Interest on the Notes will be calculated (1) in the case of the Class A-1
Notes, based on the actual number of days elapsed during the applicable Interest
Accrual Period and a 360-day year and (2) 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 the Notes on any Payment Date will be due
on the following Payment Date together with interest on such unpaid amount at
the applicable Note Interest Rate (to the extent permitted by law).
Each class of Notes will have an equal right to receive its share of the
Monthly Note Interest for any Payment Date. If the amount available to pay
interest on the Notes on any Payment Date is less than the aggregate amount of
interest (including overdue interest) payable on the Notes on that Payment Date,
the available amount will be paid to the holders of each class of Notes pro rata
based on the aggregate amount of interest (including overdue interest) payable
to that class on that Payment Date. If an event of default shall have occurred
and be continuing under the Indenture, the holders of the Certificates will not
be entitled to receive payments of interest until the Notes have been paid in
full.
"Monthly Note Interest" means, for any Payment Date, the sum of (1) the
interest accrued on the Class A-1 Notes during the preceding Interest Accrual
Period at the Class A-1 Rate, (2) the interest accrued on the Class A-2 Notes
during the preceding Interest Accrual Period at the Class A-2 Rate, (3) the
interest accrued on the Class A-3 Notes during the preceding Interest Accrual
Period at the Class A-3 Rate and (4) the interest accrued on the Class A-4 Notes
during the preceding Interest Accrual Period at the Class A-4 Rate.
Principal Payments
Principal will be payable on the Notes monthly on each Payment Date in an
amount equal to the Monthly Note Principal 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, 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.
34
<PAGE>
"Monthly Note Principal" means, for any Payment Date, the lesser of (1)
the Note Balance as of the day preceding that Payment Date and (2) the amount
necessary to reduce the sum of the Note Balance and the Certificate Balance as
of the day preceding that Payment Date to the Pool Balance as of the last day of
the preceding Collection Period; 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.
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 Collection Period during which that
Contract became a Defaulted Contract or a Purchased Contract.
"Supplemental Note Principal" means, for any Payment Date, the amount, if
any, by which (1) the Specified Credit Enhancement Amount for that Payment Date
exceeds (2) the Required Reserve Account Amount for that Payment Date.
"Specified Credit Enhancement Amount" means, for any Payment Date, the
greatest of (1) $ , (2) % of the Pool Balance as of the last day of the
preceding Collection Period (or, in the case of the first Payment Date, as of
the Closing Date) and (3) 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 Collection Period (or, in the case of the first Payment
Date, as of the Closing Date); provided, however, that the Specified Credit
Enhancement Amount for any Payment Date will not exceed the sum of the Note
Balance and the Certificate Balance as of that Payment Date (after giving effect
to all payments of principal made to the Noteholders and the Certificateholders
on that Payment Date).
The final scheduled Payment Dates for the Notes are as follows:
(1) , 200 for the Class A-1 Notes;
(2) , 200 for the Class A-2 Notes;
(3) , 200 for the Class A-3 Notes; and
(4) , 200 for the Class A-4 Notes.
The holders of the Certificates will not be entitled to receive payments
of principal until the Notes have been paid in full.
Optional Redemption
The Notes will be redeemed in full on any Payment Date on which the
Servicer exercises its option to purchase the Contracts (which option may only
be exercised if the Pool Balance as of the close of business on the last day of
a Collection Period was 10% or less of the initial Pool Balance). The redemption
price payable to the holders of each class of Notes in connection with any such
purchase will be equal to the outstanding principal balance of that class as of
the purchase date plus accrued and unpaid interest thereon at the applicable
Note Interest Rate. See "Description of the Transfer and Servicing Agreements --
Termination of the Trust."
The Indenture Trustee
will act as trustee under the Indenture. The Indenture
Trustee is a . The principal corporate trust office of the Indenture
Trustee is located at , Attention: . The Indenture Trustee
will have various rights and duties with respect to the Notes. See "Description
of the Indenture."
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DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued under the Trust Agreement. The following
summary of certain terms of the Certificates does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the
Certificates and 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.
Certificate Registration
The Certificates will be available for purchase in minimum
denominations of $1,000 and integral multiples in excess thereof. The
Certificates will initially be issued only in book-entry form. See
"Registration of the Offered Securities."
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 holders of the Certificates
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 holders of
record of the Certificates (the "Certificateholders") as of the preceding Record
Date.
The Certificates will accrue interest during each Interest Accrual Period
at % per annum (the "Certificate Interest Rate"). 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 such
unpaid amount at the Certificate Interest Rate (to the extent permitted by law).
"Monthly Certificate Interest" means, for any Payment Date, the interest
accrued on the Certificates during the preceding Interest Accrual Period at the
Certificate Interest Rate.
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 holders of the Certificates will not be entitled to
receive payments of principal until the Notes have been paid in full.
"Monthly Certificate Principal" means, for any Payment Date on or after
which the Notes have been paid in full, the lesser of (1) the Certificate
Balance as of the day preceding that Payment Date and (2) the amount necessary
to reduce the Certificate Balance as of the day preceding that Payment Date to
the Pool Balance as of the last day of the preceding Collection Period;
provided, however, that Monthly Certificate Principal on the final scheduled
Payment Date for the Certificates will equal the Certificate Balance as of the
day preceding that final scheduled Payment Date. For the purpose of determining
Monthly Certificate Principal, the unpaid principal balance of a Defaulted
Contract or a Purchased Contract will be deemed to be zero on and after the last
day of the Collection Period during which that Contract became a Defaulted
Contract or a Purchased Contract.
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 under certain circumstances. See "Weighted Average Life of the Offered
Securities."
Optional Prepayment
The Certificates will be prepaid in full on any Payment Date on which the
Servicer exercises its option to purchase the Contracts (which option may only
be exercised if the Pool Balance as of the close of business on the last day of
a Collection Period was 10% or less of the initial Pool Balance). The price
payable to the Certificateholders in connection with any such purchase will be
equal to the Certificate Balance as of the purchase date plus accrued and unpaid
interest thereon at the Certificate Interest Rate. See "Description of the
Transfer and Servicing Agreements -- Termination of the Trust."
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The Owner Trustee
will act as owner trustee under the Trust Agreement. The
Owner Trustee is a . The principal corporate trust office of the Owner
Trustee is located at , Attention: . The Owner Trustee will have
various rights and duties with respect to the Certificates. See "Description
of the Transfer and Servicing Agreements."
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. ("Cede"), the
nominee of The Depository Trust Company ("DTC"). Cede is expected to be the
holder of record of the Offered Securities. Unless and until Definitive
Securities are issued under the limited circumstances described in this
prospectus, no holder of an Offered Security (each, a "Securityholder") 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 (the "Security Owners") will not be recognized by the
Owner Trustee or the Indenture Trustee, as applicable, as Securityholders, and
Security Owners will be permitted to exercise the rights of Securityholders only
indirectly through DTC and its participating members ("DTC Participants").
Security Owners may hold Offered Securities in Europe through Cedelbank or
Euroclear, which in turn will hold through DTC, if they are DTC Participants, or
indirectly through DTC Participants. See "-- Cedelbank and Euroclear."
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 pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities for DTC
Participants and facilitates the clearance and settlement among DTC Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic book-entry changes in DTC Participant accounts,
thereby eliminating the need for physical movement of securities. DTC
Participants include securities brokers and dealers (who may include the
Underwriters), banks, trust companies, clearing corporations and certain 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 a DTC Participant, either
directly or indirectly ("Indirect Participants"). Transfers between DTC
Participants will occur in accordance with DTC rules. The rules applicable to
DTC and the DTC Participants are on file with the Securities and Exchange
Commission (the "SEC").
Cedelbank and Euroclear will hold omnibus positions on behalf of the
Cedelbank Participants and the Euroclear Participants, respectively, through
customers' securities accounts in the name of Cedelbank and Euroclear on the
books of their respective depositaries (collectively, the "Depositaries"), which
in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Transfers between Cedelbank
Participants and Euroclear Participants will occur in accordance with their
applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedelbank Participants or Euroclear Participants, 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, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). 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.
Cedelbank Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
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Because of time-zone differences, credits or securities in Cedelbank or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedelbank Participant or Euroclear Participant on such business day. Cash
received in Cedelbank or Euroclear as a result of sales of securities by or
through a Cedelbank Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available in
the relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC. For additional information regarding clearance and
settlement procedures, see Annex A included at the end of this prospectus, and
for information regarding tax documentation procedures relating to the Offered
Securities, see Annex A included at the end of this prospectus and "Material
Federal Income Tax Consequences -- Tax Consequences to Foreign Note Owners" and
"-- Tax Consequences to Holders of the Certificates -- Tax Consequences to
Foreign Certificate Owners."
Purchases of Offered Securities under the DTC system must be made by or
through DTC Participants, which will receive a credit for the Offered Securities
on DTC's records. The ownership interest of each Security Owner is in turn to be
recorded on the DTC Participants' and Indirect Participants' records. Security
Owners will not receive written confirmation from DTC of their purchase, but
Security Owners are expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from the
DTC Participant or Indirect Participant through which the Security Owner entered
into the transaction. Transfers of ownership interests in the Offered Securities
are to be accomplished by entries made on the books of DTC Participants acting
on behalf of Security Owners.
