<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997
Registration No. 333-25433
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 2
To
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
<TABLE>
<S> <C> <C>
UNITED STATES PNC BANK, NATIONAL ASSOCIATION 22-1146430
(State or other AS DEPOSITOR TO THE TRUST DESCRIBED HEREIN (I.R.S. Employer
jurisdiction of (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS Identification No.)
incorporation or CHARTER)
organization) ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA
15222-2707
(412) 762-1553
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
</TABLE>
THOMAS R. MOORE
VICE PRESIDENT AND ASSISTANT SECRETARY
PNC BANK, NATIONAL ASSOCIATION
ONE PNC PLAZA, 21ST FLOOR
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(412) 762-1901
<TABLE>
<S> <C> <C>
DELAWARE PNC STUDENT LOAN TRUST I 36-4142114
(State or other AS ISSUER OF THE NOTES DESCRIBED HEREIN (I.R.S. Employer
jurisdiction of (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS Identification No.)
incorporation or ORGANIZATIONAL DOCUMENT)
organization) C/O THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL
PLAZA, SUITE 0216
CHICAGO, ILLINOIS 60670
(312) 407-1892
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
STEVEN M. HUSBANDS
ASSISTANT VICE PRESIDENT
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60670
(312) 407-1892
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
GEORGE A. PECOULAS, ESQ. RICHARD L. FRIED, ESQ.
MAYER, BROWN & PLATT STROOCK & STROOCK & LAVAN LLP
190 SOUTH LASALLE STREET 180 MAIDEN LANE
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10038-4982
(312) 782-0600 (212) 806-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior LIBOR Rate Class A-1 Notes........... $ 90,000,000 100% $ 90,000,000 $312,121.21(3)
Senior Fixed Rate Class A-2 Notes........... $107,000,000 100% $107,000,000 (4)
Senior Fixed Rate Class A-3 Notes........... $107,000,000 100% $107,000,000 (4)
Senior Fixed Rate Class A-4 Notes........... $102,000,000 100% $102,000,000 (4)
Senior Fixed Rate Class A-5 Notes........... $ 94,000,000 100% $ 94,000,000 (4)
Senior Fixed Rate Class A-6 Notes........... $ 72,500,000 100% $ 72,500,000 (4)
Senior Fixed Rate Class A-7 Notes........... $121,000,000 100% $121,000,000 (4)
Senior LIBOR Rate Class A-8 Notes........... $175,000,000 100% $175,000,000 (4)
Senior LIBOR Rate Class A-9 Notes........... $125,450,000 100% $125,450,000 (4)
Subordinate LIBOR Rate Class B Notes........ $ 36,050,000 100% $ 36,050,000 (4)
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Also registered are secondary market sales of Notes that may be effected by
PNC Capital Markets, Inc., an affiliate of the Registrant.
(3) This amount represents the aggregate Registration Fee for the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the
Class A-5 Notes, the Class A-6 Notes, the Class A-7 Notes, the Class A-8
Notes, the Class A-9 Notes and the Class B Notes. A portion of the
Registration Fee in the amount of $909.09 was previously paid.
(4) Registration Fee with respect to which is included under Registration Fee
for Class A-1 Notes.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering by PNC Student Loan Trust I of $1,030,000,000 aggregate principal
amount of Student Loan Asset Backed Notes, Series 1997-2, together with certain
pages of a second Prospectus to be used in connection with offers and sales
relating to market-making transactions in the Notes, if any, by PNC Capital
Markets, Inc., an affiliate of PNC Bank, National Association. The Prospectus
relating to the Notes follows immediately after this Explanatory Note. Following
such Prospectus are the alternate cover page, pages 91 and 92 and the back page
of the market-making Prospectus relating to the Notes. All other pages of the
public offering Prospectus are also to be used for the market-making Prospectus.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 16, 1997
$1,030,000,000
PNC STUDENT LOAN TRUST I
STUDENT LOAN ASSET BACKED NOTES, SERIES 1997-2
------------------
PNC BANK, NATIONAL ASSOCIATION
Transferor
PNC Student Loan Trust I, a Delaware business trust (the "Trust"), will
issue $1,030,000,000 aggregate principal amount of its Student Loan Asset Backed
Notes, Series 1997-2, in the classes and original principal amounts set forth
below (collectively, the "Notes"). The assets of the Trust will include a pool
of guaranteed education loans to students and parents of students acquired by
The First National Bank of Chicago, as eligible lender trustee on behalf of the
Trust (the "Eligible Lender Trustee"), from PNC Bank, National Association (the
"Transferor") (the "Financed Student Loans"), collections and other payments
with respect to the Financed Student Loans and monies on deposit in certain
trust accounts to be established (including the Collection Account, the Reserve
Account, the Note Distribution Account, the Expense Account and the Monthly
Advance Account). The Notes will be collateralized by the assets of the Trust.
------------------
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 26.
