exhibit105.htm


     


    
      

    

    EXHIBIT 10.5


     

    CARMAX,
INC.

    SEVERANCE
AGREEMENT

    FOR

    EXECUTIVE
OFFICER

     

    THIS
SEVERANCE AGREEMENT (“Agreement”) is made,
entered into and is effective this November 26, 2007 (“Effective Date”) by
and between CarMax, Inc., a Virginia corporation, and its affiliated companies
(collectively, the “Company”), and Eric
M. Margolin (the “Executive”).

     

    WHEREAS,
the Company recognizes that the Executive has or will develop intimate knowledge
and experience in the business of the Company, and has appointed the Executive
as Senior Vice President, General Counsel and Corporate Secretary;

     

    WHEREAS,
the Executive will develop and come in contact with the Company’s proprietary
and confidential information that is not readily available to the public, and
that is of great importance to the Company and that is treated by the Company as
secret and confidential information;

     

    WHEREAS,
the Company and the Executive desire to agree upon the terms, conditions,
compensation and benefits of the Executive’s future employment;

     

    WHEREAS,
upon execution of this Agreement, any prior employment or severance agreement
between the Executive and the Company, whether oral or written, will have no
force and effect with respect to the terms and conditions of Executive’s
employment and will be replaced and superseded by the terms of this Agreement;
and

     

    WHEREAS,
pursuant to the Executive’s appointment as the Company’s Senior Vice President,
General Counsel and Corporate Secretary, the Company (a) will grant the
Executive an award of options to purchase 100,000 shares of Company common stock
and 10,000 shares of Company restricted common stock, each pursuant to the
Company’s 2002 Stock Incentive Plan, as amended and restated, and (b) will pay a
one-time $30,000 sign-on bonus payment to the Executive;

     

    NOW,
THEREFORE, in consideration of the Executive’s appointment as the Company’s
Senior Vice President, General Counsel and Corporate Secretary, the award of
options and restricted stock, the payment of a one-time sign-on bonus and of the
premises, mutual covenants and agreements of the parties set forth in this
Agreement, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:

     

    Article
1. Employment
Acceptance

     

    The
Company hereby agrees to employ the Executive and the Executive hereby accepts
employment as Senior Vice President, General Counsel and Corporate Secretary of
the Company, in accordance with the terms and conditions set forth
herein.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Article
2. Position
and Responsibilities

     

    During
the term of the Executive’s employment with the Company (“Term”), the Executive
agrees to serve as Senior Vice President, General Counsel and Corporate
Secretary of the Company.  In his capacity as Senior Vice President,
General Counsel and Corporate Secretary of the Company, the Executive shall
report directly to the President and Chief Executive Officer (“CEO”) and shall have
the duties and responsibilities of Senior Vice President, General Counsel and
Corporate Secretary of the Company and such other duties and responsibilities
not inconsistent with the performance of his duties as Senior Vice President,
General Counsel and Corporate Secretary of the Company.  The
Executive’s principal work location shall be the corporate headquarters of the
Company located in the Richmond, Virginia metropolitan area.

     

    Article
3. Standard
of Care

     

    3.1 General.  During
the Term, the Executive shall devote his full business time, attention,
knowledge and skills to the Company’s business and interests.  The
Executive covenants, warrants, and represents that he shall:

     

    
      	
               
      

            	
              (a)

            	
              Devote
      his best efforts and talents to the performance of his employment
      obligations and duties for the
Company;

            


    

     

    
      	
               
      

            	
              (b)

            	
              Exercise
      the highest degree of loyalty and the highest standards of conduct in the
      performance of his duties;

            


    

     

    
      	
               
      

            	
              (c)

            	
              Observe
      and conform to the Company’s bylaws and other rules, regulations, and
      policies established or issued by the Company;
  and

            


    

     

    
      	
               
      

            	
              (d)

            	
              Refrain
      from taking advantage, for himself or others, of any corporate
      opportunities of the Company.

            


    

     

    3.2 Forfeiture and Return of
Incentive Compensation.  It is the Company’s expectation that
the Executive will discharge his duties hereunder with utmost attention to the
standards set forth in Section 3.1.  In the event the CarMax, Inc.
Board of Directors (“Board”) determines
that the Executive has engaged in conduct constituting Cause (as defined in
Section 7.6(a)), which conduct directly results in the filing of a restatement
of any financial statement previously filed with the Securities and Exchange
Commission (or other governmental agency) under the Federal securities laws, the
Executive shall immediately (a) forfeit all unpaid Affected Compensation (as
defined below) and (b) upon demand by the Company repay to the Company all
Affected Compensation received or realized by the Executive together with
interest at the prime rate in effect from time to time as reported in The Wall
Street Journal; provided, however, that the forfeiture and
repayment  provisions of this Section 3.2 shall not apply to conduct
constituting “gross negligence” under Section 7.6(a)(ii) or to conduct under
Section 7.6(a)(iii), Section 7.6(a)(vii) or Section
7.6(a)(viii).  “Affected
Compensation” means any payment to the Executive, any award or vesting of
any equity or other short-term or long-term incentive compensation to the
Executive, or any before-tax proceeds of a sale of previously awarded equity
compensation realized by the Executive, in any instance in which (i) the
payment, award or vesting of the foregoing was expressly conditioned upon the
achievement of certain financial results that were subsequently the subject of
such restatement, and (ii) a lesser amount of payment, award or vesting or
before-tax proceeds of a sale of any of the foregoing would have been made to,
vested in or otherwise earned or realized by, the Executive based upon such
restated financial results.

     

    
      
        
        

      

      
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    Article
4. Other
Activities

     

    During
the Term, the Executive shall comply with the provisions of Article 8
herein.  Furthermore, during his employment, the Executive agrees to
obtain the CEO’s written consent before entering into any other occupation, even
if dissimilar to that of the Company, including, without limitation, service as
a member of a board of directors of one or more other companies.  Such
consent may be granted or withheld, in the CEO’s sole discretion.  The
Executive may participate on charitable and civic boards, and in educational,
professional, community and industry affairs, without CEO consent, provided that
such participation does not interfere with the performance of his
duties.

     

    Article
5. Compensation
and Benefits

     

    As
remuneration for all services to be rendered by the Executive during the Term,
and as consideration for complying with the covenants herein during and after
the termination or expiration of the Term, the Company shall pay and provide to
the Executive the following compensation and benefits:

     

    5.1 Base
Salary.  During the Term, the Company shall pay the Executive a
base salary (“Base
Salary”) in an amount established and approved by the Compensation and
Personnel Committee of the Board (“Compensation
Committee”); provided, however, that such Base Salary shall be
established at a rate of not less than $350,000.00 per year, except as otherwise
provided in this Section 5.1 below.  This Base Salary shall be subject
to all appropriate federal and state withholding taxes and payable in accordance
with the normal payroll practices of the Company.  The Compensation
Committee shall review and adjust the Base Salary as it deems appropriate at
least annually during the Term; provided, however, that the Executive’s Base
Salary shall not be decreased without the Executive’s written consent, other
than across-the-board reductions applicable to all senior officers of the
Company.  If adjusted, the Base Salary shall be so adjusted for all
purposes of this Agreement.

     

    5.2 Annual
Bonus.  In addition to his Base Salary, the Executive shall be
entitled to participate in the Company’s Annual Performance-Based Bonus Plan
(“Annual Bonus
Plan”), as such Annual Bonus Plan may exist from time to time during the
Term.  Under the Company’s Annual Bonus Plan, the Executive has the
opportunity to earn an annual bonus with respect to any fiscal year of the
Company (“Annual
Bonus”).  The Annual Bonus will be determined by a formula
approved each fiscal year by the Compensation Committee (the “Annual Bonus
Formula”) in its sole discretion.  At the beginning of each
fiscal year, the Compensation Committee will authorize, in accordance with the
Annual Bonus Plan, the Executive’s Annual Bonus for that fiscal year, which
shall be targeted at forty percent (40%) of the Executive’s Base Salary for that
fiscal year (“Target
Bonus Rate”).  The specified Target Bonus Rate may be increased
from time to time by the Compensation Committee but shall not be decreased
without the Executive’s written consent.  Depending upon the actual
financial performance recorded by the Company for any given fiscal year, the
Executive’s Annual Bonus may be increased or decreased solely in accordance with
the Annual Bonus Formula and otherwise in accordance with the Annual Bonus
Plan.