To facilitate subsequent transfers, all Offered Securities deposited by
DTC Participants with DTC are registered in the name of DTC's nominee, 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 actual Security Owners of the Offered Securities. DTC's records
reflect only the identity of the DTC Participants to whose accounts such Offered
Securities are credited, which may or may not be the Security Owners. The DTC
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge Offered Securities to persons or entities that do not
participate in the DTC system, or otherwise take action in respect of such
Offered Securities, may be limited due to lack of a physical certificate for
such Offered Securities.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Security Owners 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 DTC Participants to whose accounts the
Offered Securities are credited on the record date (identified in a listing
attached thereto). Principal and interest payments on the Offered Securities
will be made to DTC. DTC's practice is to credit DTC Participants' accounts on
the Payment Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on the
Payment Date. Payments by DTC Participants to Security Owners will be governed
by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such DTC Participant and not of DTC,
the Owner Trustee, the Indenture Trustee or the Seller, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the Owner Trustee or the
Indenture Trustee, as applicable, disbursement of such payments to DTC
Participants is the responsibility of DTC, and disbursement of such payments to
the Security Owners is the responsibility of DTC Participants and Indirect
Participants. Accordingly, Security Owners may experience some delay in their
receipt of payments.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Seller believes to be reliable, but the
Seller assumes no responsibility for the accuracy thereof.
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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 in the Year 2000 and thereafter. 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. The Seller
makes no representations as to the accuracy or completeness of such information.
Cedelbank and Euroclear
Cedelbank, societe anonyme ("Cedelbank") is incorporated under the laws of
Luxembourg as a professional depository. Cedelbank holds securities for its
participating organizations ("Cedelbank Participants") and facilitates the
clearance and settlement of securities transactions between Cedelbank
Participants through electronic book-entry changes in accounts of Cedelbank
Participants, thereby eliminating 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 Cedelbank
Participants, among other things, 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. Cedelbank Participants are world-wide financial institutions, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations and may include the Underwriters.
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 a Cedelbank Participant, either directly or indirectly.
The Euroclear system (the "Euroclear System") was created in 1968 to hold
securities for participants in the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 27 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above.
The Euroclear System is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator" or "Euroclear")
under a contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear system on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, 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 Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
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Distributions with respect to Offered Securities held through Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Cedelbank or the Euroclear Operator, 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 a Cedelbank Participant or a Euroclear Participant only in accordance
with its relevant rules and procedures and subject to its Depositary's ability
to effect such actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Offered Securities among
participants of DTC, Cedelbank and Euroclear, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time.
The information in this section concerning Cedelbank and Euroclear has
been obtained from sources that the Seller believes to be reliable, but the
Seller assumes no responsibility for the accuracy thereof.
Definitive Securities
The Offered Securities will be issued in fully registered, certificated
form ("Definitive Securities") to Security Owners or their respective nominees,
rather than to DTC or its nominee, only if (1) 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, (2) the Owner Trustee or
the Indenture Trustee, as applicable, elects, at its option, to terminate the
book-entry system through DTC or (3) after the occurrence of an event of default
under the Sale and Servicing Agreement or the Indenture, as applicable, the
Security Owners 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 thereto) is no longer in the best
interests of the Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Owner Trustee or the Indenture Trustee, as applicable,
will be required to notify the applicable Security Owners, through DTC
Participants, of the availability of Definitive 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 Definitive Securities to the related Security Owners.
Payments of interest and principal on the Definitive Securities will be made by
the Owner Trustee or the Indenture Trustee, as applicable, on each Payment Date
directly to the holders in whose name the Definitive Securities were registered
at the close of business on the preceding Record Date. The final payment on any
Definitive Security, however, will be made only upon presentation and surrender
of such Definitive Security at the office or agency specified in the notice of
final distribution mailed to the Securityholders.
Definitive Securities 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:
(1) 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 Policy] will be
deposited (the "Collection Account");
(2) 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 (the "Note
Payment Account"); and
(3) 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 "Certificate Payment Account").
The Servicer will also establish and maintain the Reserve Account and
the Yield Supplement Account. See "-- The Reserve Account" and "-- 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.
"Eligible Investments" means investments acceptable to Moody's and
Standard & Poor's (together, the "Rating Agencies") as being consistent with the
ratings of the Offered Securities. Eligible Investments will include:
(1) direct obligations of, and obligations guaranteed by, the United
States of America, the Federal National Mortgage Association, or any
instrumentality of the United States of America;
(2) 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 (an "Approved Rating") or any other deposit which is fully
insured by the Federal Deposit Insurance Corporation;
(3) repurchase obligations with respect to any security issued or
guaranteed by an instrumentality of the United States of America
entered into with a depository institution or trust company, acting
as principal, having an Approved Rating;
(4) short-term corporate securities bearing interest or sold at a
discount issued by any corporation incorporated under the laws of
the United States of America or any state thereof, the short-term
unsecured obligations of which have an Approved Rating, or a higher
rating, at the time of the investment;
(5) commercial paper having an Approved Rating at the time of the
investment;
(6) a guaranteed investment contract issued by an insurance company or
other corporation acceptable to the Rating Agencies;
(7) interests in a money market fund having a rating of Aaa by Moody's
or AAAm by Standard & Poor's; and
(8) any other investment approved in advance in writing by the Rating
Agencies.
"Eligible Deposit Account" means:
(1) a segregated account with an Eligible Institution; or
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(2) a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the United States
or any state thereof 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 the depository institution shall have a
credit rating from each of Moody's and Standard & Poor's in one of
its generic rating categories that signifies investment grade.
"Eligible Institution" means:
(1) the corporate trust department of the Indenture Trustee; or
(2) a depository institution organized under the laws of the United
States or any state thereof 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 the Rating Agencies, and
whose deposits are insured by the FDIC.
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 Collection
Period. 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 Collection Period. 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 (each, a "Collection Period")
into the Collection Account not later than two business days after receipt of
such amounts; provided, however, that, at any time that and for so long as (1)
the Originator is the Servicer, (2) no event of default shall have occurred and
be continuing with respect to the Servicer under the Sale and Servicing
Agreement and (3) each other condition to making deposits less frequently than
daily as may be specified by the Rating Agencies has been satisfied, the
Servicer will not be required to deposit any such amounts received during any
Collection Period into the Collection Account until the business day preceding
the following Payment Date. 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 requirements described above,
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 Amounts with respect to Contracts purchased by the Servicer.
On each Payment Date, payments on the Notes and the Certificates will be
made from the following sources ("Available Funds"):
(1) obligor payments received with respect to the Contracts during the
preceding Collection Period;
(2) advances made by the Servicer in respect of Contracts that were more
than 30 days delinquent at the end of the preceding Collection
Period;
(3) liquidation proceeds received with respect to the Contracts during
the preceding Collection Period;
(4) interest earned on funds on deposit in the Collection Account;
(5) the Purchase Amount for all Contracts that became Purchased
Contracts during the preceding Collection Period; and
(6) amounts withdrawn on that Payment Date from the Yield Supplement
Account.
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On or before the sixth day preceding each Payment Date or, if the sixth
day is not a business day, the following business day (each, a "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 Policy, in each case] as described below.
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], an account into which certain 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 (the "Reserve Account"). The Originator 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 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.
"Required Payment Amount" means, for any Payment Date, the aggregate
amount to be applied on that Payment Date pursuant to clauses (1) through (6)
under "-- Payment Date Distributions (Collection Account)" below.
["Insurance Payment Amount" means, for any Payment Date, the sum of (1)
the Insurance Premium for that Payment Date (plus any overdue Insurance Premiums
for previous Payment Dates) and (2) the aggregate amount of any unreimbursed
payments under the Policy (to the extent payable to the Insurer under the
Insurance Agreement), together with accrued interest thereon at the rate
provided in the Insurance Agreement, plus any other amounts due to the Insurer
under the Insurance Agreement.
"Insurance Premium" means, for any Payment Date, one-twelfth of the
product of the per annum rate set forth in the Insurance Agreement and [the sum
of] the Note Balance [and the Certificate Balance] as of the last day of the
preceding Collection Period.]
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 the Seller. Any amount paid to
the Seller will no longer be an asset of the Trust. On or after the termination
of the Trust, the Seller 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.
"Required Reserve Account Amount" means, for any Payment Date, the greater
of (1) $ and (2) % of the Pool Balance as of the last day of the preceding
Collection Period (or, in the case of the first Payment Date, as of the Closing
Date); provided, however, that the Required Reserve Account Amount for any
Payment Date will not exceed the sum of the Note Balance and the Certificate
Balance as of that Payment Date (after giving effect to all payments of
principal made to the Noteholders and the Certificateholders on that Payment
Date).
We intend for the amount on deposit in the Reserve Account to increase
over time up to the Required Reserve Account Amount. We 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 such Payment Date. If the amount on deposit in the
Reserve Account is reduced to zero [and there is a default under the 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 proceeds
received from the repossession and sale of the Financed Vehicles that secure
Defaulted Contracts). In addition, because the market value of motor vehicles
generally declines with age and because of difficulties that may be encountered
in enforcing the Contracts, the Servicer may not recover the entire amount due
on a Defaulted Contract in the event of a repossession and resale of the related
Financed Vehicle. If the amount on deposit in the Reserve Account is reduced to
zero [and there is a default under the Policy], you could experience losses or
payment delays with respect to your Notes or your Certificates. See "Material
Legal Aspects of the Contracts."
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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], an account from which amounts may be withdrawn to supplement the yield
on Contracts with annual percentage rates below a specified rate (the "Yield
Supplement Account"). On the Closing Date, the Originator 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.
"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 the Originator maintains a Yield Supplement
Letter of Credit or Qualified Substitute Arrangement.
"Yield Supplement Amount" means, for any Payment Date, the sum of the
Individual Contract Yield Supplement Amounts for the Contracts for that
Payment Date.