------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE TRANSFEROR, THE MASTER SERVICER, THE SERVICERS, THE
ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES OR SUBSIDIARIES. THE NOTES ARE NOT DEPOSITS OF
A BANK. THE NOTES ARE NOT GUARANTEED OR INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENTAL AGENCY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================================
CLASS FINAL
INTEREST PRICE TO UNDERWRITING PROCEEDS TO MATURITY
RATE PUBLIC DISCOUNT(1) TRANSFEROR(2) DATE(4)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
$90,000,000 Senior LIBOR Rate Class A-1
Notes....................................... (3) 100% % $ July 25, 1998
- -------------------------------------------------------------------------------------------------------------------------------
$107,000,000 Senior Fixed Rate Class A-2
Notes....................................... % 100% % $ January 25, 2000
- -------------------------------------------------------------------------------------------------------------------------------
$107,000,000 Senior Fixed Rate Class A-3
Notes....................................... % 100% % $ January 25, 2001
- -------------------------------------------------------------------------------------------------------------------------------
$102,000,000 Senior Fixed Rate Class A-4
Notes....................................... % 100% % $ January 25, 2002
- -------------------------------------------------------------------------------------------------------------------------------
$94,000,000 Senior Fixed Rate Class A-5
Notes....................................... % 100% % $ January 25, 2003
- -------------------------------------------------------------------------------------------------------------------------------
$72,500,000 Senior Fixed Rate Class A-6
Notes....................................... % 100% % $ January 25, 2004
- -------------------------------------------------------------------------------------------------------------------------------
$121,000,000 Senior Fixed Rate Class A-7
Notes....................................... % 100% % $ January 25, 2007
- -------------------------------------------------------------------------------------------------------------------------------
$175,000,000 Senior LIBOR Rate Class A-8
Notes....................................... (3) 100% % $ January 25, 2008
- -------------------------------------------------------------------------------------------------------------------------------
$125,450,000 Senior LIBOR Rate Class A-9
Notes....................................... (3) 100% % $ January 25, 2017
- -------------------------------------------------------------------------------------------------------------------------------
$36,050,000 Subordinate LIBOR Rate Class B
Notes....................................... (3) 100% % $ January 25, 2027
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $1,030,000,000 $ $
===============================================================================================================================
</TABLE>
(1) The Depositor has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended.
(2) Before deducting expenses, estimated to be $2,150,000.
(3) The Class Interest Rate for the Class A-1 Notes will equal One-Month LIBOR
minus %, and the Class Interest Rates for the Class A-8, Class A-9 and
Class B Notes will equal, subject to certain limitations described herein,
One-Month LIBOR plus %, % and %, respectively.
(4) Payment in full of the Notes could occur earlier than their respective final
maturity dates as described herein.
------------------
The Notes are offered by the Underwriters when, as and if issued by the
Trust, delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Notes will be made in book-entry
form through the Same Day Funds Settlement System of The Depository Trust
Company and also Cedel Bank, societe anonyme or the Euroclear System on or about
June , 1997.
------------------
SMITH BARNEY INC. PNC CAPITAL MARKETS, INC.
The date of this Prospectus is June , 1997
<PAGE> 5
(Cover continued from previous page)
The Notes will be available for purchase in denominations of $50,000 and
integral multiples of $1,000 in excess thereof in book-entry form only. Interest
on and principal of the Notes will be payable quarterly on or about the 25th day
of each January, April, July and October (or in the case of the Class A-1 Notes,
monthly on or about the 25th day of each month), in each case commencing July
25, 1997 (each, a "Distribution Date"). No distribution in respect of principal
of the Class B Notes will be payable until each Class of Class A Notes is paid
in full. See generally "Description of the Notes--The Notes." Interest on the
Notes will accrue, subject to certain limitations described herein, for each
Interest Period at the per annum rates set forth in the table above.
Payment in full of the Notes could occur earlier than their respective final
maturity dates as described herein. In addition, the Notes will be repaid (i) on
any Distribution Date on which the Transferor exercises its option to purchase
the Financed Student Loans, exercisable when the outstanding Pool Balance is
reduced to 5% or less of the Initial Pool Balance and the outstanding aggregate
principal amount of the Fixed Rate Notes has been reduced to zero, (ii) on or
after the Distribution Date occurring in July, 2007, if the Financed Student
Loans are sold pursuant to the auction procedures described under "Description
of the Transfer and Servicing Agreements--Termination," and (iii) under certain
circumstances as described in "Description of the Transfer and Servicing
Agreements--Insolvency Event," upon the insolvency of the Transferor and
subsequent termination of the Trust pursuant to the Trust Agreement (as defined
in "Summary of Terms--The Trust").
There is currently no secondary market for the Notes. Smith Barney Inc.
intends to, and PNC Capital Markets, Inc. may, make a secondary market for the
Notes, but neither of them has any obligation to do so. There can be no
assurance that a secondary market for the Notes will develop or, if one does
develop, that it will continue. The Notes will not be listed on any national
securities exchange.
The Transferor has not authorized any offer of Notes to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
1995 (the "U.K. Regulations"). The Notes may not lawfully be offered or sold to
persons in the United Kingdom except in circumstances which do not result in an
offer to the public in the United Kingdom within the meaning of the U.K.
Regulations or otherwise are in compliance with all applicable provisions of the
U.K. Regulations.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN
THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 6
AVAILABLE INFORMATION
The Transferor, as depositor of the Trust (the "Depositor"), has filed with
the Securities and Exchange Commission (the "Commission") a registration
statement (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes offered hereby. This Prospectus, which forms part of
the Registration Statement, does not contain all the information contained
therein. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington D.C. 20549;
and at the Commission's regional offices at Seven World Trade Center, Suite
1300, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
from the Public Reference Branch of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon the payment of certain fees prescribed by the
Commission. In addition, the Registration Statement may be accessed
electronically through the Commission's Electronic Data Gathering, Analysis and
Retrieval system at the Commission's site on the World Wide Web located at
http://www.sec.gov.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, quarterly and annual
unaudited reports containing information concerning the Financed Student Loans
will be prepared by PNC Bank, National Association, in its capacity as
administrator for the Trust (the "Administrator") and sent on behalf of the
Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Notes but will not be sent to any
beneficial holder of the Notes. Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
See "Description of the Notes--Book-Entry Registration" and "--Reports to
Noteholders." The Trust will file with the Commission such periodic reports as
are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder. The
Trust intends to suspend the filing of such reports under the Exchange Act when
and if the filing of such reports is no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Administrator, on behalf of
the Trust, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Notes shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Administrator will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Glenn Davies, Vice President-Financial Reporting, PNC Bank
Corp., One PNC Plaza, 249 Fifth Avenue, 24th Floor, Pittsburgh, Pennsylvania
15222 or "[email protected]" on the Internet. Telephone requests for such copies
should be directed to (412) 762-1553.