     

    
      
        
        

      

      
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    5.3 Long-Term Incentives.
During the Term, the Executive shall be eligible to participate in the Company’s
2002 Stock Incentive Plan, as amended and restated (or any successor incentive
plan thereto), to the extent that the Compensation Committee, in its sole
discretion, determines is appropriate.  The Compensation Committee
will make its determination consistent with the methodology used by the Company
for compensating the Executive’s peer executives.  Additionally, the
Executive shall be entitled to participate in all other incentive plans, whether
equity-based or cash-based, applicable generally to his peer executives within
the Company.

     

    5.4 Retirement and Deferred
Compensation Plans.  During the Term, the Executive shall be
entitled to participate in all tax-qualified and nonqualified retirement and
deferred compensation plans, policies and programs applicable generally to his
peer executives within the Company, subject to the eligibility and participation
requirements of such plans, policies and programs.

     

    5.5 Welfare Benefit
Plans.  During the Term, the Executive and the Executive’s
family will be entitled to participate in all welfare benefit plans, policies
and programs, including those defined under Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended, provided by the Company to
his peer executives within the Company, subject to the eligibility requirements
and other provisions of such plans, policies and programs.

     

    5.6 Fringe
Benefits.  During the Term, the Executive will be entitled to
fringe benefits in accordance with the plans, policies and programs of the
Company in effect for his peer executives within the Company.

     

    5.7 Vacation.  During
the Term, the Executive will be entitled to participate in the Company’s Time
Away paid time off program for salaried employees (or successor paid time off
program) as that program is administered by the Company and as it may be amended
or modified from time to time; provided, in all events, the Executive will be
entitled to not less than 30 days of paid vacation each fiscal
year.

     

    5.8 Right to Change
Plans.  By reason of Sections 5.4, 5.5, 5.6 and 5.7
herein, the Company shall not be obligated to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan, policy or program,
so long as such changes are similarly applicable to the Executive’s peer
executives.

     

    Article
6. Expenses

     

    During
the Term, the Company shall pay or reimburse the Executive for all ordinary and
necessary expenses, in a reasonable amount, that the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies in which the Company finds that the Executive’s
participation is in the best interests of the Company.  The payment or
reimbursement of expenses shall be subject to such rules concerning
documentation of expenses and the type or magnitude of such expenses as the
Compensation Committee or the Company, as applicable, may establish from time to
time.

     

    
      
        
        

      

      
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    Article
7. Employment
Termination

     

    7.1 Date of
Termination.  The Company or the Executive may terminate the
Executive’s employment in accordance with the provisions of this Article
7.  The “Date of Termination”
of the Executive’s employment shall be as determined in Sections 7.2, 7.3, 7.4,
7.5, 7.6, and 7.7 below.

     

    7.2 Termination Due to
Retirement or Death.

     

    (a) In the
event the Executive’s employment ends by reason of Retirement (as defined
below), the Date of Termination shall be the date set forth in a notice by the
Executive, which notice shall be given to the Company at least ninety (90) days
prior to such date.  In the event of the Executive’s death, the Date
of Termination shall be the date of death.  In either case, the
Executive’s benefits shall be determined in accordance with the Company’s
retirement, survivor’s benefits, insurance and other applicable plans and
programs of the Company then in effect.  For the purposes of this
Agreement, “Retirement” shall
mean the Executive’s voluntary termination of employment at a time during which
he is eligible for “Normal Retirement” or “Early Retirement” as such terms are
defined in the CarMax, Inc. Pension Plan as of the Effective Date.

     

    (b) Upon the
Date of Termination due to the Executive’s Retirement or death, the Company
shall be obligated to pay the Executive or, if applicable, the Executive’s
beneficiary or estate, the following “Accrued Obligations”:
(i) any Base Salary that was accrued but not yet paid as of the Date of
Termination; (ii) the unpaid Annual Bonus, if any, earned with respect to
the fiscal year preceding the Date of Termination; (iii) any compensation
previously deferred by the Executive by his own election; and (iv) all
other employee welfare and retirement benefits to which the Executive is
entitled on the Date of Termination in accordance with the terms of the
applicable plan or plans.  The Accrued Obligations payable under the
above clauses (i) and (ii) shall be paid to the Executive in a lump sum cash
payment within ten (10) days after the Date of Termination or as soon thereafter
as may be practicable.  The Accrued Obligations payable under clauses
(iii) and (iv) shall be paid in accordance with the terms of the plan under
which they are due.

     

    (c) Upon the
Date of Termination due to the Executive’s Retirement, the Executive shall be
entitled to a pro rata share of the Annual Bonus based on actual performance for
the fiscal year in which the Date of Termination occurs (such proration to be
based on the fraction, the numerator of which is the number of full completed
days of employment during the fiscal year through the Date of Termination, and
the denominator of which is 365) (“Pro Rata Actual
Bonus”).  The Pro Rata Actual Bonus, if any, shall be paid to
the Executive when annual bonuses are paid to other senior officers of the
Company for such fiscal year.

     

    (d) Upon the
Date of Termination due to the Executive’s death, the Executive’s beneficiary or
estate shall be entitled to a pro rata share of the Annual Bonus at the Target
Bonus Rate for the fiscal year in which the Date of Termination occurs (such
proration to be based on the fraction, the numerator of which is the number of
full completed days of employment during the fiscal year through the Date of
Termination, and the denominator of which is 365) (“Pro Rata Target
Bonus”).  The Pro Rata Target Bonus shall be paid to the
Executive’s beneficiary or estate in a lump sum cash payment within ten (10)
days after the date of the Executive’s death or as soon as practicable
thereafter.

     

    
      
        
        

      

      
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    (e) Upon the
termination of the Executive’s employment due to his Retirement or death, the
terms and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 7.2.

    


    7.3           Termination Due to
Disability.

    


    (a)           The
Company shall have the right to terminate the Executive’s employment for his
Disability (as defined below).  The Date of Termination due to
Disability shall be the date set forth in a notice to the Executive, which
notice shall be given by the Company at least thirty (30) days prior to such
date.  For the purposes of this Agreement, “Disability” or “Disabled” shall mean
any physical or mental illness or injury that causes the Executive (i) to be
considered “disabled” for the purpose of eligibility to receive
income-replacement benefits in accordance with the Company’s long-term
disability plan in which the Executive is a participant, or (ii) if the
Executive does not participate in any such plan, to be unable to substantially
perform the duties of his position for 180 days in the aggregate during any
period of twelve (12) consecutive months and a physician selected by the Company
(and reasonably acceptable to the Executive) shall have furnished to the Company
certification that the return of the Executive to his normal duties is
impossible or improbable.  The Board shall review the foregoing
information and shall determine in good faith if the Executive is
Disabled.  The Board’s decision shall be binding on the
Executive.  Notwithstanding the foregoing, if the Executive incurs a
physical or mental illness or injury that does not constitute a Disability, such
physical or mental illness or injury shall not constitute a failure by the
Executive to perform his duties hereunder and shall not be deemed a breach or
default of this Agreement by the Executive.

    


    (b) Upon the
Date of Termination due to the Executive’s Disability, the Executive shall be
entitled to his Accrued Obligations and a Pro Rata Target Bonus.  The
Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata
Target Bonus shall be paid to the Executive in a lump sum cash payment within
ten (10) days after the Date of Termination or as soon as practicable
thereafter.  The Accrued Obligations provided under
Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of
the plan under which they are due.

     

    (c) Upon the
termination of the Executive’s employment due to his Disability, the terms and
conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 7.3.