"Individual Contract Yield Supplement Amount" means, for any Contract and
any Payment Date, one-twelfth of the product of (1) the Interest Rate Deficiency
for that Contract and that Payment Date and (2) the outstanding principal
balance of that Contract as of the last day of the preceding Collection Period.
"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 %.
"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.
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 the Originator on that Determination Date.
If the Originator obtains a letter of credit (a "Yield Supplement Letter
of Credit") securing timely remittance to the Indenture Trustee of the Yield
Supplement Amount for each Payment Date or has entered into an alternative
arrangement (a "Qualified Substitute Arrangement") satisfactory to the Rating
Agencies which, in each case, 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 the Originator and the Required Yield
Supplement Account Amount will be reduced to zero. If the Required Yield
Supplement Account Amount is reduced to zero, the Originator 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 each Rating
Agency. In the event that the rating of the letter of credit bank that issues
any Yield Supplement Letter of Credit is reduced below any such required rating
and the Originator 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 such amount in
the Yield Supplement Account.
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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 and Monthly Note Principal 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 Acceleration Date shall have occurred, 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)
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
pursuant to clause (1) below, paid under the 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 Collection
Period or that the Servicer has otherwise determined to be
unrecoverable;
(2) to the Servicer, the Monthly Servicing Fee for the preceding
Collection Period plus any overdue Monthly Servicing Fees for
previous Collection Periods;
(3) to the Note Payment Account, the Monthly Note Interest for that
Payment Date plus any overdue Monthly Note Interest for previous
Payment Dates (together with interest on any overdue Monthly Note
Interest at the applicable Note Interest Rate);
(4) to the Certificate Payment Account, the Monthly Certificate Interest
for that Payment Date plus any overdue Monthly Certificate Interest
for previous Payment Dates (together with interest on any overdue
Monthly Certificate Interest at the Certificate Interest Rate);
(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 Insurance Premium for the preceding Collection
Period plus any overdue Insurance Premium for previous Collection
Periods;]
(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 pursuant to clause (1) above;
(9) [to the Insurer, the aggregate amount of any unreimbursed payments
under the Policy (to the extent payable to the Insurer under the
Insurance Agreement), together with accrued interest thereon 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 on
deposit in the Reserve Account on that Payment Date (after giving
effect to all required withdrawals from the Reserve Account on that
Payment Date);
(11) to the Note Payment Account, Supplemental Note Principal for that
Payment Date; and
(12) to the Seller, any remaining amount of Available Funds.
"Defaulted Contract" means a Contract as to which any of the following has
occurred: (1) any payment, or part thereof, due under the Contract has become
120 days or more delinquent (whether or not the Servicer has repossessed the
related Financed Vehicle); (2) the Financed Vehicle that secures the Contract
has been repossessed and liquidated; or (3) the Contract has been determined to
be uncollectible in accordance with the Servicer's customary practices;
provided, however, that a Contract will not be classified as a Defaulted
Contract until the last day of the Collection Period during which one of the
foregoing first occurs; and, provided further, that any Contract which the
Seller or the Servicer is obligated to repurchase or purchase pursuant to the
Sale and Servicing Agreement will not be deemed to be a Defaulted Contract.
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Payment Date Distributions (Note Payment Account)
On each Payment Date preceding the Acceleration Date, 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 (together with interest on any overdue Monthly Note
Interest at the applicable Note Interest Rate);
(2) to the holders of the Class A-1 Notes, the Monthly Note Principal
for that Payment Date until the Class A-1 Notes have been paid in
full;
(3) following payment in full of the Class A-1 Notes, to the holders of
the Class A-2 Notes, the Monthly Note Principal for that Payment
Date until the Class A-2 Notes have been paid in full;
(4) following payment in full of the Class A-2 Notes, to the holders of
the Class A-3 Notes, the Monthly Note Principal for that Payment
Date until the Class A-3 Notes have been paid in full; and
(5) following payment in full of the Class A-3 Notes, to the holders of
the Class A-4 Notes, the Monthly Note Principal for that Payment
Date until the Class A-4 Notes have been paid in full.
If the amount on deposit in the Note Payment Account on any Payment Date
is less than the amount described in clause (1) above for that Payment Date, the
available amount will be paid to the holders of each class of Notes pro rata
based on the aggregate amount of interest (including overdue interest) payable
to that class on that Payment Date. If the amount available to pay principal of
the Notes on any Payment Date is less than the Monthly Note Principal for that
Payment Date, the available amount will be paid to the holders of each class of
Notes pro rata based on the outstanding principal balance of that class as of
that Payment Date.
"Acceleration Date" means the date on which the maturity of the Notes is
accelerated following the occurrence of an event of default under the Indenture.
On each Payment Date following the Acceleration Date, 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 (together with interest on any overdue Monthly Note
Interest at the applicable Note Interest Rate);
(2) to the holders of each class of Notes, the Monthly Note Principal
for 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 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 (together with interest on any overdue
Monthly Certificate Interest at the Certificate Interest Rate); and
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(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 Collection Period 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.... "Collection Period" (a calendar month). 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" (the sixth day preceding the
Payment Date or, if the sixth day is not a business
day, the following business day). 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 Payment Date and
the amount of any deficiencies. [If necessary, the
Indenture Trustee notifies the Insurer of any
payments required under the Policy.]
, 1999.... "Record Date" (the business day before the
Payment Date). Distributions on the Payment Date are
made to Noteholders and Certificateholders of record
at the close of business on this date.
, 1999.... "Payment Date" (the 15th day of the month or, if
the 15th day is not a business day, the following
business day). The Indenture Trustee applies
Available Funds to make all required payments to the
Servicer [and the Insurer] and to make all required
deposits to the Note Payment Account and the
Certificate Payment Account. If Available Funds are
not sufficient to make various required payments, the
Indenture Trustee withdraws funds from the Reserve
Account (up to the amount on deposit in the Reserve
Account) to cover the deficiency. [If Available Funds
and withdrawals from the Reserve Account are not
sufficient to pay the Monthly Servicing Fee, Monthly
Note Interest, Monthly Note Principal, [Monthly
Certificate Interest and Monthly Certificate
Principal] in full, the Insurer makes a payment under
the 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 Securityholders
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 and each Certificateholder on that Payment Date, setting forth
for that Payment Date or the preceding Collection Period, as applicable, the
following information:
(1) in the case of a payment to the Noteholders, (A) the amount of that
payment allocable to interest (including overdue interest for
previous Payment Dates) on each class of Notes and (B) the aggregate
amount of interest on each class of Notes (including overdue
interest for previous Payment Dates) due but not paid on that
Payment Date;
(2) in the case of a payment to the Noteholders, the amount of that
payment allocable to principal of each class of Notes;
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(3) in the case of a payment to the Certificateholders, (A) the amount
of that payment allocable to interest (including overdue interest
for previous Payment Dates) on the Certificates and (B) the
aggregate amount of interest on the Certificates (including overdue
interest for previous Payment Dates) due but not paid on that
Payment Date;
(4) in the case of a payment to the Certificateholders, the amount of
that payment allocable to principal of the Certificates;
(5) the amount of the Monthly Servicing Fee payable to the Servicer for
that Collection Period;
(6) the Yield Supplement Amount for that Payment Date;
(7) the outstanding principal balance and Note Pool Factor for each
class of Notes as of that Payment Date and the Note Balance as of
that Payment Date, in each case after giving effect to all payments
of Monthly Note Principal made on that Payment Date;
(8) the Certificate Balance and Certificate Pool Factor as of that
Payment Date after giving effect to all payments of Monthly
Certificate Principal made on that Payment Date;
(9) the Pool Balance as of the last day of that Collection Period;
(10) 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;
(11) 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;
(12) the aggregate Purchase Amount of Contracts repurchased by the Seller
or purchased by the Servicer during that Collection Period;
(13) 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 Collection Period; and
(14) the net losses on the Contracts for that Collection Period.
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 at any time during that
calendar year shall have been a registered Noteholder a statement containing
certain information for the purposes of such Noteholder's preparation of
federal income tax returns. See "Material Federal Income Tax Consequences."
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[DESCRIPTION OF THE INSURER]
[TO BE ADDED]
[DESCRIPTION OF THE POLICY]
[On the Closing Date, (the "Insurer") will issue an insurance
policy for the benefit of the Noteholders [and the Certificateholders] (the
"Policy") 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 Policy no
later than 12:00 noon (Eastern Time) on the later of (1) the related Payment
Date and (2) the second business day following receipt by the Insurer of a
notice specifying the Policy Claim Amount for that Payment Date (together with,
in the case of a Policy Claim Amount that includes a Preference Amount, certain
other documents required by the Insurer). All amounts paid under the Policy will
be deposited in the Collection Account. The Policy will be issued under an
Insurance and Reimbursement Agreement (the "Insurance Agreement") among the
Seller, the Originator, in its individual capacity and as servicer, and 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.
"Deficiency Amount" means, for any Payment Date, the amount, if any, by
which (1) the Required Payment Amount for that Payment Date exceeds (2) 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 pursuant to clauses [(2),
(3) and (5)] [(2) through (6)] under "-- Payment Date Distributions (Collection
Account)" above.
"Preference Amount" means, for any Payment Date, any amount previously
distributed to the Noteholders [or the Certificateholders] that a trustee in
bankruptcy of the Originator or the Seller is seeking to recover as a voidable
preference pursuant to 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.
