<PAGE>
Pursuant to Rule No. 424(b)2
Registration No. 333-45546
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. This prospectus supplement and the attached prospectus are not an +
+offer to sell these securities and they are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement, Dated January 12, 2001
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 12, 2001)
$655,418,000
CarMax Auto Owner Trust 2001-1
<TABLE>
<S> <C>
$152,254,000 % Class A-1 Asset Backed Notes
$196,625,000 % Class A-2 Asset Backed Notes
$178,929,000 % Class A-3 Asset Backed Notes
$114,502,000 % Class A-4 Asset Backed Notes
$13,108,000 % Asset Backed Certificates
</TABLE>
CarMax Auto Superstores, Inc.
Seller and Servicer [Logo of CarMax appears here]
Pooled Auto Securities Shelf LLC
Depositor
<TABLE>
<CAPTION>
Net
Proceeds
Underwriting Discounts to
Price and Commissions Depositor
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1 Notes $ ( %) $ ( %) $ ( %)
-------------------------------------------------------------------------------------
Class A-2 Notes $ ( %) $ ( %) $ ( %)
-------------------------------------------------------------------------------------
Class A-3 Notes $ ( %) $ ( %) $ ( %)
-------------------------------------------------------------------------------------
Class A-4 Notes $ ( %) $ ( %) $ ( %)
-------------------------------------------------------------------------------------
Certificates $ ( %) $ ( %) $ ( %)
-------------------------------------------------------------------------------------
Total $ $ $
</TABLE>
The price of the notes and the certificates will also include accrued
interest, if any, from the date of issuance. Distributions on the securities
will be made monthly on the 15th day of each month or, if not a business day,
on the next business day, beginning March 15, 2001. The main sources for
payment of the securities are a pool of motor vehicle retail installment sale
contracts, certain payments under the contracts, monies on deposit in a reserve
account and a financial guaranty insurance policy issued by MBIA Insurance
Corporation unconditionally guaranteeing timely payment of interest and
ultimate payment of principal on the securities, in each case as described
herein.
Consider carefully the Risk Factors beginning on page S-13 in this prospectus
supplement and on page 11 of the prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the attached prospectus.
Any representation to the contrary is a criminal offense.
Underwriters of the Notes
First Union Securities, Inc.
Banc of America Securities LLC
Morgan Stanley Dean Witter
Underwriter of the Certificates
First Union Securities, Inc.
The date of this Prospectus Supplement is January , 2001.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reading These Documents................................................... S-4
Summary................................................................... S-5
Risk Factors.............................................................. S-13
The Trust................................................................. S-19
Limited Purpose and Limited Assets....................................... S-19
Capitalization of the Trust.............................................. S-19
The Receivables Pool...................................................... S-20
Criteria Applicable to Selection of Receivables.......................... S-20
Characteristics of the Receivables....................................... S-21
Weighted Average Life of the Securities.................................. S-25
The Seller................................................................ S-30
General.................................................................. S-30
CarMax Auto Finance...................................................... S-31
Underwriting Procedures.................................................. S-32
Collection Procedures.................................................... S-33
Physical Damage Insurance................................................ S-34
Allocation of Payments................................................... S-35
Delinquency, Credit Loss and Recovery Information........................ S-35
Delinquency and Credit Loss Trends....................................... S-37
The Depositor............................................................. S-38
Computing Your Portion of the Amount Outstanding on the Securities........ S-38
Maturity and Prepayment Considerations.................................... S-38
Your Securities May Not Be Repaid on the Final Scheduled Distribution
Dates.................................................................. S-39
Prepayments of the Receivables and Required Repurchases ................. S-39
Risks of Slower or Faster Repayments..................................... S-39
Description of the Notes.................................................. S-39
Note Registration........................................................ S-40
Payments of Interest..................................................... S-40
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Payments of Principal..................................................... S-41
Optional Prepayment....................................................... S-42
The Indenture Trustee..................................................... S-42
Description of the Certificates............................................ S-43
Certificate Registration.................................................. S-43
Distributions............................................................. S-43
Subordination of Certificates............................................. S-44
Optional Prepayment....................................................... S-44
The Owner Trustee......................................................... S-44
Application of Available Funds............................................. S-45
Sources of Funds for Distributions........................................ S-45
Priority of Distributions................................................. S-45
Description of the Receivables Transfer and Servicing Agreements........... S-47
Servicing the Receivables................................................. S-47
Accounts.................................................................. S-48
Servicing Compensation and Expenses....................................... S-48
Events of Servicing Termination........................................... S-48
Certain Matters Regarding the Servicer.................................... S-49
Rights Upon Event of Servicing Termination................................ S-50
Right of Insurer to Terminate Servicer.................................... S-50
Waiver of Past Events of Servicing Termination............................ S-50
Amendment of the Sale and Servicing Agreement............................. S-51
Optional Purchase of Receivables.......................................... S-52
Deposits to the Collection Account........................................ S-52
Servicer Will Provide Information to Indenture Trustee.................... S-53
Reserve Account........................................................... S-53
Description of the Insurer................................................. S-54
MBIA...................................................................... S-54
MBIA Financial Information................................................ S-55
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Obtain Additional Information About MBIA.................... S-56
Financial Strength Ratings of MBIA........................................ S-56
Description of the Insurance Policy........................................ S-57
Other Terms of the Insurance Policy....................................... S-57
Description of the Indenture............................................... S-58
Events of Default......................................................... S-58
Rights Upon Event of Default.............................................. S-59
Waiver of Past Defaults................................................... S-61
Replacement of Indenture Trustee.......................................... S-61
Duties of Indenture Trustee............................................... S-61
Compensation; Indemnification............................................. S-62
Satisfaction and Discharge of Indenture................................... S-62
Modification of Indenture................................................. S-63
Administration Agreement.................................................. S-64
Description of the Trust Agreement......................................... S-64
Formation of Trust; Issuance of Certificates.............................. S-64
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Replacement of Owner Trustee............................................ S-64
Duties of Owner Trustee................................................. S-64
Compensation; Indemnification........................................... S-65
Termination of Trust.................................................... S-65
Amendment of Trust Agreement............................................ S-65
Securities Owned By the Trust, the Depositor, the Seller, the Servicer
or Their Affiliates .................................................. S-67
Material Federal Income Tax Consequences................................. S-67
ERISA Considerations..................................................... S-67
The Notes............................................................... S-67
The Certificates........................................................ S-68
Underwriting............................................................. S-68
Legal Opinions........................................................... S-71
Experts.................................................................. S-71
Glossary of Terms........................................................ S-72
Index to Financial Statements............................................ S-F-1
Annex I--Global Clearance, Settlement and Tax Documentation Procedures... S-I-1
</TABLE>
S-3
<PAGE>
Reading These Documents
We provide information on the Securities in two documents that offer varying
levels of detail:
1. Prospectus--provides general information, some of which may not apply to
the Securities.
2. Prospectus Supplement--provides a summary of the specific terms of the
Securities.
We suggest you read this prospectus supplement and the prospectus in their
entirety. The prospectus supplement pages begin with "S". If the terms of the
offered securities described in this prospectus supplement vary with the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the Table of Contents in this
prospectus supplement and in the prospectus to locate the referenced sections.
You should rely only on information on the Securities provided in this
prospectus supplement and the prospectus. We have not authorized anyone to
provide you with different information.
S-4
<PAGE>
Summary
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus in their entirety.
Terms of the Securities
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Certificates
----------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Initial Principal
Amount................. $152,254,000 $196,625,000 $178,929,000 $114,502,000 $13,108,000
Interest Rate Per
Annum.................. % % % % %
Interest Accrual
Method................. actual/360 30/360 30/360 30/360 30/360
Distribution Dates
(monthly).............. 15th 15th 15th 15th 15th
First Distribution
Date................... March 15, 2001 March 15, 2001 March 15, 2001 March 15, 2001 March 15, 2001
Final Scheduled
Distribution Date...... February 15, 2002 October 15, 2003 December 15, 2004 February 15, 2007 February 15, 2007
Anticipated Ratings
(Moody's/Standard &
Poor's)................ P-1/A-1+ Aaa/AAA Aaa/AAA Aaa/AAA Aaa/AAA
</TABLE>
The Trust
The CarMax Auto Owner Trust 2001-1 is governed by an amended and restated
trust agreement, dated as of January 1, 2001, between the depositor and the
owner trustee. The trust will issue the notes and the certificates and will use
the proceeds from the issuance and sale of the securities to purchase from the
depositor a pool of receivables consisting of motor vehicle retail installment
sale contracts. The trust will rely upon collections on the receivables and the
funds on deposit in certain accounts to make payments on the securities. The
trust will be solely liable for the payment of the securities, except that MBIA
Insurance Corporation will issue a financial guaranty insurance policy that
will unconditionally and irrevocably guarantee timely payment of interest and
ultimate payment of principal on the securities.
The notes will be non-recourse obligations of, and the certificates will
represent beneficial ownership interests in, the trust. The notes and the
certificates will not represent interests in or obligations of Pooled Auto
Securities Shelf LLC, CarMax Auto Superstores, Inc. or any other person or
entity.
Investment in the Securities
There are material risks associated with an investment in the securities.
For a discussion of the risk factors which should be considered in deciding
whether to purchase any of the securities, see "Risk Factors" in this
prospectus supplement and in the prospectus.
Cutoff Date
The cutoff date is November 30, 2000.
Closing Date
The trust expects to issue the securities on January 25, 2001.
Seller and Servicer
CarMax Auto Superstores, Inc. has originated the receivables, will sell the
S-5
<PAGE>
receivables and certain related property to the depositor and will service the
receivables on behalf of the trust. CarMax Auto Superstores, Inc.'s principal
executive offices are located at 4900 Cox Road, Glen Allen, Virginia 23060, and
its telephone number is (804) 747-0422.
Depositor
Pooled Auto Securities Shelf LLC will transfer the receivables and related
property to the trust. Pooled Auto Securities Shelf LLC's principal executive
offices are located at One First Union Center, TW-9, Charlotte, North Carolina
28288, and its telephone number is (704) 383-8437.
Owner Trustee
Wilmington Trust Company will act as trustee of the trust.
Indenture Trustee
Bankers Trust Company will act as trustee with respect to the notes.
Distribution Dates
The 15th day of each month (or, if the 15th day is not a business day, the
next succeeding business day). The first distribution date will be March 15,
2001.
Record Dates
On each distribution date, the trust will pay interest and principal to the
holders of the securities as of the related record date. The record dates for
the securities will be the day immediately preceding each distribution date or,
if the notes or the certificates have been issued in fully registered,
certificated form, the last business day of the preceding month.
Minimum Denominations
The securities will be issued in minimum denominations of $1,000 and
integral multiples thereof.
Interest Rates
The trust will pay interest on each class of securities at the rate
specified on the cover of this prospectus supplement.
Interest Accrual
Class A-1 Notes
"Actual/360", accrued from and including the prior distribution date (or the
closing date, in the case of the first distribution date) to but excluding the
current distribution date.
Class A-2 Notes, Class A-3 Notes, Class A-4 Notes and Certificates
"30/360", accrued from and including the 15th day of the prior month (or
from and including the closing date, in the case of the first distribution
date) to but excluding the 15th day of the current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on each distribution date will be the product of:
1. the outstanding principal balance of that class of notes or the
certificates, as the case may be;
2. the interest rate of that class of notes or the certificates, as the case
may be; and
3. (i)in the case of the class A-1 notes:
the actual number of days in the accrual period divided by 360 and
S-6
<PAGE>
(ii) in the case of the other classes of notes and the certificates:
30 (or, in the case of the first distribution date, 50) divided by 360.
For a more detailed description of the payment of interest, see "Description
of the Notes--Payments of Interest" and "Description of the Certificates--
Distributions".
Priority of Distributions
From collections on the receivables received during the prior collection
period (or since the cutoff date through February 28, 2001 in the case of the
first distribution date) and amounts withdrawn from the reserve account and
amounts paid by the insurer, the trust will pay the following amounts on each
distribution date in the following order of priority:
(1) Servicing Fee--the monthly servicing fee for the preceding collection
period plus any overdue monthly servicing fees for previous collection
periods will be paid to the servicer.
(2) Note Interest--monthly interest due on each class of notes for that
distribution date plus any overdue monthly interest due on that class of
notes for previous distribution dates plus interest on any overdue monthly
interest payable to that class of notes at the interest rate applicable to
that class will be paid to the holders of that class; provided, however, if
the amount available to pay the amounts described in this clause (2) is
insufficient, interest will be paid pro rata on all classes of the notes
based on the interest payable to each class.
(3) Certificate Interest (Before Acceleration of Notes)--monthly interest due
on the certificates for that distribution date plus any overdue monthly
interest for previous distribution dates plus interest on any overdue
monthly interest payable on the certificates at the interest rate
applicable to the certificates will be paid to the certificateholders;
provided, however, if the notes have been accelerated after an event of
default under the indenture, this distribution will instead be made under
clause (5).
(4) Monthly Note Principal--an amount equal to the lesser of (a) the principal
balance of the notes as of the day preceding such distribution date and (b)
the amount necessary to reduce the sum of the principal balance of the
notes and certificates as of the day preceding such distribution date to
the aggregate principal balance of the receivables as of the last day of
the preceding collection period will be applied to pay principal on the
notes; provided, however, that the amount payable for any class of notes on
the final scheduled distribution date for that class will be the amount
necessary to pay that class in full; provided, further, however, if the
amount available to pay the amounts described in this clause (4) is
insufficient, monthly note principal will be paid pro rata on all classes
of the notes based on the outstanding principal amount of each class. In
general, principal on the notes will be applied in the following order of
priority:
(i) on the class A-1 notes until they are paid in full;
S-7
<PAGE>
(ii) on the class A-2 notes until they are paid in full;
(iii) on the class A-3 notes until they are paid in full; and
(iv) on the class A-4 notes until they are paid in full.
If the notes have been accelerated after an event of default under the
indenture, monthly note principal will be paid pro rata on all classes of
the notes.
(5) Certificate Interest (After Acceleration of Notes)--if the notes have been
accelerated after an event of default under the indenture, monthly
interest due on the certificates for that distribution date plus any
overdue monthly interest for the previous distribution dates plus interest
on any overdue monthly interest payable on the certificates at the
interest rate applicable to the certificates will be paid to the
certificateholders.
(6) Monthly Certificate Principal--an amount equal to the lesser of (a) the
principal balance of the certificates as of the day preceding such
distribution date and (b) the amount necessary to reduce the principal
balance of the certificates as of the day preceding such distribution date
to the aggregate principal balance of the receivables as of the last day
of the preceding collection period will be applied to pay principal on the
certificates; provided, however, that the amount payable on the
certificate final scheduled distribution date will be the amount necessary
to pay the certificate balance in full.
(7) Insurance Premium--the premium payable under the insurance agreement for
that distribution date plus any overdue premiums payable under the
insurance agreement for previous distribution dates will be paid to the
insurer.
(8) Other Amounts Payable to the Insurer--the aggregate amount of any
unreimbursed payments under the insurance policy, to the extent payable to
the insurer under the insurance agreement, plus accrued interest on any
unreimbursed payments under the insurance policy at the rate provided in
the insurance agreement plus any other amounts due to the insurer will be
paid to the insurer.
(9) Additional Note Principal--if the notes have been accelerated after an
event of default under the indenture, an amount equal to the outstanding
principal balance of the notes (after giving effect to all payments of
principal on such distribution date) will be paid pro rata on all classes
of the notes until they have been paid in full.
(10) Reserve Account Deposit--the amount, if any, necessary to increase the
balance of the reserve account up to the required amount will be paid to
the reserve account.
(11) Seller--any amounts remaining after the above distributions will be paid
to the seller.
For a more detailed description of the priority of distributions and the
allocation of funds on each distribution date, see "Application of Available
Funds".
Credit Enhancement
The credit enhancement for the securities will be as follows:
S-8
<PAGE>
Subordination of Principal and Interest on the Certificates
Payments of interest on the certificates will be subordinated to payments of
interest on the notes, and no payments of principal will be made on the
certificates until the notes have been paid in full. If the notes have been
accelerated after an event of default under the indenture, no payments will be
made on the certificates until monthly note principal has been paid to the
notes; provided, however, that the indenture trustee will continue to withdraw
available amounts from the reserve account and to submit claims under the
insurance policy in respect of monthly interest on the certificates following
an event of default under the indenture.
Reserve Account
On the closing date, the servicer will establish, in the name of the
indenture trustee, a reserve account into which certain excess collections on
the receivables will be deposited and from which amounts may be withdrawn to
pay monthly servicing fees to the servicer, to make required payments on the
securities and to make required payments to the insurer. The seller will
deposit, or will cause to be deposited, $8,192,727.66 in the reserve account on
the closing date. On each distribution date, the indenture trustee will deposit
in the reserve account, from amounts collected on or in respect of the
receivables during the preceding collection period and not used on that
distribution date to make required payments to the servicer, the
securityholders or the insurer, the amount, if any, by which:
. the amount required to be on deposit in the reserve account on that
distribution date exceeds
. the amount on deposit in the reserve account on that distribution date.
On each distribution date, the indenture trustee will withdraw funds from
the reserve account, up to the amount on deposit in the reserve account, to the
extent needed to make the following payments:
. to the servicer, the monthly servicing fee for the preceding collection
period plus any overdue monthly servicing fees for previous collection
periods;
. to the noteholders, monthly note interest and monthly note principal for that
distribution date plus any overdue monthly interest for previous distribution
dates plus interest on any overdue monthly interest payable to any class of
notes at the interest rate applicable to that class;
. to the certificateholders, monthly certificate interest and monthly
certificate principal for that distribution date plus any overdue monthly
interest for previous distribution dates plus interest on any overdue monthly
interest payable on the certificates at the interest rate applicable to the
certificates; and
. to the insurer, the monthly insurance premium for that distribution date plus
any overdue monthly insurance premiums for previous distribution dates plus
the aggregate amount of any unreimbursed payments under the insurance policy,
to the extent payable to the insurer under the insurance agreement, plus
accrued interest on any unreimbursed payments under the insurance policy at
the rate provided in the insurance agreement plus any other amounts due to
the insurer.
S-9
<PAGE>
The amount required to be on deposit in the reserve account on any
distribution date will equal the greater of $6,554,182.13 and an amount equal
to 3.00% of the principal balance of the receivables as of the last day of the
preceding collection period. The amount required to be on deposit in the
reserve account on any distribution date may be increased if delinquencies or
cumulative net losses on the receivables exceed levels specified in the
insurance agreement.
If the amount on deposit in the reserve account on any distribution date
exceeds the amount required to be on deposit in the reserve account on that
distribution date, after giving effect to all required deposits to and
withdrawals from the reserve account on that distribution date, the excess will
be paid to the seller. Any amount paid to the seller will no longer be property
of the trust.
For a more detailed description of the deposits to and withdrawals from the
reserve account, see "Description of the Receivables Transfer and Servicing
Agreements--Reserve Account".
Insurance Policy
The insurer will issue a financial guaranty insurance policy for the benefit
of the securityholders under which the insurer will unconditionally and
irrevocably guarantee the payment of monthly interest and monthly principal to
the securityholders and the payment of the monthly servicing fee to the
servicer. In general, on each distribution date the insurer will pay under the
insurance policy the amount, if any, by which:
. the monthly servicing fee for the preceding collection period plus any
overdue monthly servicing fees for previous months plus the monthly interest
and monthly principal for that distribution date payable to the
securityholders plus any overdue monthly interest for previous distribution
dates payable to the securityholders exceeds
. the funds otherwise available to pay those amounts, including amounts
available to be withdrawn from the reserve account.
All amounts paid under the insurance policy will be deposited in the
collection account. The indenture trustee will continue to submit claims under
the insurance policy with respect to the notes and the certificates following
an event of default under the indenture.
For a more detailed description of the insurer and the insurance policy, see
"Description of the Insurer" and "Description of the Insurance Policy".
Optional Prepayment
The servicer has the option to purchase the receivables on any distribution
date as of which the aggregate principal balance of the receivables is 10% or
less of the aggregate principal balance of the receivables at the time they
were sold to the trust. The purchase price will equal the outstanding principal
balance of the receivables plus accrued and unpaid interest thereon plus all
amounts due to the insurer under the insurance agreement. The trust will apply
such payment to the payment of the securities in full.
It is expected that at the time this purchase option becomes available to
the servicer only the class A-4 notes and the certificates will be outstanding.
S-10
<PAGE>
Final Scheduled Distribution Dates
The trust is required to pay the entire principal amount of each class of
securities, to the extent not previously paid, on the respective final
scheduled distribution dates specified above under "Terms of the Securities".
Property of the Trust
The property of the trust will include the following:
. a pool of simple interest retail installment sale contracts originated by the
seller in the ordinary course of business in connection with the sale of new
and used motor vehicles;
. amounts received on or in respect of the receivables after the cutoff date;
. security interests in the vehicles financed under the receivables;
. any proceeds from claims on or refunds of premiums with respect to insurance
policies relating to the financed vehicles or the related obligors;
. the receivable files;
. funds on deposit in a collection account, a note distribution account, a
certificate distribution account and a reserve account;
. an unconditional and irrevocable insurance policy issued by the insurer
guaranteeing payments of monthly interest and monthly principal on the
securities and payments of the monthly servicing fee to the servicer;
. all rights under the receivables purchase agreement, including the right to
cause the seller to repurchase from the depositor receivables affected
materially and adversely by breaches of the representations and warranties of
the seller made in the receivables purchase agreement;
. all rights under the sale and servicing agreement, including the right to
cause the servicer to purchase receivables affected materially and adversely
by breaches of the representations and warranties or certain servicing
covenants of the servicer made in the sale and servicing agreement; and
. any and all proceeds relating to the above.
Servicer Compensation
The trust will pay the servicer a servicing fee on each distribution date
for the related collection period equal to 1/12 of 1.00% per annum and the
aggregate principal balance of the receivables as of the first day of that
collection period (or as of the closing date in the case of the first
distribution date).
Ratings
It is a condition to the issuance of the securities that Moody's and
Standard & Poor's respectively rate the:
. class A-1 notes "P-1/A-1+";
. class A-2 notes, class A-3 notes and class A-4 notes "Aaa/AAA"; and
. certificates "Aaa/AAA".
A rating is not a recommendation to purchase, hold or sell the securities,
inasmuch as a rating does not comment as to market price or suitability for a
particular investor. The ratings of the securities address the likelihood of
the payment of principal and interest on the securities
S-11
<PAGE>
according to their terms. A rating agency rating the securities may lower or
withdraw its rating in the future, in its discretion, as to any class of
securities.
Tax Status
Opinions of Counsel
In the opinion of Brown & Wood llp, for federal income tax purposes the
notes will be characterized as debt and the trust will not be characterized as
an association (or a publicly traded partnership) taxable as a corporation.
Therefore, the trust will not be subject to entity level tax for federal income
tax purposes.
Investor Representations
Notes
If you purchase notes, you agree by your purchase that you will treat
the notes as indebtedness for federal income tax purposes.
Certificates
If you purchase certificates, you agree by your purchase that you will
treat the trust as a partnership in which the certificateholders are
partners for federal income tax purposes.
Investment Restrictions
Certificates
The certificates may not be purchased by persons who are not United
States persons for federal income tax purposes.
If you are considering purchasing certificates, see "Material Federal Income
Tax Consequences" in this prospectus supplement and in the prospectus for more
details.
ERISA Considerations
Notes
The notes are generally eligible for purchase by employee benefit plans,
subject to the considerations discussed under "ERISA Considerations" in
this prospectus supplement and the prospectus. Each employee benefit or
other plan, and each person investing on behalf of or with plan assets of
such a plan, will be deemed to make certain representations.
Certificates
The certificates may not be acquired by an employee benefit plan, by an
individual retirement account or by a person investing on behalf of or with
plan assets of such an arrangement. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Eligibility for Purchase by Money Market Funds
The class A-1 notes will be structured to be eligible securities for
purchase by money market funds under Rule 2a-7 under the Investment Company Act
of 1940, as amended. A money market fund should consult its legal advisers
regarding the eligibility of the class A-1 notes under Rule 2a-7 and whether an
investment in such notes satisfies the fund's investment policies and
objectives.
S-12
<PAGE>
Risk Factors
You should consider the following risk factors (and the factors under "Risk
Factors" in the prospectus) in deciding whether to purchase any of the
securities. The risk factors stated here and in the prospectus describe the
principal risk factors of an investment in the securities.
The insurance policy may not The insurer will unconditionally guarantee the
be available to assure payment of monthly interest and monthly
payment of your securities principal to securityholders on each
distribution date if payments received on or in
respect of the receivables, including amounts
recovered in connection with the repossession
and sale of financed vehicles that secure
defaulted receivables, and the amount on
deposit in the reserve account are not
sufficient to make that payment. There can be
no assurances, however, that the insurer will
perform its obligations under the insurance
policy. The insurer may not perform its
obligations under the insurance policy for a
variety of reasons. These reasons include, but
are not limited to, the occurrence of an event
of bankruptcy, insolvency, receivership or
liquidation with respect to the insurer or a
dispute as to the basis for a policy claim. If
receivable collections and the amount on
deposit in the reserve account are not
sufficient on any distribution date to pay in
full the monthly interest and monthly principal
due on that distribution date, and if there is
an insurer default under the insurance policy,
you will experience payment delays with respect
to your securities. If the amount of that
insufficiency is not offset by excess
receivable payments on subsequent distribution
dates, you will experience losses with respect
to your securities.
See "Description of the Insurer" and
"Description of the Insurance Policy" for a
further discussion of the insurer and the
insurance policy.
The amount on deposit in the The amount on deposit in the reserve account
reserve account may not be will be used to fund the payment of monthly
sufficient to assure payment interest and monthly principal to
of your securities securityholders on each distribution date if
payments received on or in respect of the
receivables, including amounts recovered in
connection with the repossession and sale of
financed vehicles that secure defaulted
receivables, are not sufficient to make that
payment. There can be no
S-13
<PAGE>
assurances, however, that the amount on deposit
in the reserve account will be sufficient on
any distribution date to assure payment of your
securities. If the receivables experience
higher losses than were projected in
determining the amount required to be on
deposit in the reserve account and the
principal balance of the certificates, the
amount on deposit in the reserve account may be
less than projected. If receivable payments and
the amount on deposit in the reserve account
are not sufficient on any distribution date to
pay in full the monthly interest and monthly
principal due on that distribution date, and if
there is an insurer default under the insurance
policy, you will experience payment delays with
respect to your securities. If the amount of
that insufficiency is not offset by excess
collections on the receivables on subsequent
distribution dates, you will experience losses
with respect to your securities.
See "Description of the Receivables Transfer
and Servicing Agreements--Reserve Account" for
a further discussion of the reserve account.
Subordination of the Distributions of interest and principal on the
certificates to the notes certificates will be subordinated in priority
increases the risk of the of payment to interest and principal due on the
certificates not receiving notes to the extent described in this
full distributions of prospectus supplement. The certificateholders
interest and principal will not receive any distributions of interest
with respect to a distribution date until the
full amount of monthly note interest and, if
the notes have been accelerated after an event
of default under the indenture, monthly note
principal due on such distribution date has
been paid. Furthermore, the certificateholders
will not receive any distributions of principal
until the notes have been paid in full.
A bankruptcy of the seller The seller will represent and warrant in the
could result in losses or receivables purchase agreement that the
payment delays with respect transfer of the receivables from the seller to
to your securities the depositor is a sale rather than a
financing. If the seller were to become the
subject of a bankruptcy proceeding, however,
the bankruptcy court could conclude that the
transfer of the receivables from the seller to
the depositor should be characterized as a
financing and that the receivables should be
included as part of the seller's bankruptcy
estate.
S-14
<PAGE>
If a bankruptcy court were to reach this
conclusion, you could experience losses or
payment delays with respect to your notes or
your certificates because:
. the trustees would not be permitted to
exercise remedies against the seller on your
behalf without the permission of the
bankruptcy court;
. the bankruptcy court could require the
trustees to accept property in exchange for
the receivables that has less value than the
receivables or could reduce the amount of
collateral held by the trust;
. a tax or government lien on property of the
seller that arose before the transfer of the
receivables to the depositor could be paid
from amounts received on or in respect of the
receivables before those amounts were used to
make payments on your securities; and
. the trustees might not have a perfected
security interest in one or more of the
financed vehicles or amounts collected on or
in respect of the receivables held by the
seller at the time of the commencement of the
bankruptcy proceeding.
The seller has taken steps in structuring the
transaction described in this prospectus
supplement to reduce the risk that a bankruptcy
court would conclude that the transfer of the
receivables from the seller to the depositor
should be characterized as a financing rather
than a sale.
See "Material Legal Issues Relating to the
Receivables-- Certain Bankruptcy
Considerations" in the prospectus for a further
discussion of the possibility that the transfer
of the receivables from the seller to the
depositor would be characterized as a financing
rather than a sale.
Receivable prepayments could The receivables can be prepaid in full or in
require you to reinvest your part at any time by the related obligor without
principal earlier than penalty. In addition, prepayments can occur as
expected at a lower rate of a result of rebates of extended warranty
return contract costs and insurance premiums,
liquidations due to obligor payment defaults,
receipts of proceeds from physical damage,
theft, credit life and credit disability
insurance policies and payments made by the
seller or the servicer in connection with
breaches of representations and warranties in
the receivables purchase agreement and
S-15
<PAGE>
sale and servicing agreement, respectively. If
prepayments on the receivables 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 your securities. The rate of prepayment on
the receivables may be influenced by a variety
of economic, social, legal and other factors.
These factors include, but are not limited to,
inflation rates, interest rates offered for
other loan products, changes in consumer
confidence, changes in employment status and
restrictions on transfers of financed vehicles.
See "The Receivables Pool--Weighted Average
Life of the Securities" for a further
discussion of receivable prepayments.
Prepayments and losses on An event of default under the indenture may
your securities may result result in payments on the securities being
from an event of default accelerated. As a result your securities may be
under the indenture repaid earlier than scheduled, which may
require you to reinvest your principal at a
lower rate of return.
See "Description of the Notes--Payments of
Principal--Events of Default" in this
prospectus supplement and "The Indenture--
Events of Default" in the prospectus.
You may suffer losses Because the trust has pledged its property to
because you have limited the indenture trustee to secure payment on the
control over actions of the notes, following an event of default under the
trust and conflicts between indenture, the indenture trustee may, and at
the noteholders and the the direction of the holders of a specified
certificateholders may occur percentage of the notes will, take one or more
of the actions specified in the indenture
relating to the property of the trust,
including a sale of the receivables.
Furthermore, the holders of a majority of the
notes, or the indenture trustee acting on
behalf of the noteholders, under certain
circumstances, has the right to waive events of
servicing termination or to terminate the
servicer as the servicer of the receivables
without consideration of the effect such waiver
or termination would have on the
certificateholders. The certificateholders will
not have the ability to waive events of
servicing termination or to remove the servicer
until the notes have been paid in full, and the
certificateholders may be adversely affected by
the determinations made by the holders of a
majority of the notes.
S-16
<PAGE>
See "Description of the Receivables Transfer
and Servicing Agreements--Events of Servicing
Termination" in the prospectus and "--Rights
Upon Event of Servicing Termination" and "--
Waiver of Past Events of Servicing Termination"
in this prospectus supplement and in the
prospectus.
Geographic concentration may The servicer's records indicate that
result in more risk to you receivables related to obligors with mailing
addresses in the following states constituted
more than 10% of the aggregate principal
balance of the receivables as of November 30,
2000:
<TABLE>
<CAPTION>
Percentage of Aggregate
Principal Balance
-----------------------
<S> <C>
Texas................................ 22.03%
Florida.............................. 13.58%
Georgia.............................. 13.27%
Maryland............................. 12.66%
Illinois............................. 10.74%
</TABLE>
Adverse economic conditions or other factors
affecting these states in particular could have
an especially significant effect on the
delinquency, credit loss or repossession
experience of the trust.
The failure to make The amount of principal required to be paid to
principal payments on the securityholders prior to the final scheduled
securities will generally distribution date for a class of securities
not result in an event of generally will be limited to amounts available
default for those purposes. Therefore, the failure to
repay principal of a class of securities
generally will not result in the occurrence of
an event of default under the indenture or
under the trust agreement, as the case may be,
until the final scheduled distribution date for
the class of securities.
The insurer will be entitled If an insurer default shall not have occurred
to exercise the voting and and be continuing under the insurance policy,
other rights of the the insurer, rather than the securityholders,
securityholders under the will be entitled to exercise the voting and
indenture prior to an other rights of the securityholders under the
insurer default indenture; provided, however, that the insurer
will not be entitled to exercise those rights
to amend the indenture in any manner that
requires the consent of all noteholders
affected by the amendment.
See "Description of the Indenture--Modification
of Indenture" for a further discussion of the
circumstances
S-17
<PAGE>
under which the consent of all noteholders is
required for an amendment of the indenture.
The insurer may control the If an event of default shall have occurred and
declaration and consequences be continuing under the indenture and an
of an event of default under insurer default shall not have occurred and be
the indenture continuing under the insurance policy, the
insurer, rather than the indenture trustee or
the noteholders, will control whether the notes
are declared immediately due and payable and
which rights or remedies under the indenture
are exercised following that declaration. The
remedies available under the indenture
following an event of default include the sale
of all or a portion of the property of the
trust and the distribution of the sale proceeds
to the securityholders in accordance with the
indenture. In addition, 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 under the insurance
policy, the insurer may elect to prepay the
notes or, if the notes have been paid in full,
the certificates in whole or in part. If the
securities are prepaid through the distribution
of sale proceeds or directly by the insurer,
you may have to reinvest principal earlier than
expected at a rate of interest that is less
than the rate of interest on the securities.
See "Description of the Indenture--Rights Upon
Event of Default" for a further discussion of
default remedies under the indenture.
The securities will not be The trust will not apply to list the securities
listed on an exchange and on an exchange or quote them in the automated
this may make it difficult quotation system of a registered securities
for you to sell your association. The liquidity of the securities
securities or to obtain your will therefore likely be less than what it
desired price would be in the event that they were so listed
or quoted, and there may be no secondary market
for the securities. As a result, you may not be
able to sell your securities when you want to
do so, or you may not be able to obtain the
price that you wish to receive.
See "Risk Factors--You may have difficulty
selling your securities or obtaining your
desired price" in the prospectus.
S-18
<PAGE>
Capitalized terms used in this prospectus supplement are defined in the
Glossary of Terms on page S-72 and the Glossary of Terms on page 89 of the
prospectus.
The Trust
Limited Purpose and Limited Assets
The Depositor formed CarMax Auto Owner Trust 2001-1, a Delaware business
trust. The Trust will not engage in any activity other than:
.acquiring, holding and managing the assets of the Trust, including the
Receivables, and the proceeds of those assets;
.issuing the Securities;
.making payments on the Securities; and
.engaging in other activities that are necessary, suitable or convenient to
accomplish any of the other purposes listed above or are in any way
connected with those activities.
If the protection provided to the Noteholders by the subordination of the
Certificates and to the Noteholders and the Certificateholders by the Reserve
Account and the Insurance Policy is insufficient, the Trust would have to look
solely to the obligors on the Receivables and the proceeds from the
repossession and sale of the Financed Vehicles which secure Defaulted
Receivables. In that event, various factors, such as the Trust not having
perfected security interests in the Financed Vehicles in all states, may affect
the Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds which the Trust can distribute to
Noteholders and Certificateholders. See "Material Legal Issues Relating to the
Receivables" in the prospectus.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address listed in
"Description of the Certificates--The Owner Trustee".
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Securities had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Notes................................................... $152,254,000
Class A-2 Notes................................................... 196,625,000
Class A-3 Notes................................................... 178,929,000
Class A-4 Notes................................................... 114,502,000
Certificates...................................................... 13,108,000
Capital Contribution(/1/)......................................... 1,000
------------
Total........................................................... $655,419,000
============
</TABLE>
---------------------
(1) See Financial Statements of the Trust on page S-F-1.
S-19
<PAGE>
The Receivables Pool
The Trust will own a pool of Receivables consisting of motor vehicle retail
installment sale contracts secured by security interests in the motor vehicles
financed by those contracts. The Receivables will be purchased by the Depositor
from the Seller pursuant to the Receivables Purchase Agreement. The Depositor
will transfer the Receivables to the Trust on the Closing Date. The trust
property will include payments on the Receivables which are made after the
Cutoff Date.
Criteria Applicable to Selection of Receivables
The Receivables were selected from the Seller's portfolio for inclusion in
the pool by several criteria, some of which are set forth in the prospectus
under "The Receivables Pools". These criteria include the requirement that each
Receivable:
.is secured by a new or used motor vehicle;
.had an original Principal Balance of not more than $50,000 and a remaining
Principal Balance, as of the Cutoff Date, of not less than $500;
.had an original term to maturity of not more than 72 months and not less
than 12 months and a remaining term to maturity, as of the Cutoff Date,
of not more than 71 months and not less than 3 months;
.is a simple interest contract;
.has a Contract Rate of at least 5% and not more than 25%;
.provides for level scheduled monthly payments that fully amortize the
amount financed over its original term to maturity (except that the
period between the contract date and the first payment date may be less
than or greater than one month and except for the first and last
payments, which may be minimally different from the level payments);
.relates to an obligor who has made at least one payment as of the Cutoff
Date;
.was not delinquent by more than 30 days as of the Cutoff Date;
.is not secured by a Financed Vehicle that has been repossessed as of the
Cutoff Date;
.does not relate to an obligor who was the subject of a bankruptcy
proceeding as of the Cutoff Date;
.is evidenced by only one original document; and
.was not selected using selection procedures believed by the Seller to be
adverse to the Noteholders or the Certificateholders.
S-20
<PAGE>
Characteristics of the Receivables
The following tables set forth information with respect to the Receivables
as of the Cutoff Date.
Composition of the Receivables
as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Principal Weighted
Number of Balance as of the Original Average
Receivables Cutoff Date Principal Balance Contract Rate
----------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C>
New Motor Vehicles...... 2,671 $ 42,998,122.43 $ 48,692,392.34 10.46%
Used Motor Vehicles..... 51,875 612,420,090.45 687,794,500.02 11.72
------ --------------- --------------- -----
Total................. 54,546 $655,418,212.88 $736,486,892.36 11.63%
====== =============== =============== =====
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted Percentage of
Average Average Aggregate
Remaining Original Principal
Term Term Balance as of
(in months) (in months) the Cutoff Date
----------- ----------- ---------------
<S> <C> <C> <C>
New Motor Vehicles...................... 52.64 60.73 6.56%
Used Motor Vehicles..................... 51.68 59.04 93.44
----- ----- ------
Total................................. 51.74 59.15 100.00%
===== ===== ======
</TABLE>
As used in the composition table, weighted average remaining term and
weighted average original term are calculated based on the scheduled maturities
of the Receivables and assuming no prepayments of the Receivables.
Distribution of the Receivables by Remaining Term
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of
Aggregate Aggregate
Percentage of Principal Principal
Number of Total Number Balance as of Balance as of
Remaining Term Range Receivables of Receivables(1) the Cutoff Date the Cutoff Date
-------------------- ----------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
3 months to 12 months.. 197 0.36% $ 463,183.61 0.07%
13 months to 24 months.. 1,431 2.62 7,387,529.38 1.13
25 months to 36 months.. 5,031 9.22 38,047,965.51 5.81
37 months to 48 months.. 13,565 24.87 141,723,711.93 21.62
49 months to 60 months.. 29,571 54.21 391,285,294.14 59.70
61 months to 71 months.. 4,751 8.71 76,510,528.31 11.67
------ ------ --------------- ------
Total................. 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
S-21
<PAGE>
Distribution of the Receivables by Obligor Mailing Address
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of
Percentage Aggregate Aggregate
of Total Principal Principal
Number of Number of Balance as of Balance as of
Obligor Mailing Address Receivables Receivables the Cutoff Date the Cutoff Date
----------------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Texas.................. 11,609 21.28% $144,390,264.76 22.03%
Florida................ 7,834 14.36 88,989,127.26 13.58
Georgia................ 6,974 12.79 86,946,350.32 13.27
Maryland............... 6,852 12.56 82,998,495.90 12.66
Illinois............... 6,120 11.22 70,372,108.07 10.74
North Carolina......... 4,797 8.79 56,308,555.12 8.59
Virginia............... 4,574 8.39 55,151,895.97 8.41
South Carolina......... 1,404 2.57 17,087,767.65 2.61
Tennessee.............. 1,334 2.45 15,888,650.34 2.42
California............. 1,194 2.19 15,510,394.34 2.37
Other.................. 1,854 3.40 21,774,603.15 3.32
------ ------ --------------- ------
Total................ 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
Each state included in the "other" category in the distribution by obligor
mailing address table accounted for less than 0.93% of the total number of
Receivables and less than 0.94% of the aggregate Principal Balance as of the
Cutoff Date.
Distribution of the Receivables by Financed Vehicle Model Year
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of
Percentage Aggregate Aggregate
of Total Principal Principal
Number of Number of Balance as of Balance as of
Model Year Receivables Receivables(1) the Cutoff Date the Cutoff Date(1)
---------- ----------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
1989............. 30 0.05% $ 117,615.09 0.02%
1990............. 160 0.29 946,165.84 0.14
1991............. 379 0.69 2,339,545.87 0.36
1992............. 852 1.56 5,725,471.94 0.87
1993............. 1,947 3.57 14,580,497.31 2.22
1994............. 3,521 6.46 29,645,556.09 4.52
1995............. 6,394 11.72 61,391,669.14 9.37
1996............. 10,301 18.88 118,787,569.44 18.12
1997............. 14,606 26.78 188,977,202.99 28.83
1998............. 8,303 15.22 113,393,018.84 17.30
1999............. 5,192 9.52 73,088,706.11 11.15
2000............. 2,616 4.80 41,925,853.66 6.40
2001............. 245 0.45 4,499,340.56 0.69
------ ------ --------------- ------
Total.......... 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
S-22
<PAGE>
Distribution of the Receivables by Contract Rate
as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage Aggregate Percentage of
of Total Principal Aggregate Principal
Number of Number of Balance as of Balance as of
Contract Rate Range Receivables Receivables(1) the Cutoff Date the Cutoff Date(1)
------------------- ----------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
5.001% to 6.000%........ 96 0.18% $ 698,338.67 0.11%
6.001% to 7.000%........ 102 0.19 999,037.89 0.15
7.001% to 8.000%........ 637 1.17 7,694,811.48 1.17
8.001% to 9.000%........ 3,259 5.97 40,797,032.30 6.22
9.001% to 10.000%....... 15,352 28.15 187,941,770.26 28.68
10.001% to 11.000%...... 11,117 20.38 135,183,229.24 20.63
11.001% to 12.000%...... 6,725 12.33 83,134,996.11 12.68
12.001% to 13.000%...... 3,683 6.75 48,522,970.48 7.40
13.001% to 14.000%...... 4,320 7.92 49,467,949.10 7.55
14.001% to 15.000%...... 2,475 4.54 30,684,836.85 4.68
15.001% to 16.000%...... 1,807 3.31 21,194,007.65 3.23
16.001% to 17.000%...... 1,739 3.19 18,467,677.33 2.82
17.001% to 18.000%...... 1,463 2.68 14,626,123.63 2.23
18.001% to 19.000%...... 1,281 2.35 11,610,725.09 1.77
19.001% to 25.000%...... 490 0.90 4,394,706.80 0.67
------ ------ --------------- ------
Total................. 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
Distribution of the Receivables by Original Principal Balance as of the Cutoff
Date
<TABLE>
<CAPTION>
Percentage Aggregate Percentage of
of Total Principal Aggregate Principal
Original Principal Number of Number of Balance as of Balance as of
Balance Receivables Receivables the Cutoff Date the Cutoff Date(1)
------------------ ----------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
$0.01 to $2,500.00...... 96 0.18% $ 145,516.53 0.02%
$2,500.01 to $5,000.00.. 1,174 2.15 3,826,908.18 0.58
$5,000.01 to $7,500.00.. 4,175 7.65 22,543,570.71 3.44
$7,500.01 to
$10,000.00............. 8,188 15.01 62,917,181.46 9.60
$10,000.01 to
$12,500.00............. 11,801 21.63 117,691,161.34 17.96
$12,500.01 to
$15,000.00............. 10,470 19.19 128,179,293.06 19.56
$15,000.01 to
$17,500.00............. 7,875 14.44 114,634,647.76 17.49
$17,500.01 to
$20,000.00............. 5,049 9.26 84,559,509.61 12.90
$20,000.01 to
$22,500.00............. 2,813 5.16 53,572,792.72 8.17
$22,500.01 to
$25,000.00............. 1,483 2.72 31,575,186.63 4.82
$25,000.01 to
$27,500.00............. 780 1.43 18,458,988.31 2.82
$27,500.01 to
$30,000.00............. 429 0.79 11,113,136.91 1.70
$30,000.01 to
$32,500.00............. 141 0.26 3,943,543.22 0.60
$32,500.01 to
$35,000.00............. 48 0.09 1,465,278.90 0.22
$35,000.01 to
$37,500.00............. 17 0.03 543,232.33 0.08
$37,500.01 to
$40,000.00............. 5 0.01 168,521.65 0.03
$40,000.01 to
$42,500.00............. 1 0.00 38,934.18 0.01
$42,500.01 to
$45,000.00............. 1 0.00 40,809.38 0.01
------ ------ --------------- ------
Total................. 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
The average original Principal Balance of the Receivables was $13,502.12.