     

    
      
        
        

      

      
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    7.4           Voluntary Termination by the
Executive Without Good Reason.  The Executive may terminate his
employment at any time without Good Reason (as defined in Section 7.7) by giving the Company at
least forty five (45) days notice, which notice shall state the Date of
Termination.  The Company reserves the right to require the Executive
not to work during the notice period but shall pay the Executive his accrued and
unpaid Base Salary, at the rate then in effect provided in Section 5.1
herein, through the Date of Termination (but not to exceed forty-five (45)
days), and such payment shall be made to the Executive within ten (10) days
after the Date of Termination or as soon thereafter as may be
practicable.  The Company shall also pay the Executive any
compensation previously deferred by the Executive by his own election and all
other employee welfare and retirement benefits to which the Executive is
entitled on the Date of Termination, all in accordance with the terms of the
applicable plan or plans under which they are due.  In the event of
the Executive’s voluntary termination of employment without Good Reason, the
terms and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 7.4.

     

    7.5 Involuntary Termination by
the Company Without Cause.  Upon notice to the Executive, the
Company may terminate the Executive’s employment at any time for any reason
other than for Cause and other than due to Disability (“Involuntary Termination
Without Cause”).  The Date of Termination shall be the date
stated in such notice.

     

    (a) In the
event of the Executive’s Involuntary Termination Without Cause, which occurs
prior to the occurrence of a Change in Control or an Asset Sale (each as defined
in Section 11.2) or after the conclusion of the Change in Control Employment
Period (defined at Section 11.4), the Executive shall receive the following
payments and benefits:

     

    (i) The
Company shall pay to the Executive, in equal monthly installments over the
twenty-four (24) month period following the Date of Termination, an amount equal
to the product of two (2) times the sum of (x) the Executive’s Base Salary and
(y) the amount of the last Annual Bonus for the Executive as determined by the
Compensation Committee in accordance with the
Annual Bonus Plan, regardless of the Date of Termination.

     

    (ii) The
Executive’s participation in the Company’s health, dental, and vision plans will
end on the last day of the month in which the Date of Termination
occurs.  The Executive may elect to continue coverage under the
health, dental and/or vision plans for himself and his eligible dependents in
accordance with the terms and procedures of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”).  If
the Executive elects COBRA coverage, the Executive shall be responsible for
remitting the COBRA premium to the Company (or to a COBRA administrator
designated by the Company) in accordance with the terms of the Company’s health,
dental and vision plans and applicable COBRA requirements.  If the
Executive elects COBRA coverage, the Company shall reimburse the Executive for a
portion of the cost of such coverage until the end of the COBRA coverage period,
up to a maximum period of eighteen (18) months.  The amount of the
Company’s reimbursement shall be equal to the sum of (1) the amount the Company
would have otherwise paid for such coverage if the Executive had remained an
active employee of the Company, and (2) the COBRA administration
fee.  If the Executive does not elect COBRA coverage, the Company
shall have no obligation to the Executive with respect to health, dental and
vision benefits following the Date of Termination.

     

    
      
        
        

      

      
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    (iii) The
Company shall provide the Executive with outplacement services not to exceed a
cost of $25,000.00.

     

    (iv) The
Executive shall be entitled to his Accrued Obligations and a Pro Rata Actual
Bonus.  The Accrued Obligations provided under Section 7.2(b)(i)
and (ii) shall be paid to the Executive in a lump sum cash payment within
ten (10) days after the Date of Termination or as soon thereafter as may be
practicable.  The Accrued Obligations provided under Section
7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan
under which they are due.  The Pro Rata Actual Bonus, if any, shall be
paid to the Executive when annual bonuses are paid to other senior officers of
the Company for such fiscal year.

     

    (v) The terms
and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 7.5.

     

    (b) Amounts
payable under this Section 7.5 shall be in lieu of any amounts otherwise payable
under any severance plan or agreement covering senior officers of the
Company.

     

    (c) In the
event that the Company terminates the Executive’s employment at any time for any
reason (i) other than for Cause and other than due to Disability and (ii) after
the Executive has attained age 65 of higher, such termination shall not be
deemed an Involuntary Termination Without Cause.

     

    7.6 Termination For
Cause.  The Company may terminate the Executive’s employment at
any time for Cause, without notice or liability for doing so.  The
Date of Termination shall be the date that Cause is determined as provided
below.

     

    (a) For
purposes of this Agreement, “Cause” means a good
faith determination by the Board that one (1) or more of the following has
occurred:

     

    (i) The
Executive has committed a material breach of this Agreement, which breach was
not cured or waived by the Company, within ten (10) days of receipt by the
Executive of notice from the Company specifying the breach;

     

    
      
        
        

      

      
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    (ii) The
Executive has committed gross negligence in the performance of his duties
hereunder, intentionally fails to perform his duties, engages in intentional
misconduct or intentionally refuses to abide by or comply with the directives of
the Board, the CEO or the Company’s policies and procedures, as applicable,
which actions continued for a period of ten (10) days after receipt by the
Executive of notice of the need to cure or cease;

     

    (iii) The
Executive has willfully and continuously failed to perform substantially his
duties (other than any such failure resulting from the Executive’s Disability or
incapacity due to bodily injury or physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by the Board or
the CEO that specifically identifies the manner in which the Board or the CEO
believes that the Executive has not substantially performed his
duties;

     

    (iv) The
Executive has willfully violated a material requirement of the Company’s code of
conduct or breached his fiduciary duty to the Company;

     

    (v) The
Executive’s conviction of (or a plea of guilty or nolo contendere to) a felony
or any crime involving moral turpitude, dishonesty, fraud, theft or financial
impropriety;

     

    (vi) The
Executive has engaged in illegal conduct, embezzlement or fraud with respect to
the business or affairs of the Company;

     

    (vii) The
Executive has failed to disclose to the Board a conflict of interest of which
the Executive knew or with reasonable diligence should have known in connection
with any transaction entered into on behalf of the Company; or

     

    (viii) The
Executive has failed to agree to a modification of the Agreement pursuant to
Section 17.3 hereof when the purpose of the modification is to comply with
applicable federal, state or local laws or regulations, or when such
modification is designed to further define the restrictions of Article 8 or
otherwise enhance the enforcement of Article 8 without increasing the duration
or scope of the Article 8 restrictions.

     

    No act or
failure to act on the Executive’s part will be considered “willful” if conducted
by the Executive in good faith and with a reasonable belief that the Executive’s
act or omission was in, and not opposed to, the best interests of the
Company.

     

    (b) If the
Executive’s employment is terminated for Cause during the Term, this Agreement
will terminate without further obligation of the Company to the Executive other
than (i) the payment to the Executive of his accrued and unpaid Base Salary
through the Date of Termination, and (ii) the payment of any compensation
previously deferred by the Executive by his own election and all other employee
welfare and retirement benefits to which the Executive is entitled on the Date
of Termination, all in accordance with the terms of the applicable plan or plans
under which they are due.  In the event of the Executive’s termination
of employment for Cause, the terms and conditions of the awards and agreements
applicable to the Executive’s outstanding stock options, stock grants, stock
appreciation rights, performance-based grants, and all other forms of long-term
incentive compensation, regardless of whether such compensation is equity or
cash based, will govern the consequences of the termination of the Executive’s
employment under this Section 7.6.

     

    
      
        
        

      

      
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    7.7 Termination for Good
Reason.  At any time during the Term, the Executive may
terminate his employment for Good Reason (as defined below) upon notice to the
Company.  Such notice shall state the intended Date of Termination and
shall be given to the Company at least forty-five (45) days prior to such date
and shall set forth in detail the facts and circumstances claimed to provide
grounds for such termination.  The Company shall have the right to
cure the facts and circumstances giving rise to such grounds for termination for
Good Reason.  If the Company does not so cure within such forty-five
(45) day notice period, then the Executive’s employment shall terminate on the
Date of Termination stated in the notice.