3
<PAGE> 7
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by the Related
Documents. Certain capitalized terms used in this Prospectus are defined
elsewhere herein on the pages indicated in the "Index of Principal Terms"
beginning on page 93 of this Prospectus.
Issuer.......................... PNC Student Loan Trust I (the "Trust") is
a statutory business trust established
under the laws of the State of Delaware.
Securities Offered.............. Senior LIBOR Rate Class A-1 Asset Backed
Notes (the "Class A-1 Notes") in the
aggregate principal amount of $90,000,000,
Senior Fixed Rate Class A-2 Asset Backed
Notes (the "Class A-2 Notes") in the
aggregate principal amount of
$107,000,000, Senior Fixed Rate Class A-3
Asset Backed Notes (the "Class A-3 Notes")
in the aggregate principal amount of
$107,000,000, Senior Fixed Rate Class A-4
Asset Backed Notes (the "Class A-4 Notes")
in the aggregate principal amount of
$102,000,000, Senior Fixed Rate Class A-5
Asset Backed Notes (the "Class A-5 Notes")
in the aggregate principal amount of
$94,000,000, Senior Fixed Rate Class A-6
Asset Backed Notes (the "Class A-6 Notes")
in the aggregate principal amount of
$72,500,000, Senior Fixed Rate Class A-7
Asset Backed Notes (the "Class A-7 Notes")
in the aggregate principal amount of
$121,000,000, Senior LIBOR Rate Class A-8
Asset Backed Notes (the "Class A-8 Notes")
in the aggregate principal amount of
$175,000,000, Senior LIBOR Rate Class A-9
Asset Backed Notes (the "Class A-9 Notes"
and together with the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class A-5 Notes, the
Class A-6 Notes, the Class A-7 Notes and
the Class A-8 Notes, the "Class A Notes")
in the aggregate principal amount
$125,450,000 and Subordinate LIBOR Rate
Class B Asset Backed Notes (the "Class B
Notes" and, together with the Class A
Notes, the "Notes") in the aggregate
principal amount of $36,050,000. The
original principal amount of each class (a
"Class") of Notes is referred to as its
"Original Amount."
The holders of the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class A-5 Notes, the
Class A-6 Notes, the Class A-7 Notes, the
Class A-8 Notes and the Class A-9 Notes
are referred to as the "Class A-1
Noteholders," the "Class A-2 Noteholders,"
the "Class A-3 Noteholders," the "Class
A-4 Noteholders," the "Class A-5
Noteholders," the "Class A-6 Noteholders,"
the "Class A-7 Noteholders," the "Class
A-8 Noteholders" and the "Class A-9
Noteholders," respectively, and
collectively as the "Class A Noteholders."
The holders of the Class B Notes are
referred to as the "Class B Noteholders."
The Notes will be issued in minimum
denominations of $50,000 and integral
multiples of $1,000 in excess thereof.
Persons acquiring beneficial ownership
interests in the Notes will hold their
interests in the Notes through DTC in the
4
<PAGE> 8
United States or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe. See "Description
of the Notes--Book-Entry Registration."
The Trust will issue the Notes pursuant to
an Indenture dated as of March 27, 1997
and a Second Terms Supplement dated as of
June , 1997 authorizing the Notes (as
amended and supplemented from time to
time, the "Terms Supplement" and, together
with the Indenture, as amended and
supplemented from time to time, the
"Indenture") between the Trust and the
Indenture Trustee.
Other Securities................ The Trust has previously issued $1,000
aggregate principal amount of PNC Student
Loan Trust I Asset Backed Certificates
(the "Certificates") in a transaction
exempt from the registration requirements
of the Securities Act. The Certificates
are not being offered hereby.
Transferor...................... PNC Bank, National Association (the
"Transferor"), will contribute the
Financed Student Loans to the Trust
pursuant to the Transfer and Servicing
Agreement (as amended and supplemented
from time to time, the "Transfer and
Servicing Agreement") among the Trust, the
Transferor and the Eligible Lender
Trustee.
Master Servicer and Servicers... The Transferor will act as Master Servicer
with respect to the Financed Student Loans
(in such capacity, the "Master Servicer").
The Financed Student Loans will be
serviced by the Pennsylvania Higher
Education Assistance Agency, an agency of
the Commonwealth of Pennsylvania
("PHEAA"), AFSA Data Corporation ("AFSA")
and USA Group Loan Services, Inc.
("USAG"), or such other parties as may be
approved by the Master Servicer. The
Transferor, PHEAA, AFSA, USAG and each
other party who may, from time to time, be
servicing the Financed Student Loans are
referred to herein as a "Servicer" and
collectively as the "Servicers."
Eligible Lender Trustee......... The First National Bank of Chicago, a
national banking association, will act as
eligible lender trustee under the Trust
Agreement and holder of legal title to the
Financed Student Loans on behalf of the
Trust (the "Eligible Lender Trustee"). See
"Formation of the Trust--Eligible Lender
Trustee."
Indenture Trustee............... Bankers Trust Company, a New York banking
corporation (the "Indenture Trustee"),
will act as trustee under the Indenture.