S-23
<PAGE>
Distribution of the Receivables by Remaining Principal Balance as of the Cutoff
Date
<TABLE>
<CAPTION>
Percentage Aggregate Percentage of
of Total Principal Aggregate Principal
Remaining Principal Number of Number of Balance as of Balance as of
Balance Receivables Receivables(1) the Cutoff Date the Cutoff Date
------------------- ----------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
$500.00 to $2,500.00.... 532 0.98% $ 933,805.68 0.14%
$2,500.01 to $5,000.00.. 2,386 4.37 9,577,410.59 1.46
$5,000.01 to $7,500.00.. 6,271 11.50 40,126,676.00 6.12
$7,500.01 to
$10,000.00............. 10,504 19.26 92,883,137.27 14.17
$10,000.01 to
$12,500.00............. 12,148 22.27 136,288,481.66 20.79
$12,500.01 to
$15,000.00............. 9,466 17.35 129,577,588.75 19.77
$15,000.01 to
$17,500.00............. 6,349 11.64 102,547,718.19 15.65
$17,500.01 to
$20,000.00............. 3,499 6.41 65,121,677.43 9.94
$20,000.01 to
$22,500.00............. 1,777 3.26 37,539,955.93 5.73
$22,500.01 to
$25,000.00............. 900 1.65 21,281,585.62 3.25
$25,000.01 to
$27,500.00............. 449 0.82 11,720,027.22 1.79
$27,500.01 to
$30,000.00............. 188 0.34 5,336,082.40 0.81
$30,000.01 to
$32,500.00............. 48 0.09 1,489,255.07 0.23
$32,500.01 to
$35,000.00............. 22 0.04 735,215.15 0.11
$35,000.01 to
$37,500.00............. 4 0.01 141,219.97 0.02
$37,500.01 to
$40,000.00............. 2 0.00 77,566.57 0.01
$40,000.01 to
$42,500.00............. 1 0.00 40,809.38 0.01
------ ------ --------------- ------
Total................. 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
The average remaining Principal Balance of the Receivables was $12,015.88 as
of the Cutoff Date.
Distribution of the Receivables by Original Term to Maturity as of the Cutoff
Date
<TABLE>
<CAPTION>
Percentage Aggregate Percentage of
of Total Principal Aggregate Principal
Original Term to Number of Number of Balance as of Balance as of
Maturity Receivables Receivables(1) the Cutoff Date the Cutoff Date(1)
---------------- ----------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
12 months............... 7 0.01% $ 28,485.53 0.00%
13 months to 24 months.. 395 0.72 1,776,161.87 0.27
25 months to 36 months.. 3,064 5.62 19,955,318.59 3.04
37 months to 48 months.. 9,038 16.57 80,287,152.94 12.25
49 months to 60 months.. 30,302 55.55 377,091,673.96 57.53
61 months to 72 months.. 11,740 21.52 176,279,419.99 26.90
------ ------ --------------- ------
Total................. 54,546 100.00% $655,418,212.88 100.00%
====== ====== =============== ======
</TABLE>
---------------------
(1) Percentages do not add to 100.00% due to rounding.
S-24
<PAGE>
Weighted Average Life of the Securities
The following information is given solely to illustrate the effect of
prepayments of the Receivables on the weighted average life of the Securities
under the stated assumptions and is not a prediction of the prepayment rate
that might actually be experienced by the Receivables.
Prepayments on motor vehicle receivables can be measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
Absolute Prepayment Model or "ABS", represents an assumed rate of prepayment
each month relative to the original number of receivables in a pool of
receivables. ABS further assumes that all the receivables are the same size and
amortize at the same rate and that each receivable in each month of its life
will either be paid as scheduled or be prepaid in full. For example, in a pool
of receivables originally containing 10,000 receivables, a 1% ABS rate means
that 100 receivables prepay each month. ABS does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of assets, including the Receivables.
The rate of payment of principal of each class of Notes and the Certificates
will depend on the rate of payment (including prepayments) of the Principal
Balance. For this reason, final distributions in respect of the Notes or the
Certificates could occur significantly earlier than the respective Final
Scheduled Distribution Dates. The Noteholders and the Certificateholders will
exclusively bear any reinvestment risk associated with early payment of their
Notes and Certificates.
The ABS Tables captioned "Percent of Initial Note Principal Amount at
Various ABS Percentages" and "Percent of Initial Certificate Balance at Various
ABS Percentages" have been prepared on the basis of the following assumed
characteristics of the Receivables:
. the Receivables prepay in full at the specified constant percentage of
ABS monthly;
. each scheduled monthly payment on the Receivables is made on the last day
of each month and each month has 30 days;
. payments on the Securities are made on each Distribution Date (and each
Distribution Date is assumed to be the fifteenth day of the applicable
month);
. the Closing Date occurs on January 25, 2001;
. no defaults or delinquencies occur in the payment of any of the
Receivables;
. no Receivables are repurchased due to a breach of any representation or
warranty or for any other reason;
. the balance in the Reserve Account on the Distribution Date is equal to
the Required Reserve Account Amount; and
. the Servicer exercises its option to purchase the Receivables on the
earliest Distribution Date on which it is permitted to do so, as
described in this prospectus supplement.
S-25
<PAGE>
The ABS Tables indicate the projected weighted average life of each class of
Notes and the Certificates and set forth the percent of the initial principal
amount of each class of Notes and the percent of the initial Certificate
Balance of the Certificates that is projected to be outstanding after each of
the Distribution Dates shown at various constant ABS percentages.
The ABS Tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each such pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools (which is based on its aggregate Principal Balance, Contract Rate
and remaining term to maturity as of the Cutoff Date) will be such that each
pool will be fully amortized by the end of its remaining term to maturity. The
pools have an assumed cutoff date of November 30, 2000.
<TABLE>
<CAPTION>
Original Remaining
Aggregate Term to Term to
Principal Contract Maturity Maturity
Pool Balance Rate (In Months) (In Months)
---- --------------- -------- ----------- -----------
<S> <C> <C> <C> <C>
1.............................. $ 28,485.53 13.397% 12 9
2.............................. 1,776,161.87 11.494% 24 17
3.............................. 19,955,318.59 11.301% 35 28
4.............................. 80,287,152.94 11.965% 47 40
5.............................. 154,071,565.54 11.681% 60 56
6.............................. 83,622,903.98 11.452% 60 53
7.............................. 63,508,768.12 11.090% 60 50
8.............................. 75,888,436.32 10.446% 60 46
9.............................. $176,279,419.99 12.276% 67 59
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of
the hypothetical pools could produce slower or faster principal distributions
than indicated in the ABS Tables at the various constant percentages of ABS
specified, even if the remaining terms to maturity of the Receivables are as
assumed. Any difference between such assumptions and the actual characteristics
and performance of the Receivables, or actual prepayment experience, will
affect the percentages of initial amounts outstanding over time and the
weighted average lives of each class of Notes and the Certificates.
S-26
<PAGE>
Percent of Initial Note Principal Amount at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes
----------------------------- -----------------------------
Distribution Date 0.00% 0.50% 1.00% 1.50% 2.00% 0.00% 0.50% 1.00% 1.50% 2.00%
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.............. 80% 73% 66% 59% 50% 100% 100% 100% 100% 100%
April 2001.............. 73% 64% 55% 45% 34% 100% 100% 100% 100% 100%
May 2001................ 66% 55% 44% 32% 19% 100% 100% 100% 100% 100%
June 2001............... 59% 47% 33% 19% 3% 100% 100% 100% 100% 100%
July 2001............... 52% 38% 23% 6% 0% 100% 100% 100% 100% 91%
August 2001............. 44% 29% 12% 0% 0% 100% 100% 100% 95% 79%
September 2001.......... 37% 20% 1% 0% 0% 100% 100% 100% 85% 68%
October 2001............ 30% 11% 0% 0% 0% 100% 100% 93% 76% 57%
November 2001........... 23% 2% 0% 0% 0% 100% 100% 85% 66% 46%
December 2001........... 15% 0% 0% 0% 0% 100% 95% 77% 57% 36%
January 2002............ 8% 0% 0% 0% 0% 100% 88% 69% 48% 25%
February 2002........... 0% 0% 0% 0% 0% 100% 81% 61% 39% 15%
March 2002.............. 0% 0% 0% 0% 0% 94% 75% 53% 30% 5%
April 2002.............. 0% 0% 0% 0% 0% 88% 68% 46% 22% 0%
May 2002................ 0% 0% 0% 0% 0% 82% 61% 38% 13% 0%
June 2002............... 0% 0% 0% 0% 0% 76% 54% 31% 5% 0%
July 2002............... 0% 0% 0% 0% 0% 70% 47% 23% 0% 0%
August 2002............. 0% 0% 0% 0% 0% 64% 41% 16% 0% 0%
September 2002.......... 0% 0% 0% 0% 0% 57% 34% 9% 0% 0%
October 2002............ 0% 0% 0% 0% 0% 51% 27% 2% 0% 0%
November 2002........... 0% 0% 0% 0% 0% 45% 21% 0% 0% 0%
December 2002........... 0% 0% 0% 0% 0% 38% 14% 0% 0% 0%
January 2003............ 0% 0% 0% 0% 0% 32% 7% 0% 0% 0%
February 2003........... 0% 0% 0% 0% 0% 25% 1% 0% 0% 0%
March 2003.............. 0% 0% 0% 0% 0% 19% 0% 0% 0% 0%
April 2003.............. 0% 0% 0% 0% 0% 12% 0% 0% 0% 0%
May 2003................ 0% 0% 0% 0% 0% 6% 0% 0% 0% 0%
June 2003............... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
July 2003............... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
August 2003............. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
September 2003.......... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
October 2003............ 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
November 2003........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
December 2003........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
January 2004............ 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
February 2004........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
March 2004.............. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
April 2004.............. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
May 2004................ 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
June 2004............... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
July 2004............... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
August 2004............. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
September 2004.......... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
October 2004............ 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
November 2004........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
December 2004........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
January 2005............ 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
February 2005........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life
(In Years)............. 0.54 0.42 0.34 0.27 0.23 1.77 1.48 1.22 1.00 0.82
</TABLE>
S-27
<PAGE>
Percent of Initial Note Principal Amount at Various ABS Percentages
<TABLE>
<CAPTION>
Class A-3 Notes Class A-4 Notes
----------------------------- -----------------------------
Distribution Date 0.00% 0.50% 1.00% 1.50% 2.00% 0.00% 0.50% 1.00% 1.50% 2.00%
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
April 2001.............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
May 2001................ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
June 2001............... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
July 2001............... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
August 2001............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
September 2001.......... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
October 2001............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
November 2001........... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
December 2001........... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
January 2002............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 2002........... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2002.............. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
April 2002.............. 100% 100% 100% 100% 95% 100% 100% 100% 100% 100%
May 2002................ 100% 100% 100% 100% 85% 100% 100% 100% 100% 100%
June 2002............... 100% 100% 100% 100% 75% 100% 100% 100% 100% 100%
July 2002............... 100% 100% 100% 97% 65% 100% 100% 100% 100% 100%
August 2002............. 100% 100% 100% 88% 56% 100% 100% 100% 100% 100%
September 2002.......... 100% 100% 100% 80% 46% 100% 100% 100% 100% 100%
October 2002............ 100% 100% 100% 71% 38% 100% 100% 100% 100% 100%
November 2002........... 100% 100% 94% 63% 29% 100% 100% 100% 100% 100%
December 2002........... 100% 100% 87% 55% 21% 100% 100% 100% 100% 100%
January 2003............ 100% 100% 79% 48% 13% 100% 100% 100% 100% 100%
February 2003........... 100% 100% 72% 40% 5% 100% 100% 100% 100% 100%
March 2003.............. 100% 94% 64% 33% 0% 100% 100% 100% 100% 97%
April 2003.............. 100% 86% 57% 26% 0% 100% 100% 100% 100% 86%
May 2003................ 100% 80% 51% 19% 0% 100% 100% 100% 100% 76%
June 2003............... 99% 73% 44% 13% 0% 100% 100% 100% 100% 66%
July 2003............... 92% 66% 37% 6% 0% 100% 100% 100% 100% 57%
August 2003............. 85% 59% 31% 0% 0% 100% 100% 100% 100% 48%
September 2003.......... 78% 52% 25% 0% 0% 100% 100% 100% 91% 0%
October 2003............ 71% 45% 18% 0% 0% 100% 100% 100% 83% 0%
November 2003........... 63% 39% 12% 0% 0% 100% 100% 100% 74% 0%
December 2003........... 56% 32% 6% 0% 0% 100% 100% 100% 66% 0%
January 2004............ 48% 25% 0% 0% 0% 100% 100% 100% 59% 0%
February 2004........... 41% 19% 0% 0% 0% 100% 100% 92% 51% 0%
March 2004.............. 33% 12% 0% 0% 0% 100% 100% 83% 0% 0%
April 2004.............. 25% 5% 0% 0% 0% 100% 100% 74% 0% 0%
May 2004................ 19% 0% 0% 0% 0% 100% 100% 67% 0% 0%
June 2004............... 12% 0% 0% 0% 0% 100% 91% 60% 0% 0%
July 2004............... 6% 0% 0% 0% 0% 100% 82% 53% 0% 0%
August 2004............. 0% 0% 0% 0% 0% 99% 74% 47% 0% 0%
September 2004.......... 0% 0% 0% 0% 0% 88% 65% 0% 0% 0%
October 2004............ 0% 0% 0% 0% 0% 78% 57% 0% 0% 0%
November 2004........... 0% 0% 0% 0% 0% 69% 49% 0% 0% 0%
December 2004........... 0% 0% 0% 0% 0% 60% 0% 0% 0% 0%
January 2005............ 0% 0% 0% 0% 0% 51% 0% 0% 0% 0%
February 2005........... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life
(In Years)............. 3.00 2.71 2.37 2.00 1.66 3.93 3.74 3.45 2.99 2.50
</TABLE>
S-28
<PAGE>
Percent of Initial Certificate Balance at Various ABS Percentages
<TABLE>
<CAPTION>
Certificates
-----------------------------
Distribution Date 0.00% 0.50% 1.00% 1.50% 2.00%
----------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date...................................... 100% 100% 100% 100% 100%
March 2001........................................ 100% 100% 100% 100% 100%
April 2001........................................ 100% 100% 100% 100% 100%
May 2001.......................................... 100% 100% 100% 100% 100%
June 2001......................................... 100% 100% 100% 100% 100%
July 2001......................................... 100% 100% 100% 100% 100%
August 2001....................................... 100% 100% 100% 100% 100%
September 2001.................................... 100% 100% 100% 100% 100%
October 2001...................................... 100% 100% 100% 100% 100%
November 2001..................................... 100% 100% 100% 100% 100%
December 2001..................................... 100% 100% 100% 100% 100%
January 2002...................................... 100% 100% 100% 100% 100%
February 2002..................................... 100% 100% 100% 100% 100%
March 2002........................................ 100% 100% 100% 100% 100%
April 2002........................................ 100% 100% 100% 100% 100%
May 2002.......................................... 100% 100% 100% 100% 100%
June 2002......................................... 100% 100% 100% 100% 100%
July 2002......................................... 100% 100% 100% 100% 100%
August 2002....................................... 100% 100% 100% 100% 100%
September 2002.................................... 100% 100% 100% 100% 100%
October 2002...................................... 100% 100% 100% 100% 100%
November 2002..................................... 100% 100% 100% 100% 100%
December 2002..................................... 100% 100% 100% 100% 100%
January 2003...................................... 100% 100% 100% 100% 100%
February 2003..................................... 100% 100% 100% 100% 100%
March 2003........................................ 100% 100% 100% 100% 100%
April 2003........................................ 100% 100% 100% 100% 100%
May 2003.......................................... 100% 100% 100% 100% 100%
June 2003......................................... 100% 100% 100% 100% 100%
July 2003......................................... 100% 100% 100% 100% 100%
August 2003....................................... 100% 100% 100% 100% 100%
September 2003.................................... 100% 100% 100% 100% 0%
October 2003...................................... 100% 100% 100% 100% 0%
November 2003..................................... 100% 100% 100% 100% 0%
December 2003..................................... 100% 100% 100% 100% 0%
January 2004...................................... 100% 100% 100% 100% 0%
February 2004..................................... 100% 100% 100% 100% 0%
March 2004........................................ 100% 100% 100% 0% 0%
April 2004........................................ 100% 100% 100% 0% 0%
May 2004.......................................... 100% 100% 100% 0% 0%
June 2004......................................... 100% 100% 100% 0% 0%
July 2004......................................... 100% 100% 100% 0% 0%
August 2004....................................... 100% 100% 100% 0% 0%
September 2004.................................... 100% 100% 0% 0% 0%
October 2004...................................... 100% 100% 0% 0% 0%
November 2004..................................... 100% 100% 0% 0% 0%
December 2004..................................... 100% 0% 0% 0% 0%
January 2005...................................... 100% 0% 0% 0% 0%
February 2005..................................... 0% 0% 0% 0% 0%
Weighted Average Life (In Years).................. 4.06 3.89 3.64 3.14 2.64
</TABLE>
S-29
<PAGE>
The foregoing ABS Tables have been prepared based on the assumptions
described above (including the assumptions regarding the characteristics and
performance of the Receivables which will differ from the actual
characteristics and performance thereof) and should be read in conjunction
therewith. The weighted average life of a security is determined by (a)
multiplying the amount of each principal payment on a security by the number of
years from the date of the issuance of the security to the related Distribution
Date, (b) adding the results and (c) dividing the sum by the related initial
principal amount of the security.
The Seller
General
CarMax is a leading retailer of new and used motor vehicles in the United
States. CarMax opened its first store in Richmond, Virginia in September 1993
and operated 40 stores in 11 states as of November 30, 2000. CarMax was
incorporated in Virginia and is a wholly-owned subsidiary of Circuit City
Stores, Inc., a leading national retailer of brand-name consumer electronics,
personal computers and entertainment software. CarMax was the first used
vehicle retailer to offer a large selection of quality used vehicles at low,
fixed prices using a customer-friendly sales process in an attractive, modern
sales facility. CarMax has designed a strategy to better serve the market by
addressing the major sources of dissatisfaction with traditional used car
retailing and to maximize operating efficiencies with sophisticated systems and
standardized operating procedures and store formats.
CarMax purchases and sells used motor vehicles at each of its stores and
sells new motor vehicles at 16 of its stores under franchise agreements with
various manufacturers. In addition, CarMax provides its customers with a full
range of related products and services, including the financing of vehicle
purchases, the sale of extended service contracts and the sale of automotive
electronic products. In general, the used motor vehicles offered by CarMax are
one to six years old with fewer than 60,000 miles. 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. All used vehicles are thoroughly reconditioned to
meet high mechanical, electrical, safety and cosmetic standards and must pass a
comprehensive inspection before being offered for sale. All inspections are
performed by qualified service technicians, most of whom are certified by the
National Institute for Automotive Service Excellence.
CarMax acquires a significant portion of its used-vehicle inventory through
its appraisal process in which it appraises and makes an offer to purchase any
properly documented vehicle from the public. CarMax also acquires a significant
portion of its used vehicles through auctions and, to a lesser extent, directly
from other sources, including wholesalers, dealers and fleet owners.
AutoMation(R), a computerized database which is the central feature of CarMax's
inventory management and control system, enables each vehicle to be tracked
throughout the sales process. Using the information provided by AutoMation(R),
and applying sophisticated statistical modeling techniques, CarMax is able to
optimize its inventory mix and display by store, anticipate future inventory
needs at each store, evaluate sales consultant
S-30
<PAGE>
performance and refine its vehicle pricing strategy. CarMax maintains strict
inventory aging policies under which it disposes of any vehicle that has not
been sold at retail within specified periods.
As of November 30, 2000, CarMax operated stores in the following markets:
<TABLE>
<CAPTION>
Number
Market of Stores
------ ---------
<S> <C>
Washington D.C./Baltimore, Maryland................................ 5
Chicago, Illinois.................................................. 4
Dallas, Texas...................................................... 5
Los Angeles, California............................................ 4
Atlanta, Georgia................................................... 3
South Florida...................................................... 3
Houston, Texas..................................................... 4
Orlando, Florida................................................... 2
Tampa, Florida..................................................... 2
Kenosha, Wisconsin................................................. 2
Charlotte, North Carolina.......................................... 1
Raleigh, North Carolina............................................ 1
Greenville, South Carolina......................................... 1
Nashville, Tennessee............................................... 1
San Antonio, Texas................................................. 1
Richmond, Virginia................................................. 1
</TABLE>
CarMax is not a party to any legal proceeding that could reasonably be
expected to have a material impact on the Trust or the interests of the
Securityholders.
CarMax Auto Finance
CarMax offers on-site financing to its customers through its financing unit,
CarMax Auto Finance (formerly known as First North American Credit), and
through third parties. CarMax began offering on-site financing to its customers
through CarMax Auto Finance in September 1993 and currently originates
installment sale contracts at all of its stores. For the fiscal years ended
February 28 (or 29, as applicable), 1998, 1999 and 2000, CarMax Auto Finance
originated installment sale contracts aggregating approximately $315 million,
$615 million and $838 million, respectively. The outstanding principal balance
of all motor vehicle retail installment sale contracts originated through
CarMax Auto Finance was $1,162,118,608.31 as of November 30, 2000. Of the
approximately $1,162 million of receivables in CarMax's servicing portfolio as
of November 30, 2000, including receivables that previously were sold but still
are being serviced by CarMax, approximately 94% represented receivables
originated in connection with the sale of used motor vehicles and approximately
6% represented receivables originated in connection with the sale of new motor
vehicles.
S-31
<PAGE>
Underwriting Procedures
CarMax Auto Finance credit applications are accepted at all CarMax
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 CarMax Auto Finance for review. In addition,
CarMax Auto Finance 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. CarMax Auto Finance uses
credit scoring models developed by Fair Issac & Co. to assess objectively an
applicant's creditworthiness and to help CarMax Auto Finance quantify credit
risk and implement risk adjusted pricing. The credit scoring models, in use
since September 1993, are statistically derived from prior credit granting
experience and analyze predictive information from the credit applications and
credit bureau reports to generate a numerical credit score for each applicant.
This numerical credit score indicates the risk associated with extending credit
to the applicant.
The 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 CarMax Auto Finance
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. CarMax Auto Finance's credit
underwriters manually approve or decline applications in accordance with credit
policies established by senior management.
Each installment sale contract originated by CarMax Auto Finance in
connection with the sale of a new or used motor vehicle is secured by that
vehicle. The maximum loan amount for each financed vehicle is determined based
upon the creditworthiness of the related obligor and is currently between 90%
and 125% of the selling price of the financed vehicle, including sales tax,
license fees and title fees. In most cases, the selling price does not exceed
the manufacturer's suggested retail price, in the case of a new vehicle, or the
"average blue book value" published by Kelley Blue Book Co., a standard
reference source for dealers in used cars, in the case of a used vehicle. The
amount financed is often less than the maximum loan amount, however, depending
upon the credit needs of the obligor. Furthermore, in each case where the
amount financed exceeds the value of the related financed vehicle, CarMax Auto
Finance has determined that the creditworthiness of the related obligor
supports the additional loan amount. CarMax Auto Finance also finances service
and extended warranty contracts purchased with respect to financed vehicles.
CarMax Auto Finance believes that the resale value of a new vehicle
purchased by an obligor will decline below the manufacturer's suggested retail
price and, in some cases, may decline for a period of time below the principal
balance outstanding on the related installment sale contract. CarMax Auto
Finance also believes that the resale value of a used
S-32
<PAGE>
vehicle purchased by an obligor will decline, but believes that the amount of
the decline, expressed as a percentage of the resale value of the vehicle at
the time of purchase, will be less than the amount of the decline, expressed as
a percentage of the manufacturer's suggested retail price, in the resale value
of a new vehicle. CarMax Auto Finance 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
CarMax Auto Finance measures delinquencies by the number of days elapsed
from the date a payment is due under an installment sale contract. CarMax Auto
Finance considers a receivable to be delinquent when the related obligor fails
to make a scheduled payment on or before the related due date. If a partial
payment is received that is less than the regular monthly payment by more than
five dollars, or such other nominal amount as may be determined by senior
management, and that deficiency is not cured on or before the related due date,
the account will be considered delinquent. CarMax Auto Finance mails a
computer-generated delinquency notice to each delinquent obligor when the
related receivable becomes 11 days delinquent. CarMax Auto Finance also uses an
automated delinquency monitoring system, which assigns delinquent receivables
to different categories of collection priority based on the number of days of
delinquency.
CarMax Auto Finance 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 an 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. CarMax Auto Finance
reviews its collections strategy on a daily basis and uses optimization
techniques to evaluate its collections strategy.
CarMax Auto Finance'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, CarMax
Auto Finance's customer service representatives are trained to handle accounts
that are fewer than 30 days past due when receiving incoming calls. Accounts
that reach a level of delinquency of greater than 30 days past due are assigned
to the Late Collections Group, where they are reviewed by senior-level
collectors who analyze each account to determine collateral risk. If a
collector is unable to confirm payment on an account prior to 45 days
delinquency, or if a collector determines that the collateral securing an
account is at risk, the collector will recommend repossession of the related
vehicle. All repossession recommendations must be reviewed and accepted by a
member of management before being forwarded to the repossession department in
the Specialty Collections Group.
Once a vehicle is in CarMax Auto Finance's possession, the related obligor
has a redemption period during which he may redeem the vehicle by paying off
the related receivable in full or by paying off all past due amounts. In either
case, the obligor is also
S-33
<PAGE>
required to pay to CarMax Auto Finance the reasonable expenses incurred by
CarMax Auto Finance in repossessing, holding and preparing the financed vehicle
for disposition and arranging for its sale. In those states in which the UCC
governs the redemption of financed vehicles, the obligor must be given
reasonable notice of the date, time and place of any proposed public sale of a
repossessed vehicle, or the date after which any proposed private sale of a
repossessed vehicle may be held, and may redeem the vehicle at any time prior
to sale. In most states in which laws other than the UCC govern the redemption
of financed vehicles, the obligor must be given a specified period of time,
usually between 10 and 30 days, to redeem a repossessed vehicle. At the
conclusion of the redemption period, CarMax Auto Finance sells the vehicle and
the remaining principal balance is charged off. All repossession activities are
carried out in accordance with applicable state law and related procedures
adopted by CarMax Auto Finance. Other departments in the Specialty Collections
Group include recovery collections, repossession, remarketing, skip tracing,
legal and bankruptcy.
In general, CarMax Auto Finance charges off a receivable on the earliest of:
.the last business day of the month during which any payment, or any part
of any payment, due under the receivable becomes 120 days or more
delinquent, whether or not CarMax Auto Finance has repossessed the motor
vehicle securing the receivable;
.if CarMax Auto Finance has repossessed the motor vehicle securing the
receivable, the last business day of the month during which the motor
vehicle is liquidated; and
.the last business day of the month during which CarMax Auto Finance
determines in accordance with its customary practices that the receivable
is uncollectible.
CarMax Auto Finance may extend the due date for a current or past due
payment for up to 30 days if the related installment sale 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 installment sale contract, except
that no more than two extensions will be granted during any 12-month period.
CarMax Auto Finance 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 an installment sale contract has been confirmed or
reaffirmed in a bankruptcy proceeding and the related obligor has thereafter
made three consecutive monthly payments, CarMax Auto Finance will return the
contract to current status. All exceptions to the extension policy must be
approved by CarMax Auto Finance'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. CarMax Auto Finance tracks the status of insurance and
attempts to cause obligors to reinstate insurance if the insurance is allowed
to lapse. There can be no assurances, however, that each Financed Vehicle will
at all times be covered by physical damage insurance.
S-34
<PAGE>
Allocation of Payments
The Receivables will be simple interest receivables. A simple interest
receivable provides for equal monthly payments that are applied, first, to
interest accrued to the date of payment, then to any applicable late charges,
then to principal due on the date of payment, then to any other fees due under
the receivable and then to reduce further the outstanding principal balance of
the receivable. Accordingly, if an obligor pays a fixed monthly installment
before its due date, 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 receivable will be
correspondingly greater. Conversely, if an obligor pays a fixed monthly
installment after its contractual due date, the portion of the payment
allocable to interest for the period since the preceding payment will be
greater than it would have been had the payment been made when due, and the
portion of the payment applied to reduce the principal balance of the
receivable will be correspondingly less. If a receivable is liquidated, 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, Credit Loss and Recovery Information
Set forth below is certain information concerning the experience of CarMax
pertaining to its motor vehicle receivable portfolio, including those
receivables previously sold which CarMax continues to service. There can be no
assurance that the delinquency, repossession and net loss experience on the
Receivables will be comparable to that set forth below.
S-35
<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
As of November 30,
----------------------------------------------------
2000 1999
-------------------------- ------------------------
Number of Number of
Receivables Amount Receivables Amount
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Total Receivable
Portfolio............... 113,787 $1,162,118.608 81,991 $847,825,284
Delinquencies as a
Percentage of Total
Receivable Portfolio
31-60 Days.............. 1.27% 1.19% 1.00% 0.89%
61-90 Days.............. 0.29% 0.25% 0.24% 0.18%
91 Days or More......... 0.19% 0.16% 0.12% 0.08%
Total Delinquencies as a
Percentage of Total
Receivable Portfolio.... 1.76% 1.61% 1.36% 1.14%
Total Delinquencies...... 1,997 $ 18,679,932 1,114 $ 9,690,029
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
------------------------ ------------------------ ------------------------ ------------------------
Number of Number of Number of Number of
Receivables Amount Receivables Amount Receivables Amount Receivables Amount
----------- ------------ ----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivable
Portfolio.......... 83,624 $860,556,480 52,129 $528,585,348 26,272 $259,517,771 14,803 $147,637,677
Delinquencies as a
Percentage of Total
Receivable
Portfolio
31-60 Days......... 1.10% 0.98% 0.97% 0.76% 1.23% 0.85% 1.34% 1.09%
61-90 Days......... 0.22% 0.16% 0.23% 0.17% 0.39% 0.18% 0.43% 0.36%
91 Days or More.... 0.17% 0.12% 0.11% 0.06% 0.23% 0.08% 0.21% 0.16%
Total Delinquencies
as a Percentage of
Total Receivable
Portfolio.......... 1.49% 1.26% 1.31% 0.99% 1.85% 1.12% 1.99% 1.61%
Total
Delinquencies...... 1,245 $ 10,844,433 685 $ 5,243,832 485 $ 2,894,712 294 $ 2,371,184
</TABLE>
The amounts included in the delinquency experience table represent principal
amounts only. The delinquency periods included in the delinquency experience
table are calculated based on the number of days a payment is contractually
past due. All receivables are written off not later than the last business day
of the month during which they become 120 days delinquent.
Credit Loss Experience
<TABLE>
<CAPTION>
Eleven Months Ended
November 30, Year Ended December 31,
---------------------------- ------------------------------------------------------
2000 1999 1999 1998 1997 1996
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total Number of
Receivables Outstanding
at Period End.......... 113,787 81,991 83,624 52,129 26,272 14,803
Average Number of
Receivables Outstanding
During the Period...... 98,706 67,060 67,877 39,201 20,538 11,487
Outstanding Principal
Amount at Period End... $1,162,118,608 $847,825,284 $860,556,480 $528,585,348 $259,517,771 $147,637,677
Average Outstanding
Principal Amount During
the Period............. $1,015,414,372 $693,367,070 $706,769,054 $392,753,294 $194,539,224 $117,361,052
Gross Principal Charge-
Offs................... $ 7,437,671 $ 4,239,276 $ 4,838,933 $ 2,726,477 $ 2,110,135 $ 1,181,456
Recoveries.............. $ 2,006,220 $ 1,522,562 $ 1,584,941 $ 808,926 $ 665,576 $ 272,884
Net Losses.............. $ 5,431,451 $ 2,716,715 $ 3,253,992 $ 1,917,551 $ 1,444,559 $ 908,572
Net Losses as a
Percentage of the
Average Outstanding
Principal Amount....... 0.58% 0.43% 0.46% 0.49% 0.74% 0.77%
</TABLE>
S-36
<PAGE>
The average outstanding principal amount for any period equals the average
of the monthly average outstanding principal amount of the retail installment
sale contracts during that period. The gross charge-offs for any period equal
the total principal amount due on all retail installment sale contracts
determined to be uncollectable during that period minus the total amount
recovered during that period from the repossession and sale of financed
vehicles. The recoveries for any period equal the total amount recovered during
that period on retail installment sale contracts previously charged off.
The percentages for the eleven months ended November 30, 1999 and November
30, 2000 are annualized and are not necessarily indicative of a full year's
actual results.
The data presented in the foregoing tables are for illustrative purposes
only. Delinquency and credit loss experience may be influenced by a variety of
economic, social and other factors. We cannot assure you that the delinquency
and credit loss information of CarMax, or that of the Trust with respect to the
Receivables, in the future will be similar to that set forth above.
Delinquency and Credit Loss Trends
As indicated in the foregoing tables, delinquencies and net losses on
CarMax's motor vehicle receivable portfolio have remained consistent over each
of the periods presented. CarMax believes that the delinquency and credit loss
performance of its portfolio over the past four years and eleven months is
attributable to a number of factors, including the following:
.consistent credit underwriting, provided by empirically derived credit
scoring models which help CarMax Auto Finance quantify credit risk and
implement risk adjusted pricing;
.consistent collateral quality, achieved through selective vehicle
acquisition and a thorough reconditioning process to meet CarMax's
mechanical, electrical and safety standards; and
.innovative collection strategies, including the use of behavioral models
to manage the collection processes and periodic default risk reviews
through risk score updates on outstanding loans.
CarMax's expectations with respect to delinquency and credit loss trends
constitute forward-looking statements and are subject to important economic,
social, legal and other factors that could cause actual results to differ
materially from those projected. These factors include, but are not limited to,
inflation rates, unemployment rates, changes in consumer debt levels, changes
in the market for used vehicles and the enactment of new laws that further
regulate the motor vehicle lending industry.
S-37
<PAGE>
The Depositor
The Depositor was formed in the State of Delaware on April 14, 2000. First
Union PASS Co., Inc., a wholly owned subsidiary of First Union National Bank,
is the sole member of the Depositor. The principal executive offices of the
Depositor are located at One First Union Center, TW-9, Charlotte, North
Carolina 28288. Its telephone number is (704) 383-8437.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling assets to such trusts. Neither the Depositor, its parent nor any of the
Depositor's affiliates will ensure or guarantee distributions on the
Securities.
The Depositor is not a party to any legal proceeding that could reasonably
be expected to have a material impact on the Trust or the interests of the
Securityholders.
Computing Your Portion of the Amount
Outstanding on the Securities
The Servicer will provide to you in a monthly report a factor which you can
use to compute your portion of the principal amount outstanding on the
Securities. See "Pool Factors and Trading Information" in the prospectus.
Maturity and Prepayment Considerations
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In general, no principal payments will be
made
.on the Class A-2 Notes until the Class A-1 Notes have been paid in full;
.on the Class A-3 Notes until the Class A-2 Notes have been paid in full;
.on the Class A-4 Notes until the Class A-3 Notes have been paid in full;
or
.on the Certificates until the Class A-4 Notes have been paid in full.
However, if the Notes are accelerated after an Event of Default, principal
payments will be applied pro rata among all classes of Notes and no principal
payments will be made on the Certificates until all classes of Notes have been
paid in full. See "Application of Available Funds" in this prospectus
supplement.
Since the rate of payment of principal of each class of Notes and the
Certificates depends on the rate of payment (including prepayments) of the
aggregate Principal Balance, final payment of any class of Notes and the final
distribution in respect of the Certificates could occur significantly earlier
than the respective Final Scheduled Distribution Dates.
S-38
<PAGE>
Your Securities May Not Be Repaid on the Final Scheduled Distribution Dates
It is expected that final payment of each class of Notes and the final
distribution in respect of the Certificates will occur on or prior to the
respective Final Scheduled Distribution Date. Failure to make final payment of
any class of Notes by its Final Scheduled Distribution Date would constitute an
Event of Default. See "Description of the Notes--Payments of Interest" in this
prospectus supplement and "The Indenture--Events of Default" in the prospectus.
In addition, the remaining Certificate Balance of the Certificates is required
to be paid in full on or prior to the Certificate Final Scheduled Distribution
Date. However, sufficient funds may not be available to pay each class of Notes
and the Certificates in full on or prior to the respective Final Scheduled
Distribution Dates. If sufficient funds are not available and an Insurer
Default occurs, final payment of any class of Notes and the final distribution
in respect of the Certificates could occur later than such dates.
Prepayments of the Receivables and Required Repurchases
The rate of prepayments of the Receivables may be influenced by a variety of
economic, social and other factors. In addition, under circumstances relating
to breaches of certain representations, warranties or covenants, the Seller
and/or the Servicer may be obligated to purchase Receivables from the Trust.
See "The Receivables Pool" in this prospectus supplement and "Description of
the Receivables Transfer and Servicing Agreements--Sale and Assignment of
Receivables" in the prospectus. A higher than anticipated rate of prepayments
will reduce the aggregate Principal Balance more quickly than expected and
thereby reduce the outstanding amounts of the Securities and the anticipated
aggregate interest payments on the Securities. The Securityholders will bear
all reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables as set forth in the priority of distributions in this
prospectus supplement. Such reinvestment risks include the risk that interest
rates may be lower at the time such holders received payments from the Trust
than interest rates would otherwise have been had such prepayments not been
made or had such prepayments been made at a different time.
Risks of Slower or Faster Repayments
Securityholders should consider--
.in the case of Securities purchased at a discount, the risk that a slower
than anticipated rate of principal payments on the Receivables could
result in an actual yield that is less than the anticipated yield; and
.in the case of Securities purchased at a premium, the risk that a faster
than anticipated rate of principal payments on the Receivables could
result in an actual yield that is less than the anticipated yield.
Description of the Notes
The Trust will issue the Notes under the Indenture. We will file a copy of
the Indenture with the SEC after the Trust issues the Securities. We summarize
below the material terms of
S-39
<PAGE>
the Notes. This summary is not a complete description of all the provisions of
the Notes and the Indenture. We refer you to those documents. The following
summary supplements the description of the general terms and provisions of the
notes of any trust and the related indenture set forth under the headings
"Certain Information Regarding the Securities" and "The Indenture" in the
prospectus. We refer you to those sections.
Note Registration
The Notes will be available for purchase in denominations of $1,000 and
integral multiples of $1,000. The Notes will initially be issued only in book-
entry form. See "Certain Information Regarding the Securities--Book-Entry
Registration" in the prospectus for a further discussion of the book-entry
registration system.
Payments of Interest
Interest on the principal amounts of the Notes will accrue at the respective
per annum interest rates for the various classes of Notes and will be payable
to Noteholders on each Distribution Date. The Trust will make payments to
Noteholders as of each Record Date.
The Notes will bear interest at the following Interest Rates:
.in the case of the Class A-1 Notes, % per annum;
.in the case of the Class A-2 Notes, % per annum;
.in the case of the Class A-3 Notes, % per annum; and
.in the case of the Class A-4 Notes, % per annum.
Calculation of interest. Interest will accrue and will be calculated on the
Notes as follows:
.Actual/360. Interest on the Class A-1 Notes will accrue from and including
the prior Distribution Date (or the Closing Date, in the case of the
first Distribution Date) to but excluding the current Distribution Date.
The interest payable on the Class A-1 Notes on each Distribution Date
will equal the product of:
.the principal balance of the Class A-1 Notes as of the preceding
Distribution Date after giving effect to all principal payments made
with respect to the Class A-1 Notes on that preceding Distribution
Date;
.the Interest Rate applicable to the Class A-1 Notes; and
.the actual number of days elapsed during the period from and including
the preceding Distribution Date (or, in the case of the first
Distribution Date, from and including the Closing Date) to but
excluding the current Distribution Date divided by 360;
.30/360. Interest on the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes will accrue from and including the 15th day of the prior
calendar month (or
S-40
<PAGE>
from and including the Closing Date, in the case of the first
Distribution Date) to but excluding the 15th day of the current month.
The interest payable on the Class A-2 Notes, the Class A-3 Notes or the
Class A-4 Notes, as applicable, on each Distribution Date will equal the
product of:
.the principal balance of that class as of the preceding Distribution
Date after giving effect to all principal payments made with respect to
that class on that preceding Distribution Date;
.the Interest Rate applicable to that class; and
.30 (or in the case of the first Distribution Date, 50) divided by 360.
.Unpaid Interest Accrues. Interest accrued as of any Distribution Date but
not paid on such Distribution Date will be due on the next Distribution
Date, together with interest on such amount at the Interest Rate
applicable to that class (to the extent lawful).
Priority of Interest Payments. The Trust will pay interest on the Notes
(without priority among the classes of Notes) on each Distribution Date with
Available Funds in accordance with the priority set forth under "Application
of Available Funds" in this prospectus supplement.
The Trust Will Pay Interest Pro Rata to Noteholders if it Does Not Have
Enough Funds Available to Pay All Interest Due on the Notes. The amount
available for interest payments on the Notes could be less than the amount of
interest payable on the Notes on any Distribution Date. In that event, the
holders of each class of Notes will receive their ratable share of the
aggregate amount available to be distributed in respect of interest on the
Notes. Each such class' ratable share of the amount available to pay interest
will be based on the amount of interest due on such class relative to the
total amount of interest due to the Noteholders.
Payments of Principal
Priority and Amount of Principal Payments. The Trust will generally make
principal payments to the Noteholders on each Distribution Date in the amount
and in the priority set forth under "Application of Available Funds" in this
prospectus supplement.