     

    (a) For
purposes of this Agreement, “Good Reason” shall
mean, without the Executive’s express written consent, the occurrence of any one
(1) or more of the following:

     

    (i) A
reduction in the Executive’s Base Salary (other than, prior to the occurrence of
a Change in Control or Asset Sale, a reduction across-the-board affecting all
senior officers in substantially like percentages of their base salaries) or
Target Bonus Rate;

     

    (ii) A
material reduction in the Executive’s duties or authority as Senior Vice
President, General Counsel and Corporate Secretary of the Company, or any
removal of the Executive from or any failure to reappoint or reelect the
Executive to such positions (except in connection with the termination of the
Executive’s employment for Cause or Disability, as a result of the Executive’s
death or Retirement or by the Executive other than for Good
Reason);

     

    (iii) The
Executive being required to relocate to a principal place of employment more
than 35 miles from the Company’s headquarters except, prior to the occurrence of
a Change in Control or Asset Sale, in connection with the relocation of
substantially all senior Company executives pursuant to the relocation of the
Company’s headquarters;

     

    (iv) If
applicable, the failure by the shareholders of the Company to elect or to
reelect the Executive as a director of the Board or the removal of the Executive
from such position; or

     

    (v) The
failure of the Company to obtain an agreement from any successor to all or
substantially all of the assets or business of the Company to assume and agree
to perform this Agreement within fifteen (15) days after a merger,
consolidation, sale or similar transaction.

     

    (b) In the
event of the Executive’s voluntary termination of employment for Good Reason,
which occurs prior to the occurrence of a Change in Control or an Asset Sale or
after the conclusion of the Change in Control Employment Period, the Executive
shall receive the following payments and benefits:

     

    
      
        
        

      

      
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    (i) The
Company shall pay to the Executive, in equal monthly installments over the
twenty-four (24) month period following the Date of Termination, an amount equal
to the product of two (2) times the sum of (x) the Executive’s Base Salary and
(y) the amount of the last Annual Bonus for the Executive as determined by the
Compensation Committee in accordance with the
Annual Bonus Plan, regardless of the Date of Termination.

     

    (ii) The
Executive’s participation in the Company’s health, dental, and vision plans will
end on the last day of the month in which the Date of Termination
occurs.  The Executive may elect to continue coverage under the
health, dental and/or vision plans for himself and his eligible dependents in
accordance with the terms and procedures of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”).  If
the Executive elects COBRA coverage, the Executive shall be responsible for
remitting the COBRA premium to the Company (or to a COBRA administrator
designated by the Company) in accordance with the terms of the Company’s health,
dental and vision plans and applicable COBRA requirements.  If the
Executive elects COBRA coverage, the Company shall reimburse the Executive for a
portion of the cost of such coverage until the end of the COBRA coverage period,
up to a maximum period of eighteen (18) months. The amount of the Company’s
reimbursement shall be equal to the sum of (1) the amount the Company would have
otherwise paid for such coverage if the Executive had remained an active
employee of the Company, and (2) the COBRA administration fee.  If the
Executive does not elect COBRA coverage, the Company shall have no obligation to
the Executive with respect to health, dental and vision benefits following the
Date of Termination.

     

    (iii) The
Company shall provide the Executive with outplacement services not to exceed a
cost of $25,000.00.

     

    (iv) The
Executive shall be entitled to his Accrued Obligations and his Target Bonus for
the fiscal year in which the Date of Termination occurs.  The Target
Bonus and the Accrued Obligations provided under Section 7.2(b)(i) and (ii)
shall be paid to the Executive in a lump sum cash payment within ten (10) days
after the Date of Termination or as soon thereafter as may be
practicable.  The Accrued Obligations provided under Section
7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan
under which they are due.

     

    (v) The terms
and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 7.7.

     

    (c) The
Executive’s right to terminate his employment for Good Reason shall not be
affected by the Executive’s incapacity due to physical or mental illness not
constituting a Disability.  Amounts payable
under this Section 7.7 shall be in lieu of any amounts otherwise payable under
any severance plan or agreement covering senior officers of the
Company.

     

    
      
        
        

      

      
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    7.8 Conditions on Company
Obligations.  All payments and benefits made or provided
pursuant to Article 7 are subject to the Executive’s:

     

    (a) Compliance
with the provisions of Article 8, Article 9, Article 10 and Section 17.2
hereof;

     

    (b) Except
with respect to payment of the Executive’s Accrued Obligations, delivery to the
Company of an executed Agreement and General Release, which shall be
substantially in the form attached hereto as Exhibit A (with such changes or
additions as needed under then applicable law to give effect to its intent and
purpose) (“Agreement
and General Release”) within twenty-one (21) days of presentation thereof
by the Company to the Executive. Notwithstanding the due date of any
post-employment termination payments hereunder, any amounts due following a
termination of employment under this Agreement shall not be due until after the
expiration of any revocation period applicable to the Agreement and General
Release without the Executive having revoked such Agreement and General Release;
and

     

    (c) Compliance
with Section 409A of the Internal Revenue Code of 1986, as amended (“Code”).

     

    After
payment of all amounts and benefits under this Article 7, the Company thereafter
shall have no further obligation under this Agreement.

     

    Article
8. Covenant
Not to Compete; Intellectual Property

     

    8.1 Acknowledgement and
Agreement Regarding Covenant Not to Compete.

     

    (a) The
Executive acknowledges and agrees as follows: (i) the Company operates a unique
business concept in the United States regarding the sale and servicing of new
and used vehicles in a highly competitive industry; (ii) the Company’s
competitors have attempted to duplicate the Company’s business concept in
various markets throughout the United States, including markets where the
Company does not currently have a business location, and may continue to do so;
and (iii) in connection with the Executive’s employment, he will receive access
to, and training regarding, the Company’s business concept and will,
accordingly, acquire commercially valuable knowledge of, and insight into, the
Company’s operations and its proprietary and confidential information, any of
which if made available to the Company’s competitors could place the Company at
an unfair competitive disadvantage.

     

    (b) The
Executive and the Company acknowledge that the Executive’s services are of a
special, extraordinary, and intellectual character that gives the Executive
unique value, that the Company’s business is highly competitive, and that
violation of the Covenant Not to Compete (as defined in Section 8.2 below)
provided herein would cause immediate, immeasurable, and irreparable harm, loss,
and damage to the Company not adequately compensable by a monetary
award.  In the event of any breach or threatened breach by the
Executive of the Covenant Not to Compete, the Company shall be entitled to such
equitable and injunctive relief as may be available to restrain the Executive
from violating the provisions hereof.  Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of the Executive
hereunder for Cause.

     

    
      
        
        

      

      
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    (c) The
Executive and the Company have examined in detail the Covenant Not to Compete
contained herein and agree that the restraint imposed upon the Executive is
reasonable in light of the legitimate business interests of the Company and is
not unduly harsh upon the Executive’s ability to earn a
livelihood.  If any provision of the Covenant Not to Compete relating
to the time period, geographic area or scope of restricted activities shall be
declared by a court of competent jurisdiction to exceed the maximum time period,
geographic area or scope of activities, as applicable, that such court deems
reasonable and enforceable, such time period, geographic area or scope of
activities shall be deemed to be, and thereafter shall become, the maximum time
period or largest geographic area or scope of activities that such court deems
reasonable and enforceable and this Agreement shall automatically be considered
to have been amended and revised to reflect such determination.

     

    8.2 Covenant Not to
Compete.  In order to protect the Company’s legitimate business
interests from competitors and to protect the Company’s critical interest in its
proprietary and confidential information, and in return for the consideration
set forth in this Agreement, the Executive covenants and agrees to the following
“Covenant Not to
Compete”:

     

    (a) During
the Executive’s employment and for a period of two (2) years following the last
day of the Executive’s employment, the Executive will not, directly or
indirectly, compete with the Company by acting “in a competitive capacity” (as
defined in Section 8.2(c)), whether as an individual, partner, or joint
venturer, for, or on behalf of, any person or entity operating or developing the
same or similar business as the Company within any Metropolitan Statistical Area
(as defined under applicable regulations of the Census Bureau of the U.S.
Department of Commerce) in which the Company has a business location or in which
the Company is engaged in real estate site selection. Entities (including the
affiliates of such entities) engaged, or which could become engaged, in the same
or similar business as the Company include, but are not limited to: Sonic
Automotive, Inc.; Lithia Motors, Inc.; Group 1 Automotive, Inc.; UnitedAuto
Group; AutoNation, Inc.; Penske Motors; Asbury Automotive Group; Price One;
Hendrick Automotive Group; CarMotive; Saturn Group; Hertz; Enterprise; and any
automotive retail operation affiliated with, owned, operated, or controlled by
Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Wal-Mart Stores,
Inc., Sears, Roebuck and Company, Carrefour, Costco Wholesale Corporation, Royal
Dutch/Shell Group of Companies, Exxon Mobil Corporation, ChevronTexaco Corp., or
Gulliver International Co., Ltd.