Administrator................... PNC Bank, National Association, will act
as Administrator on behalf of the Trust
pursuant to an Administration Agreement
(as amended and supplemented from time to
time, the "Administration Agreement"),
among the Administrator, the Eligible
Lender Trustee and the Indenture Trustee.
Distribution Dates.............. Interest on and principal of each Class of
Notes will be payable quarterly on the
25th of each January, April, July and
October or if any such day is not a
Business Day, the next succeeding Business
Day (each, a "Quarterly Distribu-
5
<PAGE> 9
tion Date"), or in the case of the Class
A-1 Notes, monthly on the 25th of each
month, or if any such day is not a
Business Day, the next succeeding Business
Day, commencing July 25, 1997. Each date
on which amounts are payable on the Notes
is referred to as a "Distribution Date."
No distribution in respect of principal of
Class B Notes will be made until each of
the Class A Notes has been paid in full.
See "Description of the Transfer and
Servicing Agreements--Distributions."
Record Date..................... Payments in respect of the Notes will be
payable to holders of record of the Notes
("Noteholders") as of the second Business
Day preceding the related Distribution
Date (each a "Record Date").
Interest........................ Each Class of Notes will bear interest
during each period (an "Interest Period")
beginning on the 25th day of each month
(or the Closing Date with respect to the
first Interest Period) and ending on and
including the 24th day of the following
month (provided that for any Interest
Period ending immediately prior to a
Distribution Date, such Interest Period
shall end on the day immediately preceding
such Distribution Date and the next
Interest Period will begin on such
Distribution Date) at a rate per annum for
such Class (the "Class Interest Rate") as
described below.
The initial Class Interest Rates are as
follows:
% per annum with respect to the Class
A-1 Notes;
% per annum with respect to the Class
A-2 Notes;
% per annum with respect to the Class
A-3 Notes;
% per annum with respect to the Class
A-4 Notes;
% per annum with respect to the Class
A-5 Notes;
% per annum with respect to the Class
A-6 Notes;
% per annum with respect to the Class
A-7 Notes;
% per annum with respect to the Class
A-8 Notes;
% per annum with respect to the Class
A-9 Notes; and
% per annum with respect to the Class B
Notes.
Except as otherwise described in the
following paragraph, the Class Interest
Rate for each Interest Period for each
Class of Notes will equal (i) in the case
of the Class A-1 Notes, One-Month LIBOR as
of the LIBOR Determination Date for such
Interest Period minus the applicable
Margin for such Class, and in the case of
the Class A-8 Notes, the Class A-9 Notes
and the Class B Notes, One-Month LIBOR as
of the LIBOR Determination Date for such
Interest Period plus the applicable Margin
for such Class and (ii) in the case of the
Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class A-5 Notes, the
Class A-6 Notes and the Class A-7 Notes,
% per annum, % per annum, %
per annum, % per annum, % per
annum and % per annum, respec-
6
<PAGE> 10
tively. See "Description of the Notes--The
Notes--Distributions of Interest." The
"Margin" will be % for the Class A-1
Notes, % for the Class A-8 Notes, %
for the Class A-9 Notes and % for the
Class B Notes. The Class A-1 Notes, the
Class A-8 Notes, the Class A-9 Notes and
the Class B Notes are referred to herein
collectively as the "LIBOR Rate Notes" and
the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes, the Class A-5 Notes,
the Class A-6 Notes and the Class A-7
Notes are referred to herein collectively
as the "Fixed Rate Notes." Interest on
each Class of LIBOR Rate Notes will be
calculated on the basis of the actual
number of days elapsed in each Interest
Period divided by 360, and interest on
each Class of Fixed Rate Notes will be
calculated on the basis of a year
consisting of 12 months of 30 days each.
"One-Month LIBOR" for any Interest Period
will be determined as described under
"Description of the Notes-- Determination
of LIBOR."
Notwithstanding the foregoing, if the
Class Interest Rate with respect to any
Class of LIBOR Rate Notes (other than the
Class A-1 Notes) for any Interest Period
is greater than the Net Loan Rate (as
defined in "--Net Loan Rate" below), then
such Class Interest Rate for such Interest
Period will be the Net Loan Rate. However,
in no event will the Class Interest Rate
for any Class of LIBOR Rate Notes, other
than the Class A-1 Notes, exceed 18.0% per
annum. See "Description of the Notes--The
Notes--Distributions of Interest."
If the Class Interest Rate for any Class
of LIBOR Rate Notes for any Interest
Period is based on the Net Loan Rate, the
excess of (a) the amount of interest such
Class of Notes would have accrued in
respect of the related Interest Period had
interest been calculated based on the
applicable Class Interest Rate (without
giving effect to the Net Loan Rate), over
(b) the amount of interest such Class of
Notes actually accrued in respect of such
Interest Period based on the Net Loan Rate
(such excess, together with the unpaid
portion of any such excess from prior
Interest Periods and interest accrued
thereon calculated based on One-Month
LIBOR is referred to as the "Noteholders'
Interest Carryover") will be paid on the
dates and in the priority set forth herein
under "--Assets of the Trust--Collection
Account; Note Distribution Account;
Certificate Distribution Account; and
Expense Account." The ratings of the LIBOR
Rate Notes do not address the likelihood
of the payment of the amount of any
Noteholders' Interest Carryover.
Net Loan Rate................... For any Interest Period, the "Net Loan
Rate" will equal the weighted average
Effective Interest Rate for the Collection
Period immediately preceding the last day
of such Interest Period, less the Program
Operating Expense Percentage (or less
1.181% per annum during the period from
the Closing Date through December 31,
1998).