Events of Default. An Event of Default will occur if the outstanding
principal amount of any Note has not been paid in full on its Final Scheduled
Distribution Date. The Notes may be accelerated upon an Event of Default. If
the Notes are accelerated, the priority in which the Trust makes distributions
to Securityholders will change as described under "Application of Available
Funds--Priority of Distributions" in this prospectus supplement.
Notes Might Not Be Repaid on their Final Scheduled Distribution Dates. The
principal balance of any class of Notes, to the extent not previously paid,
will be due on the Final Scheduled Distribution Date relating to that class
listed below. The actual date on which the aggregate outstanding principal
amount of any class of Notes is paid may be earlier or, if an Insurer Default
occurs, later than the Final Scheduled Distribution Date for that class based
S-41
<PAGE>
on a variety of factors, including those described under "Maturity and
Prepayment Considerations" in this prospectus supplement and in the prospectus.
Final Scheduled Distribution Dates. The Final Scheduled Distribution Dates
for the Notes are as follows:
.February 15, 2002 for the Class A-1 Notes;
.October 15, 2003 for the Class A-2 Notes;
.December 15, 2004 for the Class A-3 Notes; and
.February 15, 2007 for the Class A-4 Notes.
The date on which each class of Notes is paid in full is expected to be
earlier than the Final Scheduled Distribution Date for that class and could be
significantly earlier depending upon the rate at which the Principal Balances
are paid. See "The Receivables Pool-- Weighted Average Life of the Securities"
in this prospectus supplement and "Maturity and Prepayment Considerations" in
this prospectus supplement and in the prospectus for a further discussion of
Receivable prepayments.
The Certificateholders will not be entitled to receive Monthly Certificate
Principal on any Distribution Date until the Notes have been paid in full.
Optional Prepayment
The Notes will be redeemed in full on any Distribution Date on which the
Servicer exercises its option to purchase all remaining Receivables from the
Trust. The redemption price payable to the holders of each class of Notes in
connection with the exercise of this option will equal the principal balance of
that class as of the purchase date plus accrued but unpaid interest on that
principal balance at the Interest Rate applicable to that class. See
"Description of the Receivables Transfer and Servicing Agreements--Termination"
in the prospectus and "Description of the Receivables Transfer and Servicing
Agreements--Optional Purchase of Receivables" in this prospectus supplement for
a further discussion of the circumstances under which the Servicer may exercise
this option.
The Indenture Trustee
Bankers Trust Company will be the Indenture Trustee under the Indenture. The
Indenture Trustee is a New York banking corporation. The principal corporate
trust office of the Indenture Trustee is located at Four Albany Street, New
York, New York 10006, Attention: Corporate Trust and Agency Group--Structured
Finance. The Indenture Trustee will have various rights and duties with respect
to the Notes. See "Description of the Indenture" in this prospectus supplement
for a further discussion of the rights and duties of the Indenture Trustee. The
Seller, the Depositor and their respective affiliates may maintain normal
commercial banking relations with the Indenture Trustee and its affiliates.
S-42
<PAGE>
Description of the Certificates
The Trust will issue the Certificates under the Trust Agreement. We will
file a copy of the Trust Agreement with the SEC after the Trust issues the
Securities. We summarize below the material terms of the Certificates. This
summary is not a complete description of all the provisions of the Trust
Agreement and the Certificates. We refer you to those documents. The following
summary supplements the description of the general terms and provisions of the
certificates of any given trust and the related trust agreement set forth under
"Certain Information Regarding the Securities" in the prospectus and
"Description of the Receivables Transfer and Servicing Agreements" in the
prospectus and in this prospectus supplement. We refer you to those sections.
Certificate Registration
The Certificates will be available for purchase in denominations of $1,000
and integral multiples of $1,000. The Certificates will initially be issued
only in book-entry form. See "Certain Information Regarding the Securities--
Book-Entry Registration" in the prospectus for a further discussion of the
book-entry registration system.
Distributions
Interest. On each Distribution Date, the Certificateholders will be entitled
to receive the amount of interest that accrues on the Certificate Balance at
the Certificate Rate; provided, however, that if the Notes have been declared
immediately due and payable following an Event of Default, amounts received on
or in respect of the Receivables will not be applied to pay Monthly Certificate
Interest on any Distribution Date until the Noteholders have been paid Monthly
Note Principal on that Distribution Date. Interest will be payable on each
Distribution Date to the Certificateholders of record as of the related Record
Date.
Interest will accrue--
.in the case of the first Distribution Date, from and including the Closing
Date to but excluding March 15, 2001; or
.otherwise, from and including the 15th day of the prior calendar month to
but excluding the 15th day of the current month.
Interest is Calculated 30/360. The interest payable on the Certificates on
each Distribution Date will equal the product of:
.the Certificate Balance as of the preceding Distribution Date after giving
effect to all principal payments made with respect to the Certificates on
that preceding Distribution Date;
.the Certificate Rate; and
.30 (or in the case of the first Distribution Date, 50) divided by 360.
S-43
<PAGE>
Unpaid Interest Accrues. Interest accrued as of any Distribution Date but
not distributed on such Distribution Date will be due on the next Distribution
Date, together with interest on such amount at the Certificate Rate (to the
extent lawful).
Distributions on Certificates. The Trust will make distributions on the
Certificates in the amounts and in the priority set forth under "Application of
Available Funds". Certificateholders will not receive any distributions of
principal until the Notes have been paid in full. Following the occurrence of
an Event of Default which has resulted in an acceleration of the Notes, the
Noteholders will be entitled to be paid Monthly Note Principal on each
Distribution Date before any distributions may be made on the Certificates.
The Certificate Final Scheduled Distribution Date is February 15, 2007. The
date on which the Certificates are paid in full is expected to be earlier than
the Certificate Final Scheduled Distribution Date, however, and could be
significantly earlier depending upon the rate at which the Principal Balances
are paid. See "The Receivables Pool--Weighted Average Life of the Securities"
and "Maturity and Prepayment Considerations" in this prospectus supplement and
in the prospectus, respectively, for a further discussion of Receivable
prepayments.
Subordination of Certificates
The rights of the Certificateholders to receive distributions of interest
are subordinated to the rights of the Noteholders to receive payments of
interest and, if the Notes have been accelerated following an Event of Default,
Monthly Note Principal. This subordination is effected by the priority of
distributions set forth under "Application of Available Funds".
Optional Prepayment
The Certificates will be prepaid in full on any Distribution Date on which
the Servicer exercises its option to purchase all remaining Receivables from
the Trust. The price payable to the Certificateholders in connection with the
exercise of this option will equal the Certificate Balance as of the purchase
date plus accrued but unpaid interest at the Certificate Rate. See "Description
of the Receivables Transfer and Servicing Agreements--Termination" in the
prospectus and "Description of the Receivables Transfer and Servicing
Agreements--Optional Purchase of Receivables" in this prospectus supplement for
a further discussion of the circumstances under which the Servicer may exercise
this option.
The Owner Trustee
Wilmington Trust Company will act as Owner Trustee under the Trust
Agreement. The Owner Trustee is a Delaware banking corporation. The principal
corporate trust office of the Owner Trustee is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration. The Owner Trustee will have various rights and duties
with respect to the Certificates. See "Description of the Trust Agreement" for
a further discussion of the rights and duties of the Owner Trustee with respect
to the Certificates. The Seller, the Depositor and their respective affiliates
may maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
S-44
<PAGE>
Application of Available Funds
Sources of Funds for Distributions
The funds available to the Trust to make payments on the Securities on each
Distribution Date will come from the following sources:
. collections received on the Receivables during the prior Collection
Period;
. net recoveries received during the prior Collection Period on Receivables
that were charged off as losses in prior months;
. investment earnings on funds on deposit in the Collection Account in
respect of the prior Collection Period;
. proceeds of repurchases of Receivables by the Seller or purchases of
Receivables by the Servicer because of certain breaches of
representations or covenants;
. funds, if any, withdrawn from the Reserve Account for that Distribution
Date;
. the Policy Claim Amount; and
. if an Event of Default shall have occurred and be continuing and an
Insurer Default shall not have occurred and be continuing, amounts the
Insurer has deposited into the Collection Account on or before the
related Distribution Date as a result of the Insurer, at its option,
electing to prepay all or any portion of the principal amount of the
Notes and paying accrued but unpaid interest on the amount of the Notes
so prepaid or, if the Notes have been paid in full, the amount of the
Certificates so prepaid.
The precise calculation of the funds available to make payments on the
Securities is set forth in the definition of Available Funds under "Glossary of
Terms". We refer you to that definition. See "Description of the Receivables
Transfer and Servicing Agreements-- Servicing Compensation and Expenses" in the
prospectus.
Priority of Distributions
On each Distribution Date, the Trust will apply the Available Funds for that
Distribution Date in the following amounts and order of priority:
(1) Servicing Fee--the Servicing Fee for the preceding Collection Period
plus any overdue Servicing Fees for previous Collection Periods will be
paid to the Servicer;
(2) Note Interest--Monthly Note Interest for that Distribution Date plus
any overdue Monthly Note Interest for previous Distribution Dates plus
interest on any overdue Monthly Note Interest payable to any class of
Notes at the Interest Rate applicable to that class will be paid to the
Noteholders; provided, however, if the amount available to pay the
amounts described in this clause (2) is insufficient, interest will be
paid pro rata on all classes of the Notes based on the interest payable
to each class;
(3) Certificate Interest (Before Acceleration of Notes) --Monthly
Certificate Interest for that Distribution Date plus any overdue
Monthly Certificate Interest for previous Distribution Dates plus
interest on any overdue Monthly Certificate Interest payable
S-45
<PAGE>
on the Certificates at the Certificate Rate will be paid to the
Certificateholders; provided, however, if the Notes have been
accelerated after an Event of Default, amounts in this clause (3) will
instead be paid under clause (5) below;
(4) Monthly Note Principal--the Monthly Note Principal for that
Distribution Date will be applied to pay principal on the Notes in the
following order of priority:
(i) on the Class A-1 Notes until they are paid in full;
(ii)on the Class A-2 Notes until they are paid in full;
(iii)on the Class A-3 Notes until they are paid in full; and
(iv)on the Class A-4 Notes until they are paid in full;
provided, however, if the amount available to pay the amounts described
in this clause (4) is insufficient or if the Notes have been
accelerated after an Event of Default, Monthly Note Principal will be
paid pro rata on all classes of the Notes;
(5) Certificate Interest (After Acceleration of Notes)--if the Notes have
been accelerated after an Event of Default, Monthly Certificate
Interest for that Distribution Date plus any overdue Monthly
Certificate Interest for previous Distribution Dates plus interest on
any overdue Monthly Certificate Interest payable on the Certificates at
the Certificate Rate will be paid to the Certificateholders;
(6) Monthly Certificate Principal--the Monthly Certificate Principal for
that Distribution Date will be applied to pay principal on the
Certificates; provided, however, that the amount payable on the
Certificate Final Scheduled Distribution Date will be the amount
necessary to pay the Certificate Balance in full;
(7) Insurance Premium--the premium payable under the Insurance Agreement
for that Distribution Date plus any overdue premiums payable under the
Insurance Agreement for previous Distribution Dates will be paid to the
Insurer;
(8) Other Amounts Payable to the Insurer--the aggregate amount of any
unreimbursed payments under the Insurance Policy, to the extent payable
to the Insurer under the Insurance Agreement, plus accrued interest on
any unreimbursed payments under the Insurance Policy at the rate
provided in the Insurance Agreement plus any other amounts due to the
Insurer will be paid to the Insurer;
(9) Additional Note Principal--if the Notes have been accelerated after an
Event of Default, an amount equal to the Note Balance minus the Monthly
Note Principal will be paid pro rata on all classes of the Notes after
giving effect to all payments of principal on such Distribution Date
until they have been paid in full;
(10) Reserve Account Deposit--the amount, if any, necessary to increase the
balance of the Reserve Account up to the Required Reserve Account
Amount will be paid to the Reserve Account; and
(11) Seller--any amounts remaining after the above distributions will be
paid to the Seller.
S-46
<PAGE>
Description of the Receivables Transfer
and Servicing Agreements
We have summarized below some of the important terms of the Receivables
Purchase Agreement and of the Sale and Servicing Agreement. We will file a copy
of these agreements with the SEC after the Trust issues the Securities. This
summary is not a complete description of all of the provisions of the
Receivables Purchase Agreement and the Sale and Servicing Agreement. We refer
you to those documents. You can find more information about the transfer of the
Receivables from the Seller to the Depositor and from the Depositor to the
Trust on the Closing Date and the servicing of the Receivables in the
prospectus under "Description of the Receivables Transfer and Servicing
Agreements".
The Seller will agree in the Receivables Purchase Agreement to repurchase
from the Depositor or the Trust any Receivable as to which the Seller has
breached a representation or warranty if that breach materially and adversely
affects the interest of the Depositor or its assignee in that Receivable and
the Seller has not cured that breach on or before the last day of the
Collection Period which includes the 30th day after the date of discovery by or
notice to the Seller of that breach. Each Receivable to be repurchased by the
Seller must be repurchased on the Distribution Date following that last day of
the related Collection Period for an amount equal to the Purchase Amount. The
Depositor will assign to the Trust under the Sale and Servicing Agreement all
of its rights under the Receivables Purchase Agreement, including its right to
cause the Seller to repurchase Receivables as to which there has been a breach
of a representation or warranty. The repurchase obligation of the Seller under
the Receivables Purchase Agreement, as assigned to the Trust under the Sale and
Servicing Agreement, will constitute the sole remedy available to the
Noteholders, the Indenture Trustee, the Certificateholders or the Owner Trustee
for any uncured breach of a representation or warranty contained in the
Receivables Purchase Agreement.
Servicing the Receivables
The Servicer will agree in the Sale and Servicing Agreement to service,
manage, maintain custody of and collect amounts due under the Receivables. The
Servicer will agree to make reasonable efforts to collect all payments due
under the Receivables and will, consistent with the Sale and Servicing
Agreement, follow the collection practices and procedures it follows with
respect to comparable motor vehicle retail installment sale contracts that it
owns or services for itself or others. The Servicer will continue to follow its
normal collection practices and procedures to the extent necessary or advisable
to realize upon any Defaulted Receivables. The Servicer may sell the Financed
Vehicle securing any Defaulted Receivable 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 the payment schedule applicable to any
Receivable for credit-related reasons; provided, however, that if the extension
of a payment schedule causes a Receivable to remain outstanding on the
Certificate Final Scheduled Distribution Date, the Servicer will
S-47
<PAGE>
agree under the Sale and Servicing Agreement to purchase that Receivable for an
amount equal to the Purchase Amount as of the last day of the Collection Period
which includes the 30th day after the date of discovery by or notice to the
Servicer of such extension. The purchase obligation of the Servicer under the
Sale and Servicing Agreement will constitute the sole remedy available to the
Noteholders, the Indenture Trustee, the Certificateholders or the Owner Trustee
for any extension of a payment schedule that causes a Receivable to remain
outstanding on the Certificate Final Scheduled Distribution Date.
The Servicer will not make any Advances as described in the prospectus under
"Description of the Receivables Transfer and Servicing Agreements--Advances".
Circuit City Stores, Inc. will unconditionally guaranty the performance by
CarMax of its obligations under the Sale and Servicing Agreement, including its
obligation to purchase Receivables that remain outstanding on the Certificate
Final Scheduled Distribution Date because of a payment extension.
Accounts
In addition to the accounts referred to under "Description of the
Receivables Transfer and Servicing Agreements--Accounts" in the prospectus--
. the Servicer will establish the Note Distribution Account for the benefit
of the Noteholders;
. the Servicer will establish the Certificate Distribution Account for the
benefit of the Certificateholders; and
. the Servicer will establish the Reserve Account for the benefit of the
Securityholders, the Servicer and the Insurer.
Servicing Compensation and Expenses
The Servicer is entitled to receive the Servicing Fee on each Distribution
Date. The Servicing Fee, together with any portion of the Servicing Fee that
remains unpaid from prior Distribution Dates, will be payable on each
Distribution Date. The Servicing Fee will be paid only to the extent of the
funds deposited in the Collection Account with respect to the Collection Period
relating to such Distribution Date, plus funds, if any, deposited into the
Collection Account from the Reserve Account and under the Insurance Policy. See
"Description of the Receivables Transfer and Servicing Agreements--Servicing
Compensation and Expenses" in the prospectus.
Events of Servicing Termination
The provisions set forth below supersede the provisions in "Description of
the Receivables Transfer and Servicing Agreements--Events of Servicing
Termination" in the prospectus.
The following events will constitute Events of Servicing Termination:
. the Servicer shall fail to make any required payment or deposit under the
Sale and Servicing Agreement that continues unremedied beyond the earlier
of five Business
S-48
<PAGE>
Days following the date that payment or deposit was due and, in the case
of a payment or deposit to be made no later than a Distribution Date or
the Business Day preceding a Distribution Date, that Distribution Date or
preceding Business Day, as applicable;
. the Servicer shall fail to deliver to the Owner Trustee, the Indenture
Trustee or the Insurer the monthly report relating to the payment of
amounts due to Securityholders beyond the earlier of three Business Days
following the date that report was due and the Business Day preceding the
related Distribution Date;
. the Servicer shall fail to observe or perform in any material respect any
other covenant or agreement in the Sale and Servicing Agreement that
materially and adversely affects the rights of the Depositor, the
Securityholders or the Insurer and that continues unremedied for 60 days
after written notice of that failure shall have been given to the
Servicer by the Depositor, the Owner, the Indenture Trustee or the
Insurer or to the Depositor, the Seller, the Servicer, the Owner Trustee
and the Indenture Trustee by the holders of Notes evidencing not less
than 25% of the Note Balance or, if the Notes have been paid in full, by
the holders of Certificates evidencing not less than 25% of the
Certificate Balance;
. any representation or warranty of the Servicer made in, or in any
certificate delivered under, the Sale and Servicing Agreement, other than
any representation or warranty relating to a Receivable that has been
purchased by the Servicer, shall prove to have been incorrect in any
material respect as of the time when made and that breach shall continue
unremedied for 30 days after written notice of that breach shall have
been given to the Servicer by the Depositor, the Owner, the Indenture
Trustee or the Insurer or to the Depositor, the Seller, the Servicer, the
Owner Trustee and the Indenture Trustee by the holders of Notes
evidencing not less than 25% of the Note Balance or, if the Notes have
been paid in full, by the holders of Certificates evidencing not less
than 25% of the Certificate Balance;
. an event of bankruptcy, insolvency, receivership or liquidation shall
occur with respect to the Servicer; or
. the Servicer shall cease to be eligible to continue as Servicer under the
Sale and Servicing Agreement.
Certain Matters Regarding the Servicer
The provision in the prospectus in "Description of the Receivables Transfer
and Servicing Agreements--Certain Matters Regarding the Servicer" regarding
the right of the Servicer and its directors, officers, employees and agents
being entitled to indemnification or held harmless by the Trust contained in
the second sentence of the second paragraph of that section is not applicable
to the transaction described in this prospectus supplement.
S-49
<PAGE>
Rights Upon Event of Servicing Termination
The provisions set forth below supersede the provisions in "Description of
the Receivables Transfer and Servicing Agreements--Rights Upon Event of
Servicing Termination" in the prospectus.
If an Event of Servicing Termination shall have occurred and be continuing
and an Insurer Default shall not have occurred and be continuing, the Insurer
may terminate all of the rights and obligations of the Servicer under the Sale
and Servicing Agreement. If an Event of Servicing Termination shall have
occurred and be continuing and an Insurer Default shall have occurred and be
continuing, 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 terminate all of
the rights and obligations of the Servicer under the Sale and Servicing
Agreement. If the rights and obligations of the Servicer under the Sale and
Servicing Agreement have been terminated, the Indenture Trustee, or a successor
Servicer appointed by the Insurer or, with the consent of the Insurer, by the
Indenture Trustee, will succeed to all of the responsibilities, duties and
liabilities of the Servicer under the Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. If, however, a bankruptcy
trustee or similar official has been appointed for the Servicer, and no Event
of Servicing Termination other than that appointment has occurred and is
continuing, that trustee or similar official may have the power to prevent a
transfer of servicing. If the Indenture Trustee is unwilling or unable to act
as successor Servicer, it may, with the consent of the Insurer, unless an
Insurer Default shall have occurred and be continuing, appoint, or petition a
court of competent jurisdiction to appoint, a successor Servicer with assets of
at least $50,000,000 and whose regular business includes the servicing of motor
vehicle retail installment sale contracts. The Indenture Trustee may arrange
for compensation to be paid to the successor Servicer, which in no event may be
greater than the servicing compensation paid to the Servicer under the Sale and
Servicing Agreement.
Right of Insurer to Terminate Servicer
The Insurance Agreement sets forth additional termination events applicable
to the Servicer, including a material failure of performance by the Servicer
under the Sale and Servicing Agreement and an increase in the delinquencies or
cumulative net losses on the Receivables above specified levels. If any such
termination event shall have occurred and be continuing under the Insurance
Agreement and an Insurer Default shall not have occurred and be continuing, the
Insurer may terminate all of the rights and obligations of the Servicer under
the Sale and Servicing Agreement.
Waiver of Past Events of Servicing Termination
The provisions set forth below supersede the provisions in "Description of
the Receivables Transfer and Servicing Agreements--Waiver of Past Events of
Servicing Termination" in the prospectus.
The holders of Notes evidencing not less than 51% of the Note Balance may,
on behalf of all Securityholders, or, if the Notes have been paid in full, the
holders of Certificates
S-50
<PAGE>
evidencing not less than 51% of the Certificate Balance may, on behalf of all
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and all consequences of that
default, except a default in making any required deposits to or payments from
the Collection Account, the Note Distribution Account, the Certificate
Distribution Account or the Reserve Account in accordance with the Sale and
Servicing Agreement; provided, however, that no default by the Servicer in the
performance of its obligations under the Sale and Servicing Agreement may be
waived without the consent of the Insurer if the waiver would reasonably be
expected to have a material adverse effect upon the rights of the Insurer. No
waiver of a default by the Servicer in the performance of its obligations under
the Sale and Servicing Agreement will impair the rights of the Noteholders, the
Certificateholders or the Insurer with respect to subsequent Events of
Servicing Termination.
The Insurer, if an Insurer Default shall not have occurred and be
continuing, may, on behalf of all 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 provisions set forth below supersede the provisions in "Description of
the Receivables Transfer and Servicing Agreements--Amendment" in the
prospectus.
The Sale and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Owner Trustee, on behalf of the Trust, with the
consent of the Indenture Trustee but without the consent of the
Securityholders, to cure any ambiguity, to correct or supplement any provision
in the Sale and Servicing Agreement that may be inconsistent with any other
provisions in the Sale and Servicing Agreement or this prospectus supplement or
to add, change or eliminate any other provisions with respect to matters or
questions arising under the Sale and Servicing Agreement that are not
inconsistent with the provisions of the Sale and Servicing Agreement; provided,
however, that no such amendment to the Sale and Servicing Agreement may
materially adversely affect the interests of any Securityholder. An amendment
will be deemed not to materially adversely affect the interests of any
Securityholder if the person requesting the amendment obtains and delivers to
the Indenture Trustee:
. an opinion of counsel to that effect; or
. a letter from each Rating Agency to the effect that the amendment would
not result in a downgrading or withdrawal of its rating then assigned to
any class of Notes or the Certificates.
The Sale and Servicing Agreement may also be amended from time to time by
the Depositor, the Servicer and the Owner Trustee, on behalf of the Trust, with
the consent of the Indenture Trustee, the consent of the holders of Notes
evidencing not less than 51% of the Note Balance or, if the Notes have been
paid in full, the holders of Certificates evidencing not less than 51% of the
Certificate 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 Securityholders;
provided, however, that no such amendment may:
S-51
<PAGE>
. increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of
payments on or in respect of the Receivables or distributions that are
required to be made for the benefit of the Securityholders, or change the
Interest Rate applicable to any class of Notes, the Certificate Rate or
the Required Reserve Account Amount, without the consent of all
Securityholders adversely affected by the amendment;
. reduce the percentage of the principal balance of the Notes or the
Certificate Balance the consent of the holders of which is required for
any amendment to the Sale and Servicing Agreement without the consent of
all Securityholders adversely affected by the amendment; or
.adversely affect the rating assigned by either Rating Agency to any class
of Notes or the Certificates without the consent of the holders of Notes
evidencing not less than 66 2/3% of the principal balance of that class
or the holders of Certificates evidencing not less than 66 2/3% of the
Certificate Balance, as applicable.
No amendment to the Sale and Servicing Agreement will be permitted unless an
opinion of counsel is delivered to the Indenture Trustee to the effect that the
amendment will not adversely affect the tax status of the Trust. No amendment
to the Sale and Servicing Agreement will be permitted without the consent of
the Insurer if the amendment would reasonably be expected to materially
adversely affect the interests of the Insurer.
Optional Purchase of Receivables
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, to purchase all remaining Receivables from the Trust
as of any Distribution Date if the aggregate Principal Balance as of the close
of business on the last day of the related Collection Period was 10% or less of
the initial aggregate Principal Balance; provided, however, that the purchase
price paid by the Servicer for the remaining Receivables must equal or exceed
the Note Balance and the Certificate Balance as of the purchase date, in each
case, plus accrued but unpaid interest as of the purchase date plus all amounts
due to the Insurer under the Insurance Agreement. The Servicer will notify the
Owner Trustee, the Indenture Trustee and the Depositor no later than 20 days
prior to the related Distribution Date. The exercise of this right will affect
the early retirement of the Securities.
Deposits to the Collection Account
The provision set forth below supersedes the first two sentences of the
first paragraph in "Description of the Receivables Transfer and Servicing
Agreements--Collections" in the prospectus.
As of the closing date, the Servicer will deposit all amounts received on or
in respect of the Receivables into the Collection Account not later than two
Business Days after receipt of those amounts. Notwithstanding the foregoing,
the Servicer will be permitted to deposit those amounts into the Collection
Account on the Business Day preceding any Distribution Date if (1) CarMax is
the Servicer, (2) no Event of Servicing Termination shall have occurred and
S-52
<PAGE>
be continuing and (3) each other condition to making deposits less frequently
than daily as may be specified by the Insurer and each Rating Agency has been
satisfied. See "Description of the Receivables Transfer and Servicing
Agreements--Collections" in the prospectus.
On or before each Distribution Date, the Servicer will notify the Indenture
Trustee to withdraw the Reserve Account Draw Amount from the Reserve Account
and deposit this amount into the Collection Account.
Amounts paid by the Insurer in respect of claims under the Insurance Policy
will be deposited into the Collection Account.
If an Event of Default shall have occurred and be continuing and an Insurer
Default shall not have occurred and be continuing, amounts paid by the Insurer
on or before any Distribution Date as a result of the Insurer, at its option,
electing to prepay all or any portion of the principal amount of the Notes and
paying accrued but unpaid interest on the amount of the Notes so prepaid or, if
the Notes have been paid in full, the amount of the Certificates so prepaid
will be deposited into the Collection Account.
Servicer will Provide Information to Indenture Trustee
On or before each Determination Date, the Servicer will provide the
Indenture Trustee with the information specified in the Sale and Servicing
Agreement with respect to the related Distribution Date, including:
. the aggregate amount of collections on the Receivables;
. the aggregate amount of Defaulted Receivables;
. the aggregate Purchase Amount of Receivables to be repurchased by the
Seller or to be purchased by the Servicer;
. the Reserve Account Draw Amount, if any;
. the Reserve Account Amount;
. the Insurance Payment Amount, if any;
. the aggregate amount to be distributed as principal and interest on the
Securities; and
. the Servicing Fee.
Reserve Account
The Servicer will establish and maintain with the Indenture Trustee the
Reserve Account into which certain excess collections on the Receivables will
be deposited and from which amounts may be withdrawn to pay monthly Servicing
Fees to the Servicer, to make required payments on the Securities and to make
required payments to the Insurer.
The Reserve Account Initial Deposit will be deposited in the Reserve Account
on the Closing Date. On each Distribution Date, the Indenture Trustee will
deposit in the Reserve Account, from amounts collected on or in respect of the
Receivables during the preceding month and not used on that Distribution Date
to make required payments to the Servicer, the
S-53
<PAGE>
Securityholders or the Insurer, the amount, if any, by which the Required
Reserve Account Amount for that Distribution Date exceeds the amount on deposit
in the Reserve Account on that Distribution Date, after giving effect to all
required withdrawals from the Reserve Account on that Distribution Date. The
amounts on deposit in the Reserve Account will be invested by the Servicer in
eligible investments acceptable to each Rating Agency. The Reserve Account must
be maintained as an eligible deposit account.
On each Determination Date, the Servicer will determine the Reserve Account
Draw Amount, if any, for the following Distribution Date. If the Reserve
Account Draw Amount for any Distribution Date is greater than zero, the
Indenture Trustee will withdraw that amount, up to the amount on deposit in the
Reserve Account, from the Reserve Account and transfer the amount withdrawn to
the Collection Account.
If the amount on deposit in the Reserve Account on any Distribution Date
exceeds the Required Reserve Account Amount for that Distribution Date, after
giving effect to all required deposits to and withdrawals from the Reserve
Account on that Distribution Date, that excess will be paid to the Seller. Any
amount paid to the Seller will no longer be the property 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 have been made, after all required payments to the
Securityholders have been made and after the Insurance Policy has been
terminated and returned to the Insurer for cancellation.
The amount on deposit in the Reserve Account is expected to increase over
time up to the Required Reserve Account Amount. No assurances can be given,
however, that the amount on deposit in the Reserve Account will increase to the
Required Reserve Account Amount, or that the amount on deposit in the Reserve
Account will be sufficient on any Distribution Date to pay in full the Monthly
Note Interest, Monthly Note Principal, Monthly Certificate Interest and Monthly
Certificate Principal due on that Distribution Date. If the amount on deposit
in the Reserve Account is reduced to zero and there is an Insurer Default, the
Trust's sole source of funds will be payments received on or in respect of the
Receivables, including amounts recovered in connection with the repossession
and sale of Financed Vehicles that secure Defaulted Receivables. In addition,
because the market value of most motor vehicles declines with age and because
of limitations on the manner in which motor vehicles may be repossessed and
sold, the Servicer may not recover the entire amount due on a Defaulted
Receivable if the related Financed Vehicle is repossessed and sold. If the
amount on deposit in the Reserve Account is reduced to zero and there is an
Insurer Default, you could experience losses or payment delays with respect to
your Securities.
Description of the Insurer
MBIA
MBIA is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against MBIA. MBIA is domiciled in the State of New York and licensed to
do business in and subject to
S-54
<PAGE>
regulation under the laws of all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Virgin Islands of the United States and the Territory of Guam. MBIA has two
European branches, one in the Republic of France and the other in the Kingdom
of Spain. New York has laws prescribing minimum capital requirements, limiting
classes and concentrations of investments and requiring the approval of policy
rates and forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by MBIA, changes
in control and transactions among affiliates. In addition, MBIA is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
MBIA does not accept any responsibility for the accuracy or completeness of
this prospectus supplement or any information or disclosure contained in this
prospectus supplement, or omitted from this prospectus supplement, other than
with respect to the accuracy of the information regarding MBIA set forth under
the headings "Description of the Insurer" and "Description of the Insurance
Policy". In addition, MBIA makes no representations regarding the Securities or
the advisability of investing in the Securities.
The Insurance Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
MBIA Financial Information
The consolidated financial statements of MBIA, a wholly owned subsidiary of
MBIA Inc., and its subsidiaries as of December 31, 1999 and December 31, 1998
and for each of the three years in the period ended December 31, 1999, prepared
in accordance with generally accepted accounting principles, included in the
Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 1999
and the consolidated financial statements of MBIA and its subsidiaries as of
September 30, 2000 and for the nine month periods ended September 30, 2000 and
September 30, 1999 included in the Quarterly Report on Form 10-Q of MBIA Inc.
for the period ended September 30, 2000, are incorporated by reference into
this prospectus supplement and shall be deemed to be a part of this prospectus
supplement. Any statement contained in a document incorporated by reference in
this prospectus supplement shall be modified or superseded for purposes of this
prospectus supplement to the extent that a statement contained in this
prospectus supplement or in any other subsequently filed document which also is
incorporated by reference in this prospectus supplement modifies or supersedes
that statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus
supplement.
All financial statements of MBIA and its subsidiaries included in documents
filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
Securities shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part of this prospectus supplement from the respective
dates of filing those documents.
S-55
<PAGE>
The tables below present selected financial information of MBIA determined
in accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities and generally accepted accounting principles.
<TABLE>
<CAPTION>
Statutory
Accounting Practices
--------------------------
December 31, September 30,
1999 2000
------------ -------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Admitted Assets................................... $7,045 $7,525
Liabilities....................................... $4,632 $5,101
Capital and Surplus............................... $2,413 $2,424
<CAPTION>
Generally Accepted
Accounting Principles
--------------------------
December 31, September 30,
1999 2000
------------ -------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Assets............................................ $7,446 $8,124
Liabilities....................................... $3,218 $3,531
Shareholder's Equity.............................. $4,228 $4,593
</TABLE>
Where You Can Obtain Additional Information About MBIA
Copies of the financial statements of MBIA incorporated by reference in this
prospectus supplement and copies of MBIA's 1999 year-end audited financial
statements prepared in accordance with statutory accounting practices are
available, without charge, from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545.
Financial Strength Ratings of MBIA
Moody's rates the financial strength of MBIA "Aaa". Standard & Poor's rates
the financial strength of MBIA "AAA". Fitch, Inc. rates the financial strength
of MBIA "AAA".
Each rating of MBIA should be evaluated independently. The ratings reflect
the respective rating agency's current assessment of the creditworthiness of
MBIA and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Securities, and the ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Securities.
MBIA does not guaranty the market price of the Securities, nor does it guaranty
that the ratings on the Securities will not be revised or withdrawn.
S-56
<PAGE>
Description of the Insurance Policy
On the Closing Date, the Insurer will issue the Insurance Policy under which
the Insurer will unconditionally and irrevocably guarantee the payment of the
Servicing Fee, Monthly Note Interest, Monthly Note Principal, Monthly
Certificate Interest and Monthly Certificate Principal for each Distribution
Date. The Insurer will pay any amount payable under the Insurance Policy no
later than 12:00 noon, Eastern Time, on the later of the related Distribution
Date and the second Business Day following receipt by the Insurer of a notice
from the Indenture Trustee specifying the Policy Claim Amount for that
Distribution Date. In making a claim under the Insurance Policy, the Indenture
Trustee will act on behalf of the Securityholders and will comply with all the
terms and conditions of the Insurance Policy. All amounts paid under the
Insurance Policy will be deposited by the Indenture Trustee in the Collection
Account. The Insurance Policy will be issued under the Insurance Agreement.
The Insurer will be entitled to receive on each Distribution Date, from the
Available Funds for that Distribution Date plus any amounts withdrawn from the
Reserve Account on that Distribution Date, the premium payable under the
Insurance Agreement for that Distribution Date, the aggregate amount of any
unreimbursed payments under the Insurance Policy and various other amounts, in
each case as described under "Application of Available Funds--Priority of
Distributions". The Insurer will not be entitled to reimbursement of any
amounts paid under the Insurance Policy from the Securityholders. The Insurer
will have no obligations to the Securityholders, the Indenture Trustee or the
Owner Trustee other than its obligations under the Insurance Policy.
The Insurer's obligations under the Insurance Policy shall be discharged to
the extent funds to pay such obligations are deposited into the Collection
Account, the Note Distribution Account or the Certificate Distribution Account
by the Servicer or the Indenture Trustee, as applicable, in accordance with the
Sale and Servicing Agreement or disbursed by the Insurer as provided in the
Insurance Policy, whether or not such funds are properly applied by the
Indenture Trustee.
The Insurance Policy does not cover shortfalls, if any, attributable to the
liability of the Trust or the Indenture Trustee for withholding taxes, if any
(including interest and penalties in respect of such liability).
There shall be no acceleration payment due under the Insurance Policy unless
such acceleration is at the sole option of the Insurer.
Other Terms of the Insurance Policy
If payment of any amount guaranteed under the Insurance Policy is voided as
a preference pursuant to any applicable bankruptcy, insolvency, receivership or
similar law in a proceeding by or against the Trust, the Seller, the Servicer
or CarMax, the Insurer will cause such payment to be made upon receipt by the
Insurer from the Indenture Trustee, the Noteholders or the Certificateholders
of (a) a certified copy of a final, nonappealable order of the court which
exercised jurisdiction to the effect that the Indenture Trustee or the
S-57
<PAGE>
Securityholders are required to return any such payment paid during the term of
the Insurance Policy because such payment was voided as a preference payment
under applicable law, (b) an assignment irrevocably assigning to the Insurer
all rights and claims of the Indenture Trustee or the Securityholders relating
to or arising under such avoided payment, and (c) a notice for payment
appropriately completed and executed by the Indenture Trustee, the Noteholders
or the Certificateholders. Such payment will be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in such order
and not to the Indenture Trustee or any Securityholder directly (unless such
Securityholder has returned principal and interest paid on the Securities to
such receiver, conservator, debtor-in-possession or trustee in bankruptcy, in
which case such payment shall be disbursed to such Securityholder).
Notwithstanding the foregoing, in no event will the Insurer be obligated to
make any payment in respect of any avoided payment, which payment represents a
payment of interest or principal of the Securities, prior to the time the
Insurer would have been required to make a payment in respect of such interest
or principal.
Description of the Indenture
The following summary further describes the material terms of the Indenture.
See "The Indenture--Events of Default" in the prospectus for a further
description of the other material terms of the Indenture.
Events of Default
For purposes of this prospectus supplement, the first, third and fourth
events of default listed in "The Indenture--Events of Default" in the
prospectus shall not apply to this prospectus supplement.
In addition to the Events of Default listed in "The Indenture--Events of
Default" in the prospectus, the following events will also constitute Events of
Default:
. a default by the Trust for five Business Days or more in the payment of
any interest on any Notes;
. a default in the observance or performance of any other material covenant
or agreement of the Trust made in the Indenture and such default shall
continue or not be cured for a period of 60 days after written notice of
such default shall have been given to the Trust by the Depositor, the
Indenture Trustee or the Insurer or to the Trust, the Depositor, the
Insurer and the Indenture Trustee by the holders of Notes evidencing not
less than 25% of the Note Balance;
. any representation or warranty of the Trust made in the Indenture or in
any certificate delivered under the Indenture shall prove to have been
incorrect in any material respect as of the time when made and that
breach shall continue unremedied for 30 days after written notice of that
breach shall have been given to the Trust by the Depositor, the Indenture
Trustee or the Insurer or to the Trust, the Depositor, the Insurer and
the Indenture Trustee by the holders of Notes evidencing not less than
25% of the Note Balance; or
S-58
<PAGE>
. a claim shall be made under the Insurance Policy;
provided, however, that, unless an Insurer Default shall have occurred and
be continuing, neither the Depositor, the Indenture Trustee nor the
Noteholders may declare an Event of Default. If an Insurer Default shall
not have occurred and be continuing, an Event of Default will occur only
upon delivery by the Insurer to the Depositor and the Indenture Trustee of
notice that an Event of Default has occurred.
The provision regarding the "Controlling Class" contained in the prospectus
under "The Indenture" does not apply to this prospectus supplement. For the
purposes of this prospectus supplement, "Controlling Class" in the prospectus
shall be replaced with "Note Balance".
Rights Upon Event of Default
The provisions set forth below supersede the provisions in "The Indenture--
Rights Upon Event of Default" in the prospectus.
If an Event of Default shall have occurred and be continuing and an Insurer
Default shall not have occurred and be continuing, the Insurer may declare the
Notes to be immediately due and payable and cause the Indenture Trustee to sell
the property of the Trust in whole or in part and to distribute the proceeds of
that sale in accordance with the Indenture. The Insurer may not, however, cause
the Indenture Trustee to sell the property of the Trust in whole or in part
following an Event of Default if the proceeds of that sale would not be
sufficient to pay in full the principal amount of and accrued but unpaid
interest on the Notes unless the Event of Default arose from a claim being made
under the Insurance Policy or from an event of bankruptcy, insolvency,
receivership or liquidation with respect to the Trust. If an Event of Default
shall have occurred and be continuing and an Insurer Default shall not have
occurred and be continuing, the Insurer, at its option, may elect to prepay all
or any portion of the principal amount of and accrued but unpaid interest on
the Notes and, if the Notes have been paid in full, the Certificates. The
Indenture Trustee will continue to submit claims under the Insurance Policy
with respect to the Securities following an Event of Default.
If an Event of Default shall have occurred and be continuing 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 Notes to be immediately due and payable. Any declaration of
acceleration by the Indenture Trustee or the Noteholders may be rescinded by
the holders of Notes evidencing not less than 66 2/3% of the Note Balance at
any time before a judgment or decree for payment of the amount due has been
obtained by the Indenture Trustee if the Trust has deposited with the Indenture
Trustee an amount sufficient to pay all principal of and interest on the Notes
as if the Event of Default giving rise to the declaration of acceleration had
not occurred and all Events of Default, other than the nonpayment of principal
of the Notes that has become due solely as a result of the acceleration, have
been cured or waived.
If the Notes have been declared immediately due and payable by the Indenture
Trustee or the Noteholders following an Event of Default, the Indenture Trustee
may institute
S-59
<PAGE>
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, other than a default for five or more Business Days in
the payment of interest on the Notes or a default in the payment of any
required principal payment on the Notes unless:
. holders of Notes evidencing 100% of the Note Balance consent to the sale;
. the proceeds of the sale are sufficient to pay in full the principal
amount of and accrued but unpaid interest on the Notes and all amounts
due to the Insurer under the Insurance Agreement; or
. the Indenture Trustee determines that the property of the Trust would not
be sufficient on an ongoing basis to make all payments on the Notes as
those payments would have become due had the Notes not been declared due
and payable and the holders of Notes evidencing not less than 66 2/3% of
the Note Balance consent to the sale.
The Indenture Trustee may, but need not, obtain and rely upon an opinion of
an independent accountant or investment banking firm as to the sufficiency of
the property of the Trust to pay principal of and interest on the Notes on an
ongoing basis.
If the property of the Trust is sold following an Event of Default, the
Indenture Trustee will apply or cause to be applied the proceeds of that sale
to make the following payments in the following order of priority:
(1) to the Indenture Trustee, all amounts due to the Indenture Trustee
as compensation under the terms of the Indenture;
(2) to the Servicer, all accrued but unpaid Servicing Fees;
(3) to the Noteholders, all accrued but unpaid interest on the Notes;
(4) to the Noteholders, the Note Balance;
(5) to the Certificateholders, all accrued but unpaid interest on the
Certificates; and
(6) to the Certificateholders, the Certificate Balance.
Any remaining amounts will be distributed first to the Insurer for amounts
due to the Insurer and then to the Seller.
If the property of the Trust is sold following an Event of Default and the
proceeds of that sale are not sufficient to pay in full the principal balance
of and all accrued but unpaid interest on the Securities, the Indenture
Trustee will withdraw available amounts from the Reserve Account and submit
claims under the Insurance Policy in respect of that shortfall.
If an Event of Default shall have occurred and be continuing, subject to
the provisions of the Indenture relating to the duties of the Indenture
Trustee, the Indenture Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request
S-60
<PAGE>
or direction of the Noteholders if the Indenture Trustee reasonably believes
that it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with that request or
direction.