     

    (b) A
business will not be considered to be in competition with the Company for
purposes of this Section 8.2 if the business, or operating unit of the
business, in which the Executive will be employed does not have, nor is expected
to have within the two (2) years following the Executive’s termination of
employment, annual gross revenues of at least $5,000,000 derived from the sale
and servicing of new or used vehicles.

     

    (c) Acting
“in a competitive
capacity” shall mean providing to a person or entity covered by this
Section 8.2, directly or indirectly, the same or similar services as the
Executive provided to the Company during his employment, and/or engaging in any
business or segment of business about which the Executive first acquired
proprietary or confidential information during the course of his employment with
the Company.

     

    
      
        
        

      

      
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    (d) Notwithstanding
the foregoing, nothing herein shall be deemed to prevent or limit the right of
the Executive to invest in the capital stock or other securities (not exceeding
two percent (2%) of such outstanding capital stock or securities) of any corporation whose
stock or securities are regularly traded on any public exchange, nor shall
anything contained herein be deemed to prevent the Executive from investing in
real estate for his own benefit, so long as such investment (i) is not
related to or in support of any entity engaged in a business similar to that of
the Company and (ii) does not detract from the Executive’s performance of
his duties and obligations hereunder.

     

    8.3 Intellectual
Property.  The Executive understands and acknowledges that any
writing, invention, design, system, process, development or discovery
(collectively, "Intellectual
Property") conceived, developed created or made by the Executive, alone
or with others, both during the Term of this Agreement and in the course of the
Executive’s employment prior to the Term, is the sole and exclusive property of
the Company to the extent such Intellectual Property is related to the
Executive's duties or is within the scope of the Company's actual or anticipated
business. The Executive agrees to assign to the Company any and all of his
right, title, and interest in and to such Intellectual Property, including, but
not limited to, patent, trademark and other rights. The Executive further agrees
to cooperate fully with the Company to secure, maintain, enforce, or defend the
Company's ownership of and rights in such Intellectual Property.  The
rights and remedies of this Section 8.3 are in addition to any rights and
remedies available under applicable law.

    


     

    Article
9. Non-Solicitation
/ Non-Hiring of Employees

     

    The
Executive agrees that during the Executive’s employment with the Company and for
a period of two (2) years following the last day of the Executive’s employment,
the Executive shall not, directly or indirectly, solicit or induce, or attempt
to solicit or induce, any employee of the Company to leave the Company for any
reason whatsoever or hire any individual employed by the Company.  For
purposes of this Article 9, employee shall mean any individual employed by
the Company within the three (3) month period prior to, and including, the last
day of the Executive’s employment.

     

    Article
10. Confidentiality

     

    10.1 Protected
Information.  The Executive understands and agrees that any
information, data and trade secrets about the Company and its suppliers and
distributors are the property of the Company and are essential to the protection
of the Company’s goodwill and to the maintenance of the Company’s competitive
position and accordingly should be kept secret.  For purposes of this
Agreement, “Protected
Information” means trade secrets, confidential and proprietary business
information of or about the Company, and any other information of the Company,
including, but not limited to, Intellectual Property, customer lists (including
potential customers), sources of supply, processes, plans, materials, pricing
information, internal memoranda, marketing plans, promotional plans, internal
policies, research, purchasing, accounting and financial information, computer
programs, hardware, software, and products and services that may be developed
from time to time by the Company and its agents or employees, including the
Executive; provided, however, that information that is in the public domain
(other than as a result of a breach of this Agreement), approved for release by
the Company or lawfully obtained from third parties who are not bound by a
confidentiality agreement with the Company, is not Protected
Information.

     

    
      
        
        

      

      
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    10.2 Covenant.  The
Company has advised the Executive, and the Executive acknowledges, that it is
the policy of the Company to maintain as secret and confidential all Protected
Information and that Protected Information has been and will be developed at
substantial cost and effort to the Company.  The Executive agrees to
hold in strict confidence and safeguard any Protected Information, gained by the
Executive in any manner or from any source during the Executive’s
employment.  The Executive shall not, without the prior written
consent of the Company, at any time, directly or indirectly, divulge, furnish,
use, disclose or make accessible to any person, firm, corporation, association,
or other entity (otherwise than as may be required in the regular course of the
Executive’s employment with the Company), either during the Executive’s
employment with the Company or subsequent to the last day of the Executive’s
employment, any Protected Information, or cause any such information of the
Company to enter the public domain.

     

    10.3 Nonexclusivity.  Nothing
contained in this Article 10 is intended to reduce in any way protection
available to the Company pursuant to the Uniform Trade Secrets Act as adopted in
Virginia or any other state or other applicable laws that prohibit the misuse or
disclosure of confidential or proprietary information.

     

    Article
11. Change
in Control; Sale of Assets

     

    11.1 Purpose.  The
Company recognizes that the possibility of a Change in Control or Asset Sale
exists, and the uncertainty and questions that it may raise among management may
result in the departure or distraction of management personnel to the detriment
of the Company.  Accordingly, the purpose of this Article 11 is
to encourage the Executive to continue employment after a Change in Control or
Asset Sale by providing reasonable employment security to the Executive and to
recognize the prior service of the Executive in the event of a termination of
employment under certain circumstances after a Change in Control or Asset
Sale.  This Article 11 shall not become effective, and the
Company shall have no obligation hereunder, if the employment of the Executive
with the Company terminates before a Change in Control or Asset
Sale.

     

    11.2 Definitions.

     

    (a) “Change in Control” of
the Company means the occurrence of either of the following events: (i) a
third person, including a “group” as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes, or obtains the right to
become, the beneficial owner of Company securities having twenty percent (20%)
or more of the combined voting power of the then outstanding securities of the
Company that may be cast for the election of directors to the Board of the
Company (other than as a result of an issuance of securities initiated by the
Company in the ordinary course of business); or (ii) as the result of, or
in connection with, any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions, the persons who were directors of the Company before
such transactions shall cease to constitute a majority of the board or of the
board of directors of any successor to the Company.

     

    
      
        
        

      

      
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    (b) “Asset Sale” shall
mean a sale of all or substantially all of the assets of the Company in a single
transaction or a series of related transactions.

     

    11.3 Long-Term Incentive
Compensation.  The terms and conditions of the awards and
agreements applicable to the Executive’s outstanding stock options, stock
grants, stock appreciation rights, performance-based grants, and all other forms
of long-term incentive compensation, regardless of whether such compensation is
equity or cash based, will govern the consequences to the Executive upon the
occurrence of a Change in Control or an Asset Sale or upon a termination of the
Executive’s employment thereafter.

     

    11.4 Continued Employment
Following Change in Control or an Asset Sale.  If a Change in
Control or an Asset Sale occurs and the Executive is employed by the Company on
the date the Change in Control or Asset Sale occurs (the “Change in Control
Date”), the period beginning on the Change in Control Date and ending on
the second (2nd) anniversary of such date shall be the “Change in Control Employment
Period.”