7
<PAGE> 11
The "Effective Interest Rate" means, for
any Financed Student Loan and any
Collection Period, the per annum rate at
which such Financed Student Loan accrues
interest during such Collection Period
after giving effect to all applicable
Interest Subsidy Payments and Special
Allowance Payments due with respect to
such Financed Student Loan.
The "Program Operating Expense Percentage"
is the fraction (expressed as a percentage
and calculated as of the end of each
calendar year by the Administrator) the
numerator of which is the annualized
operating expenses of the Trust for the
calendar month then ended, including,
without limitation, the Transaction Fees
and the Consolidation Loan Fees, and the
denominator of which is the Pool Balance
as of the last day of such calendar year.
Swap Agreements................. Pursuant to the Transfer and Servicing
Agreements, on the Closing Date, the Trust
will enter into separate interest rate
swap agreements with respect to each Class
of Fixed Rate Notes (each a "Swap
Agreement," and collectively, the "Swap
Agreements") with a Counterparty, pursuant
to which the Trust will be obligated to
pay such Counterparty on each Quarterly
Distribution Date, an amount accrued on
the Notional Amount of such Swap Agreement
during the three Interest Periods
immediately preceding such Quarterly
Distribution Date (or, in the case of the
first Quarterly Distribution Date, since
the Closing Date) at a variable interest
rate (the "Variable Swap Rate") based on
the T-Bill Rate. In addition, the
Counterparty under each Swap Agreement
will be obligated to pay the Trust on such
Quarterly Distribution Date an amount
accrued during such Interest Periods on
the Notional Amount of such Swap Agreement
at a fixed rate. The payment obligations
of the Trust and each Counterparty to each
other will be netted on each Quarterly
Distribution Date and only the party with
any payment remaining after such netting
will be required to remit such amount to
the other. The Trust's obligations to make
such payments to the Counterparties under
the Swap Agreements will rank equally
without preference with the Trust's
obligations to pay interest on the Class A
Notes and will generally be funded from
Available Funds, Monthly Advances and
amounts, if any, on deposit in the Reserve
Account remaining after deposit of the
Transaction Fees and Consolidation Loan
Fees in the Expense Account. Any net
payments received from the Counterparties
under the Swap Agreements will be
deposited in the Collection Account and
will be included as Available Funds for
the related Quarterly Distribution Date.
See "Description of Transfer and Servicing
Agreements--Swap Agreements."
"Counterparty" means any one of, and
"Counterparties" means all of, Deutsche
Bank AG, New York Branch ("Deutsche Bank")
and Morgan Guaranty Trust Company of New
York ("Morgan"). Although it is expected
that the Trust will enter into Swap
Agreements with each of Deutsche Bank and
Morgan, as of the date hereof, it has not
8
<PAGE> 12
been determined which of Deutsche Bank or
Morgan will be the Counterparty under the
Swap Agreement related to a particular
Class of Fixed Rate Notes. Accordingly, a
purchaser of a Class of Fixed Rate Notes
should assume that the Counterparty under
a Swap Agreement could be either Deutsche
Bank or Morgan. See "Transfer and
Servicing Agreements--Counterparties under
the Swap Agreements."
"Notional Amount" as to any Distribution
Date with respect to any Swap Agreement
means the percentage of the Original
Amount of the related Class of Fixed Rate
Notes set forth on the Scheduled Principal
Balance Table attached hereto as Schedule
I (the "Scheduled Principal Balance
Table") for such Class for the
Distribution Date immediately preceding
such Distribution Date (or in the case of
the first Distribution Date, the initial
principal amount of such Class of Fixed
Rate Notes on the Closing Date).
The "T-Bill Rate" means the rate
determined by the Master Servicer on each
Reset Date (as defined in the next
succeeding paragraph) at which United
States Treasury Bills with a maturity of
13 weeks ("91-day Treasury Bills") are
auctioned as set forth in H.15(519) for
the day opposite such maturity under the
caption "U.S. Government
Securities/Treasury Bills/Auction Average
(Investment)". If on any Reset Date 91-day
Treasury Bills have been auctioned on a
Reset Date but such rate for such Reset
Date is not yet published in H.15(519),
the rate for that Reset Date will be the
bond equivalent yield of the auction
average rate for those Treasury Bills as
announced by the United States Department
of the Treasury. If 91-day Treasury Bills
are not auctioned during any period of
seven consecutive calendar days ending on
and including any Friday and a Reset Date
would have occurred if such 91-day
Treasury Bills had been auctioned during
that seven day period, then the rate for
that Reset Date will be the T-Bill Rate in
effect as a result of the last such
auction and will remain in effect until
such time, if any, as the results of the
91-day Treasury Bills shall again be so
published or such auction is held.
"Reset Date" means the first Business Day
of each week.
Principal....................... Principal of the Notes will be payable
quarterly on each Quarterly Distribution
Date (or in the case of the Class A-1
Notes, monthly on each Distribution Date)
generally in the order of priority set
forth under "Description of the Transfer
and Servicing Agreements--Distributions."
The Fixed Rate Notes have been structured
so that they will receive no payments of
principal prior to the Distribution Date
occurring in October, 1998 (with respect
to the Class A-2 Notes), October, 1999
(with respect to the Class A-3 Notes),
October, 2000 (with respect to the Class
A-4 Notes), October, 2001 (with respect to
the Class A-5 Notes), October, 2002 (with
respect to the Class A-6 Notes) and
October, 2003 (with respect to the Class
A-7 Notes). Thereafter, no Class of Fixed
Rate Notes
9
<PAGE> 13
will receive as a payment of principal on
any Distribution Date more than the amount
needed to reduce its respective principal
balance to the percentage of the Original
Amount set forth for such Class for such
Distribution Date on the Scheduled
Principal Balance Table.