Waiver of Past Defaults
Prior to acceleration of the maturity of the Notes, 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, other
than a default in payment of principal of or interest on any of the Notes or in
respect of any covenant or other provision in the Indenture that cannot be
amended, supplemented or modified without the unanimous consent of the
Noteholders.
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, the Trust, the Depositor, the Insurer and each
Rating Agency of that removal and, following that removal, may appoint a
successor Indenture Trustee. Any successor Indenture Trustee must at all times
satisfy the requirements of Section 310(a) of the Trust Indenture Act of 1939,
as amended, and must have a combined capital and surplus of at least
$50,000,000 and a long-term debt rating of investment grade by each Rating
Agency or must otherwise be acceptable to each Rating Agency.
The Indenture Trustee may resign at any time by notifying the Trust, the
Noteholders and the Insurer of that resignation. The Trust will be required to
remove the Indenture Trustee if the Indenture Trustee:
. ceases to be eligible to continue as the Indenture Trustee under the
Indenture;
. is adjudged to be bankrupt or insolvent;
. comes under the charge of a receiver or other public officer; or
. otherwise becomes incapable of acting.
Upon the resignation or required removal of the Indenture Trustee, or the
failure of the Noteholders to appoint a successor Indenture Trustee following
the removal of the Indenture Trustee without cause, the Administrator, with the
consent of the Insurer if an Insurer Default shall not have occurred and be
continuing, will be required promptly to appoint a successor Indenture Trustee
under the Indenture.
Duties of Indenture Trustee
Except upon the occurrence and during the continuation of an Event of
Default, the Indenture Trustee:
. will perform those duties and only those duties that are specifically set
forth in the Indenture;
S-61
<PAGE>
. may, in the absence of bad faith, rely on certificates or opinions
furnished to the Indenture Trustee which conform to the requirements of
the Indenture as to the truth of the statements and the correctness of
the opinions expressed in those certificates or opinions; and
. will examine any certificates and opinions which are specifically
required to be furnished to the Indenture Trustee under the Indenture to
determine whether or not they conform to the requirements of the
Indenture.
Upon the occurrence and during the continuation of an Event of Default, the
Indenture Trustee will be required to exercise the rights and powers vested in
it by the Indenture and use the same degree of care and skill in the exercise
of those rights and powers as a prudent person would exercise or use under the
circumstances in the conduct of that person's own affairs.
Compensation; Indemnification
The Servicer will pay to the Indenture Trustee from time to time reasonable
compensation for its services, reimburse the Indenture Trustee for all expenses
and disbursements reasonably incurred or made by it and indemnify the Indenture
Trustee for, and hold it harmless against, any and all losses, liabilities or
expenses, including attorneys' fees, incurred by it in connection with the
administration of the Trust and the performance of its duties under the
Indenture; provided, however, that the Indenture Trustee will not be
indemnified for, or held harmless against, any loss, liability or expense
incurred by it through its own willful misconduct, negligence or bad faith. The
Indenture Trustee will not be liable:
. for any error of judgment made by it in good faith unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts;
. for any action it takes or omits to take in good faith in accordance with
directions received by it from the Noteholders in accordance with the
terms of the Indenture; or
. for interest on any money received by it except as the Indenture Trustee
and the Trust may agree in writing.
The Indenture Trustee will not be deemed to have knowledge of any Event of
Default unless a responsible officer of the Indenture Trustee has actual
knowledge of the default or has received written notice of the default in
accordance with the Indenture.
Satisfaction and Discharge of Indenture
If the Insurance Policy has been terminated and returned to the Insurer for
cancellation, the Indenture will be discharged with respect to the collateral
securing the Notes:
. upon delivery to the Indenture Trustee for cancellation of all the Notes
or, if all Notes not delivered to the Indenture Trustee for cancellation
have become due and payable, upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of the principal amount of and
accrued but unpaid interest on the Notes;
S-62
<PAGE>
. upon delivery to the Indenture Trustee and the Insurer of an officer's
certificate and an opinion of counsel, which may be internal counsel to
the Depositor or the Servicer, stating that all conditions precedent
provided for in the Indenture relating to the satisfaction and discharge
of the Indenture have been satisfied; and
. upon delivery to the Indenture Trustee of an opinion of counsel, which
may be internal counsel to the Depositor or the Servicer, to the effect
that the satisfaction and discharge of the Indenture will not cause any
Noteholder to be treated as having sold or exchanged its Notes for
purposes of Section 1001 of the Internal Revenue Code.
Modification of Indenture
The provisions set forth below supersede the first two paragraphs in "The
Indenture-- Modification of Indenture" in the prospectus.
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee may,
without the consent of the Noteholders but with the consent of the Insurer if
an Insurer Default shall not have occurred and be continuing, with prior
written notice to the Insurer and each Rating Agency, enter into one or more
supplemental indentures for the purpose of, among other things, adding to the
covenants of the Trust for the benefit of the Noteholders, curing any
ambiguity, correcting or supplementing any provision of the Indenture which may
be inconsistent with any other provision of the Indenture or this prospectus
supplement or adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture which will not be inconsistent with
other provisions of the Indenture; provided, however, that no such supplemental
indenture may materially adversely affect the interests of any Securityholder.
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee may,
with the consent of the holders of Notes evidencing not less than 51% of the
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 the Insurer
and each Rating Agency, enter into one or more supplemental indentures for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or modifying in any manner the rights of
the Noteholders; provided, however, that no such supplemental indenture
consented to by the Insurer on behalf of the Noteholders may materially
adversely affect the interests of any Securityholder.
A supplemental indenture will be deemed not to materially adversely affect
the interests of any Securityholder if the person requesting the supplemental
indenture obtains and delivers to the Indenture Trustee:
. an opinion of counsel to that effect; or
. a letter from each Rating Agency to the effect that the supplemental
indenture would not result in a downgrading or withdrawal of its rating then
assigned to any class of the Securities.
No supplemental indenture will be permitted unless an opinion of counsel is
delivered to the Indenture Trustee to the effect that the supplemental
indenture will not materially
S-63
<PAGE>
adversely affect the taxation of any Security, or any Securityholder, or
adversely affect the tax status of the Trust. No supplemental indenture will be
permitted without the consent of the Insurer if the supplemental indenture
would reasonably be expected to materially adversely affect the interests of
the Insurer.
See "The Indenture--Modification of Indenture" in the prospectus for further
limitations on modifying the Indenture.
Administration Agreement
Pursuant to the Administration Agreement, CarMax, as Administrator, will
provide notices and perform other obligations of the Trust under the Indenture
and the Trust Agreement. 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 Trust Agreement
The following summary describes the material terms of the Trust Agreement.
We will file a copy of the Trust Agreement with the SEC after the Trust issues
the Securities.
Formation of Trust; Issuance of Certificates
On October 11, 2000, the Depositor formed the Trust and appointed the Owner
Trustee as trustee of the Trust. The Trust will, concurrently with the transfer
of the Receivables to the Trust pursuant to the Sale and Servicing Agreement,
issue the Certificates.
Replacement of Owner Trustee
The Owner Trustee may resign at any time by notifying the Administrator, the
Depositor and the Insurer of that resignation. The Administrator may remove the
Owner Trustee if the Owner Trustee:
. ceases to be eligible to continue as the trustee under the Trust
Agreement;
. is adjudged to be bankrupt or insolvent;
. comes under the charge of a receiver or other public officer; or
. otherwise becomes incapable of acting.
Upon the resignation or removal of the Owner Trustee, the Administrator,
with the consent of the Depositor and, so long as an Insurer Default shall not
have occurred and be continuing, the Insurer will be required promptly to
appoint a successor Trustee under the Trust Agreement.
Duties of Owner Trustee
The Owner Trustee will agree to administer the Trust in the interest of the
Certificateholders, subject to the lien of the Indenture, and in accordance
with the provisions
S-64
<PAGE>
of the Trust Agreement. The Owner Trustee will not be required to take any
action that it has reasonably determined is likely to result in liability on
the part of the Owner Trustee or that is contrary to the terms of the Trust
Agreement or applicable law.
Compensation; Indemnification
The Servicer will pay to the Owner Trustee from time to time reasonable
compensation for its services, reimburse the Owner Trustee for all expenses and
disbursements reasonably incurred or made by it and indemnify the Owner Trustee
for, and hold it harmless against, any and all losses, liabilities or expenses,
including attorneys' fees, incurred by it in connection with the administration
of the Trust or the performance of its duties under the Trust Agreement;
provided, however, that the Owner Trustee will not be indemnified against any
loss, liability or expense incurred by it through its own willful misconduct,
negligence or bad faith. The Owner Trustee will not be liable:
. for any error of judgment made by it in good faith unless it is proved
that the Owner Trustee was negligent in ascertaining the pertinent facts;
. for any action it takes or omits to take in good faith in accordance with
directions received by it from the Certificateholders, the Indenture
Trustee, the Depositor, the Administrator or the Servicer;
. for indebtedness evidenced by or arising under the Trust Agreement or any
of the related documents, including the principal of or interest on the
Securities; or
. for the default or misconduct of the Servicer, the Administrator, the
Depositor, the Indenture Trustee or any agent or attorney selected by the
Owner Trustee with reasonable care.
Termination of Trust
If the Insurance Policy has been terminated and returned to the Insurer for
cancellation, the Trust Agreement, except for provisions relating to
compensation, reimbursement and indemnification of the Owner Trustee, will
terminate and be of no further force or effect and the Trust will dissolve:
. upon the payment to the Insurer and the Securityholders of all amounts
required to be paid to them under the Insurance Agreement, the Indenture,
the Sale and Servicing Agreement and the Trust Agreement, as applicable;
or
. on the Distribution Date following the month which is one year after the
maturity or other liquidation of the last Receivable and the disposition
of any amounts received upon liquidation of any property remaining in the
Trust.
Amendment of Trust Agreement
The Owner Trustee, on behalf of the Trust, and the Depositor may, without
the consent of the Securityholders but with the consent of the Insurer if an
Insurer Default shall not have occurred and be continuing, with prior written
notice to the Insurer and each Rating Agency,
S-65
<PAGE>
amend the Trust Agreement for the purpose of curing any ambiguity, correcting
or supplementing any provision of the Trust Agreement which may be inconsistent
with any other provision of the Trust Agreement or this prospectus supplement
or adding any provisions to or changing in any manner or eliminating any of the
provisions of the Trust Agreement which will not be inconsistent with other
provisions of the Trust Agreement; provided, however, that no such amendment
may materially adversely affect the interests of any Securityholder. An
amendment will be deemed not to materially adversely affect the interests of
any Securityholder if the person requesting the amendment obtains and delivers
to the Owner Trustee:
. an opinion of counsel to that effect; or
. a letter from each Rating Agency to the effect that the amendment would
not result in a downgrading or withdrawal of its rating then assigned to
any class of Notes or the Certificates.
The Owner Trustee, on behalf of the Trust, and the Depositor may, with the
consent of the holders of Notes evidencing not less than 51% of the Note
Balance or, if the Notes have been paid in full, holders of Certificates
evidencing not less than 51% of the Certificate Balance, and with the consent
of the Insurer if an Insurer Default shall not have occurred and be continuing,
with prior written notice to the Insurer and each Rating Agency, amend the
Trust Agreement for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Trust Agreement or modifying
in any manner the rights of the Securityholders; provided, however, that no
amendment may:
. increase or reduce in any manner the amount of, or accelerate or delay
the timing of, or change the allocation or priority of, collections of
payments on or in respect of the Receivables or distributions that are
required to be made for the benefit of the Securityholders, or change the
Interest Rate applicable to any class of Notes or the Certificate Rate
without the consent of all Securityholders adversely affected by the
amendment;
. reduce the percentage of the Note Balance or the Certificate Balance the
consent of the holders of which is required for any amendment to the
Trust Agreement without the consent of all Securityholders adversely
affected by the amendment; or
. adversely affect the rating assigned by either Rating Agency to any class
of Notes or the Certificates without the consent of the holders of Notes
evidencing not less than 66 2/3% of the principal balance of that class
or the holders of Certificates evidencing not less than 66 2/3% of the
Certificate Balance, as applicable.
No amendment to the Trust Agreement will be permitted unless an opinion of
counsel is delivered to the Owner Trustee to the effect that the amendment will
not materially adversely affect the taxation of any Security, or any
Securityholder, or adversely affect the tax status of the Trust. No amendment
to the Trust Agreement will be permitted without the consent of the Insurer if
the amendment would reasonably be expected to materially adversely affect the
interests of the Insurer.
S-66
<PAGE>
Securities Owned By the Trust, the Depositor, the Seller, the Servicer or Their
Affiliates
In general, except as otherwise described in the Indenture, the Trust
Agreement, the Sale and Servicing Agreement or any other document related to
the transaction described in this prospectus supplement, any Securities owned
by the Trust, the Depositor, the Seller, the Servicer or any of their
respective affiliates will be entitled to benefits under such documents equally
and proportionately to the benefits afforded other owners of the Securities
except that such Securities will be deemed not to be outstanding for the
purpose of determining whether the requisite percentage of Securityholders have
given any request, demand, authorization, direction, notice, consent or waiver
under such documents.
Material Federal Income Tax Consequences
In the opinion of Brown & Wood LLP, counsel for the Depositor and federal
tax counsel for the Trust, for federal income tax purposes, the Notes will be
characterized as debt, and the Trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation. See
"Material Federal Income Tax Consequences" in the Prospectus.
ERISA Considerations
The Notes
The Notes may, in general, be purchased by, on behalf of or with "plan
assets" of Plans. Although we cannot assure you in this regard, the Notes
should be treated as "debt" and not as "equity interests" for purposes of the
Plan Assets Regulation because the Notes-
. are expected to be treated as indebtedness under local law and will, in
the opinion of federal tax counsel for the Trust, be treated as debt,
rather than equity, for federal income tax purposes (see "Material
Federal Income Tax Consequences" in the prospectus); and
. should not be deemed to have any "substantial equity features".
See "ERISA Considerations" in the prospectus.
However, the acquisition and holding of Notes of any class by or on behalf
of a Plan could be considered to give rise to a prohibited transaction under
ERISA or Section 4975 of the Internal Revenue Code if the Trust, the Owner
Trustee, the Indenture Trustee, any Certificateholder or any of their
respective affiliates, is or becomes a "party in interest" or a "disqualified
person" (as defined in ERISA and the Internal Revenue Code, respectively) with
respect to such Plan.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of securities--for
example, PTCE 96-23, which exempts certain transactions effected on behalf of a
Plan by an "in-house asset manager"; PTCE 95-60, which exempts certain
transactions by insurance company general
S-67
<PAGE>
accounts; PTCE 91-38, which exempts certain transactions by bank collective
investment funds; PTCE 90-1, which exempts certain transactions by insurance
company pooled separate accounts; or PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager". Each investor in a Note, by its acceptance of the Note, will be
deemed to represent either that is not a Plan, and is not investing on behalf
of or with plan assets of a Plan, or its acquisition and holding of the Note
satisfy the requirements for exemptive relief under one of the foregoing
exemptions.
Because the Trust, the Servicer, the Trustees, the Underwriters, any
provider of credit support or any of their affiliates may receive certain
benefits in connection with the sale of the Notes, the purchase of Notes using
plan assets over which any of such parties has investment authority may be
deemed to be a violation of the prohibited transaction rules of ERISA or
Section 4975 of the Code for which no exemption may be available. Accordingly,
any investor considering a purchase of Notes using plan assets should consult
with its counsel if the Trust, the Servicer, any Trustee, any Underwriter, any
provider of credit support or any of their affiliates has investment authority
with respect to such assets. For additional information regarding treatment of
the notes under ERISA, see "ERISA Considerations" in the prospectus.
The Certificates
Because the Certificates constitute equity interests in the Trust, ownership
of Certificates by Plans may cause the assets of the Trust to constitute plan
assets of Plans, and to be subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Internal
Revenue Code. Consequently, Plans may not acquire Certificates.
In addition, investors other than Plans should be aware that a prohibited
transaction under ERISA and the Internal Revenue Code could be deemed to occur
if any holder of the Certificates or any of its affiliates is or becomes a
party in interest or a disqualified person with respect to any Plan that
acquires and holds the Notes without such Plan being covered by one or more
exemptions from the prohibited transaction rules.
Each purchaser of the Certificates will be deemed to represent and certify
that it is not a Plan, and is not acquiring such Certificates on behalf of, or
with plan assets of, any Plan.
For additional information regarding treatment of the Certificates under
ERISA, see "ERISA Considerations" in the prospectus.
Underwriting
Subject to the terms and conditions set forth in the underwriting agreement,
the Depositor has agreed to cause the Trust to sell to each of the note
underwriters named below, for whom First Union Securities, Inc. is acting as
representative, and each of those note underwriters has severally agreed to
purchase, the initial principal amount of Class A-1
S-68
<PAGE>
Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes set forth opposite
its name below:
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
Class A-1 Class A-2 Class A-3 Class A-4
Note Underwriters Notes Notes Notes Notes
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
First Union Securities,
Inc......................
Banc of America Securities
LLC......................
Morgan Stanley & Co.
Incorporated.............
------------ ------------ ------------ ------------
Total.................... $152,254,000 $196,625,000 $178,929,000 $114,502,000
============ ============ ============ ============
</TABLE>
The Depositor has been advised by the underwriters of the Notes that they
propose initially to offer the Notes to the public at the applicable prices set
forth on the cover page of this prospectus supplement. After the initial public
offering of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and
the Class A-4 Notes, the public offering prices may change.
Subject to the terms and conditions set forth in the underwriting agreement,
the Depositor has agreed to cause the Trust to sell to the certificate
underwriter named below, and the certificate underwriter has agreed to
purchase, the initial principal amount of the Certificates set forth below
opposite its name.
<TABLE>
<CAPTION>
Principal
Amount of
Certificate Underwriter Certificates
----------------------- ------------
<S> <C>
First Union Securities, Inc..................................... $13,108,000
</TABLE>
The Depositor has been advised by the certificate underwriter that it
proposes initially to offer the Certificates to the public at the price set
forth on the cover page of this prospectus supplement. After the initial public
offering of the Certificates, the public offering price may change.
The underwriting discounts and commissions, the selling concessions that the
underwriters may allow to certain dealers and the discounts that such dealers
may reallow to certain other dealers, expressed as a percentage of the
principal amount of each class of Notes or the Certificates, as the case may
be, shall be as follows:
<TABLE>
<CAPTION>
Selling
Concessions Reallowance
not to exceed not to exceed
------------- -------------
<S> <C> <C>
Class A-1 Notes.................................. % %
Class A-2 Notes.................................. % %
Class A-3 Notes.................................. % %
Class A-4 Notes.................................. % %
Certificates..................................... % %
</TABLE>
S-69
<PAGE>
Until the distribution of the Securities is completed, rules of the SEC may
limit the ability of the related underwriters and certain selling group members
to bid for and purchase the Securities. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize the
prices of the Securities. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the prices of the Securities.
The underwriters may make short sales in the Securities in connection with
this offering (i.e., they sell more Notes or Certificates than they are
required to purchase in the offering). This type of short sale is commonly
referred to as a "naked" short sale because the related underwriters do not
have an option to purchase these additional securities in the offering. The
underwriters must close out any naked short position by purchasing Notes or
Certificates, as the case may be, in the open market. A naked short position is
more likely to be created if the related underwriters are concerned that there
may be downward pressure on the price of the Notes or Certificates in the open
market after pricing that could adversely affect investors who purchase in the
offering. Similar to other purchase transactions, the underwriters' purchases
to cover the syndicate short sales may have the effect of raising or
maintaining the market price of the Notes or the Certificates, as the case may
be, or preventing or retarding a decline in the market price of the Notes or
the Certificates.
The underwriters may also impose a penalty bid on certain underwriters and
selling group members. This means that if the underwriters purchase Securities
in the open market to reduce the underwriters' short position or to stabilize
the price of such Securities, they may reclaim the amount of the selling
concession from any underwriter or selling group member who sold those
Securities as part of the offering.
In general, purchases of a Security for the purpose of stabilization or to
reduce a short position could cause the price of the Security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a Security to the extent that it were
to discourage resales of the Security.
Neither the Depositor 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 Securities. In
addition, neither the Depositor nor any of the underwriters makes any
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Securities are new issues of securities and there currently is no
secondary market for the Notes or the Certificates. The underwriters for the
Notes and the Certificates, respectively, expect to make a secondary market for
the related Securities, but will not be obligated to do so. We cannot assure
you that a secondary market for the Notes or the Certificates will develop. If
a secondary market for the Notes or the Certificates does develop, it might end
at any time or it might not be sufficiently liquid to enable you to resell any
of your Notes or Certificates.
S-70
<PAGE>
The Indenture Trustee may, from time to time, invest the funds in the
Collection Account and the Reserve Account in investments acquired from or
issued by the underwriters or their affiliates.
In the ordinary course of business, the underwriters and their affiliates
have engaged and may engage in investment banking and commercial banking
transactions with the Depositor and its affiliates.
The Depositor has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the underwriters may be required to
make in respect thereof.
The closings of the sale of each class of Notes and the Certificates are
conditioned on the closing of the sale of each other class of Notes and the
Certificates.
Upon receipt of a request by an investor who has received an electronic
prospectus from an underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a prospectus,
the Depositor or the underwriter will promptly deliver, without charge, a paper
copy of this prospectus supplement and the prospectus.
Legal Opinions
Certain legal matters relating to the Securities, including certain federal
income tax matters, will be passed upon for the Depositor by Brown & Wood LLP,
San Francisco, California. Certain legal matters relating to the Seller and
Servicer will be passed upon by McGuireWoods LLP, Richmond, Virginia. Certain
legal matters relating to the Insurer and the Insurance Policy will be passed
upon for MBIA by Shaw Pittman, New York, New York.
Experts
The balance sheet of CarMax Auto Owner Trust 2001-1 as of January 8, 2001
has been included in this prospectus supplement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated balance sheets of MBIA and its consolidated subsidiaries as
of December 31, 1999 and December 31, 1998 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1999, have been
incorporated by reference in this prospectus supplement in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
S-71
<PAGE>
Glossary of Terms
Additional defined terms used in this prospectus supplement are defined
under "Glossary of Terms" in the prospectus.
"ABS" means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under "The Receivables Pool-
Weighted Average Life of the Securities".
"ABS Table" means the tables captioned "Percent of Initial Note Principal
Amount at Various ABS Percentages" and "Percent of Initial Certificate Balance
at Various ABS Percentages".
"Administration Agreement" means the Administration Agreement, dated as of
January 1, 2001, among the Administrator, the Trust and the Indenture Trustee,
as amended or supplemented.
"Administrator" means CarMax, as administrator under the Administration
Agreement.
"Available Collections" means, for any Distribution Date, the sum of the
following amounts with respect to the related Collection Period (subject to
the exclusions set forth below such amounts):
. all obligor payments received with respect to the Receivables during
the Collection Period;
. all Liquidation Proceeds received with respect to the Receivables
during the Collection Period;
. all interest earned on funds on deposit in the Collection Account
during the Collection Period;
. the Purchase Amount of each Receivable that became a Purchased
Receivable during the Collection Period; and
. all prepayments received with respect to the Receivables during the
Collection Period attributable to any refunded item included in the
amount financed of a Receivable, including amounts received as a
result of rebates of extended warranty contract costs and insurance
premiums and proceeds received under physical damage, theft, credit
life and credit disability insurance policies;
provided, however, that Available Collections for any Distribution Date will
exclude all payments and proceeds (including Liquidation Proceeds) received
with respect to any Purchased Receivable the Purchase Amount of which has been
included in Available Collections for a prior Collection Period.
"Available Funds" means, for any Distribution Date, the sum of Available
Collections, the Policy Claim Amount, the Reserve Account Draw Amount and, if
an Event of Default shall have occurred and be continuing and an Insurer
Default shall not have occurred and be continuing, amounts the Insurer has
deposited into the Collection Account on or before the
S-72
<PAGE>
related Distribution Date as a result of the Insurer, at its option, electing
to prepay all or any portion of the principal amount of the Notes and paying
accrued but unpaid interest on the amount of the Notes so prepaid or, if the
Notes have been paid in full, the amount of the Certificates so prepaid.
"Business Day" means a day other than a Saturday, a Sunday or a day on which
banking institutions or trust companies in the State of New York, the State of
Delaware, the State of North Carolina and the Commonwealth of Virginia are
authorized by law, regulation or executive order to be closed.
"CarMax" means CarMax Auto Superstores, Inc., and its successors.
"CarMax Auto Finance" means the financing unit of CarMax, and its
successors.
"Certificate Balance" means, with respect to the Certificates, initially,
$13,108,000, and thereafter, the initial Certificate Balance of the
Certificates, reduced by all amounts allocable to principal previously
distributed to the Certificateholders.
"Certificate Distribution Account" means the account established and
maintained by the Servicer in the name of the Owner Trustee pursuant to the
Trust Agreement for the benefit of the Certificateholders.
"Certificate Final Scheduled Distribution Date" means the February 15, 2007
Distribution Date.
"Certificate Rate" means % per annum.
"Certificateholders" means holders of record of the Certificates.
"Certificates" means the $13,108,000 aggregate principal amount of the
Trust's Asset Backed Certificates.
"Class A-1 Notes" means the $152,254,000 aggregate principal amount of the
Trust's Asset Backed Notes, Class A-1.
"Class A-2 Notes" means the $196,625,000 aggregate principal amount of the
Trust's Asset Backed Notes, Class A-2.
"Class A-3 Notes" means the $178,929,000 aggregate principal amount of the
Trust's Asset Backed Notes, Class A-3.
"Class A-4 Notes" means the $114,502,000 aggregate principal amount of the
Trust's Asset Backed Notes, Class A-4.
"Clearstream" means Clearstream Banking, societe anonyme and a professional
depository under the laws of Luxembourg.
"Closing Date" means January 25, 2001.
"Collection Account" means an account, held in the name of the Indenture
Trustee and for the benefit of the Insurer and the Securityholders, into which
the Servicer is required to deposit collections on the Receivables and other
amounts.
S-73
<PAGE>
"Collection Period" means, with respect to any Distribution Date, the
calendar month preceding the calendar month in which such Distribution Date
occurs, except that the first Collection Period will be the period from and
excluding November 30, 2000 to and including February 28, 2001.
"Contract Rate" means the per annum interest borne by a Receivable.
"Cutoff Date" means November 30, 2000.
"Defaulted Receivable" means a Receivable as to which any of the following
has occurred:
. any payment, or any part of any payment, due under the Receivable has
become 120 days or more delinquent, whether or not the Servicer has
repossessed the related Financed Vehicle;
. the Servicer has repossessed and sold the related Financed Vehicle; or
. the Servicer has determined in accordance with its customary practices
that the Receivable is uncollectable;
provided, however, that a Receivable will not be a Defaulted Receivable until
the last day of the month during which one of these events first occurs; and,
provided further, that any Receivable which CarMax or the Servicer has
repurchased or purchased under the Sale and Servicing Agreement will not be
deemed to be a Defaulted Receivable.
"Depositor" means Pooled Auto Securities Shelf LLC.
"Determination Date" means the sixth day preceding each Distribution Date
or, if the sixth day is not a Business Day, the following Business Day.
"Distribution Date" means the date on which the Trust will pay interest and
principal on the Securities, which will be the 15th day of each month or, if
any such day is not a Business Day, on the next Business Day, commencing March
15, 2001.
"DTC" means The Depository Trust Company and any successor depository
selected by the Indenture Trustee or the Owner Trustee, as applicable.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation.
"Event of Default" means an event of default under the Indenture, as
described under "Description of the Indenture--Events of Default".
"Event of Servicing Termination" means an event of servicing termination
under the Sale and Servicing Agreement, as described under "Description of the
Receivables Transfer and Servicing Agreements--Events of Servicing
Termination".
S-74
<PAGE>
"Final Scheduled Distribution Date" means, for each class of Notes and the
Certificates, the related date set forth in "Summary--Terms of the Securities"
or, if any such date is not a Business Day, the next succeeding Business Day.
"Financed Vehicles" means the new or used motor vehicles financed by the
Receivables.
"Indenture" means the Indenture, dated as of January 1, 2001 between the
Trust and the Indenture Trustee, as amended or supplemented.
"Indenture Trustee" means Bankers Trust Company, a New York banking
corporation, as indenture trustee under the Indenture.
"Insurance Agreement" means the Insurance and Reimbursement Agreement,
dated as of the Closing Date, among MBIA, the Trust, the Depositor, the
Indenture Trustee, CarMax, the Seller and the Servicer, as amended or
supplemented.
"Insurance Payment Amount" means, for any Distribution Date, the premium
payable under the Insurance Agreement for that Distribution Date plus any
overdue premiums payable under the Insurance Agreement for previous
Distribution Dates plus the aggregate amount of any unreimbursed payments
under the Insurance Policy, to the extent payable to the Insurer under the
Insurance Agreement, plus accrued interest on any unreimbursed payments under
the Insurance Policy at the rate provided in the Insurance Agreement plus any
other amounts due to the Insurer under the Insurance Agreement.
"Insurance Policy" means the irrevocable financial guaranty insurance
policy issued by the Insurer, dated the Closing Date, in respect of the
Securities.
"Insurer" means MBIA, and its successors.
"Insurer Default" means the Insurer shall fail to make any payment required
under the Insurance Policy in accordance with its terms or an event of
bankruptcy, insolvency, receivership or liquidation shall occur with respect
to the Insurer.
"Interest Rate" means, with respect to any class of Notes, the interest
rate for that class set forth under "Description of the Notes--Payments of
Interest".
"Liquidation Proceeds" means all amounts received by the Servicer, from
whatever source, with respect to any Defaulted Receivable, net of the sum of
(i) expenses incurred by the Servicer in connection with collection and
repossession plus (ii) any payments required by law to be remitted to the
obligor.
"MBIA" means MBIA Insurance Corporation, a stock insurance company
incorporated under the laws of the State of New York, and its successors.
"Monthly Certificate Interest" means, for any Distribution Date, the
interest payable on the Certificates on that Distribution Date.
S-75
<PAGE>
"Monthly Certificate Principal" means, for any Distribution Date on or after
which the Notes have been paid in full, the lesser of:
. the Certificate Balance as of the day preceding that Distribution
Date; and
. the amount necessary to reduce the Certificate Balance as of the day
preceding that Distribution Date to the aggregate Principal Balance
as of the last day of the related Collection Period;
provided, however, that the Monthly Certificate Principal on the Certificate
Final Scheduled Distribution Date will equal the outstanding principal balance
of the Certificates as of the day preceding that Distribution Date.
"Monthly Note Interest" means, for any Distribution Date, the sum of the
interest payable on that Distribution Date on the Class A-1 Notes, the Class A-
2 Notes, the Class A-3 Notes and the Class A-4 Notes.
"Monthly Note Principal" means, for any Distribution Date, the lesser of:
. the Note Balance as of the day preceding that Distribution Date; and
. the amount necessary to reduce the sum of the Note Balance and the
Certificate Balance as of the day preceding that Distribution Date to
the aggregate Principal Balance as of the last day of the related
Collection Period;
provided, however, that the Monthly Note Principal on the Final Scheduled
Distribution Date for any class of Notes will equal the greater of the amount
described immediately above and the outstanding principal balance of that class
of Notes as of the day preceding that Distribution Date.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Note Balance" means, at any time, the aggregate principal amount of all
Notes Outstanding at such time.
"Note Distribution Account" means the account established and maintained by
the Servicer in the name of the Indenture Trustee pursuant to the Sale and
Servicing Agreement for the benefit of the Noteholders.
"Noteholders" means holders of record of the Notes.
"Notes" means the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes.
"Outstanding" means, as of any Distribution Date, all Notes authenticated
and delivered under the Indenture except:
(i) Notes canceled by the Note Registrar or delivered to the Note
Registrar for cancellation;
(ii) Notes or portions of the Notes of the payment for which money in
the necessary amount has been deposited with the Indenture Trustee or any
Paying Agent in trust for the holders of the Notes; provided, however, that
if the Notes are to be redeemed, notice
S-76
<PAGE>
of such redemption must have been given pursuant to the Indenture or
provision for such notice must have been made in a manner satisfactory to
the Indenture Trustee; and
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to the Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a protected purchaser.
"Owner Trustee" means Wilmington Trust Company, a Delaware banking
corporation, acting not in its individual capacity but solely as owner trustee
under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other person eligible
under the Indenture.
"Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA,
that is subject to Title I of ERISA, or a plan described in Section 4975(e)(1)
of the Code.
"Policy Claim Amount" means, for any Distribution Date, the amount, if any,
by which the Required Payment Amount for that Distribution Date exceeds the sum
of Available Collections plus the Reserve Account Draw Amount for that
Distribution Date.
"Principal Balance" means, with respect to any Receivable as of any date,
the amount financed under such Receivable minus the sum of (i) that portion of
all scheduled payments actually received on or prior to such date allocable to
principal using the simple interest method (to the extent collected) plus (ii)
any rebates of extended warranty contract costs or physical damage, theft,
credit life or credit disability insurance premiums included in the amount
financed plus (iii) any full or partial prepayment applied to reduce the unpaid
principal balance of such Receivable; provided, however, that (a) the Principal
Balance of a Defaulted Receivable will be zero as of the last day of the
Collection Period during which it became a Defaulted Receivable and (b) the
Principal Balance of a Purchased Receivable will be zero as of the last day of
the Collection Period during which it became a Purchased Receivable.
"PTCE" means Prohibited Transaction Class Exemption.
"Purchase Amount" means the price at which the Seller or the Servicer must
purchase a Receivable, which price equals the Principal Balance plus interest
accrued thereon at the Contract Rate specified in the Receivable to but
excluding the Distribution Date on which such repurchase occurs.
"Purchased Receivable" means a Receivable repurchased from the Trust by the
Seller or the Servicer because of a breach of a representation, warranty or
servicing covenant under the Sale and Servicing Agreement.
"Rating Agency" means Moody's and Standard & Poor's.
"Receivables" means the motor vehicle retail installment sale contracts
transferred by the Depositor to the Trust.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement,
dated as of January 1, 2001, between the Seller and the Depositor, as amended
or supplemented.
S-77
<PAGE>
"Record Date" means, with respect to any Distribution Date, the Business
Day immediately preceding that Distribution Date or, if the related Securities
are issued as definitive securities, the last Business Day of the preceding
month.
"Required Payment Amount" means, for any Distribution Date, the aggregate
amount to be applied on that Distribution Date in accordance with clauses (1),
(2), (3), (4), (5) and (6) under "Application of Available Funds--Priority of
Distributions".
"Required Reserve Account Amount" means, for any Distribution Date, the
greater of--
. $6,554,182.13; and
. 3.00% of the aggregate Principal Balance as of the last day of the
related Collection Period;
provided, however, the Required Reserve Account Amount shall equal the amount
required to be on deposit in the Reserve Account under the Insurance Agreement
in the event of the occurrence of certain events specified therein; provided,
further, however, that the Required Reserve Account Amount for any
Distribution Date will not exceed the principal balance of the Securities as
of that Distribution Date, after giving effect to all payments of principal
made to the Securityholders on that Distribution Date.
"Reserve Account" means the account established and maintained by the
Servicer in the name of the Indenture Trustee into which the Trust will
deposit the Reserve Account Initial Deposit and into which the Indenture
Trustee will make the other deposits and withdrawals specified in this
prospectus supplement.
"Reserve Account Amount" means, for any Distribution Date, the amount on
deposit in and available for withdrawal from the Reserve Account after giving
effect to all deposits to and withdrawals from the Reserve Account on the
preceding Distribution Date (or in the case of the first Distribution Date,
the Closing Date), including investment earnings earned on amounts on deposit
therein during the related Collection Period.
"Reserve Account Draw Amount" means, for any Distribution Date, the lesser
of (i) the amount, if any, by which the sum of the Required Payment Amount
plus the Insurance Payment Amount for that Distribution Date exceeds the
Available Collections for that Distribution Date and (ii) the Reserve Account
Amount for that Distribution Date.
"Reserve Account Initial Deposit" means $8,192,727.66.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of January 1, 2001, among the Trust, the Depositor, the Seller and
the Servicer, as amended or supplemented.
"SEC" means the Securities and Exchange Commission, and its successors.
"Securities" means the Notes and the Certificates.
"Securityholders" means the Noteholders and Certificateholders.
S-78
<PAGE>
"Seller" means CarMax Auto Superstores, Inc., and its successors.
"Servicer" means CarMax, as servicer under the Sale and Servicing Agreement.
"Servicing Fee" means a fee payable to the Servicer on each Distribution
Date for the related Collection Period for servicing the Receivables which is
equal to the product of 1/12 of 1.00% per annum and the aggregate Principal
Balance of the Receivables as of the first day of that Collection Period (or as
of the Closing Date in the case of the first Distribution Date).
"Standard & Poor's" means Standard & Poor's, a Division of The McGraw-Hill
Companies, Inc., and its successors.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated as
of January 1, 2001, between the Depositor and the Owner Trustee, as amended or
supplemented.
"UCC" means the Uniform Commercial Code as in effect from time to time in
any relevant jurisdiction.
S-79
<PAGE>
CarMax Auto Owner Trust 2001-1
Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report.............................................. S-F-2
Balance Sheet............................................................. S-F-3
Note to Balance Sheet..................................................... S-F-4
</TABLE>
S-F-1
<PAGE>
Independent Auditors' Report
Wilmington Trust Company, as Owner Trustee
For CarMax Auto Owner Trust 2001-1:
We have audited the accompanying balance sheet of CarMax Auto Owner Trust
2001-1 (the "Trust") as of January 8, 2001. This financial statement is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit of a balance sheet includes
examining, on a test basis, evidence supporting the amounts and disclosures in
that balance sheet. An audit of a balance sheet also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We believe that our
audit of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CarMax Auto Owner Trust 2001-1 as
of January 8, 2001 in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Richmond, Virginia
January 10, 2001
S-F-2
<PAGE>
CarMax Auto Owner Trust 2001-1
Balance Sheet
January 8, 2001
<TABLE>
<S> <C>
Assets
Cash.................................................................... $1,000
------
Undivided Trust Interests
Undivided trust interests............................................... $1,000
======
</TABLE>
See accompanying note to balance sheet.
S-F-3
<PAGE>
CarMax Auto Owner Trust 2001-1
Note to Balance Sheet
January 8, 2001
(1) Summary of Significant Accounting Policies
(a) Organization
CarMax Auto Owner Trust 2001-1 (the "Trust"), a Delaware business trust,
was formed on October 11, 2000 between Pooled Auto Securities Shelf LLC, a
Delaware limited liability company, as depositor (the "Depositor"), and
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"Owner Trustee").
The purpose of the Trust is to conserve assets of the Trust and collect and
disburse the periodic income from such assets. In order to achieve this
purpose, the Trust will issue notes and certificates and pay interest on
and principal of the notes and certificates. The purpose and
responsibilities of the Trust are further described in the Trust Agreement
dated January 1, 2001.
(b) Undivided Trust Interests
Undivided trust interests represents the capital contribution of Pooled
Auto Securities Shelf LLC to the Trust.
(c) Income Taxes
For purposes of federal income, state and local income and franchise tax
and any other income taxes, the Trust is intended to be treated as either a
"nonentity" under Treasury Regulations or as a partnership and the
certificateholders will be treated as partners in that partnership.
Accordingly, no taxes are provided, as trust income is passed through to
the beneficiaries of the Trust.
S-F-4
<PAGE>
ANNEX I
Global Clearance, Settlement and
Tax Documentation Procedures
The globally-offered securities to be issued from time to time will
initially be available only in book-entry form. Investors in the globally-
offered securities may hold those securities through any of DTC, Clearstream or
Euroclear. The globally-offered securities will be tradeable as home market
instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding globally-offered
securities through Clearstream and Euroclear will be conducted in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice.
Secondary market trading between investors holding globally-offered
securities through DTC will be conducted in accordance with the rules and
procedures applicable to United States corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and
organizations participating in DTC that hold offered securities will be
effected on a delivery-against-payment basis through the respective
depositaries of Clearstream and Euroclear, in such capacity, and as DTC
participants.
See "Certain Information Regarding the Securities--Book-Entry Registration"
in the prospectus for further information.
Exemption For Non-United States Persons. Non-United States Persons that are
beneficial owners of the globally-offered securities can obtain a complete
exemption from the withholding tax by filing Form W-8 BEN (Certificate of
Foreign Status of Beneficial Owner for United States Tax Withholding).
Exemption For Non-United States Persons With Effectively Connected
Income. Non-United States Persons, including non-United States corporations or
banks with a United States branch, that are beneficial owners of the globally-
offered securities and for which the related interest income is effectively
connected with the conduct of a trade or business in the United States can
obtain a complete exemption from the withholding tax by filing Form W-8 ECI
(Certificate of Foreign Person's Claim for Exemption from Withholdings on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or Reduced Rate For Non-United States Persons Resident in Treaty
Countries. Non-United States Persons that are beneficial owners of the
globally-offered securities and reside in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate, depending on the
treaty terms, by filing Form W-8 BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding).
S-I-1
<PAGE>
Exemption For United States Persons. United States Persons that are
beneficial owners of the globally-offered securities can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
United States Federal Income Tax Reporting Procedure. The beneficial owner
of a globally-offered security files by submitting the appropriate form to the
person through whom he holds, which person would be the clearing agency in the
case of persons holding directly on the books of the clearing agency. Form W-8
ECI and Form W-8 BEN are effective from the date the form is signed through the
end of the third succeeding calendar year.
This summary does not deal with all aspects of United States federal income
tax withholding that may be relevant to foreign holders of the globally-offered
securities. We suggest that you read "Material Federal Income Tax Consequences"
in the prospectus for further information and consult your own tax advisors
with respect to the tax consequences of holding or disposing of the globally-
offered securities. The information contained in this Annex I is an integral
part of the prospectus supplement to which it is attached.
S-I-2
<PAGE>
PROSPECTUS
Asset Backed Notes
Asset Backed Certificates
(Each Issuable In Series)
----------------
Pooled Auto Securities Shelf LLC
as depositor
----------------
Before you purchase Each trust--
any of these
securities, be sure
to read the risk
factors beginning on
page 11 of this
prospectus and the
risk factors set
forth in the related
prospectus
supplement.
. will issue a series of asset-backed notes and/or
certificates in one or more classes;
. will own--
. a pool of loans made to finance the retail
purchase of new or used automobiles, minivans,
sport utility vehicles, light-duty trucks,
motorcycles or commercial vehicles;
The notes and the . collections on those loans;
certificates will
represent interests
in or obligations of
the trust only and
will not represent
interests in or
obligations of
Pooled Auto
Securities Shelf LLC
or any of its
affiliates.
. security interests in the vehicles financed by
those loans;
. any proceeds from claims on related insurance
policies; and
. funds in accounts of the trust; and
. may have the benefit of one or more other forms of
credit enhancement.
This prospectus may The main sources of funds for making payments on a
be used to offer and trust's securities will be collections on its loans
sell any of the and any credit enhancement that the trust may have.
notes and/or
certificates only if
accompanied by the
prospectus
supplement for the
related trust.
The amounts, prices and terms of each offering of
securities will be determined at the time of sale and
will be described in an accompanying prospectus
supplement.
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 or any related prospectus supplement.
Any representation to the contrary is a criminal offense.