     

    11.5 Termination of Employment
During Change in Control Employment Period.  The Executive will
be entitled to the compensation and benefits described in this Section 11.5
if, during the Change in Control Employment Period, (a) the Company
terminates his employment for any reason other than for Cause or due to
Disability, or (b) the Executive voluntarily terminates his employment with
the Company for Good Reason.  The compensation and benefits described
in this Section 11.5 are in lieu of, and not in addition to, any
compensation and benefits provided to the Executive pursuant to
Sections 7.5 and 7.7 herein and any amounts otherwise payable under any
severance plan or agreement covering senior officers of the
Company.  Upon such a termination of employment, the Executive shall
receive the following payments and benefits:

     

    (a) The
Executive shall be entitled to his Accrued Obligations and a Pro Rata Target
Bonus.  The Accrued Obligations provided under Section 7.2(b)(i) and
(ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum
cash payment within ten (10) days after the Date of Termination or as soon
thereafter as may be practicable.  The Accrued Obligations provided
under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of
the plan under which they are due.

     

    (b) The
Company shall pay to the Executive an amount equal to 2.99 times the Executive’s
Final Compensation.  For purposes of this Agreement, “Final Compensation”
means the Base Salary in effect at the Date of Termination, plus the higher
Annual Bonus paid or payable for the two (2) most recently completed fiscal
years.  This payment will be paid to the Executive in a lump sum cash
payment not later than the forty-fifth (45th) day following the Date of
Termination.

     

    
      
        
        

      

      
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    (c) The
Executive’s participation in the Company’s health, dental, and vision plans will
end on the last day of the month in which the Date of Termination occurs. The
Executive may elect to continue coverage under the health, dental and/or vision
plans for himself and his eligible dependents in accordance with the terms and
procedures of COBRA.  If the Executive elects COBRA coverage, the
Executive shall be responsible for remitting the COBRA premium to the Company
(or to a COBRA administrator designated by the Company) in accordance with the
terms of the health, dental and vision plans and applicable COBRA
requirements.  If the Executive elects COBRA coverage, the Company
shall reimburse the Executive for a portion of the cost of such coverage until
the end of the COBRA coverage period, up to a maximum period of eighteen (18)
months. The amount of the Company’s reimbursement shall be equal to the sum of
(1) the amount the Company would have otherwise paid for such coverage if the
Executive had remained an active employee of the Company, and (2) the COBRA
administration fee.  If the Executive does not elect COBRA coverage,
the Company shall have no obligation to the Executive with respect to health,
dental and vision benefits following the Date of Termination.

     

    (d) The
Company shall provide the Executive with outplacement services not to exceed a
cost of $25,000.00.

     

    11.6 Death, Disability or
Retirement Termination During Change In Control Employment
Period.  If the Executive’s employment ends by reason of
Retirement, the Executive’s death, or as a result of Disability during the
Change in Control Employment Period, this Agreement will terminate without any
further obligation on the part of the Company under this Agreement other
than:

     

    (a) The
Executive (or his beneficiary or his estate in the event of his death) will be
entitled to the payment of the Executive’s Accrued Obligations and a Pro Rata
Target Bonus.  The Accrued Obligations provided under Section
7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid in a lump sum
cash payment within ten (10) days after the Date of Termination or as soon
thereafter as may be practicable.  The Accrued Obligations provided
under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of
the plan under which they are due; and

     

    (b) The terms
and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 11.6.

     

    11.7 Termination for Cause and
Termination Other Than For Good Reason Following a Change in
Control.

     

    (a) If the
Executive’s employment is terminated for Cause during the Change in Control
Employment Period, this Agreement will terminate without further obligation to
the Executive other than the payment to the Executive of his accrued and unpaid
Base Salary through the Date of Termination, as well as any deferred
compensation and other employee welfare and retirement benefits to which the
Executive is entitled on the Date of Termination in accordance with the terms of
the applicable plan or plans under which they are due.  The terms and
conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 11.7(a).

     

    
      
        
        

      

      
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    (b) If the
Executive terminates employment during the Change in Control Employment Period
other than for Good Reason, this Agreement will terminate without further
obligation to the Executive other than:

     

    (i)  The
Executive (or his beneficiary or his estate in the event of his death) will be
entitled to the payment of the Executive’s Accrued Obligations.  The
Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid in a
lump sum cash payment within ten (10) days after the Date of Termination or as
soon thereafter as may be practicable.  The Accrued Obligations
provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the
terms of the plan under which they are due; and

     

    (ii)  The
terms and conditions of the awards and agreements applicable to the Executive’s
outstanding stock options, stock grants, stock appreciation rights,
performance-based grants, and all other forms of long-term incentive
compensation, regardless of whether such compensation is equity or cash based,
will govern the consequences of the termination of the Executive’s employment
under this Section 11.7(b).

     

    11.8 Conditions on Company
Obligations.  All payments and benefits made or provided
pursuant to Article 11 are subject to the Executive’s compliance with the
provisions of Section 7.8.  After payment of all amounts and
benefits under this Article 11, the Company thereafter shall have no further
obligation under this Agreement.

     

    Article
12. Assignment

     

    12.1 Assignment by
Company.  This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the “Company” under the terms of this Agreement.  As
used in this Agreement, the term “successor” shall mean
any person, firm, corporation, or business entity which, at any time, whether by
merger, purchase, or otherwise, acquires all or substantially all, or control of
all or substantially all, of the assets or the business of the
Company.  Except as provided herein, the Company may not otherwise
assign this Agreement.

     

    12.2 Assignment by the
Executive.  The services to be provided by the Executive to the
Company hereunder are personal to the Company and the Executive’s duties may not
be assigned by the Executive; provided, however, that this Agreement shall inure
to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, and administrators, successors, heirs, distributees,
devisees, and legatees.  If the Executive dies while any amounts
payable to the Executive hereunder remain outstanding, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive’s devisee, legatee, or other designee or, in the
absence of such designee, to the Executive’s estate.

     

    
      
        
        

      

      
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    Article
13. Dispute
Resolution

     

    Except
for actions initiated by the Company to enjoin a breach by, or to recover
damages from, the Executive related to violation of any of the restrictive
covenants in Articles 8, 9 or 10 of this Agreement, and except for actions
initiated by the Company or the Executive with respect to declaratory judgments
related to the restrictive covenants in Articles 8, 9 or 10 of this Agreement,
which the Company or the Executive may bring in an appropriate court of law or
equity, any disagreement between the Executive and the Company concerning
anything covered by this Agreement or concerning other terms or conditions of
the Executive’s employment or the termination of the Executive’s employment will
be settled by final and binding arbitration pursuant to the Company’s Dispute
Resolution Rules and Procedures.  The CarMax Dispute Resolution
Agreement and the Dispute Resolution Rules and Procedures are incorporated
herein by reference as if set forth in full in this Agreement.  The
decision of the arbitrator will be final and binding on both the Executive and
the Company and may be enforced in a court of appropriate
jurisdiction.  Responsibility for all arbitration costs, including
legal fees, shall be in accordance with the Dispute Resolution Rules and
Procedures.

     

    Article
14. Litigation
By Third Parties

     

    All
litigation or inquiries by third parties (including, but not limited to, those
by the Company’s shareholders or by government agencies) arising out of or in
connection with the Executive’s performance under this Agreement, against either
the Company or the Executive or both, shall be jointly defended or opposed by
the parties hereto to support this Agreement.  The Company shall
appoint legal counsel for the parties and shall bear the costs, reasonable legal
fees and expenses related to such litigation or inquiry.

     

    Article
15. Indemnity;
Limitation of Liability

     

    As an
officer of the Company, the Executive shall be entitled to indemnity and
limitation of liability as provided pursuant to the Company’s Articles of
Incorporation, bylaws and any other governing document, as the same shall be
amended from time to time.

     

    Article
16. Notice

     

    Any
notices, requests, demands, or other communications provided for by this
Agreement shall be in writing, and given by delivery in person or by registered
or certified mail, postage prepaid (in which case notice will be deemed to have
been given on the third day after mailing) or by overnight delivery by a
reliable overnight courier service (in which case notice will be deemed to have
been given on the day after delivery to such courier
service).  Notices to the Executive shall be directed to the last
address he has filed in writing with the Company.  Notices to the
Company shall be directed to the Secretary of the Company, with a copy directed
to the Chairman of the Board of the Company.