The amount of principal available to be
paid on a Distribution Date will be equal
to the Noteholders' Principal Distribution
Amount for such Distribution Date, less
any portion thereof being used to pay
Transaction Fees, overdue Transaction
Fees, Consolidation Loan Fees, overdue
Consolidation Loan Fees and interest on
the Notes on such Distribution Date. See
"Description of the Transfer and Servicing
Agreements--Distributions." The
Noteholders' Principal Distribution Amount
generally will be equal to the amount of
principal paid with respect to the
Financed Student Loans (plus any Realized
Losses thereon), proceeds realized upon
the sale of Financed Student Loans by the
Trust and Adjustment Payments (reduced by
the amount of any Issuer Consolidation
Payments). In addition, until the Parity
Percentage equals 102.5%, accelerated
principal payments will be made in respect
of the Notes from collections of interest
and certain amounts available therefor in
the Reserve Account.
As of any date of determination, the
"Parity Percentage" will be the fraction
expressed as a percentage, the numerator
of which is the sum of (i) the then Pool
Balance and (ii) all amounts on deposit in
the Collection Account and the Reserve
Account and the denominator of which is
the sum of the aggregate outstanding
principal balance of the Notes and the
Certificates, accrued and unpaid interest
thereon plus accrued and unpaid
Transaction Fees and Consolidation Loan
Fees.
Notwithstanding the foregoing, if an Event
of Default has occurred with respect to
payment of the Notes, principal will be
paid to each Class of Class A Notes pro
rata, based upon the outstanding principal
amount of each such Class of Class A
Notes. See "Description of the Transfer
and Servicing Agreements--Distributions."
Final Maturity Dates............ The Final Maturity Dates with respect to
each Class of Notes are as follows:
<TABLE>
<CAPTION>
Class of Notes Final Maturity Date
---------------- --------------------
<S> <C> <C>
Class A-1 Notes July 25, 1998
Class A-2 Notes January 25, 2000
Class A-3 Notes January 25, 2001
Class A-4 Notes January 25, 2002
Class A-5 Notes January 25, 2003
Class A-6 Notes January 25, 2004
Class A-7 Notes January 25, 2007
Class A-8 Notes January 25, 2008
Class A-9 Notes January 25, 2017
Class B Notes January 25, 2027
</TABLE>
10
<PAGE> 14
The actual maturity of one or more Classes
of Notes could occur sooner than such
dates as a result of a variety of factors,
including (i) as a result of prepayments
on the Financed Student Loans; (ii) the
exercise by the Transferor of its option
to repurchase the Financed Student Loans
when the aggregate principal balance is
reduced to 5% or less of the Initial Pool
Balance and the outstanding aggregate
principal amount of the Fixed Rate Notes
has been reduced to zero; (iii) in the
event the Indenture Trustee is successful
in offering any Financed Student Loans
remaining in the Trust for sale on or
after May 1, 2007 as described under
"Description of the Transfer and Servicing
Agreements--Termination"; or (iv) under
certain circumstances upon the insolvency
of the Transferor and subsequent
termination of the Trust pursuant to the
Trust Agreement as described under
"Description of the Transfer and Servicing
Agreements--Insolvency Event." See "The
Financed Student Loan Pool--Maturity and
Prepayment Assumptions."
Servicing Fee................... The Master Servicer will receive a
quarterly fee (the "Servicing Fee") in an
amount equal to 1.00% per annum of the
average Pool Balance as of the last day of
each of the three Collection Periods
immediately preceding such Distribution
Date. The Servicing Fee will be payable
quarterly in advance, out of Available
Funds and amounts on deposit in the
Reserve Account, on each Distribution Date
(or in the case of the initial Servicing
Fee, on the Closing Date) based on the
Administrator's good faith estimate of the
Servicing Fee that will accrue during the
Collection Period immediately succeeding
such Distribution Date (or in the case of
the initial Servicing Fee, the Collection
Period immediately succeeding the Closing
Date) plus (or minus) the difference (or
excess) of the actual Servicing Fee
accrued for the three Collection Periods
immediately preceding such Distribution
Date.
Administration Fee.............. The Administrator will receive a fee (the
"Administration Fee"), payable quarterly
in advance on each Distribution Date, in
an amount equal to 0.02% per annum of the
outstanding principal amount of the Notes
and Certificates.
The Trust....................... The Trust is a Delaware statutory business
trust established by a Trust Agreement
dated as of March 27, 1997 (as amended and
supplemented from time to time, the "Trust
Agreement"), between the Transferor, as
depositor, the Eligible Lender Trustee and
First Chicago Delaware, Inc., as Delaware
trustee. The activities of the Trust and
the Eligible Lender Trustee are limited by
the terms of the Trust Agreement to
issuing one or more classes of its
certificates and notes, acquiring, owning,
selling and managing the Financed Student
Loans and the other assets of the Trust as
described herein, collecting and making
payments thereon and other activities
related thereto.