----------------
The date of this Prospectus is January 12, 2001 .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Notice About Information Presented in this Prospectus and the
Accompanying Prospectus Supplement..................................... 4
Where You Can Find Additional Information................................ 4
Incorporation of Certain Documents by Reference.......................... 4
Copies of the Documents................................................. 5
Summary.................................................................. 6
Risk Factors............................................................. 11
The Trusts............................................................... 18
The Receivables......................................................... 18
The Seller and the Servicer............................................. 19
The Trustees............................................................ 19
The Receivables Pools.................................................... 20
The Receivables......................................................... 20
Maturity and Prepayment Considerations................................... 23
Pool Factors and Trading Information..................................... 24
Notes................................................................... 24
Certificates............................................................ 25
The Factors Described Above Will Decline as the Trust Makes Payments on
the Securities........................................................ 25
Additional Information.................................................. 25
Use of Proceeds.......................................................... 26
The Company.............................................................. 26
Principal Documents...................................................... 27
Certain Information Regarding the Securities............................. 28
General................................................................. 28
Fixed Rate Securities................................................... 29
Floating Rate Securities................................................ 29
Book-Entry Registration................................................. 30
Definitive Securities................................................... 36
Reports to Securityholders.............................................. 37
The Indenture............................................................ 38
The Indenture Trustee................................................... 44
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of the Receivables Transfer and Servicing Agreements.......... 45
Sale and Assignment of Receivables....................................... 45
Accounts................................................................. 47
Servicing Procedures..................................................... 48
Collections.............................................................. 49
Advances................................................................. 49
Servicing Compensation and Expenses...................................... 50
Distributions............................................................ 51
Credit and Cash Flow Enhancement......................................... 51
Statements to Trustees and Trusts........................................ 52
Evidence as to Compliance................................................ 53
Certain Matters Regarding the Servicer................................... 53
Events of Servicing Termination.......................................... 54
Rights Upon Event of Servicing Termination............................... 55
Waiver of Past Events of Servicing Termination........................... 55
Amendment................................................................ 56
Payment of Notes......................................................... 56
Termination.............................................................. 56
List of Certificateholders............................................... 57
Administration Agreement................................................. 57
Material Legal Issues Relating to the Receivables......................... 58
General.................................................................. 58
Security Interests in the Financed Vehicles.............................. 58
Enforcement of Security Interests in Vehicles............................ 60
Certain Bankruptcy Considerations........................................ 61
Consumer Protection Laws................................................. 61
Other Matters............................................................ 63
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Material Federal Income Tax Consequences.................................. 64
Trusts for Which a Partnership Election is Made.......................... 65
Trusts in Which all Certificates are Retained by the Seller or an
Affiliate of the Seller................................................ 73
Trusts Treated as Grantor Trusts......................................... 74
Certain State Tax Consequences............................................ 80
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ERISA Considerations....................................................... 81
Certificates Issued by Trusts............................................. 83
Special Considerations Applicable to Insurance Company General Accounts... 86
Plan of Distribution....................................................... 87
Sales Through Underwriters................................................ 87
Other Placements of Securities............................................ 88
Legal Opinions............................................................. 88
Glossary of Terms.......................................................... 89
</TABLE>
3
<PAGE>
Important Notice About Information Presented in
This Prospectus and the Accompanying
Prospectus Supplement
We provide information on your securities in two separate documents that
offer varying levels of detail:
. this prospectus provides general information, some of which may not apply
to a particular series of securities, including your securities, and
. the accompanying prospectus supplement will provide a summary of the
specific terms of your securities.
If the terms of the securities described in this prospectus vary with the
accompanying prospectus supplement, you should rely on the information in the
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents in the front
of each document to locate the referenced sections.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement, including any information incorporated by
reference. We have not authorized anyone to provide you with different
information.
Where You Can Find Additional Information
Pooled Auto Securities Shelf LLC has filed a registration statement with the
SEC under the Securities Act. This prospectus is part of the Registration
Statement but the Registration Statement includes additional information.
You may inspect and copy the Registration Statement at:
. the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 (telephone 1-800-732-0330),
. the SEC's regional office at Citicorp Center, 500 West Madison Street,
14th Floor, Chicago, Illinois 60661, and
. the SEC's regional office at Seven World Trade Center, New York, New York
10048.
Also, the SEC maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
Incorporation of Certain Documents by Reference
The SEC allows us to "incorporate by reference" information filed with it by
Pooled Auto Securities Shelf LLC on behalf of the trust, which means that we
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 we file
4
<PAGE>
later with the SEC 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 or the related prospectus
supplement. We incorporate by reference any future annual, monthly or special
SEC reports and proxy materials filed by or on behalf of a trust until we
terminate our offering of the securities by that trust.
Copies of the Documents
You may receive a free copy of any or all of the documents incorporated by
reference in this prospectus or incorporated by reference into the accompanying
prospectus supplement if:
. you received this prospectus and the prospectus supplement and
. you request such copies from Pooled Auto Securities Shelf LLC, One First
Union Center, TW-9, Charlotte, North Carolina 28288; telephone: (704)
374-8437.
This offer only includes the exhibits to such documents if such exhibits are
specifically incorporated by reference in such documents. You may also read and
copy these materials at the public reference facilities of the SEC in
Washington, D.C. referred to above.
5
<PAGE>
Summary
The following summary is a short description of the main structural features
that a trust's securities may have. For that reason, this summary does not
contain all of the information that may be important to you or that describes
all of the terms of a security. To fully understand the terms of a trust's
securities, you will need to read both this prospectus and the related
prospectus supplement in their entirety.
The Trusts
A separate trust will be formed to issue each series of securities. If the
trust issues notes and certificates, it will be formed by a trust agreement
between the depositor and the trustee of the trust. If the trust issues only
certificates, it will be formed by a pooling and servicing agreement among the
seller, the servicer, the depositor and the trustee of the trust.
The Depositor
Pooled Auto Securities Shelf LLC.
Seller
The prospectus supplement will name the seller for the trust.
Servicer
The prospectus supplement will name the servicer for the trust.
Trustee
The prospectus supplement will name the trustee for the trust.
Indenture Trustee
If a trust issues notes, the prospectus supplement will name the indenture
trustee.
Securities
A trust's securities may include one or more classes of notes and/or
certificates. You will find the following information about each class of
securities in the prospectus supplement:
. its principal amount;
. its interest rate, which may be fixed or variable or a combination;
. the timing, amount and priority or subordination of payments of principal and
interest;
. the method for calculating the amount of principal and interest payments;
. its final scheduled distribution date;
. whether and when it may be redeemed prior to its final scheduled distribution
date; and
. how losses on the receivables are allocated among the classes of securities.
Some classes of securities may be entitled to:
. principal payments with disproportionate, nominal or no interest payments or
. interest payments with disproportionate, nominal or no principal payments.
The prospectus supplement will identify any class of securities of a series
that is not being offered to the public.
Generally, you may purchase the securities only in book-entry form and will
not receive your securities in definitive form. You may purchase securities in
the denominations set forth in the prospectus supplement. The record date for a
distribution date will be the business day immediately preceding the payment
date or,
6
<PAGE>
if definitive securities are issued, the last day of the preceding calendar
month.
Investment in the Securities
There are material risks associated with an investment in the securities.
For a discussion of the risk factors which should be considered in deciding
whether to purchase any of the securities, see "Risk Factors" in the prospectus
and in the related prospectus supplement.
Optional Redemption
Except as otherwise specified in the related prospectus supplement, the
servicer will have the option to purchase the receivables of each trust on any
distribution date when the aggregate principal balance of the receivables sold
to the trust has declined to 10% or less of the initial amount. Upon such a
purchase, the securities of that trust will be prepaid in full.
The Receivables and Other Trust Property
The Receivables
The receivables of each trust will consist of a pool of motor vehicle
installment loans originated, either (1) via direct channels or (2) indirectly
by motor vehicle dealers or lenders, and purchased, directly or indirectly, by
a purchaser of acquired assets with dealers or lenders and sold to the
depositor. The receivables will be secured by new or used automobiles,
minivans, sport utility vehicles, light-duty trucks, motorcycles or commercial
vehicles and other property, including:
. the rights to receive payments made on the receivables after the cutoff date
specified in the related prospectus supplement;
. security interests in the vehicles financed by the receivables; and
. any proceeds from claims on various related insurance policies.
You will find a description of the characteristics of each trust's
receivables in the related prospectus supplement.
For a more detailed description of the receivables, including the criteria
they must meet in order to be included in a trust, and the other property
supporting the securities, see "The Receivables Pools".
Other Property of the Trust
In addition to the receivables, each trust will own amounts on deposit in
various trust accounts, which may include:
. an account into which collections are deposited;
. an account to fund post-closing purchases of additional receivables; or
. a reserve fund or other account providing credit enhancement.
Purchase of Receivables After the Closing Date
If a trust has not purchased all of its receivables at the time you purchase
your securities, it will purchase the remainder of its receivables from the
seller over any funding period that may be specified in the prospectus
supplement. A funding period will not exceed one year from the applicable
closing date. During a funding period the trust will purchase receivables using
amounts deposited on the closing date into the pre-funding account which will
be an account of the trust established with the
7
<PAGE>
related trustee. The other terms, conditions and limitations of the purchase of
receivables during any funding period will be specified in the related
prospectus supplement.
Credit or Cash Flow Enhancement
The prospectus supplement will specify the credit or cash flow enhancement,
if any, for each trust. Credit or cash flow enhancement may consist of one or
more of the following:
. subordination of one or more classes of securities;
. a reserve fund;
. overcollateralization (i.e., the amount by which the principal amount of the
receivables exceeds the principal amount of all of the trust's securities);
. excess interest collections (i.e., the excess of anticipated interest
collections on the receivables over servicing fees, interest on the trust's
securities and any amounts required to be deposited in any reserve fund);
. a letter of credit or other credit facility;
. a surety bond or insurance policy;
. liquidity arrangements;
. swaps (including currency swaps) and other derivative instruments and
interest rate protection agreements;
. repurchase or put obligations;
. yield supplement agreements;
. guaranteed investment contracts;
. guaranteed rate agreements; or
. other agreements with respect to third party payments or other support.
Limitations or exclusions from coverage could apply to any form of credit or
cash flow enhancement. The prospectus supplement will describe the credit or
cash flow enhancement and related limitations and exclusions applicable for
securities issued by a trust. Enhancements cannot guarantee that losses will
not be incurred on the securities.
Reserve Fund
If there is a reserve fund, the seller will initially deposit in it cash or
securities having a value equal to the amount specified in the prospectus
supplement.
Amounts on deposit in a reserve fund will be available to cover shortfalls
in the payments on the securities as described in the prospectus supplement.
The prospectus supplement may also specify (1) a minimum balance to be
maintained in the reserve fund and what funds are available for deposit to
reinstate that balance and (2) when and to whom any amount will be distributed
if the balance exceeds this minimum amount.
For more information about credit enhancement, see "Description of the
Receivables Transfer and Servicing Agreements--Credit and Cash Flow
Enhancement".
Transfer and Servicing of the Receivables
With respect to each trust, a seller will sell the related receivables to
the depositor under a receivables purchase agreement, which, in turn, will
transfer the receivables to the trust under a sale and servicing agreement or a
pooling and servicing agreement. The servicer will agree with the trust to be
responsible for servicing, managing, maintaining custody of and making
collections on the receivables.
8
<PAGE>
For more information about the sale and servicing of the receivables, see
"Description of the Receivables Transfer and Servicing Agreements--Sale and
Assignment of Receivables."
Servicing Fees
Each trust will pay the related servicer a servicing fee based on the
outstanding balance of the receivables. The amount of the servicing fee will be
specified in the prospectus supplement. The servicer may also be entitled to
retain as supplemental servicing compensation fees and charges paid by obligors
and net investment income from reinvestment of collections on the receivables.
Optional Servicer Advances of Late Interest Payments
Unless otherwise specified in the related prospectus supplement, when
interest collections received on the receivables are less than the scheduled
interest collections in a monthly collection period, the servicer will advance
to the trust that portion of the shortfalls that the servicer, in its sole
discretion, expects to be paid in the future by the related obligors.
The servicer will be entitled to reimbursement from other collections of the
trust for advances that are not repaid out of collections of the related late
payments.
Repurchase May Be Required in Certain Circumstances
If so provided in the related prospectus supplement, the seller will be
obligated to repurchase any receivable transferred to the trust, if
. one of the seller's representations or warranties is breached with
respect to that receivable,
. the receivable is materially and adversely affected by the breach and
. the breach has not been cured following the discovery by or notice to
the seller and the depositor of the breach.
If so provided in the related prospectus supplement, the seller will be
permitted, in a circumstance where it would otherwise be required to repurchase
a receivable as described in the preceding sentence, to instead substitute a
comparable receivable for the receivable otherwise requiring repurchase.
In the course of its normal servicing procedures, the servicer may defer or
modify the payment schedule of a receivable. Some of these arrangements may
obligate the servicer to repurchase the receivable.
For a discussion of the representations and warranties given by the seller
and the servicer and their related repurchase obligations, see "Description of
the Receivables Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "--Servicing Procedures".
Tax Status
Trusts Other Than Grantor Trusts
Unless the prospectus supplement specifies that the related trust will be
treated as a grantor trust, it is the opinion of Brown & Wood LLP, as federal
tax counsel to the trust, that for federal income tax purposes:
9
<PAGE>
. The notes will be characterized as debt unless otherwise stated in the
prospectus supplement.
. The trust will not be characterized as an association, or a publicly traded
partnership, taxable as a corporation. Therefore, the trust will not be
subject to an entity level tax for federal income tax purposes.
Grantor Trusts
If the prospectus supplement specifies that the related trust will be
treated as a grantor trust, it is the opinion of Brown & Wood LLP, as federal
tax counsel to the trust, that for federal income tax purposes:
. The trust will be characterized as a grantor trust and not as an
association, or publicly traded partnership, taxable as a corporation.
Therefore, the trust will not be subject to an entity level tax for federal
income tax purposes.
. Each grantor trust certificateholder will be treated as the owner of a pro
rata undivided interest in the interest and principal portions of the trust
represented by the grantor trust certificates and will be considered the
owner of a pro rata undivided interest in each of the receivables in the
trust. Each grantor trust certificateholder will be required to report on
its federal income tax return in accordance with the grantor trust
certificateholder's method of accounting its pro rata share of the entire
income from the receivables in the trust represented by grantor trust
certificates, including interest, original interest discount, if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the servicer.
For additional information concerning the application of federal and state
tax laws to the securities, see "Material Federal Income Tax Consequences".
ERISA Considerations
Notes
Notes will generally be eligible for purchase by or with plan assets of
employee benefit and other plans that are subject to ERISA and to Section 4975
of the Internal Revenue Code.
Grantor Trust Certificates
Certificates issued by a grantor trust that are rated BBB- (or its
equivalent) or better will generally be eligible for purchase by or with plan
assets of employee benefit and other plans.
Other Certificates
Certificates issued by a grantor trust that are not rated BBB- (or its
equivalent) or better and certificates issued by owner trusts generally will
not be eligible for purchase by or with plan assets of employee benefit and
other plans.
If you are an employee benefit or other plan, you should review the matters
discussed under "ERISA Considerations" before investing in the securities.
10
<PAGE>
Risk Factors
You should consider the following risk factors in deciding whether to
purchase any of the securities. The risk factors stated here and in the
prospectus supplement describe the principal risk factors of an investment in
the securities.
You may have difficulty There may be no secondary market for the
selling your securities or securities. Underwriters may participate in
obtaining your desired price making a secondary market in the securities,
but are under no obligation to do so. We cannot
assure you that a secondary market will
develop. In addition, there have been times in
the past where there have been very few buyers
of asset backed securities and thus there has
been a lack of liquidity. There may be a
similar lack of liquidity in the future. As a
result, you may not be able to sell your
securities when you want to do so, or you may
not be able to obtain the price that you wish
to receive.
Interests of other persons Financing statements under the Uniform
in the receivables could Commercial Code will be filed reflecting the
reduce the funds available sale of the receivables by the seller to the
to make payments on your depositor and by the depositor to the trust.
securities Unless otherwise provided in the related
standing instructions, the seller will mark its
computer systems, and each of the seller and
the depositor will mark its accounting records,
to reflect its sale of the receivables.
However, unless otherwise provided in the
related standing instructions, the servicer
will maintain possession of the receivables and
will not segregate or mark the receivables as
belonging to the trust. Additionally, another
person could acquire an interest in a
receivable that is superior to the trust's
interest by obtaining physical possession of
that receivable without knowledge of the
assignment of the receivable to the trust. If
another person acquires an interest in a
receivable that is superior to the trust's
interest, some or all of the collections on
that receivable may not be available to make
payment on your securities.
Additionally, if another person acquires an
interest in a vehicle financed by a receivable
that is superior to the trust's security
interest in the vehicle, some or all of the
proceeds from the sale of the vehicle may not
be available to make payments on the
securities.
11
<PAGE>
The trust's security interest in the financed
vehicles could be impaired for one or more of
the following reasons:
. the seller or the depositor might fail to
perfect its security interest in a financed
vehicle;
. another person may acquire an interest in a
financed vehicle that is superior to the
trust's security interest through fraud,
forgery, negligence or error because the
servicer will not amend the certificate of
title or ownership to identify the trust as
the new secured party;
. the trust may not have a security interest in
the financed vehicles in certain states
because the certificates of title to the
financed vehicles will not be amended to
reflect assignment of the security interest
to the trust;
. holders of some types of liens, such as tax
liens or mechanics' liens, may have priority
over the trust's security interest; and
. the trust may lose its security interest in
vehicles confiscated by the government.
The seller will be obligated to repurchase from
the trust any receivable sold to the trust as
to which a perfected security interest in the
name of the related seller in the vehicle
securing the receivable did not exist as of the
date such receivable was transferred to the
trust. However, the seller will not be required
to repurchase a receivable if a perfected
security interest in the name of the seller in
the vehicle securing a receivable has not been
perfected in the trust or if the security
interest in a related vehicle or the receivable
becomes impaired after the receivable is sold
to the trust. If a trust does not have a
perfected security interest in a vehicle, its
ability to realize on the vehicle in the event
of a default may be adversely affected and some
or all of the collections on that vehicle may
not be available to make payment on your
securities.
Consumer protection laws may Federal and state consumer protection laws
reduce payments on your impose requirements upon creditors in
securities connection with extensions of credit and
collections on retail installment loans. Some
of these laws make an assignee of the loan,
such as a trust, liable to the obligor for any
violation by
12
<PAGE>
the lender. Any liabilities of the trust under
these laws could reduce the funds that the
trust would otherwise have to make payments on
your securities.
The securities represent interests solely in a
Only the assets of the trust trust or indebtedness of a trust and will not
are available to pay your be insured or guaranteed by the depositor, the
securities seller or any of their respective affiliates,
or, unless otherwise specified in the
prospectus supplement, any other person or
entity other than the trust. The only source of
payment on your securities are payments
received on the receivables and, if and to the
extent available, any credit or cash flow
enhancement for the trust. Therefore, you must
rely solely on the assets of the trust for
repayment of your securities. If these assets
are insufficient, you may suffer losses on your
securities.
Amounts on deposit in any The amount required to be on deposit in any
reserve fund will be limited reserve fund will be limited. If the amounts in
and subject to depletion the reserve fund are depleted as amounts are
paid out to cover shortfalls in distributions
of principal and interest on the securities,
the trust will depend solely on collections on
the receivables and any other credit or cash
flow enhancement to make payments on your
securities. In addition, the minimum required
balance in a reserve fund may decrease as the
outstanding balance of the receivables
decreases.
Any credit support provided Credit support for the securities may be
by financial instruments may provided through the use of financial
be insufficient to protect instruments like swaps, interest rate caps,
you against losses other interest rate protection agreements,
letters of credit, credit or liquidity
facilities, surety bonds, insurance policies
regarding payment of the securities, guaranteed
investment contracts, repurchase agreements,
yield supplement agreements or other agreements
with respect to third party payments. Credit
support in this form is limited by the credit
of the provider of the financial instrument and
by its ability to make payments as and when
required by the terms of the financial
instrument. Any failure of the credit support
provider to meet its obligations under the
financial instrument could result in losses on
the related securities. The terms of any
financial instrument providing credit support
for the securities may also impose limitations
or conditions on when or in what circumstances
it may be drawn on. Any form of credit
13
<PAGE>
support may apply only to certain classes of
securities, may be limited in dollar amount,
may be accessible only under some
circumstances, and may not provide protection
against all risks of loss. The related
prospectus supplement will describe the
provider of any financial instrument supporting
the securities and any conditions, limitations
or risks material to the securityholders.
You may suffer losses upon a Under certain circumstances described in this
liquidation of the prospectus and in the related prospectus
receivables if the proceeds supplement, the receivables of a trust may be
of the liquidation are less sold after the occurrence of an event of
than the amounts due on the default. The related securityholders will
outstanding securities suffer losses if the trust sells the
receivables for less than the total amount due
on its securities. We cannot assure you that
sufficient funds would be available to repay
those securityholders in full.
Subordination of certain To the extent specified in the related
securities may reduce prospectus supplement, the rights of the
payments to those securities holders of any class of securities to receive
payments of interest and principal may be
subordinated to one or more other classes of
securities. Subordination may take the
following forms:
. interest payments on any date on which
interest is due may first be allocated to the
more senior classes;
. principal payments on the subordinated
classes might not begin until principal of
the more senior classes is repaid in full;
. principal payments on the more senior classes
may be made on a distribution date before
interest payments on the subordinated classes
are made; and
. if the trustee sells the receivables, the net
proceeds of that sale may be allocated first
to pay principal and interest on the more
senior classes.
The timing and priority of payment, seniority,
allocations of losses and method of determining
payments on the respective classes of
securities of any trust will be described in
the related prospectus supplement.
Prepayments on the You may not be able to reinvest the principal
receivables may adversely repaid to you at a rate of return that is equal
affect the average life of to or greater than the rate of return on your
and rate of return on your securities. Faster than expected prepayments on
securities the receivables may cause the trust to make
payments on its securities earlier than
expected.
14
<PAGE>
We cannot predict the effect of prepayments on
the average life of your securities.
All receivables, by their terms, may be prepaid
at any time. Prepayments include:
. prepayments in whole or in part by the
obligor;
. liquidations due to default;
. partial payments with proceeds from physical
damage, credit life and disability insurance
policies;
. required purchases of receivables by the
servicer or repurchases of receivables by the
seller for specified breaches of their
representations or covenants; and
. an optional repurchase of a trust's
receivables by the servicer when their
aggregate principal balance is 10% or less of
the initial aggregate principal balance, or
under such other circumstances as may be
specified in the related prospectus
supplement.
A variety of economic, social and other factors
will influence the rate of optional prepayments
on the receivables and defaults.
As a result of prepayments, the final payment
of each class of securities is expected to
occur prior to the final scheduled distribution
date specified in the related prospectus
supplement. If sufficient funds are not
available to pay any class of notes in full on
its final scheduled distribution date, an event
of default will occur and final payment of that
class of notes may occur later than scheduled.
For more information regarding the timing of
repayments of the securities, see "Maturity and
Prepayment Considerations" in the related
prospectus supplement and in this prospectus.
You may suffer a loss on Unless otherwise specified in the related
your securities because the prospectus supplement, each servicer which
servicer may commingle satisfies certain requirements will be
collections on the permitted to hold with its own funds (1)
receivables with its own collections it receives from obligors on the
funds receivables and (2) the purchase price of
receivables required to be repurchased from the
trust until the day prior to the date on which
the related distributions are made on the
securities. During this time, the servicer may
invest those amounts at its own risk and for
its
15
<PAGE>
own benefit and need not segregate them from
its own funds. If the servicer is unable to pay
these amounts to the trust on the distribution
date, you might incur a loss on your
securities.
For more information about the servicer's
obligations regarding payments on the
receivables, see "Description of the
Receivables Transfer and Servicing Agreements--
Collections".
The senior class of Generally, the holders of a majority of a
securities controls removal trust's senior class of securities, or the
of the servicer upon a applicable trustee acting on their behalf, can
default on its servicing remove the related servicer if the servicer--
obligations
. does not deliver to the applicable trustee
the available funds for application to a
required payment after a grace period after
notice or discovery;
. defaults on a servicing obligation which
materially and adversely affects the trust
after a grace period after notice; or
. initiates or becomes the subject of certain
insolvency proceedings.
Those holders may also waive a default by the
servicer. The holders of any subordinate class
of securities may not have any rights to
participate in such determinations for so long
as any of the more senior classes are
outstanding, and the subordinate classes of
securities may be adversely affected by
determinations made by the more senior classes.
See "Description of the Receivables Transfer
and Servicing Agreements--Events of Servicing
Termination".
Geographic concentration of Adverse economic conditions or other factors
a trust's receivables may particularly affecting any state or region
adversely affect your where there is a high concentration of a
securities trust's receivables could adversely affect the
securities of that trust. We are unable to
forecast, with respect to any state or region,
whether these conditions may occur, or to what
extent these conditions may affect receivables
or the repayment of your securities. The
location of a trust's receivables by state,
based upon obligors' addresses at the time the
receivables were originated, will be set out in
the related prospectus supplement.
16
<PAGE>
Ratings of the securities At the initial issuance of the securities of a
trust, at least one nationally recognized
statistical rating organization will rate the
offered securities in one of the four highest
rating categories or in the categories
otherwise specified in the related prospectus
supplement. A rating is not a recommendation to
purchase, hold or sell securities, and it 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
securities according to their terms. We cannot
assure you that a rating will remain for any
given period of time or that a rating agency
will not lower or withdraw its rating if, in
its judgment, circumstances in the future so
warrant. A reduction or withdrawal of an
offered security's rating would adversely
affect its value.
17
<PAGE>
Capitalized terms used in this prospectus are defined in the Glossary on
page 89.
The Trusts
The depositor will establish a separate trust as either a Delaware business
trust or a common law trust to issue each series of notes and/or certificates.
Each trust will be established for the transactions described in this
prospectus and in the related prospectus supplement. If a trust is a grantor
trust for federal income tax purposes, the related prospectus supplement will
so state.
The terms of each series of notes or certificates issued by each trust and
additional information concerning the assets of each trust and any applicable
credit or cash flow enhancement will be set forth in a prospectus supplement.
The Receivables
The property of each trust will consist of a pool of motor vehicle
installment loans secured by security interests in Financed Vehicles consisting
of new and used automobiles, minivans, sport utility vehicles, light-duty
trucks, motorcycles or commercial vehicles financed by those contracts, and the
receivables with respect thereto and all payments due thereunder on and after
the applicable Cutoff Date set forth in the related prospectus supplement in
the case of Precomputed Receivables, and all payments received thereunder on
and after the applicable Cutoff Date in the case of Simple Interest
Receivables. The receivables were or will be originated, either via direct
channels or indirectly by dealers or lenders, purchased by the related seller,
directly or indirectly, pursuant to agreements with dealers or lenders and sold
to the depositor. The receivables will be serviced by the servicer specified in
the related prospectus supplement. On or prior to the Closing Date for the
trust, the seller will sell the receivables to the depositor and the depositor,
in turn, will sell the receivables to the trust. To the extent provided in the
prospectus supplement, the seller will convey additional receivables known as
Subsequent Receivables to the trust as frequently as daily during the Funding
Period specified in the prospectus supplement. A trust will purchase any
Subsequent Receivables with amounts deposited in a pre-funding account. Up to
50% of the net proceeds from the sale of the securities issued by a trust may
be deposited into a pre-funding account for the purchase of Subsequent
Receivables. With respect to any trust that is to be treated as a grantor trust
for federal income tax purposes, the Funding Period, if any, will not exceed
the period of 90 days from and after the Closing Date and, with respect to any
other trust, will not exceed the period of one year from and after the Closing
Date.
The property of each trust will also include:
. security interests in the Financed Vehicles;
. the rights to proceeds, if any, from claims on certain theft, physical
damage, credit life or credit disability insurance policies, if any,
covering the Financed Vehicles or the obligors;
. the seller's and depositor's rights to certain documents and instruments
relating to the receivables;
. amounts as from time to time may be held in one or more accounts
maintained for the trust;
. any credit or cash flow enhancement specified in the prospectus
supplement;
18
<PAGE>
. certain payments and proceeds with respect to the receivables held by the
servicer;
. certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the receivables; and
. any and all proceeds of the above items.
If the trust issues notes, the trust's rights and benefits with respect to
the property of the trust will be assigned to the indenture trustee for the
benefit of the noteholders.
In the alternative, the property of each trust may consist of a pool of
notes secured by receivables and the related Financed Vehicles and all proceeds
generated by the receivables and Financed Vehicles. If the property of a trust
includes secured notes, we will provide more specific information about the
origination and servicing of the secured notes and the consequences of
including secured notes in a trust in the related prospectus supplement.
The Seller and the Servicer
Certain information concerning the related seller's experience with respect
to its portfolio of receivables, including previously sold receivables which
the seller continues to service, will be set forth in each prospectus
supplement. We cannot assure you that the delinquency, repossession and net
loss experience on any pool of receivables transferred to a trust will be
comparable to that information.
A servicer specified in the related prospectus supplement will service the
receivables held by each trust and will receive fees for its services. To
facilitate the servicing of the receivables, each trustee will authorize the
applicable servicer to retain physical possession of the receivables held by
each trust and other documents relating thereto as custodian for each trust.
Due to the administrative burden and expense, the certificates of title or UCC
financing statements, as applicable, to the Financed Vehicles will not be
amended to reflect the sale and assignment of the security interest in the
Financed Vehicles to each trust. See "Risk Factors--Interests of other persons
in the receivables could reduce the funds available to make payments on your
securities" and "Description of the Receivables Transfer and Servicing
Agreements--Sale and Assignment of Receivables".
The Trustees
The trustee for each trust and, if notes are issued, the indenture trustee,
will be specified in the related prospectus supplement. The liability of each
trustee in connection with the issuance and sale of the securities will be
limited solely to the express obligations of the trustee set forth in the
applicable trust agreement, pooling and servicing agreement or indenture. A
trustee may resign at any time, in which event the administrator of the trust,
in the case of a trust agreement, or the servicer, in case of a pooling and
servicing agreement or indenture, will be obligated to appoint a successor
trustee. The administrator of each trust may also remove a trustee if:
. the trustee ceases to be eligible to continue as trustee under the
applicable trust agreement, pooling and servicing agreement or indenture,
or
. the trustee becomes insolvent.
19
<PAGE>
In either of these circumstances, the administrator or servicer must appoint
a successor trustee. If a trustee resigns or is removed, the resignation or
removal and appointment of a successor trustee will not become effective until
the successor trustee accepts its appointment.
You will find the addresses of the principal offices of the trust and each
trustee in the prospectus supplement.
The Receivables Pools
The Receivables
Criteria for Selecting the Receivables. The receivables to be held by each
trust have been or will be originated, either via direct channels or indirectly
by a dealer or lender and purchased by a seller under an agreement between the
related seller and the dealer or lender, as applicable. Each seller with
respect to a series of securities will be identified in the related prospectus
supplement. Receivables of a seller will be transferred to the depositor under
a receivables purchase agreement for sale by the depositor to the applicable
trust.
Subsequent Receivables may be originated, either via direct channels or
indirectly by dealers or lenders at a later date using credit criteria
different from those which were applied to the receivables transferred to a
trust on the applicable Closing Date and may be of a different credit quality
and seasoning. In addition, following the transfer of Subsequent Receivables to
the applicable trust, the characteristics of the entire pool of receivables
included in the trust may vary significantly from those of the receivables
transferred to the trust on the Closing Date.
If so specified in the related prospectus supplement, the receivables may
include loans made to borrowers whose credit histories show previous financial
difficulties or who otherwise have insufficient credit histories to meet the
credit standards imposed by most traditional automobile financing sources.
Loans made to borrowers of these types are commonly referred to as "sub-prime"
or "non-prime" loans.
The related prospectus supplement will describe the applicable seller's
underwriting procedures and guidelines, including the type of information
reviewed in respect of each applicant, and the applicable servicer's servicing
procedures, including the steps customarily taken in respect of delinquent
receivables and the maintenance of physical damage insurance.
The receivables to be held by each trust will be purchased by the depositor
from a seller in accordance with several criteria, including that each
receivable:
. is secured by a Financed Vehicle that, as of the Cutoff Date, has not
been repossessed without reinstatement,
. was originated in the United States,
. has a fixed or variable interest rate,
20
<PAGE>
. provides for level monthly payments that fully amortize the amount
financed over its original term to maturity or provides for a different
type of amortization described in the prospectus supplement and
. satisfies the other criteria, if any, set forth in the prospectus
supplement.
No selection procedures believed by the related seller to be adverse to the
holders of securities of any series were or will be used in selecting the
receivables for each trust. Terms of the receivables included in each trust
which are material to investors will be described in the related prospectus
supplement.
Simple Interest Receivables. The receivables may provide for the
application of payments on the simple interest method that provides for the
amortization of the loan over a series of fixed level payment monthly
installments. Unlike the monthly installment under an Actuarial Receivable,
each monthly installment under a Simple Interest Receivable consists of an
amount of interest which is calculated on the basis of the outstanding
principal balance multiplied by the stated contract rate and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
last payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied, first, to interest
accrued to the date of payment, second, to reduce the unpaid principal
balance, and third, to late fees and other fees and charges, if any.
Accordingly, if an obligor on a Simple Interest Receivable pays a fixed
monthly installment before its scheduled due date--
. the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the
payment been made as scheduled and
. the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly greater.
Conversely, if an obligor pays a fixed monthly installment after its
scheduled due date--
. the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been
had the payment been made as scheduled and
. the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly less.
In either case, the obligor under a Simple Interest Receivable pays fixed
monthly installments until the final scheduled Distribution Date, at which
time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance. If a Simple
Interest Receivable is prepaid, the obligor is required to pay interest only
to the date of prepayment.
Precomputed Receivables. Alternatively, the receivables may be Actuarial
Receivables that provide for amortization of the loan over a series of fixed
level payment monthly installments, each consisting of an amount of interest
equal to 1/12 of the stated contract rate of interest of the loan multiplied
by the unpaid principal balance of the loan, and an amount
21
<PAGE>
of principal equal to the remainder of the monthly payment, or Rule of 78's
Receivables that allocate payments according to the "sum of periodic balances"
or "sum of monthly payments" method, similar to the "rule of 78's". A Rule of
78's Receivable provides for the payment by the obligor of a specified total
amount of payments, payable in equal monthly installments on each due date,
which total represents the principal amount financed and add-on interest in an
amount calculated at the stated contract rate of interest for the term of the
loan. The rate at which the amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal are calculated in accordance with the
"rule of 78's".
If the receivables in a pool of receivables included in a trust are neither
Simple Interest Receivables nor Precomputed Receivables, the prospectus
supplement will describe the method of calculating interest on the receivables.
Balloon Payment Receivables. The receivables to be held by each trust,
whether Simple Interest Receivables or Precomputed Receivables, may be Balloon
Payment Receivables that provide for level monthly payments that fully amortize
the amount financed over its original term to maturity or, alternatively,
provide for the amount financed to amortize over a series of equal monthly
installments with a substantially larger final scheduled payment of principal
together with one month's interest. The final Balloon Payment is generally set
by the related seller for each particular model of vehicle at the time the
receivable is originated and is due at the end of the term of the receivable.
The net amount actually due from an obligor at the end of term of a balloon
payment receivable may be greater or less than the Balloon Payment as a result
of:
. in the case of a Simple Interest Receivable, early or late payments by
the obligor during the term of the receivable and the application of day
counting conventions and
. in the case of a Simple Interest Receivable or an Actuarial Receivable,
additional fees and charges that may be owed by the obligor with respect
to the contract or the Financed Vehicle, including charges for excess
wear and tear and excess mileage on the Financed Vehicle.
Upon maturity of a Balloon Payment Receivable, the related obligor may
satisfy the amount it owes by:
. paying the remaining principal amount of the receivable, all accrued and
unpaid interest, plus any fees, charges, and other amounts then owing,
during the term of the receivable and the application of day counting
conventions,
. refinancing the net amount then due, which may be greater or less that
the Balloon Payment, subject to several conditions or
. selling the related Financed Vehicle to the servicer or its assignee for
an amount equal to the Balloon Payment, as reduced by charges for excess
wear and tear and excess mileage and by a disposition fee payable to the
servicer, and paying any excess of the total amount owed under the
receivable over the Balloon Payment to the servicer.
22
<PAGE>
If the obligor sells the Financed Vehicle to the servicer, acting on behalf
of the trust, the trust may or may not receive the full amount of the Balloon
Payment upon the subsequent sale of the Financed Vehicle. If the full amount
owed by an obligor under a Balloon Payment Receivable is not collected, the
shortfall will reduce the funds available to make payments on the securities.
If the receivables in a pool of receivables included in a trust include
Balloon Payment Receivables, we will provide more specific information about
the origination and servicing of the receivables and the consequences of
including the receivables in a trust in the related prospectus supplement.
We Will Provide More Specific Information About the Receivables in the
Prospectus Supplement
Information with respect to each pool of receivables included in a trust
will be set forth in the related prospectus supplement, including, to the
extent appropriate:
. the portion of the receivables pool consisting of Precomputed Receivables
and of Simple Interest Receivables;
. the portion of the receivables pool secured by new Financed Vehicles and
by used Financed Vehicles;
. the aggregate principal balance of all of the related receivables;
. the average principal balance of the related receivables and the range of
principal balances;
. the number of receivables in the receivables pool;
. the geographic distribution of receivables in the receivables pool;
. the average original amount financed and the range of original amounts
financed;
. the weighted average contract rate of interest and the range of such
rates;
. the weighted average original term and the range of original terms;
. the weighted average remaining term and the range of remaining terms;
. the scheduled weighted average life; and
. the distribution by stated contract rate of interest.
Maturity and Prepayment Considerations
The weighted average life of the securities of any trust will generally be
influenced by the rate at which the principal balances of its receivables are
paid, which payment may be in the form of scheduled amortization or
prepayments. "Prepayments" for these purposes includes the following
circumstances:
.Prepayments by obligors, who may repay at any time without penalty.
23
<PAGE>
. The seller may be required to repurchase a receivable sold to the trust
if certain breaches of representations and warranties occur and the
receivable is materially and adversely affected by the breach.
. The servicer may be obligated to purchase a receivable from the trust if
certain breaches of covenants occur or if the servicer extends or
modifies the terms of a receivable beyond the Collection Period preceding
the final scheduled Distribution Date for the securities specified in the
prospectus supplement.
. Partial prepayments, including those related to rebates of extended
warranty contract costs and insurance premiums.
. Liquidations of the receivables due to default.
. Partial prepayments from proceeds from physical damage, credit life and
disability insurance policies.
In light of the above considerations, we cannot assure you as to the amount
of principal payments to be made on the securities of a trust on each
Distribution Date since that amount will depend, in part, on the amount of
principal collected on the trust's receivables during the applicable Collection
Period. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of receivables will be borne entirely by the securityholders. The
related prospectus supplement may set forth certain additional information with
respect to the maturity and prepayment considerations applicable to the
receivables and the securities of the trust.
The rate of prepayments on the receivables may be influenced by a variety of
economic, social and other factors, including the fact that an obligor may not
sell or transfer the Financed Vehicle without the seller's consent. These
factors may also include unemployment, servicing decisions, seasoning of loans,
destruction of vehicles by accident, sales of vehicles and market interest
rates. A predominant factor affecting the prepayment of a large group of loans
is the difference between the interest rates on the loans and prevailing market
interest rates. If the prevailing market interest rates were to fall
significantly below the interest rates borne by the loans, the rate of
prepayment and refinancings would be expected to increase. Conversely, if
prevailing market interest rates were to increase significantly above those
interest rates, the rate of prepayments and refinancings would be expected to
decrease.
The related prospectus supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to the receivables and the securities of the trust.
Pool Factors and Trading Information
The servicer will provide to you in each report which it delivers to you a
factor which you can use to compute your portion of the principal amount
outstanding on the notes or certificates.
Notes
Calculation of the Factor For Your Class of Notes. The servicer will compute
a separate factor for each class of notes. The factor for each class of notes
will be a seven-
24
<PAGE>
digit decimal which the servicer will compute prior to each distribution with
respect to a class of notes indicating the remaining outstanding principal
amount of that class of notes, as of the applicable Distribution Date. The
servicer will compute the factor after giving effect to payments to be made on
such Distribution Date, as a fraction of the initial outstanding principal
amount of the class of notes.
Your Portion of the Outstanding Amount of the Notes. For each note you own,
your portion of that class of notes is the product of--
. the original denomination of your note and
. the factor relating to your class of notes computed by the servicer in
the manner described above.
Certificates
Calculation of the Factor For Your Class of Certificates. The servicer will
compute a separate factor for each class of certificates. The factor for each
class of certificates will be a seven-digit decimal which the servicer will
compute prior to each distribution with respect to a class of certificates
indicating the remaining outstanding balance of that class of certificates, as
of the applicable Distribution Date. The factor will be calculated after giving
effect to distributions to be made on such Distribution Date, as a fraction of
the initial outstanding balance of the class of certificates.
Your Portion of the Outstanding Amount of the Certificates. For each
certificate you own, your portion of that class of certificates is the product
of--
. the original denomination of your certificate and
. the factor relating to your class of certificates computed by the
servicer in the manner described above.
The Factors Described Above Will Decline as the Trust Makes Payments on the
Securities
The factor for each class of notes and certificates will initially be
1.0000000. The factors will then decline to reflect reductions, as applicable,
in--
. the outstanding principal amount of the applicable class of notes or
. the outstanding balance of the applicable class of certificates.
These amounts will be reduced over time as a result of scheduled payments,
prepayments, purchases of the receivables by the seller or the servicer and
liquidations of the receivables.
Additional Information
The noteholders and the certificateholders, as applicable, will receive
reports on or about each Distribution Date concerning (i) with respect to the
Collection Period immediately preceding the Distribution Date, payments
received on the receivables, the outstanding
25
<PAGE>
balance of the related pool of receivables, factors for each class of notes and
certificates described above, as applicable, and various other items of
information, and (ii) with respect to the second Collection Period preceding
the Distribution Date, as applicable, amounts allocated or distributed on the
preceding Distribution Date and any reconciliation of those amounts with
information provided by the servicer prior to such current Distribution Date.
In addition, securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "Certain Information Regarding the Securities--Reports to
Securityholders".
Use of Proceeds
Unless the related prospectus supplement provides for other applications,
the net proceeds from the sale of the securities of a trust will be applied by
the trust:
. to the purchase of the receivables from the depositor;
. if the trust has a pre-funding account, to make the deposit into that
account;
. if the trust has a yield supplement account, to make the deposit into
that account;
. if the trust has a reserve fund, to make the initial deposit into that
account; and
. for any other purposes specified in the prospectus supplement.
The depositor will use that portion of the net proceeds paid to it with
respect to any trust to purchase receivables from the related seller and to pay
for certain expenses incurred in connection with the purchase of the
receivables and sale of the securities. The trust may also issue certain
classes of securities to the seller in partial payment for the receivables.
The Company
Pooled Auto Securities Shelf LLC, or the Company, was formed in the State of
Delaware on April 14, 2000 as a limited liability company. The sole equity
member of the Company is First Union Pass Co., Inc. The Company maintains its
principal office at One First Union Center, TW-9, Charlotte, North Carolina
28288. Its telephone number is (704) 374-8437.
The depositor with respect to each series of securities will be the Company.
The Company anticipates that, as depositor, it will acquire receivables to be
included in each trust from sellers in the open market or in privately
negotiated transactions. The Company will have no ongoing servicing obligations
or responsibilities with respect to any Financed Vehicle and no administrative
obligations with respect to any trust.