     

    
      
        
        

      

      
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    Article
17. Miscellaneous

     

    17.1 Entire
Agreement.  This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, with respect to the
subject matter hereof, and constitutes the entire agreement of the parties with
respect thereto.  Without limiting the generality of the foregoing
sentence, this Agreement completely supersedes any and all prior employment and
severance agreements entered into by and between the Company, and the Executive,
and all amendments thereto, in their entirety.

     

    17.2 Return of
Materials.  Upon the termination of the Executive’s employment
with the Company, however such termination is effected, the Executive shall
promptly deliver to the Company all property (including Intellectual Property),
records, materials, documents, and copies of documents concerning the
Executive’s business and/or its customers (hereinafter collectively “Company Materials”)
which the Executive has in his possession or under his control at the time of
termination of his employment.  The Executive further agrees not to
take or extract any portion of Company Materials in written, computer,
electronic or any other reproducible form without the prior written consent of
the Board.

     

    17.3 Modification.  This
Agreement shall not be varied, altered, modified, canceled, changed, or in any
way amended except by mutual agreement of the parties in a written instrument
executed by the parties hereto or their legal representatives.

     

    17.4 Severability.  It
is the intention of the parties that the provisions of the restrictive covenants
herein shall be enforceable to the fullest extent permissible under the
applicable law.  If any clause or provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the Term hereof, then the remainder of this Agreement shall not be
affected thereby, and in lieu of each clause or provision of this Agreement that
is illegal, invalid or unenforceable, there shall be added, as a part of this
Agreement, a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and as may be legal, valid
and enforceable.

     

    17.5 Section
409A.  Notwithstanding any other provision of this Agreement,
(i) to the extent applicable, payment of compensation under this Agreement will
be administered in accordance with the requirements of Code Section 409A,
including, without limitation, the postponement for six (6) months of any one or
more payments of such compensation to the Executive, and (ii) if either the
Company or the Executive determines that any provision of this Agreement may
cause compensation payable to the Executive to be classified as income under
Code Section 409A(a) or (b) and thereby results in tax penalties to the
Executive, the Company or the Executive, as the case may be, shall notify the
other party and the parties will jointly determine if and to what extent the
Agreement must be amended to comply with Code Section 409A.

     

    17.6 Counterparts.  This
Agreement may be executed in one (1) or more counterparts, each of which shall
be deemed to be an original, but all of which together will constitute one and
the same Agreement.

     

    
      
        
        

      

      
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    17.7 Tax
Withholding.  The Company may withhold from any benefits
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.

     

    17.8 Restrictive Covenants of the
Essence.  The restrictive covenants of the Executive set forth
herein are of the essence of this Agreement, and they shall be construed as
independent of any other provision in this Agreement; the existence of any claim
or cause of action of the Executive against the Company, whether predicated on
this Agreement or not, shall not constitute a defense to the enforcement by the
Company of the restrictive covenants contained herein.  The Company
shall at all times maintain the right to seek enforcement of these provisions
whether or not the Company has previously refrained from seeking enforcement of
any such provision as to the Executive or any other individual who has signed an
agreement with similar provisions.  Notwithstanding any provision
contained within this Agreement, the obligations of the Executive under Articles
8, 9, 10, 13 and 17 of this Agreement shall continue after the termination of
this Agreement and the Executive’s employment and shall be binding on the
Executive’s heirs, executors, legal representatives and assigns.

     

    17.9 Beneficiaries.  The
Executive may designate one (1) or more persons or entities as the primary or
contingent beneficiaries of any amounts to be received under this
Agreement.  Such designation must be in the form of a signed writing
acceptable to the Company’s chief legal officer.  The Executive may
make or change such designation at any time.

     

    17.10 Full
Settlement.  Except as set forth in this Agreement, the
Company’s obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation, set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others, except to the extent any amounts are due the Company or its
subsidiaries or affiliates pursuant to a judgment against the
Executive.  In no event shall the Executive be obligated to seek other
employment in mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, nor shall the amount of any payment hereunder
be reduced by any compensation earned by the Executive as a result of employment
by another employer; provided, that continued health, dental and vision benefit
plan participation pursuant to Section 7.5(b)(ii) or Section 11.5(c)
herein shall be reduced to the extent that the Executive becomes eligible to
such benefits from a subsequent employer.

     

    17.11 Contractual Rights to
Benefits.  This Agreement establishes and vests in the
Executive a contractual right to the benefits to which he is entitled
hereunder.  However, nothing herein contained shall require or be
deemed to require, or prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or other assets in trust or
otherwise to provide for any payments to be made or required
hereunder.

     

    17.12 Resignations.  Upon
the termination of the Executive’s employment, however such termination is
effected, he shall be deemed to have resigned as of the date of such termination
all offices and directorships he may have held with the Company and all
subsidiaries.

     

    
      
        
        

      

      
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    Article
18. Governing
Law

     

    To the
extent not preempted by federal law, the provisions of this Agreement shall be
construed and enforced in accordance with the laws of the Commonwealth of
Virginia, without reference to Virginia’s choice of law statutes or
decisions.

     

    [Signature
Page Follows]

    


    
      
        
           


        

        
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    IN
WITNESS WHEREOF, the Executive and the Company have executed this Agreement as
of the Effective Date.

     

     

     

    


      
        	 
      	
                CARMAX,
      INC.:

              
	 
      	 
      
	 
      	 
      
	 
      	
                By:/s/ Thomas J.
      Folliard  

              
	 
      	
                Thomas
      J. Folliard

              
	 
      	
                President
      and

              
	 
      	
                Chief
      Executive Officer

              
	 
      	 
      
	 
      	 
      
	 
      	
                EXECUTIVE:

              
	 
      	 
      
	 
      	
                By:
      /s/ Eric M.
      Margolin  

              
	 
      	
                Eric
      M. Margolin

              
	 
      	
                Senior
      Vice President, General Counsel and

              
	 
      	
                Corporate
      Secretary

              


      



    


    


    


    
      
        
           


        

        
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    EXHIBIT
A

    


    [Form of Release]

    


    AGREEMENT AND GENERAL
RELEASE

    


    CarMax,
Inc., its affiliates, subsidiaries, divisions, successors and assigns in such
capacity, and the current, future and former employees, officers, directors,
trustees and agents thereof (collectively referred to throughout this Agreement
as the “Company”) and
_______________________ (“Executive”), his
heirs, executors, administrators, successors and assigns (together with
Executive, collectively referred to throughout this Agreement and General
Release as “Employee”)
agree:

     

    1.           Last Day of
Employment.  The Executive’s last day of employment with the
Company is ____________, 20__.  In addition, effective as of
____________, 20__, the Executive resigns from the Executive’s position as
Senior Vice President, General Counsel and Corporate Secretary of the Company,
and will not be eligible for any benefits or compensation after ____________,
20__, other than as specifically provided in Articles 7 or 11, as applicable, of
the Severance Agreement between the Company and the Executive dated as of
__________ __, 200_ (“Severance Agreement”)
and the Executive’s continued right to indemnification and directors and
officers liability insurance.  In addition, effective as of
____________, 20__, the Executive resigns from all offices, directorships,
trusteeships, committee memberships and fiduciary capacities held with, or on
behalf of, the Company or any benefit plans of the Company.  These
resignations will become irrevocable as set forth in Section 3
below.

     

    2.           Consideration.  The
parties acknowledge that this Agreement and General Release is being executed in
accordance with Article 7 or Article 11 of the Severance Agreement, as
applicable, and that this Agreement and General Release is a condition to the
receipt by Employee of all payments and benefits thereunder.