The Insurer will be entitled to receive amounts withdrawn from the Reserve
Account and to receive the Insurance Premium and various other amounts on each
Payment Date, in each case as described under "--Payment Date Distributions
(Collection Account)" above. The Insurer will not be entitled to reimbursement
of any amounts paid under the 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 Policy.]
REPORTS TO SECURITYHOLDERS
Unless and until the Notes or the Certificates, as applicable, are issued
in definitive form (which will occur only under the limited circumstances
described herein), 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. Such 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).
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DESCRIPTION OF THE INDENTURE
The following summary describes various material terms of the Indenture.
The following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions 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:
(1) the Trust shall fail to make any required interest payment on the
Notes and such failure shall continue unremedied for five business
days;
(2) the Trust shall fail to make any required principal payment on the
Notes;
(3) the Trust shall fail to observe or perform in any material respect
any covenant or agreement in the Indenture and such failure shall
continue unremedied for 60 days after written notice of such 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 Note Balance as of the
date of such notice;
(4) any representation or warranty of the Trust made in the Indenture or
in any certificate delivered pursuant thereto shall prove to have
been incorrect in any material respect as of the time when made and
such breach shall continue unremedied for 30 days after written
notice of such 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
Note Balance as of the date of such notice;
(5) certain events of bankruptcy, insolvency, receivership or
liquidation shall occur with respect to the Trust; or
(6) [a claim shall be made under the 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].
["Insurer Default" means (1) the Insurer shall fail to make any payment
required under the Policy in accordance with its terms or (2) certain events of
bankruptcy, insolvency, receivership or liquidation shall occur with respect to
the Insurer.]
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 such 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 such 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 such default arose from a claim being made under the
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 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].]
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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 Policy) and an Insurer Default shall have occurred and be
continuing], the Indenture Trustee or the holders of Notes evidencing not less
than 66-2/3% of the Note Balance may declare the principal of the Notes to be
immediately due and payable. Any such declaration may be rescinded by the
holders of Notes evidencing not less than 66-2/3% of the Note Balance at any
time before a judgment or decree for payment of the amount due has been obtained
by the Indenture Trustee if (1) the Trust has deposited with the Indenture
Trustee an amount sufficient to pay all interest on and principal of the Notes
as if the event of default giving rise to such declaration had not occurred and
(2) all events of default under the Indenture (other than the nonpayment of
principal of the Notes that has become due solely by such acceleration) have
been cured or waived. Any such recision could be treated, for federal income tax
purposes, as a constructive exchange of the Notes by the Noteholders for deemed
new Notes upon which gain or loss would be recognized.
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 in the payment of principal of the Notes or a
default for five days or more in the payment of interest on the Notes, unless
(1) 100% of the Noteholders consent thereto, (2) the proceeds of such sale are
sufficient to pay in full the principal amount of and accrued but unpaid
interest on the Notes or (3) 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 such payments would have become due had such obligations 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 Note Balance to such
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 interest on and principal of 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 proceeds of such sale will be distributed:
(1) first, to the Indenture Trustee for amounts due as compensation or
indemnity payments pursuant to the terms of the Indenture;
(2) second, to the Servicer for amounts due in respect of unpaid Monthly
Servicing Fees;
(3) third, to the Noteholders for amounts due in respect of unpaid
interest;
(4) fourth, to the Noteholders for amounts due in respect of unpaid
principal;
(5) fifth, to the Certificateholders for amounts due in respect of
unpaid interest; and
(6) sixth, to the Certificateholders for amounts due in respect of
unpaid principal.
Any remaining amounts will be distributed [first, to the Insurer for
amounts due under the Insurance Agreement and then] to the Seller.
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 such request.
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 Note
Balance [(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 (1) in payment of principal of or
interest on any of the Notes or (2) in respect of any covenant or other
provision in the Indenture that cannot be modified or amended without the
unanimous consent of the Noteholders. Any such waiver could be treated, for
federal income tax purposes, as a constructive exchange of the Notes by the
Noteholders for deemed new Notes upon which gain or loss would be recognized.
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Certain Indenture Covenants
The Trust will not, among other things:
(1) except as expressly permitted by the Indenture, the Transfer and
Servicing Agreements or certain related documents (collectively, the
"Transaction Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of the Trust;
(2) 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;
(3) dissolve or liquidate in whole or in part;
(4) permit (A) the validity or effectiveness of the Indenture to be
impaired, (B)any person to be released from any covenants or
obligations with respect to the Notes under the Indenture except as
may be expressly permitted thereby, (C) any lien, charge, excise,
claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets
of the Trust or any part thereof, or any interest therein or the
proceeds therefrom or (D) the lien of the Indenture not to
constitute a valid, first priority (other than with respect to
certain tax, mechanics or other liens) security interest in the
property of the Trust;
(5) engage in any activities other than financing, acquiring, owning,
pledging and managing the Contracts as contemplated by the
Transaction Documents and activities incidental thereto; or
(6) incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the Notes or indebtedness otherwise permitted
by the Transaction Documents.
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 Note
Balance [(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 such removal and, following
such 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 each Rating Agency or otherwise acceptable to each Rating Agency.
The Indenture Trustee may resign at any time by notifying the Trust and
the Noteholders of such resignation. The Trust will be required to remove the
Indenture Trustee if the Indenture Trustee:
(1) ceases to be eligible to continue as the trustee under the
Indenture;
(2) is adjudged to be bankrupt or insolvent;
(3) comes under the charge of a receiver or other public officer; or
(4) 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.
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Duties of Indenture Trustee
Except upon the occurrence and during the continuation of an event of
default under the Indenture, the Indenture Trustee:
(1) will perform such duties and only such duties as are specifically set
forth in the Indenture;
(2) may, in the absence of bad faith, rely, as to the truth of the
statements and the correctness of the opinions expressed therein, on
certificates or opinions furnished to the Indenture Trustee which conform to the
requirements of the Indenture; and
(3) will examine any such 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 such rights and powers as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
Compensation and 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 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:
(1) 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;
(2) with respect to 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; and
(3) 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 such default or has received written notice of
such default in accordance with the Indenture.
Access to Noteholder List
If the Notes are issued in definitive form under the limited circumstances
described herein and the Indenture Trustee is not the registrar for the Notes,
the Trust will furnish or cause to be furnished to the Indenture Trustee a list
of the names and addresses of the Noteholders (1) as of each Record Date, within
five days thereafter, and (2) as of a date not more than ten days before the
time such list is furnished, within 20 days after receipt by the Indenture
Trustee of a written request for such list.
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 certain indebtedness owing by the Trust to the Indenture
Trustee in its individual capacity, the property and funds physically held by
the Indenture Trustee and any action taken by the Indenture Trustee that
materially affects the Notes and that has not previously been reported.
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Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, including receipt of certain opinions with
respect to tax matters, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all the Notes (including accrued but
unpaid interest thereon).
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], enter into one or
more supplemental indentures for the purpose of, among other things, 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 or this prospectus, provided that (1) such
action will not, as evidenced by an opinion of counsel (which may be internal
counsel to the Seller or the Servicer (an "Opinion of Counsel"), materially
adversely affect the interests of any Noteholder or, as confirmed by each Rating
Agency, cause the then current rating assigned to any class of Notes to be
withdrawn, reduced or qualified and (2) an Opinion of Counsel as to certain tax
matters is delivered.
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee may
also enter into one or more supplemental indentures, with the consent of the
holders of Notes evidencing not less than 51% of the Note Balance [and with the
consent of the Insurer if an Insurer Default shall not have occurred and be
continuing], with prior written notice to each Rating Agency, 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 that (1) such action will not, as evidenced by an Opinion
of Counsel, materially adversely affect the interests of any Noteholder or, as
confirmed by each Rating Agency, cause the then current rating assigned to any
class of Notes to be withdrawn, reduced or qualified and (2) an Opinion of
Counsel as to certain tax matters is delivered; provided, however, that no such
supplemental indenture may, without the consent of the holders of each
outstanding Note affected by such supplemental indenture:
(1) 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 thereof, the interest rate specified thereon or
the redemption price with respect thereto, 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 thereon is payable;
(2) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment;
(3) reduce the percentage of the Note Balance the consent of the holders
of which is required for any such supplemental indenture of for any
waiver of compliance with certain provisions of the Indenture or of
certain defaults thereunder and their consequences as provided in
the Indenture;
(4) modify or alter the provisions of the Indenture regarding the voting
of Notes held by the Trust, the Seller, the Servicer, an affiliate
of any of them or any obligor on the Notes;
(5) reduce the percentage of the Note Balance 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 such sale would be
insufficient to pay in full the principal amount of and accrued but
unpaid interest on the Notes;
(6) modify any provision of the Indenture specifying a percentage of the
Note Balance necessary to amend the Indenture or the other
Transaction Documents except to increase any percentage specified in
the Indenture or to provide that certain additional provisions of
the Indenture or the other Transaction Documents cannot be modified
or waived without the consent of the holders of each outstanding
Note affected thereby;
(7) 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
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(8) 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 such
collateral or deprive any Noteholder of the security afforded by the
lien of the Indenture.
Administration Agreement
The Seller, as administrator (in its capacity as administrator, the
"Administrator"), the Owner Trustee, on behalf of the Trust, and the Indenture
Trustee will enter into an administration agreement (the "Administration
Agreement") under which the Administrator will agree to provide certain notices
and to perform certain 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.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes various material terms of the Purchase
Agreement, the Sale and Servicing Agreement, the Trust Agreement and the
Administration Agreement (collectively, the "Transfer and Servicing
Agreements"). The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the Transfer and Servicing Agreements. Forms of the Purchase Agreement, the Sale
and Servicing Agreement, the Trust Agreement and the Administration Agreement
have been filed as exhibits to the Registration Statement of which this
prospectus forms a part.