Assets of the Trust............. The assets of the Trust will include the
following:
11
<PAGE> 15
A. Financed Student Loans..... The Financed Student Loans will consist of
certain education loans to students and
parents of students ("Student Loans")
enrolled in accredited institutions of
higher education and will include rights
to receive payments made with respect to
such Financed Student Loans and the
proceeds thereof. On June , 1997 (the
"Closing Date"), the Transferor will
transfer and contribute Student Loans (the
"Initial Financed Student Loans") having
an aggregate principal balance plus
accrued interest thereon to be capitalized
upon repayment of approximately $1 billion
and $13.7 million, respectively, as of
June 6, 1997 (the "Cut-off Date") (the
"Initial Pool Balance") to the Eligible
Lender Trustee on behalf of the Trust,
pursuant to the Transfer and Servicing
Agreement. Following the Closing Date and
during the Exchange Period (described
below), it is anticipated that, subject to
certain conditions described herein, the
Transferor will transfer to the Eligible
Lender Trustee on behalf of the Trust,
certain Serial Loans and Consolidation
Loans owned by the Transferor (the
"Exchanged Financed Student Loans") in
exchange for certain Financed Student
Loans owned by the Trust. See "Description
of the Transfer and Servicing
Agreements--Exchange Period and Exchanged
Financed Student Loans."
Certain of the Financed Student Loans have
been or will be originated by the
Transferor and the remainder of the
Financed Student Loans will have been
originated by independent third parties
and subsequently sold to the Transferor.
The Financed Student Loans constituting
the assets of the Trust include some or
all of the following types of Student
Loans: (i) Parental Loans for
Undergraduate Students ("PLUS Loans"),
(ii) Stafford Loans (formerly known as
Guaranteed Student Loans), (iii)
Unsubsidized Stafford Loans, (iv)
Supplemental Loans for Students ("SLS
Loans"), and (v) Consolidation Loans, all
of which loans (collectively, the "Federal
Loans") are part of the federal
government's Federal Family Education Loan
Program (the "Federal Loan Program").
The Financed Student Loans are guaranteed
to the extent described herein as to the
payment of principal and interest by the
California Student Aid Commission, an
agency of the State of California, the
Florida Department of Education, an agency
of the State of Florida, the Georgia
Higher Education Assistance Corporation, a
public non-profit corporation, Great Lakes
Higher Education Corporation, a public
non-profit corporation, the Illinois
Student Assistance Commission, an agency
of the State of Illinois, the Kentucky
Higher Education Assistance Authority, an
agency of the Commonwealth of Kentucky
("KHEAA"), the Michigan Higher Education
Assistance Authority, an autonomous agency
of the Michigan Department of the
Treasury, the New Jersey Higher Education
Assistance Authority, an agency of the
State of New Jersey, the New Mexico
Student Loan Guar-
12
<PAGE> 16
antee Corporation, a New Mexico non-profit
corporation, PHEAA and United States Aid
Funds, Inc., a Delaware non-profit
corporation ("USAF") (each such entity, a
"Guarantor," and collectively, the
"Guarantors"), which are in each case
reinsured to the extent described herein
by the United States Department of
Education (the "Department"). See "The
Financed Student Loan Pool--Guarantors for
the Federal Loans." Financed Student Loans
made before October 1, 1993 are 100%
guaranteed by the applicable Guarantor,
and reinsured against default by the
Department from 80% up to 100% of
Guarantee Payments. Financed Student Loans
made on or after October 1, 1993 are 98%
guaranteed by the applicable Guarantor,
and reinsured against default by the
Department from 78% up to a maximum of 98%
of Guarantee Payments. To the extent
borrowers default on Financed Student
Loans, and amounts in the Reserve Account
and other available funds are not
sufficient to cover the un-guaranteed
portion thereof, the Class B Noteholders
(and thereafter, the Class A Noteholders)
may ultimately experience a loss of the 2%
of the outstanding principal of and
interest on such Financed Student Loans
that is not guaranteed. All references
herein to the guarantee and reinsurance
coverage with respect to the Financed
Student Loans shall be understood to mean
such 100% guarantee, and 100% maximum
reinsurance coverage, respectively, with
respect to Financed Student Loans made
before October 1, 1993 and such 98%
guarantee and 98% maximum reinsurance
coverage, respectively, with respect to
Financed Student Loans made on or after
October 1, 1993. See "The Financed Student
Loan Pool--Insurance of Student Loans;
Guarantors of Federal Loans."
Certain incentive programs currently or
hereafter made available by the Transferor
to borrowers may also be made available by
the Master Servicer to borrowers with
Financed Student Loans. See "Risk
Factors--Risk Resulting From Changes in
Repayment Terms of Financed Student Loans
Pursuant to Incentive Programs" and "The
Financed Student Loan Pool--Incentive
Programs."
During the period (the "Exchange Period")
from the Closing Date until June 30, 2002,
in the event that a borrower on a Financed
Student Loan who is also a borrower under
one or more Student Loans (whether or not
all such loans are in the Trust) elects to
consolidate such loans with the proceeds
of a Consolidation Loan to be made by the
Transferor, the Eligible Lender Trustee,
at the option of the Transferor and
subject to certain conditions, will be
obligated to transfer to the Transferor,
subject to certain conditions described
herein, the Financed Student Loans being
consolidated by the Transferor in exchange
for the related Consolidation Loan to be
made by the Transferor. See "Description
of the Transfer and Servicing
Agreements--Exchange Period and Exchanged
Financed Student Loans." In addition,
during
13
<PAGE> 17
the Exchange Period, the Eligible Lender
Trustee, at the option of the Transferor
and subject to certain conditions, will be
obligated to exchange with the Transferor
existing Financed Student Loans owned by
the Trust for Federal Loans owned by the
Transferor that are serial to existing
Financed Student Loans owned by the Trust,
provided that certain conditions described
herein are satisfied. Each such transfer
of an Exchanged Financed Student Loan will
be made pursuant to a transfer agreement
(each a "Transfer Agreement") among the
Transferor, the Trust and the Eligible
Lender Trustee. See "Description of the
Transfer and Servicing
Agreements--Exchange Period and Exchanged
Financed Student Loans."