     

    3.           Revocation.  The
Executive may revoke this Agreement and General Release for a period of seven
(7) calendar days following the day the Executive executes this Agreement and
General Release.  Any revocation within this period must be submitted,
in writing, to the Company and state, “I hereby revoke my acceptance of our
Agreement and General Release.”  The revocation must be personally
delivered to the Company’s _______________, or his/her designee, or mailed to
the Company, _______________________________ and postmarked within seven (7)
calendar days of execution of this Agreement and General
Release.  This Agreement and General Release shall not become
effective or enforceable until the revocation period has expired.  If
the last day of the revocation period is a Saturday, Sunday, or legal holiday in
Virginia, then the revocation period shall not expire until the next following
day which is not a Saturday, Sunday, or legal holiday.

     

    4.           General Release of
Claims.  Employee knowingly and voluntarily releases and
forever discharges the Company from any and all claims, rights, causes of
action, demands, fees costs, expenses, including attorneys’ fees, and
liabilities of any kind whatsoever, whether known or unknown, against the
Company, that Employee has, has ever had or may have as of the date of execution
of this Agreement and General Release, including, but not limited to, any
alleged violation of:

     

    
      
        
        

      

      
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    ●           The
Age Discrimination in Employment Act of 1967, as amended;

     

    ●           The
Older Workers Benefit Protection Act of 1990;

     

    ●           The
National Labor Relations Act, as amended;

     

    ●           Title
VII of the Civil Rights Act of 1964, as amended;

     

    ●           The
Civil Rights Act of 1991;

     

    ●           Sections
1981 through 1988 of Title 42 of the United States Code, as
amended;

     

    ●           The
Employee Retirement Income Security Act of 1974, as amended;

     

    ●           The
Immigration Reform and Control Act, as amended;

     

    ●           The
Americans with Disabilities Act of 1990, as amended;

     

    ●           The
Worker Adjustment and Retraining Notification Act, as amended;

     

    ●           The
Occupational Safety and Health Act, as amended;

     

    ●           The
Family and Medical Leave Act of 1993;

     

    ●           All other
federal, state or local civil or human rights laws, whistleblower laws, or any
other local, state or federal law, regulations and ordinances;

     

    ●           All
public policy, contract, tort, or common laws; and

     

    
      ●           All
allegations for costs, fees, and other expenses including attorneys’ fees
incurred in these matters.

    

    
    

     

    Notwithstanding
anything herein to the contrary, the sole matters to which the Agreement and
General Release do not apply are: (i) Employee’s rights of indemnification and
directors and officers liability insurance coverage to which the Executive was
entitled immediately prior to __________ __, 20__ with regard to the Executive’s
service as an officer and director of the Company (including, without
limitation, under Article 15 of the Severance Agreement); (ii) Employee’s rights
under any tax-qualified pension plan or claims for accrued vested benefits under
any other employee benefit plan, policy or arrangement maintained by the Company
or under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended;
(iii) Employee’s rights under Article 7 or Article 11 of the Severance
Agreement, as the case may be; and (iv) Employee’s rights as a stockholder of
the Company.

     

    5.           No Claims
Permitted.  Except with respect to the filing of a petition for
a declaratory judgment as permitted in Article 13 of the Severance Agreement,
Employee waives the Executive’s right to file any charge or complaint against
the Company arising out of the Executive’s employment with or separation from
the Company before any federal, state or local court or any state or local
administrative agency, except where such waivers are prohibited by
law.  This Agreement and General Release, however, does not prevent
Employee from filing a charge with the Equal Employment Opportunity Commission,
any other federal government agency, or any government agency concerning claims
of discrimination, although Employee waives the Executive’s right to recover any
damages or other relief in any claim or suit brought by or through the Equal
Employment Opportunity Commission or any other state or local agency on behalf
of Employee under the Age Discrimination in Employment Act, Title VII of the
Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, or any
other federal or state discrimination law, except where such waivers are
prohibited by law.

     

    
      
        
        

      

      
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    6.           Affirmations.  Employee
affirms the Executive has not filed, has not caused to be filed, and is not
presently a party to, any claim, complaint, or action against the Company in any
forum or form. Employee further affirms that the Executive has been paid or has
received all compensation, wages, bonuses, commissions, and/or benefits to which
the Executive may be entitled and no other compensation, wages, bonuses,
commissions and benefits are due to the Executive, except as provided in Article
7 or Article 11 of the Severance Agreement, as applicable.  The
Employee also affirms the Executive has no known workplace
injuries.

     

    7.           Cooperation; Return of
Property.  Employee agrees to reasonably cooperate with the
Company and its counsel in connection with any investigation, administrative
proceeding, arbitration or litigation relating to any matter that occurred
during the Executive’s employment in which the Executive was involved or of
which the Executive has knowledge.  The Company will reimburse the
Employee for any reasonable out-of-pocket travel, delivery or similar expenses
incurred in providing such service to the Company.  Employee
represents that the Executive has returned to the Company all property belonging
to the Company, including but not limited to any leased vehicle, laptop, cell
phone, keys, access cards, phone cards and credit cards.

     

    8.           Governing Law and
Interpretation.  This Agreement and General Release shall be
governed and construed in accordance with the
laws of the Commonwealth of Virginia, without reference to Virginia’s choice of
law statutes or decisions.  In the event Employee or the Company
breaches any provision of this Agreement and General Release, Employee and the
Company acknowledge that either may institute an
action to specifically enforce any term or terms of this Agreement and General
Release pursuant to the dispute resolution provisions of Article 13 of the
Severance Agreement.  Should any provision of this Agreement and
General Release be declared illegal or unenforceable by any court of competent
jurisdiction and should the provision be incapable of being modified to be
enforceable, such provision shall immediately become null and void, leaving the
remainder of this Agreement and General Release in full force and
effect.  Nothing herein, however, shall operate to void or nullify any
enforceable general release language contained in this Agreement and General
Release.

     

    9.           No Admission of
Wrongdoing.  Employee agrees neither this Agreement and General
Release nor the furnishing of the consideration for this Agreement and General
Release shall be deemed or construed at any time for any purpose as an admission
by the Company of any liability or unlawful conduct of any kind.

     

    10.           Amendment.  This
Agreement and General Release may not be modified, altered or changed except
upon express written consent of both parties wherein specific reference is made
to this Agreement and General Release.

     

    
      
        
        

      

      
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    11.           Entire
Agreement.  This Agreement and General Release sets forth the
entire agreement between the parties hereto and fully supersedes any prior
agreements or understandings between the parties; provided, however, that
notwithstanding anything in this Agreement and General Release, the provisions
in the Severance Agreement which are intended to survive termination of the
Severance Agreement, including but not limited to those contained in Articles 8,
9 and 10, 13 and in Section 17.2 thereof, shall survive and continue in full
force and effect.  Employee acknowledges the Executive has not relied
on any representations, promises, or agreements of any kind made to the
Executive in connection with the Executive’s decision to accept this Agreement
and General Release.

     

    EMPLOYEE
HAS BEEN ADVISED THAT EXECUTIVE HAS UP TO TWENTY-ONE (21) CALENDAR DAYS TO
REVIEW AND CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN
WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND
GENERAL RELEASE.

     

    EMPLOYEE
AGREES ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND
GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE
(21) CALENDAR DAY CONSIDERATION PERIOD.

     

    HAVING
ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES
SET FORTH HEREIN, AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN THE
SEVERANCE AGREEMENT, TO WHICH EMPLOYEE WOULD NOT OTHERWISE BE ENTITLED, EMPLOYEE
FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT
AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EMPLOYEE
HAS OR MIGHT HAVE AGAINST THE COMPANY, AS OF THE DATE OF EXECUTION OF THIS
AGREEMENT.

     

    [Signature
Page Follows]

    


     

    


    
      
        
           


        

        
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    IN
WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this
Agreement and General Release as of the date set forth below:

     

    


    


      
        	 
      	
                CARMAX,
      INC.:

              
	 
      	 
      
	 
      	 
      
	 
      	
                By:                            

              
	 
      	
                Name:           

              
	 
      	
                Title:

              
	 
      	 
      
	 
      	 
      
	 
      	
                EXECUTIVE:

              
	 
      	 
      
	 
      	 
      
	 
      	
                Name:
      

              
	 
      	 
      
	 
      	 
      


      




    


     

     

     

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