Transfer of Contracts
On the Closing Date, (1) the Originator will sell its entire right in the
Contracts, including its security interests in the Financed Vehicles, to the
Seller pursuant to the Purchase Agreement and (2) the Seller will transfer its
entire right in the Contracts, including its security interests in the Financed
Vehicles, to the Trust pursuant to 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
the Seller in exchange for the Contracts.
In the Purchase Agreement, the Originator will represent and warrant to
the Seller, among other things, that:
(1) the information provided by the Originator with respect to the
Contracts is correct in all material respects;
(2) each obligor under a Contract has obtained or agreed to obtain and
maintain physical damage insurance covering the related Financed
Vehicle in accordance with the Originator's normal requirements;
(3) as of the Closing Date, the Contracts were free and clear of all
security interests, liens, charges and encumbrances, other than the
lien of the Seller, and no offsets, defenses or counterclaims
against the Originator or the Seller had been asserted or threatened
with respect to the Contracts;
(4) as of the Closing Date, each Contract was secured by a first
perfected security interest in the related Financed Vehicle in favor
of the Registered Lienholder or the Originator had taken all
necessary action with respect to each Contract to secure a first
perfected security interest in the related Financed Vehicle; and
(5) 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.
The Originator will agree under the Purchase Agreement to repurchase from
the Seller any Contract as to which the Originator has breached any of the
representations or warranties described above if such breach materially and
adversely affects the interest of the Seller or its assignee in such Contract
and the Originator has not cured such breach on or before the last day of the
Collection Period following the discovery by or notice to the Originator of such
breach (or, if the Originator so elects, on or before the last day of the
preceding Collection Period). Each Contract to be repurchased by the Originator
(each, a "Purchased Contract") must be repurchased on or before such last day
for a price equal to the outstanding principal balance of such Contract plus
accrued interest on such balance at the applicable contract rate to the date of
repurchase (the "Purchase Amount"). The Seller will assign to the Trust under
the Sale and Servicing Agreement certain of its rights under the Purchase
Agreement, including its right to cause the Originator to repurchase Contracts
as to which there has been a breach of a representation or warranty as described
above. The repurchase obligation of the Originator under the Purchase Agreement,
as assigned to the Trust under the Sale and Servicing Agreement, will constitute
the sole remedy available to the Noteholders, the Indenture Trustee, the
Certificateholders or the Owner Trustee for any uncured breach of a
representation or warranty described above.
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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 of
the Certificates (the "Final Scheduled Payment Date"), the Servicer will agree
under the Sale and Servicing Agreement to purchase such Contract as of the last
day of the Collection Period preceding the 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 modification of a Contract
described above.
Servicing Compensation; Payment of Expenses
The Servicer will be entitled to receive a monthly fee for servicing the
Contracts (the "Monthly Servicing Fee"). The Monthly Servicing Fee for any
Collection Period will equal the product of one-twelfth of the Servicing Fee
Rate and the Pool Balance as of the first day of such Collection Period. The
"Servicing Fee Rate" means one percent (1.00%) per annum. 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 certain 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 such
default. The Servicer will agree to give the Indenture Trustee and the Owner
Trustee notice of the occurrence of an event of default under the Sale and
Servicing Agreement.
Copies of the statements and certificates described above may be obtained
by the Noteholders and the Certificateholders by a request in writing addressed
to the Indenture Trustee at or to the Owner Trustee at .
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Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Originator 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 the Originator will become effective only
when the Indenture Trustee or a successor servicer has assumed the Originator's
servicing obligations and duties under the Sale and Servicing Agreement.
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 such person 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.
Any corporation or other entity into which the Originator may be merged or
consolidated, or any corporation or other entity resulting from any merger or
consolidation to which the Originator is a party, or any corporation or other
entity succeeding to the motor vehicle financing and contract servicing business
of the Originator, which corporation or other entity assumes the obligations of
the Servicer, will be the successor to the Servicer under the Sale and Servicing
Agreement.
Events of Default
The following events will constitute events of default under the Sale and
Servicing Agreement:
(1) the Servicer shall fail to deposit in the Collection Account any
amount required to be deposited in such account and such failure
shall continue unremedied for five business days;
(2) the Servicer shall fail to deliver to the Indenture Trustee or the
Owner Trustee, as applicable, certain reports relating to the
payment of amounts on deposit in the Collection Account, the Note
Payment Account or the Certificate Payment Account and such failure
shall continue unremedied for five business days;
(3) the Seller or the Servicer shall fail duly to observe or perform in
any material respect any covenant or agreement in the Sale and
Servicing Agreement and such failure shall continue unremedied for
60 days after written notice of such failure shall have been given
to the Seller or the Servicer, as applicable, by the Indenture
Trustee or the Owner Trustee [or the Insurer] or to the Seller or
the Servicer, as applicable, and to the Indenture Trustee and the
Owner Trustee by the holders of Notes evidencing not less than 25%
of the Note Balance as of the date of such notice or, if the Notes
have been paid in full, by the holders of Certificates evidencing
not less than 25% of the Certificate Balance as of the date of such
notice;
(4) any representation or warranty of the Seller or the Servicer made in
the Sale and Servicing Agreement or in any certificate delivered
pursuant thereto (other than any representation or warranty relating
to a Contract that has been repurchased by the Seller or purchased
by the Servicer) shall prove to have been incorrect in any material
respect as of the time when made and such breach shall continue
unremedied for 30 days after written notice of such breach shall
have been given to the Seller or the Servicer, as applicable, by the
Indenture Trustee or the Owner Trustee [or the Insurer] or to the
Seller or the Servicer, as applicable, and to the Indenture Trustee
and the Owner Trustee by the holders of Notes evidencing not less
than 25% of the Note Balance as of the date of such notice or, if
the Notes have been paid in full, by the holders of Certificates
evidencing not less than 25% of the Certificate Balance as of the
date of such notice; and
(5) certain events of bankruptcy, insolvency, receivership or
liquidation shall occur with respect to the Seller or the Servicer.
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Rights Upon Event of Default
If an event of default 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 Note Balance as of the date of such direction or, if the Notes have
been paid in full, the holders of Certificates evidencing not less than 51% of
the Certificate Balance as of the date of such direction, 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 default
other than such appointment has occurred and is continuing under the Sale and
Servicing Agreement, such 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 Note Balance or,
if the Notes have been paid in full, the holders of Certificates evidencing not
less than 51% of the Certificate Balance may, on behalf of all Noteholders or
Certificateholders, as applicable, 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 such waiver will
impair the rights of the Noteholders, the Certificateholders [or the Insurer]
with respect to subsequent events of default under the Sale and Servicing
Agreement.
[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 the
Seller, the Servicer and the Indenture Trustee, without the consent of the
Noteholders, to cure any ambiguity, to correct or supplement any provision
therein that may be inconsistent with other provisions therein or to make any
other provisions with respect to matters or questions arising thereunder that
are not inconsistent with the provisions of the Sale and Servicing Agreement;
provided, however, that no such amendment may materially and adversely affect
the interests of any Noteholder. Any amendment shall be deemed not to materially
and adversely affect the interests of any Noteholder if the person requesting
the amendment (1) obtains a letter from each Rating Agency to the effect that
the amendment would not result in a downgrading or withdrawal of the ratings
then assigned to the Notes by such Rating Agency or (2) an opinion of counsel
satisfactory to the Indenture Trustee to such effect. The Sale and Servicing
Agreement may also be amended from time to time by the Seller, the Servicer and
the Indenture Trustee with the consent of the holders of the Notes evidencing
not less than 51% of the Note Balance 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; provided, however, that no such amendment may (1) increase or
reduce in any manner the amount of, or accelerate or delay the timing 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 of (2) reduce the
percentage of the Note Balance that is required to consent to any such amendment
without the consent of the holders of all of the outstanding Notes. 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 such 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 such
amendment would reasonably be expected to have a materially adverse effect upon
the rights of the Insurer.]
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Termination of the Trust
The obligations of the Servicer, the Seller and the Owner Trustee pursuant
to the Sale and Servicing Agreement will terminate upon the earlier to occur of
(1) 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 (2) 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 from the Trust or to cause the Trust to
sell all remaining Contracts in the Contract Pool as of any Payment Date (the
"Optional Sale") if the Pool Balance as of the close of business on the last day
of any previous Collection Period was 10% or less of the initial Pool Balance.
Any Optional Sale will be at a purchase price equal to the sum of the Note
Balance and the Certificate Balance as of the purchase date plus accrued and
unpaid interest thereon. The exercise of this right will effect the early
retirement of the Notes and the Certificates.
MATERIAL LEGAL ASPECTS 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 Uniform Commercial Code
(the "UCC"). In general, 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 the Originator 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 the Registered Lienholder. The terms of each Contract prohibit the sale or
transfer of the related Financed Vehicle without the lienholder's consent.
On the Closing Date, the Originator will assign its security interests in
the Financed Vehicles to the Seller pursuant to the Purchase Agreement and the
Seller will assign its security interests in the Financed Vehicles to the Trust
pursuant to the Sale and Servicing Agreement. To facilitate servicing and to
minimize administrative burden and expense, the certificates of title for the
Financed Vehicles will not be marked to reflect the security interests of the
Seller or the Trust in the Financed Vehicles.
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 thereby 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.