The Company does not have, is not required to have, and is not expected in
the future to have, any significant assets. None of the Company, the related
seller or any of their respective affiliates will insure or guarantee the
receivables or the securities of any series.
26
<PAGE>
Principal Documents
In general, the operations of a trust will be governed by the following
documents:
If the trust issues notes:
<TABLE>
<CAPTION>
Document Parties Primary Purposes
---------------------------- ---------------------------- ----------------------------
<C> <C> <S>
Trust agreement Trustee and the depositor Creates the trust
Provides for issuance of
certificates and payments to
certificateholders
Establishes rights and
duties of trustee
Establishes rights of
certificateholders
Indenture Trust, as issuer of the Provides for issuance of the
notes, and indenture trustee notes, the terms of the
notes and payments to
noteholders
Establishes rights and
duties of indenture trustee
Establishes rights of
noteholders
Sale and servicing agreement The seller, the servicer and Effects sale of receivables
a trust as purchaser to the trust
Contains representations and
warranties of seller
concerning the receivables
Contains servicing
obligations of servicer
Provides for compensation to
servicer
Directs how cash flow will
be applied to expenses of
the trust and payments on
its securities
</TABLE>
27
<PAGE>
If the trust is a grantor trust:
<TABLE>
<CAPTION>
Document Parties Primary Purposes
---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Pooling and servicing Trustee, the seller and the Creates the trust
agreement servicer
Effects sale of receivables
to the trust
Contains representations and
warranties of seller
concerning the receivables
Contains servicing
obligations of servicer
Provides for compensation to
servicer
Provides for issuance of
certificates and payments to
certificateholders
Directs how cash flow will
be applied to expenses of
the trust and payments to
certificateholders
Establishes rights and
duties of trustee
Establishes rights of
certificateholders
</TABLE>
The material terms of these documents are described throughout this
prospectus and in the related prospectus supplement. The prospectus supplement
for a series will describe any material provisions of these documents as used
in that series that differ in a material way from the provisions described in
this prospectus.
A form of each of these principal documents has been filed as an exhibit to
the registration statement of which this prospectus forms a part. The summaries
of the principal documents in this prospectus do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of those principal documents.
Certain Information Regarding the Securities
General
The prospectus supplement will describe
. the timing, amount and priority of payments of principal and interest on
each class of the securities,
. their interest rates or the formula for determining their interest
rates,
28
<PAGE>
. the method of determining the amount of their principal payments,
. the priority of the application of the trust's available funds to its
expenses and payments on its securities and
. the allocation of losses on the receivables among the classes of
securities.
The rights of any class of securities to receive payments may be senior or
subordinate to other classes of securities. A security may be entitled to:
. principal payments with disproportionate, nominal or no interest
payments or
. interest payments with disproportionate, nominal or no principal
payments or
. residual cash flow remaining after all other classes have been paid.
Interest rates may be fixed or floating. If a class of securities is
redeemable, the prospectus supplement will describe when they may be redeemed
and at what price. The aggregate initial principal amount of the securities
issued by a trust may be greater than, equal to or less than the aggregate
initial principal amount of the receivables held by that trust.
Payments of principal and interest on any class of securities will be made
on a pro rata basis among all the security holders of each class. If the amount
of funds available to make a payment on a class is less than the required
payment, the holders of the securities of that class will receive their pro
rata share of the amount available for the class. A series may provide for a
liquidity facility or similar arrangement that permits one or more classes of
securities to be paid in planned amounts on scheduled Distribution Dates.
Fixed Rate Securities
Each class of securities entitled to receive principal and interest payments
may bear interest at a fixed rate of interest or a floating rate of interest as
more fully described in this prospectus and in the related prospectus
supplement. Each class of fixed rate securities will bear interest at the
applicable per annum interest rate or pass-through rate, as the case may be,
specified in the related prospectus supplement. Interest on each class of fixed
rate securities may be computed on the basis of a 360-day year of twelve 30-day
months or on such other day count basis as is specified in the related
prospectus supplement.
Floating Rate Securities
Each class of floating rate securities will bear interest for each
applicable interest accrual period described in the prospectus supplement at a
rate determined (i) by reference to a base rate of interest, plus or minus the
number of basis points specified in the prospectus supplement, if any, or
multiplied by the percentage specified in the prospectus supplement, if any, or
(ii) as otherwise specified in the related prospectus supplement.
The base rate of interest for any floating rate securities will be based on
a London interbank offered rate, commercial paper rates, Federal funds rates,
United States government treasury securities rates, negotiable certificates of
deposit rates or another rate set forth in the related prospectus supplement.
29
<PAGE>
A class of floating rate securities may also have either or both of the
following (in each case expressed as a rate per annum):
. a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period; in addition to any maximum
interest rate that may be applicable to any class of floating rate
securities, the interest rate applicable to any class of floating rate
securities will in no event be higher than the maximum rate permitted by
applicable law and
. a minimum limitation, or floor, on the rate at which interest may accrue
during any interest accrual period.
Each trust issuing floating rate securities may appoint a calculation agent
to calculate interest rates on each class of its floating rate securities. The
prospectus supplement will identify the calculation agent, if any, for each
class of floating rate securities, which may be either the trustee or indenture
trustee with respect to the trust. All determinations of interest by a
calculation agent shall, in the absence of manifest error, be conclusive for
all purposes and binding on the holders of the floating rate securities. All
percentages resulting from any calculation of the rate of interest on a
floating rate security will be rounded, if necessary, to the nearest 1/100,000
of 1% (.0000001), with five one-millionths of a percentage point rounded
upward.
Book-Entry Registration
The Trusts May Use Book-Entry Registration Instead of Issuing Definitive
Securities. Except for the securities, if any, of a trust retained by the
seller, each class of securities offered through this prospectus and the
related prospectus supplement may initially be represented by one or more
certificates registered in the name of DTC's nominee, except as set forth
below. The securities will be available for purchase in the denominations
specified in the related prospectus supplement and may be available for
purchase in book-entry form only. Accordingly, the nominee is expected to be
the holder of record of any class of securities issued in book-entry form. If a
class of securities is issued in book-entry form, unless and until Definitive
Securities are issued under the limited circumstances described in this
prospectus or in the related prospectus supplement, you, as an owner of
securities will not be entitled to receive a physical certificate representing
your interest in the securities of that class.
If a class of securities is issued in book-entry form, all references in
this prospectus and in the related prospectus supplement to actions by holders
of that class of securities refer to actions taken by DTC upon instructions
from its participating organizations and all references in this prospectus and
in the related prospectus supplement to distributions, notices, reports and
statements to certificateholders of that class of certificates refer to
distributions, notices, reports and statements to DTC or its nominee, as the
case may be, as the registered holder of that class of certificates, for
distribution to certificateholders of that class of certificates in accordance
with DTC's procedures with respect thereto.
30
<PAGE>
Any securities of a given trust owned by the seller or its affiliates will
be entitled to equal and proportionate benefits under the applicable indenture,
trust agreement or pooling and servicing agreement, except that, unless the
seller and its affiliates own the entire class, such securities will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of securityholders have given any request, demand, authorization,
direction, notice, consent or other action under the related agreements.
The prospectus supplement will specify whether the holders of the notes or
certificates of the trust may hold their respective securities as book-entry
securities.
You may hold your securities through DTC in the United States, Clearstream
or the Euroclear System in Europe or in any manner described in the related
prospectus supplement. The global securities will be tradeable as home market
instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Initial Settlement of the Global Securities. All global securities will be
held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC.
Investors' interests in the global securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Clearstream and Euroclear will hold positions
on behalf of their customers or participants through their respective
depositaries, which in turn will hold the positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC will follow
the settlement practices that apply to United States 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 Clearstream or
Euroclear accounts will follow the settlement procedures that apply to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global securities will be credited to
the securities custody accounts on the settlement date against payment in same-
day funds.
Except as required by law, none of the administrator, if any, the applicable
trustee or the applicable indenture trustee, if any, will have any liability
for any aspect of the records relating to payments made on account of
beneficial ownership interests of the securities of any trust held by DTC's
nominee, or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
Secondary Market Trading of the Global Securities. 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 United States
corporate debt obligations in same-day funds.
31
<PAGE>
Trading between Clearstream customers and/or Euroclear
participants. Secondary market trading between Clearstream customers or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant
to the account of a Clearstream customer or a Euroclear participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream customer or Euroclear participant at least one business day prior
to settlement. Clearstream or Euroclear will instruct the respective
depositary, as the case may be, to receive the global securities against
payment. Payment will include interest accrued on the global securities from
and including the last coupon Distribution Date to and excluding the settlement
date. 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 Clearstream customer's or Euroclear participant's
account. The 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 (that is, the trade fails), the Clearstream or Euroclear
cash debit will be valued instead as of the actual settlement date.
Clearstream customers 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 this 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 Clearstream or Euroclear. Under this
approach, they may take on credit exposure to Clearstream or Euroclear until
the global securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of credit
to them, Clearstream customers 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, Clearstream customers 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 that one-day period may substantially
reduce or offset the amount of any overdraft charges, although this result will
depend on each Clearstream customer'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 Clearstream customers 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.
32
<PAGE>
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers 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 Clearstream or Euroclear through a Clearstream customer or
Euroclear participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to deliver the securities to the DTC participant's account against
payment. Payment will include interest accrued on the global securities from
and including the last coupon Distribution Date to and excluding the settlement
date. The payment will then be reflected in the account of the Clearstream
customer or Euroclear participant the following day, and receipt of the cash
proceeds in the Clearstream customer'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 Clearstream customer 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, that
is, the trade fails, receipt of the cash proceeds in the Clearstream customer's
or Euroclear participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
global securities from DTC participants for delivery to Clearstream customers
or Euroclear participants should note that these trades would automatically
fail on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the global securities in the United States 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
Clearstream or Euroclear account in order to settle the sale side of
the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Clearstream
customer or Euroclear participant.
The securityholders who are not participants, either directly or indirectly,
but who desire to purchase, sell or otherwise transfer ownership of, or other
interest in, securities may do so only through direct and indirect
participants. In addition, securityholders will receive all distributions of
principal and interest from the indenture trustee or the applicable trustee
through the participants who in turn will receive them from DTC. Under a book-
entry format, securityholders may experience some delay in their receipt of
payments, since the payments will be forwarded by the applicable trustee to
DTC's nominee. DTC will forward
33
<PAGE>
the payments to its participants which thereafter will forward them to indirect
participants or securityholders. To the extent the related prospectus
supplement provides that Book-Entry Securities will be issued, the only
"noteholder" or "certificateholder," as applicable, will be DTC's nominee.
Securityholders will not be recognized by the applicable trustee as
"noteholders" or "certificateholders" and securityholders will be permitted to
exercise the rights of securityholders only indirectly through DTC and its
participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities
among participants on whose behalf it acts with respect to the securities and
is required to receive and transmit distributions of principal and interest on
the securities. Participants and indirect participants with which
securityholders have accounts with respect to their respective securities
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective securityholders. Accordingly,
although securityholders will not possess their respective securities, the
rules provide a mechanism by which participants will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to these
securities, may be limited due to the lack of a physical certificate for these
securities.
DTC will advise the related administrator of each trust that it will take
any action permitted to be taken by a securityholder under the related
indenture, trust agreement or pooling and servicing agreement only at the
direction of one or more participants to whose accounts with DTC the securities
are credited. DTC may take conflicting actions with respect to other undivided
interests to the extent that these actions are taken on behalf of participants
whose holdings include these undivided interests.
Non-United States holders of global securities will be subject to United
States withholding taxes unless these holders meet certain requirements and
deliver appropriate United States tax documents to the securities clearing
organizations or their participants.
The Depositories. DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered under the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (who may include any of the underwriters of securities of the trust),
banks, trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
34
<PAGE>
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream
customers through electronic book-entry changes in accounts of Clearstream
customers, thereby eliminating the need for physical movement of certificates.
Transactions may be settled by Clearstream in any of 36 currencies, including
United States dollars. Clearstream provides to its Clearstream customers, among
other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Clearstream interfaces with domestic markets in several countries.
As a professional depository, Clearstream is subject in Luxembourg to
regulation by and supervision by the Commission for the Supervision of the
Financial Sector. Clearstream customers are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include any of the underwriters of any trust securities. Indirect
access to Clearstream is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its 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 the risk from
transfers of securities and cash that are not simultaneous.
The Euroclear system has subsequently been extended to clear and settle
transactions between Euroclear participants and counterparties both in
Clearstream and in many domestic securities markets. Transactions may be
settled in any of 34 currencies. In addition to safekeeping and securities
clearance and settlement, the Euroclear system includes securities lending and
borrowing and money transfer services. The Euroclear system is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation that establishes policy on behalf of Euroclear participants. 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.
All operations are conducted by the Euroclear operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear system and
applicable Belgian law. These govern all transfers of securities and cash, both
within the Euroclear system, and receipts and withdrawals of securities and
cash. All securities in the Euroclear system are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts.
Euroclear participants include banks, securities brokers and dealers and
other professional financial intermediaries and may include any of the
underwriters of any trust securities. Indirect access to the Euroclear system
is also available to other firms that clear
35
<PAGE>
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly. The Euroclear operator acts under the Terms and
Conditions, the Operating Procedures of the Euroclear system and Belgian law
only on behalf of Euroclear participants and has no record of or relationship
with persons holding through Euroclear participants.
Definitive Securities
With respect to any class of notes and any class of certificates issued in
book-entry form, such notes or certificates will be issued as Definitive Notes
and Definitive Certificates, respectively, to noteholders or certificateholders
or their respective nominees, rather than to DTC or its nominee, only if (1)
the administrator of the trust or trustee of the trust determines that DTC is
no longer willing or able to discharge properly its responsibilities as
Depository with respect to the securities and the administrator or the seller,
as the case may be, is unable to locate a qualified successor and so notifies
the trustee in writing, (2) the administrator or the seller, as the case may
be, at its option, elects to terminate the book-entry system through DTC or (3)
after the occurrence of an event of default under the indenture or an Event of
Servicing Termination under the related sale and servicing agreement or pooling
and servicing agreement, as applicable, with respect to the securities, holders
representing at least a majority of the outstanding principal amount of the
notes or the certificates, as the case may be, of such class advise the
indenture trustee or the trustee through DTC in writing that the continuation
of a book-entry system through DTC or a successor thereto, with respect to the
notes or certificates is no longer in the best interest of the holders of the
securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the indenture trustee or the trustee will be required to notify all
applicable securityholders of a given class through participants of the
availability of Definitive Securities. Upon surrender by DTC of the Definitive
Certificates representing the corresponding securities and receipt of
instructions for re-registration, the indenture trustee or the trustee will
reissue the securities as Definitive Securities to the securityholders.
Distributions of principal of, and interest on, the Definitive Securities
will thereafter be made by the indenture trustee or the trustee in accordance
with the procedures set forth in the related indenture or the related trust
agreement directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the Record
Date specified for such securities in the related prospectus supplement. Unless
otherwise specified in the related prospectus supplement, the distributions
will be made by check mailed to the address of the holder as it appears on the
register maintained by the indenture trustee or trustee. The final payment on
any Definitive Security, however, will be made only upon presentation and
surrender of the Definitive Security at the office or agency specified in the
notice of final distribution to the applicable securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the indenture trustee or the trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be
imposed for any registration of transfer or exchange, but the indenture trustee
or the trustee may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
36
<PAGE>
Reports to Securityholders
On or prior to each Distribution Date, the servicer or administrator will
prepare and provide to the related indenture trustee and/or trustee a statement
to be delivered to the securityholders on such Distribution Date. With respect
to securities of each trust, each statement to be delivered to securityholders
will include, to the extent applicable to those securityholders, the following
information, and any other information so specified in the prospectus
supplement, with respect to the Distribution Date or the period since the
previous Distribution Date, as applicable:
(1) the amount of the distribution allocable to principal of each class of
securities;
(2) the amount of the distribution allocable to interest on or with
respect to each class of securities;
(3) the amount of the distribution allocable to draws from any reserve
fund or payments in respect of any other credit or cash flow
enhancement arrangement;
(4) the outstanding aggregate balance of the receivables in the trust as
of the close of business on the last day of the preceding Collection
Period exclusive of the aggregate principal balance of balloon
payments, if any, and the aggregate principal balance of the balloon
payments calculated as of the close of business on the last day of the
preceding Collection Period;
(5) any credit enhancement amount;
(6) the aggregate outstanding principal balance and the appropriate factor
for each class of notes, and the outstanding balance and the
appropriate factor for each class of certificates, each after giving
effect to all payments reported under clause (1) above on that date;
(7) the amount of the servicing fee paid to the servicer and the amount of
any unpaid servicing fee with respect to the related Collection Period
or Collection Periods, as the case may be;
(8) the amount of the aggregate losses realized on the receivables during
that Collection Period, calculated as described in the related
prospectus supplement;
(9) previously due and unpaid interest payments, plus interest accrued on
the unpaid interest to the extent permitted by law, if any, on each
class of securities, and the change in these amounts from the
preceding statement;
(10) previously due and unpaid principal payments, plus interest accrued
on such unpaid principal to the extent permitted by law, if any, on
each class of securities, and the change in these amounts from the
preceding statement;
(11) the aggregate amount to be paid in respect of receivables, if any,
repurchased in that Collection Period;
(12) the balance of any reserve fund, if any, on that date, after giving
effect to changes on that date;
(13) the amount of advances to be remitted by the servicer on that date;
37
<PAGE>
(14) for each Distribution Date during any Funding Period, the amount
remaining in the pre-funding account;
(15) for the first Distribution Date that is on or immediately following
the end of any Funding Period, the amount remaining in the pre-
funding account that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the securities of the trust; and
(16) the amount of any cumulative shortfall between payments due in
respect of any credit or cash flow enhancement arrangement and
payments received in respect of the credit or cash flow enhancement
arrangement, and the change in any shortfall from the preceding
statement.
Each amount set forth under clauses (1), (2), (7), (9) and (10) with respect
to the notes or the certificates of any trust will be expressed as a dollar
amount per $1,000 of the initial principal amount of such securities.
Within the prescribed period of time for federal income tax reporting
purposes after the end of each calendar year during the term of each trust, the
applicable trustee will mail to each person who at any time during such
calendar year has been a securityholder and received any payment with respect
to the trust a statement containing certain information for the purposes of the
securityholder's preparation of federal income tax returns.
See "Material Federal Income Tax Consequences".
The Indenture
With respect to each trust that issues notes, one or more classes of notes
will be issued under the terms of an indenture between the trust and the
indenture trustee specified in the prospectus supplement, a form of which has
been filed as an exhibit to the registration statement of which this prospectus
forms a part. This summary describes the material provisions common to the
notes of each trust that issues notes; the attached prospectus supplement will
give you additional information on the material provisions specific to the
notes which you are purchasing. This summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the notes and the indenture.
Events of Default. With respect to the notes issued by a trust, "Events of
Default" under the related indenture will consist of:
. a default by the trust for five days, or such longer period specified in
the prospectus supplement, or more in the payment of any interest on any
notes;
. a default in the payment of the principal of or any installment of the
principal of any note when the same becomes due and payable;
. a default in the observance or performance of any covenant or agreement
of the trust made in the indenture other than those dealt with
specifically elsewhere as an event of default which default materially
and adversely affects the noteholders and which default continues for a
period of 30 days after notice thereof is given to the trust by
38
<PAGE>
the indenture trustee or to the trust and the indenture trustee by the
holders of at least 25% in principal amount of the Controlling Class of
notes;
. any representation or warranty made by the trust in the indenture or in
any certificate delivered pursuant thereto or in connection therewith
having been incorrect in any material adverse respect as of the time
made, and the breach not having been cured within 30 days after notice
thereof is given to the trust by the indenture trustee or to the trust
and the indenture trustee by the holders of at least 25% in principal
amount of the Controlling Class of notes;
. certain events of bankruptcy, insolvency, receivership or liquidation of
the applicable trust or its property as specified in the indenture; or
. other events, if any, set forth in the indenture or related prospectus
supplement.
The Controlling Class of notes of a trust will be its senior most class of
notes as long as they are outstanding. When they have been paid in full, the
next most senior class of the trust's notes, if any, will become the
Controlling Class so long as they are outstanding, and so on.
The amount of principal due and payable to noteholders of a trust under the
related indenture until the final payment generally will be limited to amounts
available to pay principal. Therefore, the failure to pay principal on a class
of notes generally will not result in the occurrence of an event of default
under the indenture until the final scheduled Distribution Date for a class of
notes.
Rights upon Event of Default. If an event of default should occur and be
continuing with respect to the notes of any trust, the related indenture
trustee or holders of a majority in principal amount of the Controlling Class
may declare the principal of such notes to be immediately due and payable.
That declaration may be rescinded by the holders of a majority in principal
amount of the Controlling Class then outstanding if both of the following
occur:
. the trust has paid or deposited with the indenture trustee enough money
to pay:
. all payments of principal of and interest on all notes and all other
amounts that would then be due if the event of default causing the
acceleration of maturity had not occurred and
. all sums paid or advanced by the indenture trustee and the reasonable
compensation, expenses, disbursements and advances of the indenture
trustee and its agents and counsel and
. all Events of Default, other than the nonpayment of the principal of
the notes that has become due solely by the acceleration, have been
cured or waived.
If an event of default has occurred with respect to the notes issued by a
trust, the related indenture trustee may institute proceedings to collect
amounts due or foreclose on trust property, exercise remedies as a secured
party or sell the related receivables. Except as otherwise specified in the
related prospectus supplement, upon the occurrence of an event of
39
<PAGE>
default resulting in acceleration of the notes, the indenture trustee may sell
the related receivables if:
. the holders of 100% of the notes issued by the trust consent to the
sale, excluding notes held by the seller, the servicer or their
affiliates,
. the proceeds of the sale are sufficient to pay in full the principal of
and the accrued interest on the notes of the trust at the date of such
sale or
. there has been an event of default arising from the failure to pay
principal or interest and the indenture trustee determines that the
proceeds of the receivables would not be sufficient on an ongoing basis
to make all payments on the notes of the trust as the payments would
have become due if the Obligations had not been declared due and
payable, and the indenture trustee obtains the consent of the holders
of 66 2/3% of the aggregate outstanding amount of the Controlling Class
of the trust.
In addition, if the event of default relates to a default by a trust in
observing or performing any covenant or agreement, other than an event of
default relating to non-payment of interest or principal, insolvency or any
other event which is otherwise specifically dealt with by the indenture, the
indenture trustee is prohibited from selling the receivables unless the holders
of all outstanding notes and certificates issued by that trust consent to the
sale or the proceeds of the sale are sufficient to pay in full the principal of
and the accrued interest on the outstanding notes and certificates of that
trust. The indenture trustee may also elect to have the trust maintain
possession of the receivables and apply collections as received without
obtaining the consent of securityholders.
Subject to the provisions of the applicable indenture relating to the duties
of the related indenture trustee, if an event of default under the indenture
occurs and is continuing with respect to notes of the trust, 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 holders of the
notes, if the indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with the request. Subject to the provisions for
indemnification and certain limitations contained in the related indenture, the
holders of a majority in principal amount of the Controlling Class of a given
trust will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to the applicable indenture trustee, and
the holders of a majority in principal amount of the Controlling Class may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the indenture that cannot be modified without the waiver or
consent of the holders of all of the outstanding notes of the related trust.
No holder of a note of any trust will have the right to institute any
proceeding with respect to the related indenture, unless:
. the holder previously has given to the applicable indenture trustee
written notice of a continuing event of default;
. the holders of not less than 25% in principal amount of the Controlling
Class of the trust have made written request to such indenture trustee
to institute such proceeding in its own name as indenture trustee;
40
<PAGE>
. the holder or holders have offered such indenture trustee reasonable
indemnity;
. the indenture trustee has for 60 days after the notice, request and
offer of indemnity failed to institute the proceeding; and
. no direction inconsistent with the written request has been given to the
indenture trustee during the 60-day period by the holders of a majority
in principal amount of the Controlling Class.
Each indenture trustee and the related noteholders, by accepting the related
notes, will covenant that they will not at any time institute against the
applicable trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
With respect to any trust, neither the related indenture trustee nor the
related trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in the trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will be personally liable for the payment of the
principal of or interest on the related notes or for the agreements of the
trust contained in the applicable indenture.
Each indenture will provide that, notwithstanding any other provision of the
indenture, the right of any noteholder to receive payments of principal and
interest on its notes when due, or to institute suit for any payments not made
when due, shall not be impaired or affected without the holder's consent.
Each trust will be subject to covenants under the indenture. Each trust will
be subject to the covenants discussed below, as provided in the related
indenture.
. Restrictions on merger and consolidation. The related trust may not
consolidate with or merge into any other entity, unless:
. the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia,
. the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes of the related trust and the
performance or observance of every agreement and covenant of the trust
under the indenture,
. no event that is, or with notice or lapse of time or both would
become, an event of default under the indenture shall have occurred
and be continuing immediately after the merger or consolidation,
. the trust has been advised that the rating of the notes and the
certificates of the trust then in effect would not be reduced or
withdrawn by the Rating Agencies as a result of the merger or
consolidation,
. the trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any related noteholder or certificateholder,
. any action as is necessary to maintain the lien and security interest
created by the related indenture shall have been taken and
41
<PAGE>
. the trust has received an opinion of counsel and officer's certificate
each stating that such consolidation or merger satisfies all
requirements under the related indenture.
. Other negative covenants. Each trust will not, among other things--
. except as expressly permitted by the applicable agreements, sell,
transfer, exchange or otherwise dispose of any of the assets of the
trust,
. claim any credit on or make any deduction from the principal and
interest payable in respect of the notes of the related trust, other
than amounts withheld under the tax code or applicable state law, or
assert any claim against any present or former holder of the notes
because of the payment of taxes levied or assessed upon the trust or
its property,
. dissolve or liquidate in whole or in part,
. permit the lien of the related indenture to be subordinated or
otherwise impaired,
. permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to such notes under the indenture except as
may be expressly permitted thereby or
. permit 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 thereof, except for tax, mechanics'
or certain other liens and except as may be created by the terms of
the related indenture.
No trust may engage in any activity other than as specified under the
section of the related prospectus supplement titled "The Trust". No trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
under the related notes and indenture, the related certificates and as a result
of any advances made to it by the servicer or otherwise in accordance with the
related sale and servicing agreement, pooling and servicing agreement or other
documents relating to the trust.
List of Noteholders. With respect to the notes of any trust, three or more
holders of the notes of any trust may, by written request to the related
indenture trustee accompanied by a copy of the communication that the applicant
proposes to send, obtain access to the list of all noteholders maintained by
the indenture trustee for the purpose of communicating with other noteholders
with respect to their rights under the related indenture or under such notes.
The indenture trustee may elect not to afford the requesting noteholders access
to the list of noteholders if it agrees to mail the desired communication or
proxy, on behalf of and at the expense of the requesting noteholders, to all
noteholders of the trust.
Annual Compliance Statement. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its Obligations under the indenture.
Indenture Trustee's Annual Report. The indenture trustee for each trust will
be required to mail each year to all related noteholders a brief report
relating to its eligibility and qualification to continue as indenture trustee
under the related indenture, any amounts
42
<PAGE>
advanced by it under the indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the trust to the applicable indenture trustee
in its individual capacity, the property and funds physically held by such
indenture trustee as such and any action taken by it that materially affects
the related notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related indenture trustee for cancellation of all such notes or, with
certain limitations, upon deposit with the indenture trustee of funds
sufficient for the payment in full of all the notes.
Modification of Indenture. Any trust, together with the related indenture
trustee, with the consent of or notification of any other parties set forth in
the indenture, may, without the consent of the noteholders of the trust,
execute a supplemental indenture for the purpose of adding to the covenants of
the trust, curing any ambiguity, correcting or supplementing any provision
which may be inconsistent with any other provision or making any other
provision with respect to matters arising under the related indenture which
will not be inconsistent with other provisions of the indenture, provided that
the action will not materially adversely affect the interests of the
noteholders.
The trust and the applicable indenture trustee, with the consent of or
notification of any other parties set forth in the indenture, may also enter
into supplemental indentures, without obtaining the consent of the noteholders
of the related trust, for the purpose of, among other things, adding any
provisions to or changing in any manner or eliminating any of the provisions of
the related indenture or modifying in any manner the rights of the noteholders,
except with respect to the matters listed in the next paragraph which require
the approval of the noteholders, provided that:
. the action will not, as evidenced by an opinion of counsel, materially
adversely affect the interest of any noteholder;
. the action will not, as confirmed by the Rating Agencies rating the notes
of the related trust, cause the then current rating assigned to any class
of such notes to be withdrawn or reduced; and
. an opinion of counsel as to certain tax matters is delivered.
Without the consent of the holder of each outstanding note affected thereby,
in addition to the satisfaction of each of the conditions set forth in the
preceding paragraph, however, no supplemental indenture will:
. change the due date of any installment of principal of or interest on any
note or reduce the principal amount, the interest rate or the redemption
price with respect the note, change the application of the proceeds of a
sale of the trust property to payment of principal and interest on the
note or change any place of payment where, or the coin or currency in
which, that note or any interest on that note is payable;
. impair the right to institute suit for the enforcement of certain
provisions of the related indenture regarding payment;
43
<PAGE>
. reduce the percentage of the aggregate amount of the Controlling Class or
of the notes, the consent of the holders of which is required for any
such supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the
related indenture or of certain defaults or events of default thereunder
and their consequences as provided for in the indenture;
. modify or alter the provisions of the related indenture regarding the
voting of notes held by the applicable trust, any other obligor on the
notes, the seller or an affiliate of any of them;
. reduce the percentage of the aggregate outstanding amount of the
Controlling Class, the consent of the holders of which is required to
direct the related indenture trustee to sell or liquidate the receivables
after an event of default if the proceeds of the sale would be
insufficient to pay the principal amount and accrued but unpaid interest
on the outstanding notes and certificates of the trust;
. decrease the percentage of the aggregate principal amount of the
Controlling Class or of the notes required to amend the sections of the
related indenture which specify the applicable percentage of aggregate
principal amount of the notes of the trust necessary to amend such
indenture or any of the other related agreements;
. affect the calculation of the amount of interest or principal payable on
any note on any Distribution Date, including the calculation of any of
the individual components of such calculation;
. affect the rights of the noteholders to the benefit of any provisions for
the mandatory redemption of the notes provided in the related indenture;
or
. permit the creation of any lien ranking prior to or on a parity with the
lien of the related indenture with respect to any of the collateral for
the notes or, except as otherwise permitted or contemplated in such
indenture, terminate the lien of the indenture on any such collateral or
deprive the holder of any the note of the security afforded by the lien
of such indenture.
The Indenture Trustee
The indenture trustee for a series of notes will be specified in the related
prospectus supplement. The indenture trustee for any trust may resign at any
time, in which event the administrator of the trust will be obligated to
appoint a successor trustee. The administrator of a trust will be obligated to
remove an indenture trustee if the indenture trustee ceases to be eligible to
continue as such under the related indenture or if such indenture trustee
becomes insolvent. In such circumstances, the administrator of the trust will
be obligated to appoint a successor trustee for the notes of the applicable
trust. In addition, a majority of the Controlling Class may remove the
indenture trustee without cause and may appoint a successor indenture trustee.
If a trust issues a class of notes that is subordinated to one or more other
classes of notes and an event of default occurs under the related indenture,
the indenture trustee may be deemed to have a conflict of interest under the
Trust Indenture Act of 1939 and may be required to resign as trustee for one or
more of the classes of notes. In
44
<PAGE>
any such case, the indenture will provide for a successor indenture trustee to
be appointed for those classes of notes. Any resignation or removal of the
indenture trustee and appointment of a successor trustee for the notes of the
trust does not become effective until acceptance of the appointment by the
successor trustee for such trust.
Description of the Receivables Transfer and Servicing Agreements
The following summary describes certain material provisions of the documents
under which the depositor will purchase the receivables from a seller, a trust
will purchase the receivables from the depositor and a servicer will service
the receivables on behalf of the trust. In the case of a trust that is not a
grantor trust, these documents are the receivables purchase agreement and the
sale and servicing agreement. For a grantor trust, they are the receivables
purchase agreement and the pooling and servicing agreement. This section also
describes certain material provisions of the trust agreement for a trust that
is not a grantor trust. Forms of those documents have been filed as exhibits to
the registration statement of which this prospectus forms a part. This summary
describes the material provisions common to the securities of each trust; the
attached prospectus supplement will give you additional information on the
material provisions specific to the securities which you are purchasing. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all the provisions of those documents.
Sale and Assignment of Receivables
When the trust issues securities, the seller will transfer and assign,
without recourse, to the depositor its entire interests in the related
receivables, together with its security interests in the related Financed
Vehicles, under a receivables purchase agreement. The depositor will then
transfer and assign to the applicable trustee, without recourse, under a sale
and servicing agreement or a pooling and servicing agreement, as applicable,
its entire interest in those receivables, including its security interests in
the related Financed Vehicles. Each receivable will be identified in a schedule
appearing as an exhibit to the pooling and servicing agreement or sale and
servicing agreement, as applicable.
Sale and Assignment of Subsequent Receivables. The related prospectus
supplement for the trust will specify whether, and the terms, conditions and
manner under which, Subsequent Receivables will be sold by the seller to the
depositor and by the depositor to the applicable trust from time to time during
any Funding Period on each Subsequent Transfer Date.
Representations and Warranties. In each receivables purchase agreement, the
related seller will represent and warrant to the depositor, who will in turn
assign its rights under the agreement to the applicable trust under the related
sale and servicing agreement or pooling and servicing agreement, among other
things, that at the date of issuance of the related notes and/or certificates
or at the applicable Subsequent Transfer Date--
. each receivable (a) has been originated for the retail financing of a
motor vehicle by an obligor located in one of the states of the United
States or the District of Columbia and (b) contains customary and
enforceable provisions such that the rights and
45
<PAGE>
remedies of the holder thereof shall be adequate for realization against
the collateral of the benefits of the security;
. each receivable and the sale of the related Financed Vehicle complies in
all material respects with all requirements of applicable federal, state,
and local laws, and regulations thereunder, including usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Federal Trade Commission Act, the Magnuson-Moss
Warranty Act, Federal Reserve Board Regulations B and Z, state
adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, and any other consumer credit, equal opportunity and
disclosure laws applicable to such receivable and sale;
. each receivable constitutes the legal, valid and binding payment
obligation in writing of the obligor, enforceable by the holder thereof
in all material respects in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
liquidation and other Similar Laws and equitable principles relating to
or affecting the enforcement of creditors' rights;
. immediately prior to the sale and assignment thereof to the trust, each
receivable was secured by a validly perfected first priority security
interest in the Financed Vehicle in favor of the seller as secured party
or all necessary action with respect to such receivable has been taken to
perfect a first priority security interest in the related Financed
Vehicle in favor of the seller as secured party, which security interest
is assignable and has been so assigned by the seller to the depositor and
by the depositor to the trust;
. as of the Cutoff Date, there are no rights of rescission, setoff,
counterclaim or defense, and the seller has no knowledge of the same
being asserted or threatened, with respect to any receivable;
. as of the Cutoff Date, the seller had no knowledge of any liens or claims
that have been filed, including liens for work, labor, materials or
unpaid taxes relating to a Financed Vehicle, that would be liens prior
to, or equal or coordinate with, the lien granted by the receivable;
. except for payment defaults continuing for a period of not more than 30
days (or such other number of days specified in the prospectus
supplement) as of the Cutoff Date, the seller has no knowledge that a
default, breach, violation, or event permitting acceleration under the
terms of any receivable exists, the seller has no knowledge that a
continuing condition that with notice or lapse of time would constitute a
default, breach, violation or event permitting acceleration under the
terms of any receivable exists and the seller has not waived any of the
foregoing;
. each receivable requires that the obligor thereunder obtain comprehensive
and collision insurance covering the Financed Vehicle; and
. any other representations and warranties that may be set forth in the
related prospectus supplement.
46
<PAGE>
Seller must repurchase receivables relating to a breach of representation or
warranty. As of the last day of the second, or, if the seller elects, the
first, Collection Period following the discovery by or notice to the seller of
a breach of any representation or warranty of the seller which materially and
adversely affects the interests of the related trust in any receivable, the
seller, unless the breach is cured, will repurchase that receivable from the
trust at a price generally equal to the Purchase Amount, which is the unpaid
principal balance owed by the obligor under the receivable plus interest to the
date of purchase at the respective contract rate of interest. Alternatively, if
so specified in the related prospectus supplement, the related seller will be
permitted, in a circumstance where it would otherwise be required to repurchase
a receivable as described in the preceding sentence, to instead substitute a
comparable receivable for the receivable otherwise requiring repurchase,
subject to certain conditions and eligibility criteria for the substitute
receivable to be summarized in the related prospectus supplement. The
repurchase obligation, or, if applicable, the substitution alternative with
respect thereto, constitutes the sole remedy available to the
certificateholders or the trustee and any noteholders or indenture trustee in
respect of each trust for any such uncured breach.
Servicing of the Receivables. Under each sale and servicing agreement or
pooling and servicing agreement, to assure uniform quality in servicing the
receivables and to reduce administrative costs, each trust will designate a
servicer to service and administer the receivables held by the trust and, as
custodian on behalf of the trust, maintain possession of the installment loan
agreements and any other documents relating to such receivables. To assure
uniform quality in servicing the receivables, as well as to facilitate
servicing and save administrative costs, the installment loan agreements and
other documents relating thereto will not be physically segregated from other
similar documents that are in the servicer's possession or otherwise stamped or
marked to reflect the transfer to the trust. The obligors under the receivables
will not be notified of the transfer. However, Uniform Commercial Code
financing statements reflecting the sale and assignment of those receivables by
the seller to the trust will be filed, and the servicer's accounting records
and computer systems will be marked to reflect such sale and assignment.
Because those receivables will remain in the servicer's possession and will not
be stamped or otherwise marked to reflect the assignment to the trust if a
subsequent purchaser were to obtain physical possession of such receivables
without knowledge of the assignment, the trust's interest in the receivables
could be defeated. See "Material Legal Issues Relating to the Receivables--
Security Interests in the Financed Vehicles".
Accounts
In the case of a trust that issues notes, the servicer will establish and
maintain with the related indenture trustee one or more collection accounts in
the name of the indenture trustee on behalf of the related noteholders into
which all payments made on or with respect to the related receivables will be
deposited. The servicer may establish and maintain with such indenture trustee
a note payment account, which may be a subaccount of the collection account, in
the name of such indenture trustee on behalf of such noteholders, into which
amounts released from the collection account and any other accounts of the
trust for payment
47
<PAGE>
to such noteholders will be deposited and from which all distributions to such
noteholders will be made. In the case of a trust that issues certificates or is
a grantor trust, the servicer may establish and maintain with the related
trustee one or more certificate distribution accounts, in the name of the
trustee on behalf of the certificateholders, into which amounts released from
the collection account and any other accounts of the trust for distribution to
the certificateholders will be deposited and from which all distributions to
the certificateholders will be made.
Any other accounts to be established with respect to securities of the
trust, including any pre-funding account, yield supplement account or reserve
fund, will be described in the related prospectus supplement.
For any securities of the trust, funds in the trust accounts will be
invested as provided in the related sale and servicing agreement or pooling and
servicing agreement in Permitted Investments. Permitted Investments are
generally limited to obligations or securities that mature on or before the
date of the next distribution for such series. However, to the extent permitted
by the Rating Agencies, funds in any reserve fund may be invested in securities
that will not mature prior to the date of the next distribution on the notes or
certificates and which will not be sold to meet any shortfalls. Thus, the
amount of cash available in any reserve fund at any time may be less than the
balance of the reserve fund. If the amount required to be withdrawn from any
reserve fund to cover shortfalls in collections on the related receivables, as
provided in the related prospectus supplement, exceeds the amount of cash in
the reserve fund, a temporary shortfall in the amounts distributed to the
related noteholders or certificateholders could result, which could, in turn,
increase the average life of the notes or the certificates of such trust. Net
investment earnings on funds deposited in the trust accounts shall be deposited
in the applicable collection account or distributed as provided in the related
prospectus supplement.
The trust accounts will be maintained as Eligible Deposit Accounts, which
satisfy certain requirements of the Rating Agencies.
Servicing Procedures
The servicer will make reasonable efforts to collect all payments due with
respect to the receivables held by the related trust and will, consistent with
the related sale and servicing agreement or pooling and servicing agreement,
follow such collection procedures as it follows with respect to motor vehicle
retail installment sale contracts, installment loans, purchase money notes or
other notes that it services for itself or others and that are comparable to
such receivables. If set forth in the related prospectus supplement, the
servicer may, consistent with its normal procedures, in its discretion, arrange
with the obligor on a receivable to defer or modify the payment schedule. Some
of such arrangements may require the servicer to purchase the receivable while
others may result in the servicer making advances with respect to the
receivable. The servicer may be obligated to purchase or make advances with
respect to any receivable if, among other things, it extends the date for final
payment by the obligor of such receivable beyond a date set forth in the
related prospectus supplement, or, if set forth in the prospectus supplement,
the servicer changes the contract
48
<PAGE>
rate of interest or the total amount or number of scheduled payments of such
receivable. If the servicer determines that eventual payment in full of a
receivable is unlikely, the servicer will follow its normal practices and
procedures to realize upon the receivable, including the repossession and
disposition of the Financed Vehicle securing the receivable at a public or
private sale, or the taking of any other action permitted by applicable law.
Collections
With respect to each trust, the servicer will deposit all payments on the
related receivables and all proceeds of such receivables collected during each
Collection Period into the related collection account within two business days
after receipt thereof. However, at any time that and for so long as (1) the
original servicer, or its successor, is the servicer, (2) there exists no Event
of Servicing Termination and (3) each other condition to making deposits less
frequently than daily as may be specified by the Rating Agencies or set forth
in the related prospectus supplement is satisfied, the servicer will not be
required to deposit such amounts into the collection account until the business
day preceding the applicable Distribution Date. Pending deposit into the
collection account, collections may be invested by the servicer at its own risk
and for its own benefit and will not be segregated from its own funds. If the
servicer were unable to remit such funds, securityholders might incur a loss.
To the extent set forth in the related prospectus supplement, the servicer may,
in order to satisfy the requirements described above, obtain a letter of credit
or other security for the benefit of the related trust to secure timely
remittances of collections on the related receivables and payment of the
aggregate Purchase Amount with respect to receivables purchased by the
servicer.
Collections on a Precomputed Receivable made during a Collection Period
shall be applied first to repay any outstanding Precomputed Advances made by
the servicer with respect to such receivable, and to the extent that
collections on a Precomputed Receivable during a Collection Period exceed the
outstanding Precomputed Advances, the collections shall then be applied to the
scheduled payment on such receivable. If any collections remaining after the
scheduled payment is made are insufficient to prepay the Precomputed Receivable
in full, then, generally such remaining collections shall be transferred to and
kept in a separate account, until such later Collection Period when the
collections may be transferred to the collection account and applied either to
the scheduled payment or to prepay such receivable in full.
Collections on a receivable made during a Collection Period which are not
late fees, prepayment charges, or certain other similar fees or charges shall
be applied first to any outstanding advances made by the servicer with respect
to such receivable and then to the scheduled payment.
Advances
Precomputed Receivables. If so provided in the related prospectus
supplement, to the extent the collections of interest on and principal of a
Precomputed Receivable with respect to a Collection Period fall short of the
respective scheduled payment, the servicer will make
49
<PAGE>
a Precomputed Advance in the amount of the shortfall. The servicer will be
obligated to make a Precomputed Advance on a Precomputed Receivable only to the
extent that the servicer, in its sole discretion, expects to recoup the advance
from subsequent collections or recoveries on the receivable or other
Precomputed Receivables in the related receivables pool. The servicer will
deposit the Precomputed Advance in the applicable collection account on or
before the business day preceding the applicable Distribution Date. The
servicer will recoup its Precomputed Advance from subsequent payments by or on
behalf of the related obligor or from insurance or liquidation proceeds with
respect to the receivable and will release its right to reimbursement in
conjunction with its purchase of the receivable as servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related receivables pool or from any other source of funds
identified in the related prospectus supplement.
Simple Interest Receivables. If so provided in the related prospectus
supplement, on or before the business day prior to each applicable Distribution
Date, the servicer shall make a Simple Interest Advance by depositing into the
related collection account an amount equal to the amount of interest that would
have been due on the related Simple Interest Receivables at their respective
contract rates of interest for the related Collection Period, assuming that the
Simple Interest Receivables are paid on their respective due dates, minus the
amount of interest actually received on the Simple Interest Receivables during
the related Collection Period. If calculation results in a negative number, an
amount equal to that amount shall be paid to the servicer in reimbursement of
outstanding Simple Interest Advances. In addition, in the event that a Simple
Interest Receivable becomes a Defaulted Receivable, the amount of accrued and
unpaid interest owing on that receivable, but not including interest for the
then current Collection Period, shall be withdrawn from the collection account
and paid to the servicer in reimbursement of outstanding Simple Interest
Advances. No advances of principal will be made with respect to Simple Interest
Receivables.
Balloon Payment Receivables. If so provided in the related prospectus
supplement, the servicer will make an Advance for any portion of a Balloon
Payment for the calendar month in which the Balloon Payment becomes due if the
entire scheduled payment has not been received by the servicer. Generally, the
servicer will be reimbursed for an Advance relating to a Balloon Payment on
each Distribution Date following the Distribution Date on which the advance was
made out of payments by or on behalf of the related obligor to the extent those
payments are allocable to the reimbursement of the Advance and out of
collections on other receivables to the extent of any losses allocable to the
balloon payment, but only to the extent the balloon payment and the advance
have not otherwise been reimbursed.
The servicer will deposit all advances into the applicable collection
account on the business day immediately preceding the related Distribution
Date.
Servicing Compensation and Expenses
Unless otherwise specified in the prospectus supplement with respect to any
trust, the servicer will be entitled to receive a servicing fee for each
Collection Period in an amount
50
<PAGE>
equal to a specified percentage per annum of the outstanding balance of the
related pool of receivables as of the first day of the Collection Period. The
servicer also may be entitled to receive as a supplemental servicing fee for
each Collection Period any late, prepayment and other administrative fees and
expenses collected during that Collection Period. If specified in the related
prospectus supplement, the supplemental servicing fee will include net
investment earnings on funds deposited in the trust accounts and other accounts
with respect to the trust. The servicer will be paid the servicing fee and the
supplemental servicing fee for each Collection Period on the applicable
Distribution Date.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for the trust, including collecting and posting
all payments, responding to inquiries of obligors on the receivables,
investigating delinquencies, sending payment coupons to obligors, reporting
federal income tax information to obligors, paying costs of collections, and
policing the collateral. The fees will also compensate the servicer for
administering the particular receivables pool, including making advances,
accounting for collections, furnishing monthly and annual statements to the
related trustee and indenture trustee with respect to distributions, and
generating federal income tax information for the trust. The fees, if any, also
will reimburse the servicer for certain taxes, the fees of the related trustee
and indenture trustee, if any, accounting fees, outside auditor fees, data
processing costs, and other costs incurred in connection with administering the
applicable receivables.
Distributions
With respect to securities of each trust, beginning on the Distribution Date
specified in the related prospectus supplement, distributions of principal and
interest, or, where applicable, of principal or interest only, on each class of
the securities entitled thereto will be made by the applicable trustee or
indenture trustee to the noteholders and the certificateholders of the trust.
The timing, calculation, allocation, order, source, priorities of and
requirements for all payments to each class of securityholders of the trust
will be set forth in the related prospectus supplement.
Allocation of Collections on Receivables. Except as set forth in the related
prospectus supplement, distributions of principal on the securities of the
trust may be based on the amount of principal collected or due and the amount
of realized losses incurred in a Collection Period. The servicer will allocate
collections to the interest and principal portion of scheduled payments on the
receivables in accordance with its customary servicing procedures. On the
business day before each Distribution Date (or another date as described in the
related prospectus supplement), the servicer will determine the amount in the
collection account available to make payments or distributions to
securityholders on the related Distribution Date and will direct the indenture
trustee, if any, and/or the trustee to make the distributions as described in
the related prospectus supplement.
Credit and Cash Flow Enhancement
Any form of credit enhancement may be limited and may only apply to certain
classes of securities. The amounts and types of credit and cash flow
enhancement arrangements and
51
<PAGE>
the provider thereof, if applicable, with respect to each class of securities
of a given series, if any, will be set forth in the related prospectus
supplement. If, and to the extent provided in the related prospectus
supplement, credit and cash flow enhancement may be in the form of
subordination of one or more classes of securities, reserve funds,
overcollateralization, letters of credit, credit or liquidity facilities,
surety bonds, insurance policies regarding payment of the securities,
guaranteed investment contracts, swaps or other interest rate protection
agreements, repurchase obligations, yield supplement agreements, other
agreements with respect to third party payments or other support, cash deposits
or other arrangements as may be described in the related prospectus supplement
or any combination of two or more of the foregoing. If specified in the
applicable prospectus supplement, credit or cash flow enhancement for a class
of securities may cover one or more other classes of securities of the same
series, and credit or cash flow enhancement for a series of securities may
cover one or more other series of securities.
The presence of a reserve fund and other forms of credit or cash flow
enhancement for the benefit of any class or securities of the trust is intended
to (1) enhance the likelihood of receipt by the securityholders of that class
of the full amount of principal and interest due on the securities and (2)
decrease the likelihood that the securityholders will experience losses. The
credit or cash flow enhancement for a class of securities may not provide
protection against all risks of loss and may not guarantee repayment of the
entire principal amount and interest due on the securities. If losses occur
which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, securityholders will bear their allocable
share of deficiencies, as described in the related prospectus supplement.
Seller may replace credit or cash flow enhancement with rating
confirmation. If so provided in the related prospectus supplement, the seller
may replace the credit enhancement for any class of securities with another
form of credit enhancement without the consent of securityholders, provided the
Rating Agencies confirm in writing that substitution will not result in the
reduction or withdrawal of the rating of any class of securities of the related
trust.
Reserve fund. If so provided in the related prospectus supplement, the
reserve fund will be funded by an initial deposit by the trust or the seller on
the Closing Date in the amount set forth in the related prospectus supplement
and, if the related trust has a Funding Period, will also be funded on each
Subsequent Transfer Date to the extent described in the related prospectus
supplement. As further described in the related prospectus supplement, the
amount on deposit in a reserve fund will be increased on each Distribution Date
thereafter up to the specified reserve balance by the deposit of the amount of
Collection Period, net of distributions to the servicer as reimbursement of
advances, if any, or payment of fees to the servicer with respect to that
Collection Period. The servicer, however, will account to the trustee, any
indenture trustee, the noteholders, if any, and the certificateholders with
respect to each trust as if all deposits, distributions, and transfers were
made individually.
Statements to Trustees and Trusts
Prior to each Distribution Date with respect to securities of each trust,
the servicer will provide to the applicable indenture trustee, if any, and the
applicable trustee as of the close
52
<PAGE>
of business on the last day of the preceding Collection Period the report that
is required to be provided to securityholders of the trust described under
"Certain Information Regarding the Securities--Reports to Securityholders".
Evidence as to Compliance
Each sale and servicing agreement and pooling and servicing agreement will
provide that a firm of independent certified public accountants will furnish to
the related trust and indenture trustee or trustee, as applicable, annually a
statement as to compliance by the servicer during the preceding 12 months (or,
in the case of the first certificate, from the applicable Closing Date) with
certain standards relating to the servicing of the applicable receivables.
Each sale and servicing agreement and pooling and servicing agreement will
also provide for delivery to the related trust and indenture trustee or
trustee, as applicable, substantially simultaneously with the delivery of the
accountants' statement referred to above, of a certificate signed by an officer
of the servicer stating that the servicer has fulfilled its obligations under
that agreement throughout the preceding 12 months (or, in the case of the first
certificate, from the Closing Date) or, if there has been a default in the
fulfillment of any such obligation, describing each default.
Copies of these statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee.
Certain Matters Regarding the Servicer
Each sale and servicing agreement and pooling and servicing agreement will
provide that the servicer may not resign from its obligations and duties as
servicer thereunder, except (i) upon a determination that the servicer's
performance of its duties is no longer permissible under applicable law or (ii)
in the event of the appointment of a successor servicer, without the consent of
any securityholder upon notification by each Rating Agency then rating any of
the related securities that the rating then assigned to the securities will not
be reduced or withdrawn by that Rating Agency. No resignation will become
effective until the related indenture trustee or trustee, as applicable, or a
successor servicer has assumed the servicing obligations and duties under the
sale and servicing agreement or the pooling and servicing agreement. The
servicer will also have the right to delegate any of its duties under those
agreements to a third party without the consent of any securityholder or the
confirmation of any rating. The servicer, however will remain responsible and
liable for its duties under those agreements as if it had made no delegations.
Each sale and servicing agreement and pooling and servicing agreement will
further provide that neither the servicer nor any of its directors, officers,
employees and agents will be under any liability to the related trust or the
related noteholders or certificateholders for taking any action or for
refraining from taking any action under the sale and servicing agreement or for
errors in judgment; except that neither the servicer nor any other person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of the
servicer's duties thereunder or
53
<PAGE>
by reason of reckless disregard of its obligations and duties thereunder,
except that employees of the servicer or its affiliates will be protected
against liability that would otherwise be imposed by reason of negligence. The
agreement will further provide that the servicer, and its directors, officers,
employees and agents are entitled to indemnification by the trust for, and will
be held harmless against, any loss, liability or expense incurred by reason of
the servicer's willful misfeasance, bad faith or negligence in the performance
of duties or by reason of the servicer's reckless disregard of obligations and
duties thereunder; provided, however, that the indemnification will be paid on
a Distribution Date only after all payments required to be made to
securityholders and the servicer have been made and all amounts required to be
deposited in enhancement accounts have been deposited. In addition, each sale
and servicing agreement and pooling 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 the servicer's servicing responsibilities
under the sale and servicing agreement and that, in its opinion, may cause it
to incur any expense or liability. The servicer may, however, undertake any
reasonable action that it may deem necessary or desirable in respect of a
particular sale and servicing agreement or pooling and servicing agreement, as
applicable, the rights and duties of the parties thereto, and the interests of
the related securityholders thereunder. In that event, the servicer's legal
expenses and costs of the action and any liability resulting therefrom will be
expenses, costs, and liabilities of the trust, and the servicer will be
entitled to be reimbursed therefor.
Under the circumstances specified in each sale and servicing agreement and
pooling and servicing agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or
consolidation to which the servicer is a party, or any entity succeeding to the
business of the servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the servicer, will be the successor
of the servicer under the sale and servicing agreement or pooling and servicing
agreement, as applicable.
Events of Servicing Termination
Events of Servicing Termination under each sale and servicing agreement or
pooling and servicing agreement will consist of:
. any failure by the servicer, or, so long as the seller is the servicer,
the seller, to deliver to the trustee or indenture trustee for
distribution to the securityholders of the related trust or for deposit
in any of the trust accounts or the certificate distribution account any
required payment, which failure continues unremedied for five business
days after written notice from the trustee or indenture trustee is
received by the servicer or the seller, as the case may be, or after
discovery by an officer of the servicer or the seller, as the case may
be;
. any failure by the servicer, or, so long as the seller is the servicer,
the seller, duly to observe or perform in any material respect any other
covenant or agreement in the sale and servicing agreement or pooling and
servicing agreement, which failure materially and adversely affects the
rights of the noteholders or the certificateholders of the
54
<PAGE>
related trust and which continues unremedied for 90 days after the giving
of written notice of the failure (A) to the servicer or the seller, as the
case may be, by the trustee or the indenture trustee or (B) to the
servicer, the seller and the trustee or the indenture trustee by holders
of notes or certificates of the trust, as applicable, of not less than 25%
in principal amount of the Controlling Class, or, if no notes are
outstanding, 25% by aggregate Certificate Balance of the certificates;
. the occurrence of certain Insolvency Events specified in the sale and
servicing agreement or pooling and servicing agreement with respect to
the servicer; and
. any other events set forth in the related prospectus supplement.
Rights Upon Event of Servicing Termination
As long as an Event of Servicing Termination under a sale and servicing
agreement or pooling and servicing agreement remains unremedied, the related
indenture trustee or holders of not less than a majority of the Controlling
Class or the class of notes specified in the prospectus supplement, and after
the notes have been paid in full or if the trust has not issued notes, the
trustee or the holders of not less than a majority of the Certificate Balance,
may terminate all the rights and obligations of the servicer under the sale and
servicing agreement or pooling and servicing agreement, whereupon the indenture
trustee or trustee or a successor servicer appointed by the indenture trustee
or trustee will succeed to all the responsibilities, duties and liabilities of
the servicer under the sale and servicing agreement or pooling and servicing
agreement and will be entitled to similar compensation arrangements.
If, however, a receiver, bankruptcy trustee or similar official has been
appointed for the servicer, and no Event of Servicing Termination other than
the appointment has occurred, the receiver, bankruptcy trustee or official may
have the power to prevent the indenture trustee, the noteholders, the trustee
or the certificateholders from effecting a transfer of servicing. In the event
that the indenture trustee or trustee of the trust is legally unable to act as
servicer, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor servicer. The indenture trustee or trustee may make
such arrangements for compensation to be paid to the successor servicer.
Waiver of Past Events of Servicing Termination
The holders of not less than a majority of the Controlling Class or the
class of notes specified in the prospectus supplement, and after the notes have
been paid in full or if the trust has not issued notes, the trustee or the
holders of not less than a majority of the Certificate Balance, may, on behalf
of all the noteholders and certificateholders, waive any Event of Servicing
Termination under the related sale and servicing agreement or pooling and
servicing agreement and its consequences, except an Event of Servicing
Termination consisting of a failure to make any required deposits to or
payments from any of the trust accounts or to the certificate distribution
account in accordance with the sale and servicing agreement or pooling and
servicing agreement.
55
<PAGE>
Amendment
The parties to each of the Receivables Transfer and Servicing Agreements may
amend any of the agreements, without the consent of the related
securityholders, to add any provisions to or change or eliminate any of the
provisions of the Receivables Transfer and Servicing Agreements or modify the
rights of the noteholders or certificateholders; provided that the action will
not materially and adversely affect the interest of the noteholder or
certificateholder as evidenced by either (1) an opinion of counsel to that
effect or (2) notification by each Rating Agency then rating any of the related
securities that the rating then assigned to the securities will not be reduced
or withdrawn by the Rating Agency together with an officer's certificate of the
servicer to that effect. The Receivables Transfer and Servicing Agreements may
also be amended by the parties thereto with the consent of the holders of notes
of such trust evidencing not less than a majority in principal amount of the
notes, and the holders of the certificates of the trust evidencing not less
than a majority of the Certificate Balance of the certificates then
outstanding, to add any provisions to or change or eliminate any of the
provisions of the Receivables Transfer and Servicing Agreements or modify the
rights of the noteholders or certificateholders; 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 the related
receivables or distributions that are required to be made for the benefit of
the noteholders or certificateholders or change any interest rate on the
securities or the amount required to be on deposit in the reserve fund, if any,
or (2) reduce the percentage of the notes or certificates of the trust which
are required to consent to any the amendment, without the consent of the
holders of all the outstanding notes and certificates of the trust.
Payment of Notes
The indenture trustee will agree in the related indenture that, upon the
payment in full of all outstanding notes of a given trust and the satisfaction
and discharge of the related indenture, to continue to carry out its
obligations under the sale and servicing agreement or pooling and servicing
agreement, as applicable, as agent for the trustee of the trust.
Termination
With respect to each trust, the obligations of the servicer, the seller, the
depositor, the related trustee and the related indenture trustee under the
Receivables Transfer and Servicing Agreements will terminate upon the earlier
of (1) the maturity or other liquidation of the last related receivable and the
disposition of any amounts received upon liquidation of any remaining
receivables and (2) the payment to noteholders and certificateholders of the
related trust of all amounts required to be paid to them under the Receivables
Transfer and Servicing Agreements and (3) the occurrence of either event
described below.
In order to avoid excessive administrative expense, the servicer will be
permitted at its option to purchase from each trust as of the end of any
applicable Collection Period, if the aggregate principal balance of the
receivables held by the trust is 10% or less of the aggregate principal balance
of the receivables as of the Cutoff Date, or under any other
56
<PAGE>
circumstances as may be specified in the related prospectus supplement, all
remaining related receivables at a price equal to the aggregate of the Purchase
Amounts thereof as of the end of the Collection Period, after giving effect to
the receipt of any monies collected on the receivable. The purchase price for
the receivables will not be less than the outstanding principal balance of the
notes plus accrued and unpaid interest.
If and to the extent provided in the related prospectus supplement with
respect to the trust, the applicable trustee will, within ten days following a
Distribution Date as of which the aggregate principal balance of the
receivables is equal to or less than the percentage of the initial aggregate
principal balance of the receivables as of the Cutoff Date specified in the
related prospectus supplement, solicit bids for the purchase of the receivables
remaining in the trust in the manner and subject to the terms and conditions
set forth in such prospectus supplement. If the applicable trustee receives
satisfactory bids as described in the prospectus supplement, then the
receivables remaining in the trust will be sold to the highest bidder.
As more fully described in the related prospectus supplement, any
outstanding notes of the related trust will be paid in full concurrently with
either of the events specified above and the subsequent distribution to the
related certificateholders of all amounts required to be distributed to them
under the applicable trust agreement will effect early retirement of the
certificates of such trust.
List of Certificateholders
With respect to the certificates of any trust, three or more holders of the
certificates of the trust or one or more holders of the certificates evidencing
not less than 25% of the Certificate Balance of the certificates may, by
written request to the related trustee accompanied by a copy of the
communication that the applicant proposes to send, obtain access to the list of
all certificateholders maintained by the trustee for the purpose of
communicating with other certificateholders with respect to their rights under
the related trust agreement or pooling and servicing areement or under the
certificates.
Administration Agreement
If so specified in the related prospectus supplement, a person named as
administrator in the related prospectus supplement, will enter into an
administration agreement with each trust that issues notes and the related
indenture trustee and the administrator will agree, to the extent provided in
the administration agreement, to provide the notices and to perform other
administrative obligations required by the related indenture. Unless otherwise
specified in the related prospectus supplement with respect to any trust, as
compensation for the performance of the administrator's obligations under the
applicable administration agreement and as reimbursement for its expenses
related thereto, the administrator will be entitled to a monthly administration
fee in an amount as may be set forth in the related prospectus supplement.
57
<PAGE>
Material Legal Issues Relating to the Receivables
General
The transfer of the receivables to a trust, the perfection of the security
interests in the receivables and the enforcement of rights to realize on the
Financed Vehicles as collateral for the receivables are subject to a number of
federal and state laws, including the UCC as in effect in various states. Each
of the depositor, the servicer and the seller will take action as is required
to perfect the rights of the trustee in the receivables. If, through
inadvertence or otherwise, another party purchases, including the taking of a
security interest in, the receivables for new value in the ordinary course of
its business, without actual knowledge of the trust's interest, and takes
possession of the receivables, the purchaser would acquire an interest in the
receivables superior to the interest of the trust.
Security Interests in the Financed Vehicles
Retail installment sale contracts such as the receivables evidence the
credit sale of motor vehicles by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the related vehicles under the UCC. Perfection of security
interests in motor vehicles is generally governed by state certificate of title
statutes or by the motor vehicle registration laws of the state in which each
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of title.
Unless otherwise specified in the related prospectus supplement, each seller
will be obligated to have taken all actions necessary under the laws of the
state in which the Financed Vehicle is located to perfect its security interest
in the Financed Vehicle securing the related receivable purchased by it from a
dealer or lender, including, where applicable, by having a notation of its lien
recorded on the vehicle's certificate of title or, if appropriate, by
perfecting its security interest in the related Financed Vehicles under the
UCC. Because the servicer will continue to service the receivables, the
obligors on the receivables will not be notified of the sales from a seller to
the depositor or from the depositor to the trust, and no action will be taken
to record the transfer of the security interest from a seller to the depositor
or from the depositor to the trust by amendment of the certificates of title
for the financed vehicles or otherwise.
Each receivables purchase agreement will provide that each seller will
assign to the depositor its interests in the Financed Vehicles securing the
receivables assigned by that seller to the depositor. With respect to each
trust, the related sale and servicing agreement or pooling and servicing
agreement will provide that the depositor will assign its interests in the
Financed Vehicles securing the related receivables to the trust. However,
because of the administrative burden and expense, none of the seller, the
depositor, the servicer or the related trustee will amend any certificate of
title to identify either the depositor or the trust as the new secured party on
the certificate of title relating to a Financed Vehicle nor will any entity
execute and file any transfer instrument. In most states, the assignment is an
effective conveyance of the security interest without amendment of any lien
noted on the related
58
<PAGE>
certificates of title and the new secured party succeeds to the seller's rights
as the secured party as against creditors of the obligor. In some states, in
the absence of such endorsement and delivery, neither the indenture trustee nor
the trustee may have a perfected security interest in the Financed Vehicle.
However, UCC financing statements with respect to the transfer to the
depositor's of the seller's security interest in the Financed Vehicles and the
transfer to the trust of the depositor's security interest in the Financed
Vehicles will be filed. In addition, the servicer or the custodian will
continue to hold any certificates of title relating to the Financed Vehicles in
its possession as custodian for the trustee in accordance with the sale and
servicing agreement or pooling and servicing agreement, as applicable.
In most states, assignments like those under the receivables purchase
agreement and the sale and servicing agreement or pooling and servicing
agreement, as applicable, are an effective conveyance of a security interest
without amendment of any lien noted on a vehicle's certificate of title, and
the assignee succeeds thereby to the assignor's rights as secured party. In
those states, although re-registration of the vehicle is not necessary to
convey a perfected security interest in the Financed Vehicles to the trust,
because the trust will not be listed as legal owner on the certificates of
title to the Financed Vehicles, its security interest could be defeated through
fraud or negligence. Moreover, in other states, in the absence of an amendment
and re-registration, a perfected security interest in the Financed Vehicles may
not have been effectively conveyed to the trust. Except in that event, however,
in the absence of fraud, forgery or administrative error, the notation of
seller's lien on the certificates of title will be sufficient to protect the
trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent creditors who take a security interest in a Financed Vehicle. In the
receivables purchase agreement, the seller will represent and warrant to the
depositor, who will in turn assign its rights under that agreement to the
applicable trust under the related sale and servicing agreement or pooling and
servicing agreement, that all action necessary for the seller to obtain a
perfected security interest in each Financed Vehicle has been taken. If there
are any Financed Vehicles as to which the seller failed to obtain a first
perfected security interest, its security interest would be subordinate to,
among others, subsequent purchasers of, and holders of these Financed Vehicles.
The failure, however, would constitute a breach of the seller's representations
and warranties under the receivables purchase agreement and the depositor's
representations and warranties under the sale and servicing agreement or
pooling and servicing agreement, as applicable. Accordingly, unless the breach
was cured, the related seller would be required to repurchase the related
receivable from the trust.
Under the laws of most states, a perfected security interest in a vehicle
continues for four months after the vehicle is moved to a new state from the
one in which it is initially registered and thereafter until the owner re-
registers the vehicle in the new state. A majority of states require surrender
of the related certificate of title to re-register a vehicle. In those states
that require a secured party to hold possession of the certificate of title to
maintain perfection of the security interest, the secured party would learn of
the re-registration through the request from the obligor under the related
installment sale contract to surrender possession of the certificate of title.
In the case of vehicles registered in states providing for the notation of a
lien on the certificate of title but not possession by the secured party, the
59
<PAGE>
secured party would receive notice of surrender from the state of re-
registration if the security interest is noted on the certificate of title.
Thus, the secured party would have the opportunity to re-perfect its security
interest in the vehicles in the state of relocation. However, these procedural
safeguards will not protect the secured party if through fraud, forgery or
administrative error, the obligor somehow procures a new certificate of title
that does not list the secured party's lien. Additionally, in states that do
not require a certificate of title for registration of a vehicle, re-
registration could defeat perfection. In the ordinary course of servicing the
receivables, the servicer will take 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 certificate of title or will receive notice as a
result of its lien and accordingly will have an opportunity to require
satisfaction of the related receivable before release of the lien. Under the
sale and servicing agreement or pooling and servicing agreement, as applicable,
the servicer will be obligated to take appropriate steps, at its own expense,
to maintain perfection of 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 take priority over even a first perfected
security interest in the vehicle. The Internal Revenue Code also grants
priority to certain federal tax liens over the lien of a secured party. The
laws of certain states and federal law permit the confiscation of motor
vehicles by governmental authorities under certain circumstances if used in
unlawful activities, which may result in the loss of a secured party's
perfected security interest in a confiscated vehicle. The seller will represent
and warrant in the receivables purchase agreement to the depositor, who will in
turn assign its rights under the representation and warranty to the applicable
trust under the related sale and servicing agreement or pooling and servicing
agreement, that, as of the Closing Date, the security interest in each Financed
Vehicle is prior to all other present liens upon and security interests in the
Financed Vehicle. However, liens for repairs or taxes could arise at any time
during the term of a receivable. No notice will be given to the trustees or
securityholders in the event a lien or confiscation arises and any lien or
confiscation arising after the Closing Date would not give rise to the seller's
repurchase obligation.
Enforcement of Security Interests in Vehicles
The servicer on behalf of each trust may take action to enforce its security
interest by repossession and resale of the Financed Vehicles securing the
trust's receivables. The actual repossession may be contracted out to third
party contractors. Under the UCC and laws applicable in most states, a creditor
can repossess a motor vehicle securing a loan by voluntary surrender, "self-
help" repossession that is "peaceful" or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
In the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which to
cure the default prior to repossession. Generally, this right of cure may only
be exercised on a limited number of occasions during the term of the related
contract. In addition, the UCC and other state laws require the secured party
to provide the obligor with reasonable notice of the date, time and
60
<PAGE>
place of any public sale and/or the date after which any private sale of the
collateral may be held. The obligor has the right to redeem the collateral
prior to actual sale by paying the secured party the unpaid principal balance
of the obligation, accrued interest plus reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its
sale, plus, in some jurisdictions, reasonable attorneys' fees or in some
states, by payment of delinquent installments or the unpaid balance.
The proceeds of resale of the repossessed vehicles generally will be applied
first to the expenses of resale and repossession and then to the satisfaction
of the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit those judgments. In addition to the notice
requirement, the UCC requires that every aspect of the sale or other
disposition, including the method, manner, time, place and terms, be
"commercially reasonable". Generally, courts have held that when a sale is not
"commercially reasonable", the secured party loses its right to a deficiency
judgment. In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
prohibit the secured party from disposing of the collateral if it is
established that the secured party is not proceeding in accordance with the
"default" provisions under the UCC. 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 or be uncollectable.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to the vehicle or if no lienholder exists, the UCC requires the
creditor to remit the surplus to the obligor.
Certain Bankruptcy Considerations
The depositor and the seller will take steps in structuring the transactions
contemplated hereby so that the transfer of the receivables from the seller to
the depositor and from the depositor to the trust constitutes a sale, rather
than a pledge of the receivables to secure indebtedness of the seller or the
depositor, as the case may be. However, if the seller or the depositor were to
become a debtor under the federal bankruptcy code, it is possible that a
creditor or trustee in bankruptcy of the seller or the depositor, as the case
may be, as debtor-in-possession, may argue that the sale of the receivables by
the seller or the depositor, as the case may be, was a pledge of the
receivables rather than a sale. This position, if presented to or accepted by a
court, could result in a delay in or reduction of distribution to the
securityholders.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These
61
<PAGE>
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, the Soldiers'
and Sailors' Civil Relief Act of 1940, the Military Reservist Relief Act, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sale acts, retail installment
sales acts and other Similar Laws. Also, the laws of certain states 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 the ability of an assignee such as the indenture trustee to enforce
consumer finance contracts such as the receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
has the effect of subjecting a seller, and certain related lenders and their
assignees, in a consumer credit transaction to all claims and defenses which
the obligor in the transaction could assert against the seller of the goods.
Liability under the Holder-in-Due-Course 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 thereunder from the obligor. The
Holder-in-Due-Course Rule is generally duplicated by the Uniform Consumer
Credit Code, other state statutes or the common law in certain states.
Most of the receivables will be subject to the requirements of the Holder-
in-Due-Course Rule. Accordingly, the trust, as holder of the receivables, will
be subject to any claims or defenses that the purchaser of a Financed Vehicle
may assert against the seller of the Financed Vehicle. Such claims are limited
to a maximum liability equal to the amounts paid by the obligor on the
receivable.
If an obligor were successful in asserting any such claim or defense as
described in the two immediately preceding paragraphs, such claim or defense
would constitute a breach of a representation and warranty under the
receivables purchase agreement and the sale and servicing agreement or the
pooling and serving agreement, as applicable, and would create an obligation of
the seller to repurchase the receivable unless the breach were cured.
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
protection of the Fourteenth Amendment to the Constitution of the United
States. Courts have generally either upheld the notice provisions of the UCC
and related laws as reasonable or have found that the creditor's repossession
and resale do not involve sufficient state action to afford constitutional
protection to consumers.
Under each receivables purchase agreement, the related seller will warrant
to the depositor, who will in turn assign its rights under the warranty to the
applicable trust under the related sale and servicing agreement or pooling and
servicing agreement, that each
62
<PAGE>
receivable 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 that claim materially and adversely affects the trust's interest in a
receivable, the violation would constitute a breach of the warranties of the
seller under the receivables purchase agreement and would create an obligation
of the seller to repurchase the receivable unless the breach is cured.
Other Matters
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 creditor 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
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy, as determined by the court, 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 the related contract or change the rate of interest and time of
repayment of the indebtedness.
63
<PAGE>
Material Federal Income Tax Consequences
The following is a summary of material federal income tax consequences of
the purchase, ownership and disposition of the notes and the certificates. The
summary does not purport to deal with federal income tax consequences
applicable to all categories of holders, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of
noteholders or certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
IRS rulings on similar transactions involving both debt and equity interests
issued by a trust with terms similar to those of the notes and the
certificates. As a result, the IRS may disagree with all or a part of the
discussion below. We suggest that prospective investors consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes
and the certificates.
The following summary is based upon current provisions of the Internal
Revenue Code, the Treasury regulations promulgated thereunder and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. Each trust will be provided with an opinion of Brown & Wood LLP,
as federal tax counsel to each trust, regarding certain federal income tax
matters discussed below. A legal opinion, however, is not binding on the IRS or
the courts. No ruling on any of the issues discussed below will be sought from
the IRS. For purposes of the following summary, references to the trust, the
notes, the certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each trust and the
notes, certificates and related terms, parties and documents applicable to the
trust.
Brown & Wood LLP, as federal tax counsel to each trust, is of the opinion
that:
(a) Unless the prospectus supplement specifies that the related trust
will be treated as a grantor trust for federal income tax purposes,
assuming compliance with all of the provisions of the applicable
agreement,
(1) the securities so designated will be considered indebtedness of
the trust fund for federal income tax purposes and
(2) the trust will not be considered to be an association or a
publicly traded partnership taxable as a corporation.
(b) If the prospectus supplement indicates that the related trust will
be treated as a grantor trust for federal income tax purposes,
assuming compliance with all of the provisions of the applicable
agreement,
(1) the trust will be considered to be a grantor trust under Subpart
E, Part 1 of Subchapter J of the Internal Revenue Code and will
not be considered to be an association or publicly traded
partnership taxable as a corporation and
(2) a holder of the related securities will be treated for federal
income tax purposes as the owner of a pro rata undivided
interest in the assets included in the trust.
(c) Therefore, in either case, the trust will not be subject to an
entity level tax for federal income tax purposes.
64
<PAGE>
Each opinion is an expression of an opinion only, is not a guarantee of
results and is not binding on the IRS or any third party.
Trusts for Which a Partnership Election is Made
Tax Characterization of the Trust as a Partnership
In the opinion of Brown & Wood LLP, as federal tax counsel to each trust, a
trust for which a partnership election is made will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. Therefore, the trust itself will not be subject to tax for federal
income tax purposes. This opinion will be based on the assumption that the
terms of the trust agreement and related documents will be complied with, and
on counsel's conclusions that the nature of the income of the trust will exempt
it from the rule that certain publicly traded partnerships are taxable as
corporations.
If a trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the receivables and may
possibly be reduced by its interest expense on the notes. Any corporate income
tax could materially reduce cash available to make payments on the notes and
distributions on the certificates, and certificateholders could be liable for
any tax that is unpaid by the trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The depositor will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. In the opinion of Brown & Wood LLP, except as
otherwise provided in the related prospectus supplement, the notes will be
classified as debt for federal income tax purposes. The discussion below
assumes that this characterization is correct.
Original Issue Discount, etc. The discussion below assumes that all payments
on the notes are denominated in United States dollars, that principal and
interest is payable on the notes and that the notes are not indexed securities
or are entitled to principal or interest payments with disproportionate,
nominal or no payments. Moreover, the discussion assumes that the interest
formula for the notes meets the requirements for "qualified stated interest"
under the original issue discount regulations relating to original issue
discount, and that any original issue discount on the notes, i.e., any excess
of the principal amount of the notes over their issue price, does not exceed a
de minimis amount, i.e., 1/4% of their principal amount multiplied by the
number of full years included in their term, all within the meaning of the
original issue discount regulations. If these conditions are not satisfied with
respect to the notes, additional tax considerations with respect to the notes
will be provided in the applicable prospectus supplement.
Interest Income on the Notes. Based on the foregoing assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with original issue discount. The stated interest thereon will be taxable to a
noteholder as ordinary interest income when received or accrued in accordance
with the noteholder's method of tax
65
<PAGE>
accounting. Under the original issue discount regulations, a holder of a note
issued with a de minimis amount of original issue discount must include any
original issue discount in income, on a pro rata basis, as principal payments
are made on the note. A purchaser who buys a note for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Internal Revenue Code.
A holder of a Short-Term Note may be subject to special rules. An accrual
basis holder of a Short-Term Note, and certain cash method holders, including
regulated investment companies, as set forth in Section 1281 of the Internal
Revenue Code, generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to
report interest income as interest is paid, or, if earlier, upon the taxable
disposition of the Short-Term Note. However, a cash basis holder of a Short-
Term Note reporting interest income as it is paid may be required to defer a
portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the
Internal Revenue Code to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the taxpayer would
include interest on the Short-Term Note in income as it accrues, but would not
be subject to the interest expense deferral rule referred to in the preceding
sentence. Certain special rules apply if a Short-Term Note is purchased for
more or less than its principal amount.
Sale or Other Disposition. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount,
original issue discount and gain previously included by the noteholder in
income with respect to the note and decreased by the amount of bond premium, if
any, previously amortized and by the amount of principal payments previously
received by the noteholder with respect to the note. Any gain or loss will be
capital gain or loss if the note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Any capital gain recognized upon a sale, exchange or other
disposition of a note will be long-term capital gain if the seller's holding
period is more than one year and will be short-term capital gain if the
seller's holding period is one year or less. The deductibility of capital
losses is subject to certain limitations. We suggest that prospective investors
consult with their own tax advisors concerning the United States federal tax
consequences of the sale, exchange or other disposition of a note.
Foreign Holders. Interest payments made, or accrued, to a noteholder who is
a Foreign Person generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the Foreign Person and the
Foreign Person (i) is not actually or constructively a "10 percent shareholder"
of the trust or the depositor (including a holder of 10% of the outstanding
certificates) or a "controlled foreign corporation" with respect to which the
trust or the seller
66
<PAGE>
is a "related person" within the meaning of the Internal Revenue Code and (ii)
provides the indenture trustee or other person who is otherwise required to
withhold United States tax with respect to the notes with an appropriate
statement, on IRS Form W-8 BEN or a similar form, signed under penalty of
perjury, certifying that the beneficial owner of the note is a Foreign Person
and providing the Foreign Person's name and address. If a note is held through
a securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by IRS Form W-8BEN or substitute form provided by the Foreign
Person that owns the note. If such interest is not portfolio interest, then it
will be subject to withholding tax at a rate of 30 percent, unless the Foreign
Person provides a properly executed IRS Form W-8BEN claiming an exemption from
or reduction in withholding under the benefit of a tax treaty or an IRS Form W-
8ECI stating that interest paid is not subject to withholding tax because it is
effectively connected with the Foreign Person's conduct of a trade or business
in the United States. If the interest is effectively connected income, the
Foreign Person, although exempt from the withholding tax discussed above, will
be subject to United States federal income tax on that interest at graduated
rates.
Any capital gain realized on the sale, redemption, retirement 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) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person and (2) 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 does not otherwise have a "tax home" within the
United States.
Backup Withholding. Each holder of a note, other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident, will be required to provide, under
penalty of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt noteholder fail to
provide the required certification, the trust will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion of
Brown & Wood LLP, the IRS successfully asserted that one or more of the notes
did not represent debt for federal income tax purposes, the notes might be
treated as equity interests in the trust. If so treated, the trust might be
treated as a publicly traded partnership taxable as a corporation with
potentially adverse tax consequences, and the publicly traded partnership
taxable as a corporation would not be able to reduce its taxable income by
deductions for interest expense on notes recharacterized as equity.
Alternatively, and most likely in the view of Brown & Wood LLP, the trust would
be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Treatment of
the notes as equity interests in such a partnership would probably be treated
as
67
<PAGE>
guaranteed payments, which could result in adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities, including pension
funds, would be "unrelated business taxable income", income to foreign holders
generally would be subject to United States tax and United States tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The depositor will agree, and the
certificateholders 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 certificateholders, including the seller in its capacity
as recipient of distributions from any reserve fund, and the notes being debt
of the related partnership. However, the proper characterization of the
arrangement involving the trust, the certificates, the notes, the depositor and
the seller 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 depositor or the trust. That
characterization would not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. See "Tax Consequences
to Holder of these Notes" above. The following discussion assumes that the
certificates represent equity interests in a partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the certificates are denominated in United States dollars, principal and
interest are distributed on the certificates, that a series of securities
includes a single class of certificates and that the certificates are not
indexed securities or are entitled to principal or interest payments with
disproportionate, nominal or no payments. If these conditions are not satisfied
with respect to any given series of certificates, additional tax considerations
with respect to the certificates will be disclosed in the applicable prospectus
supplement.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account the holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the receivables, including
appropriate adjustments for market discount, original issue discount and bond
premium, and any gain upon collection or disposition of receivables. 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 receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Internal Revenue Code, Treasury regulations and the partnership
agreement, in this case, the
68
<PAGE>
trust agreement and related documents. The trust agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of:
(i) the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the applicable
pass-through rate for that month and interest on amounts previously due
on the certificates but not yet distributed;
(ii) any trust income attributable to discount on the receivables that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(iii) prepayment premium payable to the certificateholders for that month;
and
(iv) any other amounts of income payable to the certificateholders for that
month.
That allocation will be reduced by any amortization by the trust of premium
on receivables 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 depositor. 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
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire pass-through
rate plus the other items described above even though the trust might not have
sufficient cash to make current cash distributions of these amount. Thus, cash
basis holders will in effect be required to report income from the certificates
on the accrual basis and certificateholders may become liable for taxes on
trust income even if they have not received cash from the trust to pay these
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all certificateholders but certificateholders may be
purchasing certificates at different times and at different prices,
certificateholders 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.
See "Allocations Between Transferors and Transferees".
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or Plan or other tax-exempt entity (including an
individual retirement account) will constitute "unrelated business taxable
income" generally taxable to the a holder under the Internal Revenue Code.
An individual taxpayer's share of expenses of the trust (including fees to
the servicer but not interest expense) would be miscellaneous itemized
deductions. Those deductions might be disallowed to the individual in whole or
in part and might result in the holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the holder over the life of
the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that these calculations be made separately for each receivable, the
trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on certificateholders.
69
<PAGE>
Discount and Premium. Unless otherwise indicated in the applicable
prospectus supplement, the applicable seller will represent that the
receivables were not issued with original issue discount, and, therefore, the
trust should not have original issue discount income. However, the purchase
price paid by the trust for the receivables may be greater or less than the
remaining principal balance of the receivables at the time of purchase. If so,
the receivables 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 receivable-by-
receivable basis.
If the trust acquires the receivables at a market discount or premium, the
trust will elect to include that discount in income currently as it accrues
over the life of the receivables or to offset that premium against interest
income on the receivables. As indicated above, a portion of that market
discount income or premium deduction may be allocated to certificateholders.
Section 708 Termination. Under Section 708 of the Internal Revenue Code, the
trust will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the trust are sold or exchanged
within a 12-month period. Pursuant to final Treasury regulations issued on May
9, 1997, if such a termination occurs, the trust will be considered to have
contributed the assets consisting of the old partnership to a new partnership
in exchange for interests in the partnership. The interests would be deemed
distributed to the partners of the old partnership in liquidation thereof,
which would not constitute a sale or exchange.
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. A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (includable in
income) and decreased by any distributions received with respect to the
certificate. In addition, both the tax basis in the certificates and the amount
realized on a sale of a certificate would include the 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 the certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of that 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 receivables 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 these 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 certificateholder 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, the excess will generally give rise to
a capital loss upon the retirement of the certificates.
70
<PAGE>
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 certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the last day of the 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 the actual transaction.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed, or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the trust might be reallocated among the certificateholders. The depositor
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 certificateholder sells its
certificates at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificates than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust were to file an election under Section
754 of the Internal Revenue Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the trust will
not make that election. As a result, certificateholders might be allocated a
greater or lesser amount of trust income than would be appropriate based on
their own purchase price for the certificates.
Administrative Matters. The trustee is required to keep or have kept
complete and accurate books of the trust. The books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trustee will file a partnership
information return, IRS Form 1065, with the IRS for each taxable year of the
trust and will report each certificateholder'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 the nominees will be
required to forward the 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 Internal Revenue Code, any person that holds
certificates as a nominee at any time during a calendar year is required to
furnish the trust with a statement containing certain information on the
nominee, the beneficial owners and the certificates so held. The 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 the person, (b) whether the 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 the person throughout the year. In addition, brokers and
financial institutions that hold certificates through a nominee are required to
furnish
71
<PAGE>
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 this 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.
The depositor will be designated as the tax matters partner in the related
trust agreement and, therefore, will be responsible for representing the
certificateholders in any dispute with the IRS. The Internal Revenue Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. 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
certificateholders, and, under certain circumstances, a certificateholder 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 certificateholder's
returns and adjustments of items not related to the income and losses of the
trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-United
States persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is not
expected that the trust would be engaged in a trade or business in the United
States for these purposes, the trust will withhold as if it were so engaged in
order to protect the trust from possible adverse consequences of a failure to
withhold. The trust expects to withhold on the portion of its taxable income
that is allocable to foreign certificateholders pursuant to Section 1446 of the
Internal Revenue Code, as if the income were effectively connected to a United
States trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the trust to change its withholding procedures. In determining a
holder's withholding status, the trust may rely on IRS Form W-8BEN, Internal
Revenue Code Form W-9 or the holder's certification of nonforeign status signed
under penalty of perjury.