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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 the
Originator's 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 the Registered Lienholder has failed
to obtain a perfected security interest, its security interest would be
subordinate to, among others, subsequent purchasers of those Financed Vehicles
and holders of perfected security interests in those Financed Vehicles. Any such
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 the Originator to repurchase the related Contract, unless such
breach were cured in a timely manner. See "Description of the Transfer and
Servicing Agreements -- Transfer of Contracts."
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
the Originator 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 the
Originator's 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.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes would take priority over even a perfected
security interest in the vehicle. In some states, a perfected security interest
in a motor vehicle may take priority over liens for repairs.
The Originator 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, each security interest in a Financed Vehicle is prior to
all other present liens (other than tax liens and liens that arise by operation
of law) upon and security interests in such Financed Vehicle. However, liens for
repairs or taxes could arise at any time during the term of a Contract. No
notice will be given to the Indenture Trustee or the Noteholders or the
Certificateholders in the event such a lien arises.
Repossession of Vehicles
In the event of a default by an obligor 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
In the event of a default by an obligor 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 general, this right of reinstatement
may be exercised on a limited number of occasions during any one-year period.
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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. The
obligor generally 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
In general, 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. However, the
deficiency judgment would be a personal judgment against the obligor for the
shortfall, 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 such lienholder exists, to remit the surplus to the former
owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code and state motor vehicle retail installment sales acts, and
other similar laws. In addition, state laws impose finance charge ceilings and
other restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect an assignee's ability to enforce
consumer finance contracts such as the Contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes or the common laws in certain
states, 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 may not be so limited (for example, assignee direct liability for
Truth-In-Lending Act violations apparent on the face of the required disclosure
statement).
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
such 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 the Originator to repurchase the
related Contract, unless such breach were cured in a timely manner. See
"Description of the Transfer and Servicing Agreements -- Transfer of Contracts."
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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. Courts have generally 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.
The Originator 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 the
Originator to repurchase the related Contract, unless such breach were cured in
a timely manner. See "Description of the Transfer and Servicing Agreements --
Transfer of Contracts."
Other Limitations
In addition, tax and various other statutory liabilities, such as
liabilities to the Pension Benefit Guaranty Corporation, if any, relating to the
underfunding of pension plans of the Originator or its affiliates, could be
asserted against the Seller. 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 the Seller, however, could
permit the claimant to subject the Seller to an involuntary proceeding under the
Bankruptcy Code or other Insolvency Laws.
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
The Originator will represent and warrant to the Seller in the Purchase
Agreement that the sale of the Contracts by the Originator to the Seller is a
"true sale" of the Contracts to the Seller. Notwithstanding this representation
and warranty, if the Originator were to become a debtor in a bankruptcy case and
a creditor or trustee-in-bankruptcy of the applicable debtor or the debtor
itself were to take the position that the sale of Contracts to the Seller should
instead be treated as a pledge of the Contracts to secure a loan to the
Originator, delays in payments of amount 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 such trustee, debtor or creditor, reductions in
the amounts of payments could result. If the transfer of the Contracts to the
Seller is treated as a pledge instead of a sale, a tax or government lien on the
property of the Originator arising before the transfer of the Contracts to the
Seller may have priority over the Trust's interest in the Contracts. If the
transfer of the Contracts from the Originator to the Seller is treated as a
sale, the Contracts would not be part of the Originator's bankruptcy estate and
would not be available to the bankrupt entity's creditors.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in the event the Originator
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 the Seller
on the Closing Date, the transfer of the Contracts by the Originator to the
Seller pursuant to the Purchase Agreement would be characterized as a "true
sale" of the Contracts from the Originator to the Seller and the Contracts and
the proceeds thereof would not form part of the Originator's bankruptcy estate
pursuant to Section 541 of the United State Bankruptcy Code.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a general summary of various material federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates. This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations thereunder, current administrative rulings, judicial decisions and
other applicable authorities in effect as of the date hereof, all of which are
subject to change, possibly with retroactive effect. There can be no assurance
that the Internal Revenue Service ("IRS") will not challenge the conclusions
reached herein, and no ruling from the IRS has been or will be sought on any of
the issues discussed below.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to Security Owners in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of Security Owners subject to special
treatment under the federal income tax laws (e.g. financial institutions,
broker-dealers, life insurance companies and tax-exempt organizations). This
information is directed to Security Owners who hold the Notes or the
Certificates as "capital assets" within the meaning of Section 1221 of the Code.
You are urged to 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 LLP ("Special Tax Counsel") will render its opinion that
for federal income tax purposes under existing law, and subject to customary
assumptions and qualifications set forth therein: (a) the Notes will be treated
as debt, and (b) the Trust will not be classified as an association (or publicly
traded partnership) taxable as a corporation. The Seller, the Owner Trustee and
the Indenture Trustee have agreed, and the beneficial owners of the Notes (the
"Note Owners") 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 a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with Original
Issue Discount ("OID") 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 general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method that takes into account the economic accrual of the OID,
generally 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 determined as described above.
For purposes of computing OID, the issue price of a Note will generally 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
Noteholder for accrued interest that relates to a period prior to the Closing
Date. The "stated redemption price at maturity" is the sum of all payments on
the Note other than any "qualified stated interest" payments. Qualified stated
interest is defined as any one of a series of payments equal to the product of
the outstanding principal balance of the Note and a single fixed rate, or
certain variable rates of interest that is unconditionally payable at least
annually.
The holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such 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 (a) the present value of all
payments remaining to be made on the Note as of the close of the accrual period
and (b) 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 (a "Prepayable Obligation"), such as the Notes, OID is
computed by taking into account the anticipated rate of prepayments assumed in
pricing the debt instrument (the "Prepayment Assumption"). The Prepayment
Assumption that will be used in determining the rate of accrual of original
issue discount, premium and market discount, if any, is % ABS. 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 such 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: (a) the original
yield to maturity of the Note (determined on the basis of compounding at the end
of each accrual period and property adjusted for the length of the accrual
period), (b) events which have occurred before the end of the accrual period and
(c) the assumption that the remaining payments will be made in accordance with
the original Prepayment Assumption.
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The effect of this method is to increase the portions of OID required to
be included in income by a Note Owner to take into account prepayments on the
Contracts at a rate that exceeds the Prepayment Assumption, and to decrease (but
not below zero for any period) the portions of OID required to be included in
income by a Note Owner to take into account prepayments with respect to the
Contracts at a rate that is slower than the Prepayment Assumption. Although OID
will be reported to Note Owners based on the Prepayment Assumption, no
representation is made to the Note Owners that the Contracts will be prepaid at
that rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price at maturity will not include any OID in gross income. A
holder of a Note that acquires the Note for an amount that is less than its
stated redemption price at maturity will be required to include OID in gross
income, but if the holder purchases the Note for an amount that exceeds its
adjusted issue price, the holder 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 (a) the purchaser's adjusted
basis in the Note immediately after purchase thereof over (b) the adjusted issue
price of the Note, and the denominator of which is the excess of (c) all amounts
remaining to be paid on the Note after the purchase date, other than qualified
stated interest, over (d) 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 Code if a Note Owner purchases a
Note at a market discount (that is, if the purchase price of the Note is less
than its stated redemption price at maturity or, if the Notes were issued with
OID, is less than its original issue price plus the amount of OID accrued prior
to its purchase) and thereafter (a) recognizes gain upon a disposition, or (b)
receives payments of principal, the lesser of (x) such gain or principal payment
or (y) the accrued market discount will be taxed as ordinary interest income.
Generally, 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
Note Owner held the Note and the denominator of which is the number of days from
the date of the Note Owner acquired the Note until its maturity date. The Note
Owner may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the 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. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
other taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such 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. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note 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
Note 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, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Note Owner makes this election, income on a Note will be calculated
as though (a) the issue price of the Note were equal to the Note Owner's
adjusted basis in the Note immediately after its acquisition by the Note Owner,
(b) the Note were issued on the Note Owner's acquisition date; and (c) none of
the interest payments on the Note were "qualified stated interest." A Note Owner
may make such an election for a Note that has premium or market discount,
respectively, only if the Note Owner makes, or has previously made, an election
to amortize bond premium or to include market discount in income currently. See
"-- Market Discount" and "-- Amortizable Bond Premium" above.
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Disposition of Notes. A Note Owner will generally recognize gain or loss
on the sale or retirement of a Note equal to the difference between the amount
realized on the sale or retirement and its adjusted tax basis in the Note. Such
gain or loss will be capital gain or loss (except to the extent attributable to
OID not previously accrued, accrued but unpaid interest, or as described above
under "--Market Discount') and will be long-term capital gain or loss if the
Note was held for more than one year. A Note Owner's adjusted tax basis in a
Note generally 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 qualified stated
interest and the amount of bond premium previously amortized with respect to the
Note. In addition, if the Prepayable Obligation rules 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 an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of the
requisite percentage of Noteholders. Any such waiver or recision, or any
amendment of the terms of the Notes, could be treated for federal income tax
purposes as a constructive exchange by a Noteholder of the Notes for new Notes,
upon which gain or loss would be recognized.
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 Note Owner, 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
exempt recipients (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each Note
Owner (other than Note Owners who are not subject to the reporting requirements)
will be required to provide, under penalties of perjury, a certificate
containing the Note Owner's name, address, correct federal taxpayer
identification number (which includes a social security number) and a statement
that the Note Owner is not subject tot backup withholding. Should a non-exempt
Note Owner fail to provide the required certification or should the IRS notify
the Indenture Trustee or the Trust that the Note 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 Note Owner, and remit the
withheld amounts to the IRS as a credit against the Note Owner's federal income
tax liability.