Each foreign holder might be required to file a United States individual or
corporate income tax return, including, in the case of a corporation, the
branch profits tax, on its share of the trust's income. Each foreign holder
must obtain a taxpayer identification number from the IRS and submit that
number to the trust on IRS Form W-8BEN, or substantially identical form, in
order to assure appropriate crediting of the taxes withheld. A foreign holder
generally would be entitled to file with the IRS a claim for refund with
respect to taxes withheld by the trust, taking the position that no taxes were
due because the trust was not engaged in a United States trade or business.
However, interest payments made, or accrued, to a certificateholder who is a
Foreign Person generally will be considered guaranteed payments to the extent
the payments are determined without regard to the income of the
72
<PAGE>
trust. If these interest payments are properly characterized as guaranteed
payments, then the interest will not be considered "portfolio interest". As a
result, certificateholders will be subject to United States federal income tax
and withholding tax at a rate of 30%, unless reduced or eliminated pursuant to
an applicable treaty. In that case, a foreign holder would only be entitled to
claim a refund for that portion of the taxes in excess of the taxes that should
be withheld with respect to the guaranteed payments.
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 certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Internal Revenue Code.
Trusts in Which all Certificates are Retained by the Seller or an Affiliate of
the Seller
Tax Characterization of the Trust
In the opinion of Brown & Wood LLP, as federal tax counsel to each trust, a
trust which issues one or more classes of notes to investors and all the
certificates of which are retained by the seller or an affiliate thereof will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. Therefore, the trust itself will not be
subject to tax for federal income tax purposes. This opinion will be based on
the assumption that the terms of the trust agreement and related documents will
be complied with, and on counsel's conclusions that the trust will constitute a
mere security arrangement for the issuance of debt by the single
certificateholder.
Treatment of the Notes as Indebtedness. The seller will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. In the opinion of Brown & Wood LLP, except as
otherwise provided in the related prospectus supplement, the notes will be
classified as debt for federal income tax purposes. Assuming this
characterization of the notes is correct, the federal income tax consequences
to noteholders described above under "Trusts For Which a Partnership Election
is Made--Tax Consequences to Holders of the Notes" would apply to the
noteholders.
If, contrary to the opinion of Brown & Wood LLP, the IRS successfully
asserted that one or more classes of notes did not represent debt for federal
income tax purposes, this class or classes of notes might be treated as equity
interests in the trust. If so treated, the trust might be treated as a publicly
traded partnership taxable as a corporation with potentially adverse tax
consequences, and the publicly traded partnership taxable as a corporation
would not be able to reduce its taxable income by deductions for interest
expense on notes recharacterized as equity. Alternatively, and more likely in
the view of Brown & Wood LLP, the trust would most likely be treated as a
publicly traded partnership that would not be taxable as a corporation because
it would meet certain qualifying income tests. Nonetheless, treatment of notes
as equity interests in a partnership could have adverse tax consequences to
certain holders of the notes. For example, income to certain tax-exempt
entities, including pension funds, would be "unrelated business taxable
income", income to foreign holders may be subject to United States withholding
tax and United States tax return filing requirements, and
73
<PAGE>
individual holders might be subject to certain limitations on their ability to
deduct their share of trust expenses. In the event one or more classes of notes
were treated as interests in a partnership, the consequences governing the
certificates as equity interests in a partnership described above under "Trusts
For Which a Partnership Election is Made--Tax Consequences to Holders of the
Certificates" would apply to the holders of the notes.
Trusts Treated as Grantor Trusts
Tax Characterization of the Trust as a Grantor Trust
If a partnership election is not made, Brown & Wood LLP, as federal tax
counsel to each trust, is of the opinion that the trust will not be classified
as an association taxable as a corporation and that the trust will be
classified as a grantor trust under subpart E, part 1, subchapter J, chapter 1
of subtitle A of the Internal Revenue Code. Therefore, the trust itself will
not be subject to tax for federal income tax purposes. In this case, Grantor
Trust Certificateholders will be treated for federal income tax purposes as
owners of a portion of the trust's assets as described below.
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
receivables in the trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with the Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the receivables in the trust represented by Grantor Trust
Certificates, including interest, original interest discount, if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the servicer. Under Sections 162 or 212, each
Grantor Trust Certificateholder will be entitled to deduct its pro rata share
of servicing fees, prepayment fees, assumption fees, any loss recognized upon
an assumption and late payment charges retained by the servicer, provided that
these amounts are reasonable compensation for services rendered to the trust.
Grantor Trust Certificateholders that are individuals, estates or trusts will
be entitled to deduct their share of expenses only to the extent these expenses
plus all other Section 212 expenses exceed two percent of its adjusted gross
income. In addition, Section 68 of the Internal Revenue Code provides that the
amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount will be reduced by the lesser
of (1) 3% of the excess of the individual's adjusted gross income over that
amount or (2) 80% of the amount of itemized deductions otherwise allowable for
the taxable year. Further, Grantor Trust Certificateholders, other than
corporations, subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income. A Grantor Trust Certificateholder using the cash method
of accounting must take into account its pro rata share of income and
74
<PAGE>
deductions as and when collected by or paid to the servicer. A Grantor Trust
Certificateholder using an accrual method of accounting must take into account
its pro rata share of income and deductions as they become due or are paid to
the servicer, whichever is earlier. If the servicing fees paid to the servicer
are deemed to exceed reasonable servicing compensation, the amount of that
excess could be considered as an ownership interest retained by the servicer
(or any person to whom the servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the receivables. The
receivables would then be subject to the "stripped bond" rules of the Internal
Revenue Code discussed below.
Stripped Bonds. If the servicing fees on the receivables are deemed to
exceed reasonable servicing compensation, based on recent guidance by the IRS,
each purchaser of a Grantor Trust Certificate will be treated as the purchaser
of a stripped bond which generally should be treated as a single debt
instrument issued on the day it is purchased for purposes of calculating any
original issue discount. Generally, under the recently issued Section 1286
Treasury Regulations, if the discount on a stripped bond is larger than a de
minimis amount, as calculated for purposes of the original issue discount rules
of the Internal Revenue Code, the stripped bond will be considered to have been
issued with original issue discount. See "Original Issue Discount". The
original issue discount on a Grantor Trust Certificate will be the excess of
the Grantor Trust Certificate's stated redemption price over its issue price.
The issue price of a Grantor Trust Certificate as to any purchaser will be
equal to the price paid by the purchaser of the Grantor Trust Certificate. The
stated redemption price of a Grantor Trust Certificate will be the sum of all
payments to be made on the Grantor Trust Certificate other than "qualified
stated interest", if any. Based on the preamble to the Section 1286 Treasury
Regulations, Brown & Wood LLP is of the opinion that, although the matter is
not entirely clear, the interest income on the certificates at the sum of the
pass through rate and the portion of the servicing fee rate that does not
constitute excess servicing will be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury Regulations and that income
will be so treated in the trustee's tax information reporting. Notice will be
given in the applicable pricing supplement when it is determined that Grantor
Trust Certificates will be issued with greater than de minimis original issue
discount.
Original Issue Discount on Stripped Bonds. If the stripped bonds have more
than a de minimis amount of original issue discount, the special rules of the
Internal Revenue Code relating to "original issue discount", currently Internal
Revenue Code Sections 1271 through 1273 and 1275, will be applicable to a
Grantor Trust Certificateholder's interest in those receivables treated as
stripped bonds. Generally, a Grantor Trust Certificateholder that acquires an
interest in a stripped bond issued or acquired with original issue discount
must include in gross income the sum of the "daily portions," as defined below,
of the original issue discount on that stripped bond for each day on which it
owns a certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of original issue discount with respect to a stripped bond
generally would be determined as follows. A calculation will be made of the
portion of original issue discount that accrues on the stripped bond during
each successive monthly
75
<PAGE>
accrual period, or shorter period in respect of the date of original issue or
the final Distribution Date. This will be done, in the case of each full
monthly accrual period, by adding (1) the present value of all remaining
payments to be received on the stripped bond under the prepayment assumption
used in respect of the stripped bonds and (2) any payments received during that
accrual period, and subtracting from that total the "adjusted issue price" of
the stripped bond at the beginning of that accrual period. No representation is
made that the stripped bonds will prepay at any prepayment assumption. The
"adjusted issue price" of a stripped bond at the beginning of the first accrual
period is its issue price, as determined for purposes of the original issue
discount rules of the Internal Revenue Code, and the "adjusted issue price" of
a stripped bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of original issue discount allocable to that accrual
period and reduced by the amount of any payment, other than "qualified stated
interest", made at the end of or during that accrual period. The original issue
discount accruing during that accrual period will then be divided by the number
of days in the period to determine the daily portion of original issue discount
for each day in the period. With respect to an initial accrual period shorter
than a full monthly accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under either
an exact or approximate method set forth in the original issue discount
regulations, or some other reasonable method, provided that the method is
consistent with the method used to determine the yield to maturity of the
stripped bonds.
With respect to stripped bonds, the method of calculating original issue
discount as described above will cause the accrual of original issue discount
to either increase or decrease, but never below zero, in any given accrual
period to reflect the fact that prepayments are occurring at a faster or slower
rate than the prepayment assumption used in respect of the stripped bonds. We
suggest that subsequent purchasers that purchase stripped bonds at more than a
de minimis discount consult their tax advisors with respect to the proper
method to accrue the original issue discount.
Market Discount if Stripped Bond Rules Do Not Apply. A Grantor Trust
Certificateholder that acquires an undivided interest in receivables may be
subject to the market discount rules of Internal Revenue Code Sections 1276
through 1278 to the extent an undivided interest in a receivable is considered
to have been purchased at a "market discount". Generally, the amount of market
discount is equal to the excess of the portion of the principal amount of the
receivable allocable to the holder's undivided interest over the holder's tax
basis in the interest. Market discount with respect to a Grantor Trust
Certificate will be considered to be zero if the amount allocable to the
Grantor Trust Certificate is less than 0.25% of the Grantor Trust Certificate's
stated redemption price at maturity multiplied by the weighted average maturity
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, we suggest that
investors consult their own tax advisors regarding the application of these
rules and the advisability of making any of the elections allowed under
Internal Revenue Code Sections 1276 through 1278.
76
<PAGE>
The Internal Revenue Code provides that any principal payment, whether a
scheduled payment or a prepayment, or any gain on disposition of a market
discount bond shall be treated as ordinary income to the extent that it does
not exceed the accrued market discount at the time of the payment. The amount
of accrued market discount for purposes of determining the tax treatment of
subsequent principal payments or dispositions of the market discount bond is to
be reduced by the amount so treated as ordinary income.
The Internal Revenue Code also grants the Treasury Department authority to
issue regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. While the Treasury Department has not yet issued regulations,
rules described in the relevant legislative history will apply. Under those
rules, the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or according to one of the
following methods. If a Grantor Trust Certificate is issued with original issue
discount, the amount of market discount that accrues during any accrual period
would be equal to the product of (1) the total remaining market discount and
(2) a fraction, the numerator of which is the original issue discount accruing
during the period and the denominator of which is the total remaining original
issue discount at the beginning of the accrual period. For Grantor Trust
Certificates issued without original issue discount, the amount of market
discount that accrues during a period is equal to the product of (1) the total
remaining market discount and (2) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the accrual period. For purposes of calculating market discount
under any of the above methods in the case of instruments, such as the Grantor
Trust Certificates, that provide for payments that may be accelerated by reason
of prepayments of other obligations securing the instruments, the same
prepayment assumption applicable to calculating the accrual of original issue
discount will apply. Because the regulations described above have not been
issued, it is impossible to predict what effect those regulations might have on
the tax treatment of a Grantor Trust Certificate purchased at a discount or
premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or
carry the Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any deferred interest
expense would not exceed the market discount that accrues during the taxable
year and is, in general, allowed as a deduction not later than the year in
which the market discount is includable in income. If the holder elects to
include market discount in income currently as it accrues on all market
discount instruments acquired by the holder in that taxable year or thereafter,
the interest deferral rule described above will not apply.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to the holder's undivided interest in each receivable based on each
receivable's relative fair market value, so that the holder's undivided
interest in each receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in receivables at a premium
77
<PAGE>
may elect to amortize the premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on the Grantor
Trust Certificate. The basis for the Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Internal Revenue Code Section
171. A Grantor Trust Certificateholder that makes this election for a Grantor
Trust Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the Grantor Trust Certificateholder acquires
during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a receivable prepays in full, equal to the
difference between the portion of the prepaid principal amount of the
receivable that is allocable to the Grantor Trust Certificate and the portion
of the adjusted basis of the Grantor Trust Certificate that is allocable to the
receivable. If a reasonable prepayment assumption is used to amortize the
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
On December 30, 1997 the IRS issued final regulations dealing with
amortizable bond premium. These regulations specifically do not apply to
prepayable debt instruments subject to Internal Revenue Code Section
1272(a)(6). Absent further guidance from the IRS, the trustee intends to
account for amortizable bond premium in the manner described above. It is
recommended that prospective purchasers of the certificates consult their tax
advisors regarding the possible application of these amortizable bond premium
regulations.
Election to Treat All Interest as Original Issue Discount. The original
issue discount regulations permit a Grantor Trust Certificateholder to elect to
accrue all interest, discount, including de minimis market or original issue
discount, and premium in income as interest, based on a constant yield method.
If such an election were to be made with respect to a Grantor Trust Certificate
with market discount, the Grantor Trust Certificateholder would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that the Grantor
Trust Certificateholder acquires during the year of the election or thereafter.
Similarly, a Grantor Trust Certificateholder that makes this election for a
Grantor Trust Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that the Grantor Trust Certificateholder owns
or acquires. See "Premium". The election to accrue interest, discount and
premium on a constant yield method with respect to a Grantor Trust Certificate
is irrevocable.
78
<PAGE>
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. The adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the original issue discount included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
The gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Section 1221, and
will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period,
currently more than 12 months.
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of
a Grantor Trust Certificate by a bank or a thrift institution to which the
section applies will be treated as ordinary income or loss.
Non-United States Persons. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying receivables that were issued on
or before July 18, 1984, interest or original issue discount paid by the person
required to withhold tax under Internal Revenue Code Section 1441 or 1442 to
(i) an owner that is not a United States Person or (ii) a Grantor Trust
Certificateholder holding on behalf of an owner that is not a United States
Person will be subject to federal income tax, collected by withholding, at a
rate of 30% or such lower rate as may be provided for interest by an applicable
tax treaty. Accrued original issue discount recognized by the owner on the sale
or exchange of a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, these payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in receivables issued after July 18, 1984, by natural persons if the Grantor
Trust Certificateholder complies with certain identification requirements,
including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalty of perjury, certifying that the Grantor Trust
Certificateholder is not a United States Person and providing the name and
address of the Grantor Trust Certificateholder. Additional restrictions apply
to receivables of where the obligor is not a natural person in order to qualify
for the Exemption from withholding.
Information Reporting and Backup Withholding. The servicer will furnish or
make available, within a reasonable time after the end of each calendar year,
to each person who was a Grantor Trust Certificateholder at any time during the
year, the information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make the information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that the person has not reported all interest and
dividend income required to be shown on its federal income tax
79
<PAGE>
return, 31% backup withholding may be required with respect to any payments.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against the recipient's federal income tax liability.
Certain State Tax Consequences
The activities of servicing and collecting the receivables will be
undertaken by the servicer. Because of the variation in each state's tax laws
based in whole or in part upon income, it is impossible to predict tax
consequences to holders of notes and certificates in all of the state taxing
jurisdictions in which they are already subject to tax. We suggest that
noteholders and certificateholders consult their own tax advisors with respect
to state tax consequences arising out of the purchase, ownership and
disposition of notes and certificates.
* * * * *
The federal and state tax discussions set forth above are included for
information only and may not be applicable depending upon a noteholder's or
certificateholder's particular tax situation. We suggest that prospective
purchasers consult their tax advisors with respect to the tax consequences to
them of the purchase, ownership and disposition of notes and 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.
80
<PAGE>
ERISA Considerations
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
a pension, profit sharing or other employee benefit or other plan (such as an
individual retirement account and certain types of Keogh plans) that is subject
to Title I of ERISA or to Section 4975 of the Internal Revenue Code from
engaging in certain transactions involving plan assets with persons that are
"parties in interest" under ERISA or "disqualified person" under the Internal
Revenue Code with respect to the Plan. Certain governmental plans, although not
subject to ERISA or the Internal Revenue Code, are subject to Similar Law that
imposes similar requirements. A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the
Internal Revenue Code or under Similar Law for these persons.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the securities--
for example:
. Prohibited Transaction Class Exemption 96-23, which exempts certain
transactions effected by an "in-house asset manager";
. Prohibited Transaction Class Exemption 95-60, which exempts certain
transactions between insurance company general accounts and parties in
interest;
. Prohibited Transaction Class Exemption 91-38, which exempts certain
transactions between bank collective investment funds and parties in
interest;
. Prohibited Transaction Class Exemption 90-1, which exempts certain
transactions between insurance company pooled separate accounts and
parties in interest; or
. Prohibited Transaction Class Exemption 84-14, which exempts certain
transactions effected by a "qualified professional asset manager".
There can be no assurance that any of these exemptions will apply with
respect to any Plan's investment in the securities, or that an exemption, if it
did apply, would apply to all prohibited transactions that may occur in
connection with the investment. Furthermore, these exemptions may not apply to
transactions involved in the operation of a trust if, as described below, the
assets of the trust were considered to include plan assets.
ERISA also imposes certain duties on persons who are fiduciaries of Plans
subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of the Plan. Plan
fiduciaries must determine whether the acquisition and holding of securities
and the operations of the trust would result in prohibited transactions if
Plans that purchase the securities were deemed to own an interest in the
underlying assets of the trust under the rules discussed below. There may also
be an improper delegation of the responsibility to manage plan assets if Plans
that purchase the securities are deemed to own an interest in the underlying
assets of the trust.
Pursuant to the Plan Assets Regulation, in general when a Plan acquires an
equity interest in an entity such as the trust and the interest does not
represent a "publicly offered security" or a security issued by an investment
company registered under the Investment
81
<PAGE>
Company Act of 1940, as amended, the Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
entity, unless it is established either that the entity is an "operating
company" or that equity participation in the entity by Benefit Plan Investors
is not "significant". In general, an "equity interest" is defined under the
Plan Assets Regulation as any interest in an entity other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. A "publicly-offered security" is a security that
is (1) freely transferable, (2) part of a class of securities that is owned at
the close of the initial offering by 100 or more investors independent of the
issuer and of each other, and (3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (b) sold to the
Plan as part of an offering pursuant to an effective registration statement
under the Securities Act, and the class of securities is registered under the
Exchange Act within 120 days after the end of the issuer's fiscal year in which
the offering occurred. Equity participation by Benefit Plan Investors in an
entity is significant if immediately after the most recent acquisition of an
equity interest in the entity, 25% or more of the value of any class of equity
interest in the entity is held by Benefit Plan Investors. In calculating this
percentage, the value of any equity interest held by a person, other than a
Benefit Plan Investor, who has discretionary authority or provides investment
advice for a fee with respect to the assets of the entity, or by an affiliate
of any such person, is disregarded. The likely treatment in this context of
notes and certificates of a trust will be discussed in the related prospectus
supplement. However, it is anticipated that the certificates will be considered
equity interests in the trust for purposes of the Plan Assets Regulation, and
that the assets of the trust may therefore constitute plan assets if
certificates are acquired by Plans. In that event, the fiduciary and prohibited
transaction restrictions of ERISA and Section 4975 of the Internal Revenue Code
would apply to transactions involving the assets of the trust.
As a result, except in the case of certificates with respect to which the
Exemption is available (as described below) and certificates which are
"publicly-offered securities" or in which there will be no significant
investment by Benefit Plan Investors, certificates generally shall not be
transferred and the trustee shall not register any proposed transfer of
certificates unless it receives:
. a representation substantially to the effect that the proposed transferee
is not a Plan and is not acquiring the certificates on behalf of or with
the assets of a Plan, including assets that may be held in an insurance
company's separate or general accounts where assets in the accounts may
be deemed "plan assets" for purposes of ERISA, or
. an opinion of counsel in form and substance satisfactory to the trustee
and the seller that the purchase or holding of the certificates by or on
behalf of a Plan will not constitute a prohibited transaction and will
not result in the assets of the trust being deemed to be "plan assets"
and subject to the fiduciary responsibility provisions of ERISA or the
prohibited transaction provisions of ERISA and the Internal Revenue Code
or any similar federal, state or local law or subject any trustee or the
seller to any obligation in addition to those undertaken in the trust
agreement or the pooling and servicing agreement, as applicable.
82
<PAGE>
Transfer of certificates which would be eligible for coverage under the
exemption if they met the rating requirements of the Exemption may also be
registered if the transferee is an "insurance company general account" that
represents that its acquisition and holding of the certificates are eligible
for exemption under Parts I and III of Prohibited Transaction Class Exemption
95-60.
Unless otherwise specified in the related prospectus supplement, the notes
may be purchased by a Plan. A fiduciary of a Plan must determine that the
purchase of a note is consistent with its fiduciary duties under ERISA and does
not result in a nonexempt prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code. Moreover, any person
considering an investment in the notes on behalf of or with assets of a Plan
should consult with counsel if the depositor, the seller, an underwriter, the
indenture trustee, the trustee or any of their affiliates
. has investment or administrative discretion with respect to that Plan's
assets;
. has authority or responsibility to give, or regularly gives, investment
advice with respect to that Plan's assets for a fee and pursuant to an
agreement or understanding that the advice
--will serve as a primary basis for investment decisions with respect
to that Plan's assets and
--will be based on the particular investment needs for that Plan; or
. is an employer maintaining or contributing to that Plan.
Employee benefit plans that are 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 ERISA requirements. However, a governmental or church plan
which is qualified under Section 401(a) of the Internal Revenue Code and exempt
from taxation under Section 501(a) of the Internal Revenue Code is subject to
the prohibited transaction rules in Section 503 of the Internal Revenue Code.
A fiduciary of a Plan considering the purchase of securities of a given
series should consult its tax and/or legal advisors regarding whether the
assets of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
Certificates
Unless otherwise specified in the related prospectus supplement, the
following discussion applies only to securities that are rated BBB- (or its
equivalent) or better.
The United States Department of Labor has granted to the lead underwriter
named in the prospectus supplement the Exemption from certain of the prohibited
transaction rules of ERISA with respect to the initial purchase, the holding
and the subsequent resale by Plans of securities, including certificates,
representing interests in asset-backed pass-through issuers, including trusts,
that consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment loans such as the receivables. The
Exemption will apply to
83
<PAGE>
the acquisition, holding and resale of the certificates by a Plan, provided
that the conditions, highlighted below, are met.
Among the conditions which must be satisfied for the Exemption to apply to
the certificates are the following:
(1) The acquisition of the certificates by a Plan is on terms,
including the price for the certificates, that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party;
(2) The rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the issuer unless the issuer holds only certain types
of assets, such as fully-secured motor vehicle installment loans (a
"Designated Transaction");
(3) The certificates acquired by the Plan have received a rating at the
time of acquisition that is in one of the three highest generic rating
categories (four, in a Designated Transaction) of an Exemption Rating
Agency;
(4) The trustee is not an affiliate of any other member of the
Restricted Group;
(5) The sum of all payments made to the underwriters in connection with
the distribution of the certificates represents not more than reasonable
compensation for underwriting the certificates; the sum of all payments
made to and retained by the seller pursuant to the sale of the receivables
to the issuer represents not more than the fair market value of the
receivables; and the sum of all payments made to and retained by the
servicer represents not more than reasonable compensation for the
servicer's services under the applicable agreement and reimbursement of the
servicer's reasonable expenses in connection therewith;
(6) The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act; and
(7) For certain types of issuers, the documents establishing the issuer
and governing the transaction include certain provisions intended to
protect the assets of the issuer from creditors of the seller.
The Exemption, as amended, provides exemptive relief to certain mortgage-
backed and asset-backed securities transactions that use pre-funding accounts
and that otherwise meet the requirements of the Exemption. Obligations
supporting payments to securityholders, and having a value equal to no more
than 25% of the total principal amount of the securities being offered by the
issuer, may be transferred to the issuer during the Pre-Funding Period, instead
of being required to be either identified or transferred on or before the
Closing Date. The relief is available when the following conditions are met:
(1) The Pre-Funding Limit must not exceed 25%.
(2) The Additional Obligations must meet the same terms and conditions
for eligibility as the original Obligations used to create the issuer,
which terms and conditions have been approved by an Exemption Rating
Agency.
84
<PAGE>
(3) The transfer of the Additional Obligations to the issuer during
the Pre-Funding Period must not result in the securities to be covered by
the Exemption receiving a lower credit rating from an Exemption Rating
Agency upon termination of the Pre-Funding Period than the rating that was
obtained at the time of the initial issuance of the securities by the
issuer.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the Obligations held by
the issuer at the end of the Pre-Funding Period must not be more than 100
basis points lower than the average interest rate for the Obligations
transferred to the issuer on the Closing Date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to those of the original Obligations
which were transferred to the issuer:
(a) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor or
(b) an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each Exemption
Rating Agency rating the securities, the related underwriter and the
related trustee) stating whether or not the characteristics of the
Additional Obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and servicing
agreement or trust agreement; in preparing the letter, the independent
accountant must use the same type of procedures as were applicable to the
Obligations transferred to the issuer as of the Closing Date.
(6) The Pre-Funding Period must end no later than 90 days or three
months after the Closing Date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain investments permitted under the Exemption.
(8) The related prospectus or prospectus supplement must describe:
(a) any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
(b) the duration of the Pre-Funding Period;
(c) the percentage and/or dollar amount of the Pre-Funding Limit for
the issuer; and
(d) that the amounts remaining in the pre-funding account at the end
of the Pre-Funding Period will be remitted to securityholders as
repayments of principal.
(9) The related pooling and servicing agreement or trust agreement
must describe the permitted investments for the pre-funding account and/or
capitalized interest account and, if not disclosed in the related
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
85
<PAGE>
The Exemption would also provide relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire securities in an entity containing receivables on
which the fiduciary (or its affiliate) is an obligor only if, among other
requirements,
(1) in the case of the acquisition of securities in connection with
the initial issuance, at least 50% of each class of securities in which
Plans invest and at least 50% of the issuer's securities in the aggregate
are acquired by persons independent of the Restricted Group,
(2) the fiduciary (or its affiliate) is an obligor with respect to no
more than 5% of the fair market value of the obligations contained in the
trust,
(3) the Plan's investment in securities does not exceed 25% of all of
the securities outstanding at the time of the acquisition, and
(4) immediately after the acquisition, no more than 25% of the assets
of any Plan with respect to which the fiduciary has discretionary authority
or renders investment advice are invested in securities representing an
interest in one or more issuers containing assets sold or serviced by the
same entity.
This exemptive relief does not apply to Plans sponsored by a member of the
Restricted Group.
The rating of a security may change. If the rating of a security declines
below BBB- or Baa3, the security will no longer be eligible for relief under
the Exemption, and consequently may not be purchased by or sold to a Plan
(although a Plan that had purchased the security when it had an investment-
grade rating would not be required by the Exemption to dispose of it).
The prospectus supplement for each series of securities will indicate the
classes of securities, if any, offered thereby to which it is expected that the
Exemption will apply. It is not clear that the Exemption will apply to
securities issued by an issuer that has a revolving period. If the issuer
intends for the Exemption to apply to its sales of securities to Plans, it may
prohibit sales until the expiration of the revolving period.
Any Plan fiduciary which proposes to cause a Plan to purchase securities
should consult with counsel concerning the impact of ERISA and the Internal
Revenue Code, the applicability of the Exemption, as amended, and the potential
consequences in their specific circumstances, prior to making the investment.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment
in the securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
Special Considerations Applicable to Insurance Company General Accounts
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general
accounts under ERISA and Section 4975 of the Internal Revenue Code. Under
Section 401(c), the Department of Labor published general account regulations
on January 5, 2000 providing guidance on which
86
<PAGE>
assets held by the insurer constitute "plan assets" for purposes of the
fiduciary responsibility provisions of ERISA and Section 4975 of the Internal
Revenue Code. The general account regulations do not exempt from treatment as
"plan assets" assets in an insurance company's general account that support
insurance policies issued to Plans after December 31, 1998. Section 401(c) and
the general account regulations also provide that, except in the case of
avoidance of the general account regulations and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that also
constitute breaches of state or federal criminal law, until July 5, 2001, the
date that is 18 months after the general account regulations became final, no
liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Internal Revenue Code may result on
the basis of a claim that the assets of the general account of an insurance
company constitute the assets of any 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. Plan investors considering the purchase of
securities on behalf of an insurance company general account should consult
their legal advisors regarding the effect of the general account regulations on
the purchase. The general account regulations should not, however, adversely
affect the applicability of Prohibited Transaction Class Exemption 95-60.
Plan of Distribution
The securities of each series that are offered by this prospectus and a
prospectus supplement will be offered through one or more of the following
methods. The related prospectus supplement will provide specified details as to
the method of distribution for the offering.
Sales Through Underwriters
If specified in the related prospectus supplement, on the terms and
conditions set forth in an underwriting agreement with respect to the
securities of a given series, the depositor will agree to sell, or cause the
related trust to sell, to the underwriters named in the related prospectus
supplement the notes and certificates of the trust specified in the
underwriting agreement. Each of the underwriters will severally agree to
purchase the principal amount of each class of notes and certificates of the
related trust set forth in the related prospectus supplement and the
underwriting agreement.
Each prospectus supplement will either--
. set forth the price at which each class of notes and certificates, as the
case may be, being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the
offering of the notes and certificates or
. specify that the related notes and certificates, as the case may be, are
to be resold by the underwriters in negotiated transactions at varying
prices to be determined at the time of the sale.
After the initial public offering of the notes and certificates, the public
offering prices and the concessions may be changed.
87
<PAGE>
Each underwriting agreement will provide that the depositor will indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each trust may, from time to time, invest the funds in its trust accounts in
investments acquired from such underwriters or from the depositor.
Under each underwriting agreement with respect to a given trust, the closing
of the sale of any class of securities subject to the underwriting agreement
will be conditioned on the closing of the sale of all other classes of
securities of that trust, some of which may not be registered or may not be
publicly offered.
The place and time of delivery for the securities in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
The underwriters may make a limited market in the securities, but they are
not obligated to do so. In addition, any market-making may be discontinued at
any time at their sole discretion.
Other Placements of Securities
To the extent set forth in the related prospectus supplement, securities of
a given series may be offered by placements with institutional investors
through dealers or by direct placements with institutional investors.
The prospectus supplement with respect to any securities offered by
placements through dealers will contain information regarding the nature of the
offering and any agreements to be entered into between the depositor and
purchasers of securities.
Purchasers of securities, including dealers, may, depending upon the facts
and circumstances of the purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
securities. Securityholders should consult with their legal advisors in this
regard prior to any reoffer or sale.
Legal Opinions
Certain legal matters relating to the securities of any series have been
passed upon for the depositor by Brown & Wood LLP, San Francisco, California.
Certain legal matters relating to each trust that is a Delaware business trust
have been passed upon for the depositor by Richards, Layton & Finger,
Wilmington, Delaware. Brown & Wood LLP, San Francisco, California will act as
counsel for the underwriters of each series.
88
<PAGE>
Glossary of Terms
Set forth below is a list of the defined terms used in this prospectus,
which, except as otherwise noted in a prospectus supplement, are also used in
the prospectus supplement.
"Actuarial Receivables" means receivables which provide for amortization of
the loan over a series of fixed level payment monthly installments consisting
of an amount of interest equal to 1/12 of the contract rate of interest of the
loan multiplied by the unpaid principal balance of the loan, and an amount of
principal equal to the remainder of the monthly payment.
"Additional Obligations" means all Obligations transferred to the trust
after the Closing Date.
"Administrator" means the entity specified in the prospectus supplement as
the administrator of the trust under an administration agreement.
"Advances" means both Precomputed Advances and Simple Interest Advances.
"Amortizable Bond Premium Regulations" means the final regulations issued on
December 30, 1997 by the IRS dealing with amortizable bond premium.
"Balloon Payment" means, with respect to a Balloon Payment Receivable, the
final payment which is due at the end of the term of the receivable.
"Balloon Payment Receivable" means a receivable that provides for the
amortization of the entire amount financed under the receivable over a series
of equal monthly installments with a substantially larger final payment which
is due at the end of the term of the receivable.
"Benefit Plan Investor" means any:
. "employee benefit plans" (as defined in Section 3(3) of ERISA),
including without limitation governmental plans, foreign pension plans
and church plans;
. "plans" described in Section 4975(e)(1) of the Internal Revenue Code,
including individual retirement accounts and Keogh plans; or
. entities whose underlying assets include plan assets by reason of a
plan's investment in such entity, including without limitation, as
applicable, an insurance company general account.
"Book-Entry Securities" means the notes and certificates that are held in
the United States through DTC and in Europe through Clearstream or Euroclear.
"Certificate Balance" means with respect to each class of certificates and
as the context so requires, with respect to (i) all certificates of such class,
an amount equal to, initially, the initial certificate balance of such class of
certificates and, thereafter, an amount equal to the initial certificate
balance of such class of certificates, reduced by all amounts distributed to
89
<PAGE>
certificateholders of such class of certificates and allocable to principal or
(ii) any certificate of such class, an amount equal to, initially, the initial
denomination of such certificate and, thereafter, an amount equal to such
initial denomination, reduced by all amounts distributed in respect of such
certificate and allocable to principal.
"Clearstream" means Clearstream Banking, a societe anonyme and a
professional depository under the laws of Luxembourg.
"Clearstream Customer" means a participating organization of Clearstream.
"Closing Date" means that date specified in the prospectus supplement on
which the trust issues its securities.
"Collection Period" means with respect to securities of each trust, the
period specified in the related prospectus supplement with respect to
calculating payments and proceeds of the related receivables.
"Company" means Pooled Auto Securities Shelf LLC.
"Controlling Class" means, with respect to any trust, the senior most class
of notes described in the prospectus supplement as long as any notes of such
class are outstanding, and thereafter, in order of seniority, each other class
of notes, if any, described in the prospectus supplement as long as they are
outstanding.
"Cutoff Date" means the "Cutoff Date" specified in the applicable prospectus
supplement.
"Defaulted Receivable" means, unless otherwise specified in the related
prospectus supplement, a receivable (i) that the servicer determines is
unlikely to be paid in full or (ii) with respect to which at least 10% of a
scheduled payment is 90 or more days delinquent as of the end of a calendar
month.
"Definitive Certificates" means with respect to any class of certificates
issued in book-entry form, such certificates issued in fully registered,
certificated form to certificateholders or their respective nominees, rather
than to DTC or its nominee.
"Definitive Notes" means with respect to any class of notes issued in book-
entry form, such notes issued in fully registered, certificated form to
noteholders or their respective nominees, rather than to DTC or its nominee.
"Definitive Securities" means collectively, the Definitive Notes and the
Definitive Certificates.
"Depository" means DTC and any successor depository selected by the trust.
"Distribution Date" means the date specified in each related prospectus
supplement for the payment of principal of and interest on the securities.
90
<PAGE>
"Eligible Deposit Account" means either--
. a segregated account with an Eligible Institution; or
. a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the United States
or any one of the states 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 such account, so long as any
of the securities of such depository institution have a credit rating
from each Rating Agency in one of its generic rating categories which
signifies investment grade.
"Eligible Institution" means--
. the corporate trust department of the indenture trustee or the related
trustee, as applicable; or
. a depository institution organized under the laws of the United States
or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), (i) which has either (a) a long-
term unsecured debt rating acceptable to the Rating Agencies or (b) a
short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies and (ii) whose deposits are insured
by the FDIC.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation.
"Events of Default" under the related indenture will consist of the events
specified under "Description of the Notes--The Indenture" in this prospectus.
"Events of Servicing Termination" under each sale and servicing agreement
or pooling and servicing agreement will consist of the events specified under
"Description of the Receivables Transfer and Servicing Agreements--Events of
Servicing Termination" in this prospectus.
"Exchange Act" means the Securities Exchange Act of 1940, as amended.
"Exemption" means the exemption granted to the lead underwriter named in
the prospectus supplement by the Department of Labor and described under
"ERISA Considerations".
"Exemption Rating Agency" means Standard & Poor's Rating Services, Moody's
Investor Services, Inc. and Fitch, Inc.
"Financed Vehicle" means a new or used automobile, minivan, sport utility
vehicle, light duty truck, motorcycle or commercial vehicle financed by a
receivable.
"Foreign Person" means a nonresident alien, foreign corporation or other
non-United States Person.
91
<PAGE>
"Funding Period" means the period specified in the related prospectus
supplement during which the seller will sell any Subsequent Receivables to the
trust, which sale may occur as frequently as daily.
"Grantor Trust Certificateholders" means owners of certificates issued by a
trust that is treated as a grantor trust.
"Grantor Trust Certificates" means certificates issued by a trust that is
treated as a grantor trust.
"Insolvency Event" means, with respect to any entity, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such entity and certain actions by such entity indicating its insolvency,
reorganization under bankruptcy proceedings or inability to pay its
obligations.
"Insolvency Laws" means the United States Bankruptcy Code or similar
applicable state laws.
"Insurer Default" means that the insurer shall fail to make any payment
required under the policy or an event of bankruptcy, insolvency, receivership
or liquidation shall occur with respect to the insurer.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"IRS" means the Internal Revenue Service.
"New Regulations" means the regulations recently issued by the Treasury
Department which make certain modifications to withholding, backup withholding
and information reporting rules.
"Obligations" means, with respect to the Exemption, loans or other secured
receivables.
"Permitted Investments" means:
. direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America or its agencies;
. demand deposits, time deposits, certificates of deposit or bankers'
acceptances of certain depository institutions or trust companies
having the highest rating from each Rating Agency;
. commercial paper having, at the time of such investment, a rating in
the highest rating category from each Rating Agency;
. investments in money market funds having the highest rating from each
Rating Agency;
. repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America
or its agencies, in either case entered into with a depository
institution or trust company having the highest rating from each
Rating Agency; and
. any other investment acceptable to each Rating Agency.
92
<PAGE>
Permitted Investments are generally limited to Obligations or securities
which mature on or before the next Distribution Date.
"Plan Assets Regulation" means a regulation, 29 C.F.R. Section 2510.3-101,
issued by the Department of Labor.
"Plans" means, collectively, employee benefit and other plans subject to
ERISA, Section 4975 of the Code or Similar Law.
"Precomputed Advance" means the excess of (i) the scheduled payment on a
precomputed receivable, over (ii) the collections of interest on and principal
of the respective precomputed receivable with respect to the related Collection
Period.
"Precomputed Receivables" means either an actuarial receivable or a rule of
78's receivables.
"Pre-Funding Limit" means, with respect to the Exemption, the ratio of the
amount allocated to the pre-funding account to the total principal amount of
the certificates being offered.
"Pre-Funding Period" means, with respect to the Exemption, a 90 day or three
month period following the Closing Date during which, subject to certain
conditions, Additional Obligations may be transferred to the trust.
"Purchase Amount" means a price at which the seller or the servicer must
purchase a receivable from a trust, equal to the unpaid principal balance of
the receivable plus interest accrued on the receivable to the date of purchase
at the weighted average interest rate borne by the trust's securities.
"Rating Agency" means a nationally recognized Rating Agency providing, at
the request of the seller, a rating on the securities issued by the applicable
trust.
"Receivables Transfer and Servicing Agreements" means, collectively, each
sale and servicing agreement or pooling and servicing agreement under which a
trust will purchase receivables from the depositor and the servicer will agree
to service such receivables, each trust agreement, including, in the case of a
grantor trust, the pooling and servicing agreement, under which a trust will be
created and certificates will be issued and each administration agreement under
which the servicer, or such other person named in the related prospectus
supplement, will undertake certain administrative duties with respect to a
trust that issues notes.
"Record Date" means the business day immediately preceding the Distribution
Date or, if Definitive Securities are issued, the last day of the preceding
calendar month.
"Restricted Group" means, with respect to the Exemption, Plans sponsored by
the seller, any underwriter, the trustee, the servicer, any insurer, any
obligor with respect to receivables included in the trust constituting more
than 5% of the aggregate unamortized principal balance of the assets in the
trust, or any affiliate of such parties.
93
<PAGE>
"Rule of 78's Receivable" means a receivable which provides for the payment
by the obligor of a specified total amount of payments, payable in equal
monthly installments on each due date, which total represents the principal
amount financed and add-on interest in an amount calculated at the contract
rate of interest for the term of the receivable.
"SEC" means the Securities and Exchange Commission.
"Section 1286 Treasury Regulations" means recently issued Treasury
regulations under which, if the discount on a stripped bond is larger than a de
minimis amount, as calculated for purposes of the original issue discount rules
of the Internal Revenue Code, such stripped bond will be considered to have
been issued with original issue discount.
"Securities Act" means the Securities Act of 1933, as amended.
"Short-Term Note" means a note that has a fixed maturity date of not more
than one year from the issue date of such note.
"Similar Law" means federal, state or local laws that impose requirements
similar to ERISA or the Internal Revenue Code.
"Simple Interest Advance" means an amount equal to the amount of interest
that would have been due on a Simple Interest Receivable at its contract rate
of interest for the related Collection Period, assuming that such Simple
Interest Receivable is paid on its due date, minus the amount of interest
actually received on such Simple Interest Receivable during the related
Collection Period.
"Simple Interest Receivable" means a receivables that provides for the
amortization of the amount financed under such receivable over a series of
fixed level payment monthly installments.
"Subsequent Receivables" means additional receivables sold by the seller to
the applicable trust during a Funding Period after the Closing Date.
"Subsequent Transfer Date" means each date specified as a transfer date in
the related prospectus supplement on which Subsequent Receivables will be sold
by the seller to the applicable trust.
"United States Person" generally means a person that is for United States
federal income tax purposes a citizen or resident of the United States, a
corporation or partnership (including an entity treated as a corporation or
partnership for United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or the District of
Columbia, (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise), an estate whose income is subject to United
States federal income tax regardless of its source or a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
94
<PAGE>
CarMax Auto Owner Trust 2001-1
CarMax Auto Superstores, Inc.
Seller and Servicer
Pooled Auto Securities Shelf LLC
Depositor
$655,418,000
<TABLE>
<S> <C>
$152,254,000 % Class A-1 Asset Backed Notes
$196,625,000 % Class A-2 Asset Backed Notes
$178,929,000 % Class A-3 Asset Backed Notes
$114,502,000 % Class A-4 Asset Backed Notes
$13,108,000 % Asset Backed Certificates
</TABLE>
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement. Pooled Auto Securities Shelf LLC has
not authorized anyone to provide you with additional or different information.
Pooled Auto Securities Shelf LLC is not offering the notes or the certificates
in any state in which the offer is not permitted.
Dealers will deliver a prospectus when acting as underwriters of the notes
and the certificates and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes and the certificates
will deliver a prospectus until April , 2001.
Underwriters of the Notes
First Union Securities, Inc.
Banc of America Securities LLC
Morgan Stanley Dean Witter
Underwriter of the Certificates
First Union Securities, Inc.
January , 2001