Tax Consequences to Foreign Note Owners
The following information describes the U.S. federal income tax treatment
of investors that are not U.S. persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (a) a citizen or resident of the
United States, (b) a corporation, partnership or other entity organized in or
under the laws of the United States, any state or the District of Columbia
(unless, in the case of a partnership, Treasury regulations provide otherwise),
(c) an estate the income of which is includible in gross income for U.S. federal
income tax purposes, regardless of its source or (d) a trust if a U.S. court is
able to exercise primary supervision over the administration of such trust and
one or more U.S. persons has authority to control all substantial decisions of
the trust.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business within
the United States by the Foreign Person will generally be considered
"portfolio interest" and generally will not be subject to United States
federal income tax or withholding tax, as long as the Foreign Person
(1) is not actually or constructively a "10 percent shareholder" of the
Trust, the Originator or the Seller or a "controlled foreign
corporation" with respect to which the Trust, the Originator or the
Seller is a "related person" within the meaning of the Code, and (2)
provides an appropriate statement, signed under penalties of perjury,
certifying that the Note Owner is a Foreign Person and providing that
Foreign Person's name and address. If the information provided in this
statement changes, the Foreign Person must so inform the Indenture
Trustee within 30 days of such change. The statement generally must be
provided in the year a payment occurs or in either of the two preceding
years. If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at a rate
of 30 percent unless reduced or eliminated pursuant to the provisions
of an applicable income tax treaty.
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(b) 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 (1) (x) the
gain is not effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, and (y) 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 (2) the gain is exempt under the
provisions of an applicable income tax treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade or business
in the United States by the Foreign Person, the Note Owner (although
exempt from the withholding tax previously discussed if a duly executed
Form 4224 is furnished) generally 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 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 an applicable 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. The regulations will generally be
effective for payments made after December 31, 2000. Prospective investors are
advised to consult their tax advisors regarding the effect, if any, of the
regulations on the purchase, ownership and disposition of the Notes.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and the Servicer will
agree, and the beneficial owners of the Certificates (the "Certificate Owners")
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 Certificate Owners and the Seller (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, the Seller and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificate Owners as compared to the consequences from treatment of the
Certificates as equity in a partnership, as described below. 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 such 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 Code, Treasury
regulations and the partnership agreement (here, the Trust Agreement and related
documents). The Trust Agreement will provide, in general, that the Certificate
Owners will be allocated taxable income of the Trust for each month equal to the
sum of (1) the interest that accrues on the Certificates in accordance with
their terms for such month, including interest accruing at the rate applicable
to the Certificates for such month and interest on amounts previously due on the
Certificates but not yet distributed; (2) 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; (3) prepayment premium
payable to the Certificate Owners for such month; and (4) any other amounts of
income payable to the Certificate Owners for such month. Such allocation will be
reduced by any amortization by the Trust of premium on Contracts that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be allocated to
the Seller. 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 Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire Certificate Interest Rate plus the other items
described above even though the Trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders may in
effect be required to report income from the Certificates on the accrual basis
and Certificate Owners may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificate Owners but Certificate Owners may be purchasing Certificates at
different times and at different prices, Certificate 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.
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All of the taxable income allocated to a Certificate Owner 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" generally taxable to such a holder under the Code.
Servicing fees and other expenses of the Trust will be separately
allocated to the Certificate Owners and the Seller rather than deducted by the
Trust. To the extent such fees and expenses are allocated to the Certificate
Owners, an individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) will be miscellaneous itemized
deductions and thus allowable as a deduction only to the extent that in the
aggregate all such expenses exceed two percent of such 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 such deductions otherwise allocable to an individual
Certificate Owner might be disallowed to the individual in whole or in part and
might result in such individual being taxed on an amount of income that exceeds
the amount of cash actually distributed to such individual over the life of the
Trust.
Any net loss of the Trust will be allocated first to the Seller and then
to the Certificate Owners 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 Certificate Owners on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Contract, the Trust
might be required to incur additional expense, but we believe that there would
not be a material adverse effect on Certificate Owners.
Discount and Premium. We believe 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.
As indicated above, the Trust will make this calculation on an aggregate basis,
but might be required to recompute it on a Contract-by-Contract basis.
If the Trust acquires the Contracts at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Contracts or to offset any such premium against interest
income on the Contracts. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificate Owners.
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 such calculations be made separately for
each Contract, the Trust might be required to incur additional expense, but we
believe that there would not be a material adverse effect on Certificate Owners.
Section 708 Termination. Under Section 708 of the 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 such 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 such a constructive
termination occurs. As a result, the Trust may be subject to certain 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.
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Disposition of Certificates. Generally, 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 Certificate Owners, 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. A Certificate Owner's tax basis
in a Certificate will generally equal the holder's cost increased by the
holder's share of Trust income (includible in income) and decreased by any
distributions received with respect to such Certificate. In addition, both the
tax basis in the Certificates and the amount realized on a sale of a Certificate
would include the holder's share of the Notes and other liabilities of the
Trust. A holder acquiring Certificates at different prices may be required to
maintain a single aggregate adjusted tax basis in such Certificates, and, upon
sale or other disposition of some of the Certificates, allocate a portion of
such aggregate 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.
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Contracts would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
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 Certificate Owners in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before its purchase of the Certificates.
The use of such 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 Certificate Owners. The Seller 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. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate 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 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, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates if a Section 754 election had been made. However, because any such
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 Certificate.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such 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 below and such nominees will
be required to forward such information to the beneficial owners of the
Certificates. Generally, 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 such inconsistencies.
Under Section 6031 of the 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 certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (A) the name, address and identification number of such person, (B)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (C) certain information on
Certificates that were held, bought or sold on behalf of such person 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 Exchange Act is not required to furnish any such
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 information described above may be subject to penalties.
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The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificate Owners in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners, and, under
certain circumstances, a Certificate 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 Certificate 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
foreign Certificate Owner will not qualify for the exemption for portfolio
interest under Section 871(h) of the Code, because the Contracts will not be in
"registered form" as that term is defined in applicable Treasury regulations. As
a result, foreign Certificate Owners will be subject to United States
withholding tax on their 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 pursuant to an applicable
treaty or unless the Certificate Owner holds the Certificates in connection with
the conduct of a U.S. trade or business. Foreign Certificate Owners holding
Certificates in connection with the conduct of a U.S. trade or business will be
subject to federal income tax withholding at regular rates (35% for foreign
holders taxable as corporations and 39.6% for all other foreign holders).
Potential investors who are not United States persons should consult their own
tax advisors regarding the specific tax consequences of owning a Certificate.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificate Owner fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
The federal income tax discussions set forth above are included for
general information only and may not be applicable depending upon a Security
Owner's particular tax situation. Prospective purchasers should consult their
tax advisors with respect to the tax consequences to them 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 ("ERISA"),
and Section 4975 of the Code, impose certain restrictions on (i) employee
benefit plans (as defined in Section 3(3) of ERISA) that are subject to Title I
of ERISA, (ii) plans (as defined in Section 4975(e)(1) of the Code) that are
subject to Section 4975 of the Code, including, without limitation, individual
retirement accounts or Keogh plans, (iii) entities whose underlying assets
include plan assets by reason of a plan's investment in such entities,
including, without limitation, insurance company general accounts, (each of (i),
(ii) and (iii), a "Benefit Plan") and (iv) persons who have certain specified
relationships to Benefit Plans ("Parties in Interest" under ERISA and
"Disqualified Persons" under the Code). 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 may
be deemed to include assets of the Benefit Plans investing in the general
account (e.g., through the purchase of an annuity contract), and such insurance
company might be treated as a Party in Interest or a Disqualified Person with
respect to a Benefit Plan by virtue of such investment. ERISA also imposes
certain duties on persons who are fiduciaries of Benefit Plans subject to ERISA,
and ERISA and Section 4975 of the Code prohibit certain transactions between a
Benefit Plan and Parties in Interest or Disqualified Persons with respect to
such Benefit Plan. Violations of these rules may result in the imposition of
excise taxes and other penalties and liabilities under ERISA and the 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 such plans may be invested in the Notes or the
Certificates without regard to the ERISA restrictions described in this
prospectus, subject to the provisions of any other applicable federal and state
law. It should be noted, however, that any governmental or church plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Special Considerations for Benefit Plans
The United States Department of Labor ("DOL") has issued a regulation, 29
C.F.R. Section 2510.3-101 (the "Plan Asset Regulation"), 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 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. The Seller 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 such 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 holder
of the Certificates or any of their respective affiliates, is or becomes a Party
in Interest or a Disqualified Person with respect to such Benefit Plan. In such
case, certain 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 ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 84-14, regarding
transactions effected by "qualified professional asset managers"; PTCE 95-60,
regarding investments by insurance company general accounts; and PTCE 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 Code unless one or more statutory or
administrative exemptions is available.
Investments in the Certificates. The Seller believes that the Certificates
should be treated as equity interests for purposes of the Plan Asset Regulation.
Accordingly, if Benefit Plans were permitted to purchase Certificates, the Trust
could be deemed to hold plan assets, unless one of the exceptions under the Plan
Asset Regulation were applicable to the Certificates and the Trust. If
Certificates were acquired and held by a Benefit Plan (or were acquired with
plan assets of a Benefit Plan) and the assets of the Trust were deemed to be
plan assets of such 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 Code with respect to such Benefit Plan, unless exemptive relief were
available. Because of the potential prohibited transactions issues described
above, 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 such
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 with respect to the United States Supreme Court case interpreting
the fiduciary responsibility rules of ERISA, John Hancock Mut. Life Ins. Co. v.
Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993). In John Hancock, the Supreme
Court ruled that assets held in an insurance company's general account may be
deemed to be plan assets for ERISA purposes under certain circumstances.
Prospective purchasers should determine whether the John Hancock decision
affects their ability to purchase the Certificates.
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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 Code. Pursuant to Section 401(c), DOL is
required to issue final regulations (the "General Account 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 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 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 such purchase.
As of the date of this prospectus, DOL 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, the General Account
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 Plan investors should consult with their legal advisors concerning the
impact of ERISA and the Code and the potential consequences of making an
investment in any of the Notes with respect to such investors' specific
circumstances. 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, the
Seller has agreed to sell and each of the underwriters named below (the
"Underwriters") 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 therein, 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
certain 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 such 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.
The Originator and the Seller have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Underwriters tell us 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, we 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
Exchange Act.
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 such syndicate member are
purchased in a syndicate covering transaction.
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Such 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 otherwise be in the absence of such
transactions. None of the Originator, the Seller, the Trust nor any of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Offered Securities. In addition, none of the Originator, the
Seller, the Trust nor any of the Underwriters represents that any of the
Underwriters will engage in any such transactions or that such 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 the
Originator, the Seller and their affiliates.
The Seller 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). The Seller 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 the Seller 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 the Seller by McGuire, Woods, Battle & Boothe
LLP.
[EXPERTS]
[TO BE ADDED]
WHERE YOU CAN FIND MORE INFORMATION
The Seller, 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 we file 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. Our SEC filings are also available to the public on
the SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information that the
Seller files with it, which means that the Seller 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 the Seller files later with the SEC which we have 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. We incorporate by reference any future annual,
monthly and special SEC reports, proxy materials and all other documents
required pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act filed
by or on behalf of the Trust until we terminate the offering of the Notes and
the Certificates.
As a recipient of this prospectus, you may request a copy of any document
we incorporate 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).
73
<PAGE>
INDEX OF PRINCIPAL TERMS
We have listed below the terms used in this prospectus and the pages where
definitions of those terms can be found.
Page
----
ABS...........................................23
Acceleration Date.............................46
Administration Agreement......................55
Administrator.................................55
Approved Rating...............................41
Available Funds...............................42
Benefit Plan..................................70
Cede..........................................37
Cedelbank.....................................39
Cedelbank Participants........................39
Certificate Balance...........................12
Certificate Interest Rate.....................36
Certificate Owners............................66
Certificate Payment Account...................41
Certificate Pool .............................31
Certificateholders............................36
Certificates..................................12
Class A-1 Notes...............................12
Class A-1 Rate................................34
Class A-2 Notes...............................12
Class A-2 Rate................................34
Class A-3 Notes...............................12
Class A-3 Rate................................34
Class A-4 Notes...............................12
Class A-4 Rate................................34
Closing Date..................................12
Code..........................................63
Collection Account............................41
Collection Period.............................42
Contract Pool.................................12
Contracts.....................................12
Cooperative...................................39
Cutoff Date...................................12
Defaulted Contract............................45
Deficiency Amount.............................49
Definitive Securities.........................40
Depositaries..................................37
Determination Date............................43
Disqualified Persons..........................70
DOL...........................................70
DTC...........................................37
DTC Participants..............................37
Due Date......................................14
Eligible Deposit Account......................41
Eligible Institution..........................42
Eligible Investments..........................41
ERISA.........................................70
Euroclear.....................................39
Euroclear Operator............................39
Euroclear Participants........................39
Euroclear System..............................39
Exchange Act..................................37
Final Scheduled Payment Date..................56
Financed Vehicles.............................13
FNAC..........................................14
Foreign Person................................65
FTC Rule................................. ....61
General Account Regulations...................71
Global Securities.............................76
Indenture.....................................12
Indenture Trustee.............................12
Indirect Participants.........................37
Individual Contract Yield Supplement Amount...44
Insolvency Laws...............................33
[Insurance Agreement].........................49
[Insurance Payment Amount]....................43
[Insurance Premium]...........................43
[Insurer].....................................49
[Insurer Default].............................50
Interest Accrual Period.......................34
Interest Rate Deficiency......................44
IRS.................................... ......63
Monthly Certificate Interest..................36
Monthly Certificate Principal.................36
Monthly Note Interest.........................34
Monthly Note Principal........................35
Monthly Servicing Fee.........................56
Moody's.......................................12
Note Balance..................................12
Note Interest Rate............................34
Note Owners...................................63
Note Payment Account..........................41
Note Pool Factor..............................31
Noteholders...................................33
Notes.........................................12
Offered Securities............................12
OID...........................................63
Opinion of Counsel............................54
Optional Sale.................................59
Originator.................................12,32
Owner Trustee.................................12
Parties in Interest...........................70
Payment Date..................................33
Plan Asset Regulation.........................70
[Policy]......................................49
[Policy Claim Amount].........................49
Pool Balance..................................12
Preference Amount.............................49
Prepayable Obligation.........................63
Prepayment Assumption.........................63
Projected Yield Supplement Amount.............44
PTCE..........................................70
Purchase Agreement............................12
Purchase Amount...............................56
Purchased Contract............................55
Qualified Substitute Arrangement..............44
Rating Agencies...............................41
Record Date...................................33
Registered Lienholder.........................23
Required Payment Amount.......................43
Required Reserve Account Amount...............43
Required Yield Supplement Account Amount......44
Reserve Account...............................43
Sale and Servicing Agreement..................12
SEC...........................................37
Security Holder...............................37
Security Owners...............................37
Seller.....................................12,33
74
<PAGE>
Page
----
Servicer......................................12
Servicing Fee Rate............................56
Simple Interest Contracts.....................15
Special Tax Counsel...........................63
Specified Credit Enhancement Amount...........35
Standard & Poor's.............................12
Supplemental Note Principal...................35
Terms and Conditions..........................39
Transaction Documents.........................52
Transfer and Servicing Agreements.............55
Trust.........................................12
Trust Agreement...............................12
UCC...........................................59
Underwriters..................................72
U.S. Person...................................78
Yield Supplement Account......................44
Yield Supplement Amount.......................44
Yield Supplement Letter of Credit ...........44
75
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally-offered Offered
Securities (the "Global Securities") to be issued from time to time will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of DTC, Cedelbank or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through 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 (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding 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 (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on 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 such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through 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. Global 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 DTC
Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
76
<PAGE>
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective depositary to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date (on the basis of actual days elapsed and a 360-day
year). Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedelbank Participant's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedelbank or Euroclear cash
debit will be valued instead as of the actual settlement date.
Cedelbank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to 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 Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Participants or Euroclear Participants 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
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during the one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Cedelbank Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedelbank Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant, a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear 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 Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date (on the basis of actual days elapsed and a 360-day year). The payment will
then be reflected in the account of the Cedelbank Participant or the Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedelbank
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedelbank Participant or Euroclear 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 (i.e. the trade fails),
receipt of the cash proceeds in the Cedelbank Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(1) 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;
(2) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedelbank or Euroclear accounts in
order to settle the sale side of the trade; or
(3) 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
Euroclear Participant.
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<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global 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 generally applies to
payments of interest (including original issue discount) or registered debt
issued by U.S. Persons unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of 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 such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Security Owners residing in a
country that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the 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
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust the income of which is includible in gross income for U.S.
federal income tax purposes, regardless of its source. This summary does not
deal with all aspects of U.S. federal income tax withholding that may be
relevant to foreign holders of the Global Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Global Securities.
78
<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. We have not authorized anyone to provide you with additional
or different information. We are not offering the notes or the certificates in
any state in which the offer is not permitted.
We do not claim the accuracy of the information in this prospectus as of any
date other than the date stated on its cover.
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.
<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 offered 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 (2) the 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
II-1
<PAGE>
(a) Exhibits]
1.1 -- Form of Underwriting Agreement.*
3.1 -- Articles of Organization.*
3.2 -- Limited Liability Company Operating Agreement.*
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 -- Opinion of McGuire, Woods, Battle & Boothe LLP with
respect to legality.*
8.1 -- 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 (see signature page).
- ----------------
* To be filed by amendment.
(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 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.
II-2
<PAGE>
(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 has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Richmond, Commonwealth of Virginia, on May 21,
1999.
CARMAX AUTO RECEIVABLES LLC
as Seller (Registrant)
By: /s/ Michael T. Chalifoux
-----------------------------------------
Name: Michael T. Chalifoux
Title: President and Assistant Secretary
Each individual whose signature appears below constitutes and appoints
Michael T. Chalifoux and Philip J. Dunn, and each of them, such individual's
true and lawful attorneys-in-fact and agents with full power of substitution,
for such individual and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same (and any and all related
exhibits) with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on May 21, 1999 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael T. Chalifoux President and Assistant Secretary May 21, 1999
- ------------------------------------ (Principal Executive Officer)
Michael T. Chalifoux
/s/ Philip J. Dunn Vice President, Treasurer and May 21, 1999
- ------------------------------------ Secretary (Principal Financial
Philip J. Dunn Officer and Principal Accounting
Officer)
CPD, INC.
By: /s/ Michael T. Chalifoux
------------------------------------ Manager and Member May 21, 1999
Name: Michael T. Chalifoux
Title: President
CARMAX AUTO SUPERSTORES, INC.
By: /s/ Keith D. Browning Member May 21, 1999
------------------------------------
Name: Keith D. Browning
Title: Vice President, Chief Financial
Officer and Assistant Secretary
</TABLE>
II-4