Any Consolidation Loan made with respect
to a Financed Student Loan after the
Closing Date, whether made by the
Transferor or another lender, will result
in a prepayment to the Trust of such
Financed Student Loan unless such
Consolidation Loan is transferred to the
Eligible Lender Trustee as an Exchanged
Financed Student Loan, as described above,
or unless the proceeds of such
Consolidation Loan are used as Issuer
Consolidation Payments. See "Description
of the Transfer and Servicing
Agreements--Exchange Period and Exchanged
Financed Student Loans."
With respect to certain of the Financed
Student Loans, during the period (the
"Deferral Phase") in which the related
borrower is in school and for certain
authorized periods as described in the
Higher Education Act of 1965, as amended
(such Act, together with all rules and
regulations promulgated thereunder by the
Department and/or the Guarantors, the
"Higher Education Act"), the borrower is
not required to make payments on his or
her Financed Student Loan. With respect to
such Financed Student Loans constituting
Stafford Loans, the Department will make
all interest payments during the related
Deferral Phase. For all other Financed
Student Loans (other than certain PLUS
Loans), interest will not be paid during
the related Deferral Phase but, instead,
will accrue and be capitalized and added
to the principal balance of such Financed
Student Loan. The Trust will consist of
Financed Student Loans that are in the
Deferral Phase as well as Financed Student
Loans for which the related borrower is
currently required to make payments of
principal and interest (the "Repayment
Phase"). See "The Financed Student Loan
Pool--Distribution of Financed Student
Loans by Borrower Payment Status."
The "Pool Balance" at any time represents
the aggregate principal balance of the
Financed Student Loans at the end of the
preceding Collection Period (including
accrued interest thereon for such
Collection Period to the extent such
interest will be capitalized), after
giving effect to the following, without
duplication: (i) all payments in respect
of principal received by the Trust during
such Collection Period
14
<PAGE> 18
from or on behalf of borrowers and
Guarantors and, with respect to certain
payments on the Financed Student Loans,
the Department (collectively, "Obligors"),
(ii) the principal portion of all Purchase
Amounts received by the Trust for such
Collection Period from the Transferor or
the Master Servicer and (iii) any
Exchanged Financed Student Loans conveyed
to the Trust and any Financed Student
Loans conveyed by the Trust in exchange
for such Exchanged Financed Student Loan,
during such Collection Period, as
described above.
"Collection Period" means, initially, the
period beginning June 7, 1997 and ending
on June 30, 1997, and thereafter, the
Collection Period means the calendar month
immediately following the end of the
previous Collection Period.
B. Collection Account; Note
Distribution Account;
Certificate Distribution
Account; and Expense
Account.................... The Master Servicer will be required to
remit all collections received with
respect to the Financed Student Loans for
which it is acting as primary servicer
(other than Financed Student Loans that
have been repurchased by the Transferor
pursuant to the Transfer and Servicing
Agreement) (i) within two Business Days
after it has received an aggregate of
$30,000 during any Collection Period and
(ii) on the last Business Day of each
month, all other collections received
during such month to an account in the
name of the Indenture Trustee (the
"Collection Account"). The Master Servicer
shall cause each other Servicer to remit
to the Collection Account, no less
frequently than weekly, all collections
received with respect to the Financed
Student Loans for which such other
Servicer is acting as primary servicer. A
"Business Day" is any day other than a
Saturday, a Sunday or a day on which
national banking associations or banking
institutions or trust companies in New
York, New York are authorized or obligated
by law to be closed. The Eligible Lender
Trustee will be required to remit Interest
Subsidy Payments and Special Allowance
Payments it receives within two Business
Days of receipt thereof to the Collection
Account. See "Description of the Transfer
and Servicing Agreements--Payments on
Financed Student Loans."
Five Business Days prior to each
Distribution Date (each, a "Determination
Date"), the Administrator will advise the
Indenture Trustee in writing of the
applicable Noteholders' Interest
Distribution Amount, the Noteholders'
Principal Distribution Amount and all
amounts payable to the holders of the
Certificates (the "Certificateholders") on
the related Distribution Date. Further, on
each Determination Date relating to a
Quarterly Distribution Date the
Administrator will advise the Indenture
Trustee in writing of the estimated fees
payable to the Master Servicer, the
Administrator, the Indenture Trustee and
the Eligible Lender Trustee (the
15
<PAGE> 19
"Servicing Fee," "Administration Fee,"
"Indenture Trustee Fee" and "Eligible
Lender Trustee Fee," respectively, and,
collectively, the "Transaction Fees") for
the three succeeding Collection Periods.
On each Quarterly Distribution Date, the
Indenture Trustee will transfer from the
Collection Account, in the following
priority and from the Available Funds for
the three Collection Periods immediately
preceding the month of such Quarterly
Distribution Date and any Counterparty
Swap Payments received with respect to
such Quarterly Distribution Date (or (x)
with respect to the first Quarterly
Distribution Date, from the Closing Date
through and including the Collection
Period immediately preceding such
Quarterly Distribution Date, (y) with
respect to clause (i) (A) below, the
Indenture Trustee will transfer on the
25th day of each month (or if such day is
not a Business Day, the next succeeding
Business Day) from the Available Funds for
the Collection Period immediately
preceding such day, the amount described
in (i)(A) below, and (z) with respect to
clauses (ii) and (iii) below, in the case
of the Class A-1 Notes the Indenture
Trustee will transfer the required amounts
from the Available Funds for the
Collection Period immediately preceding
the month of each Distribution Date for
the Class A-1 Notes): (i) to a separate
account held with and in the name of the
Indenture Trustee (the "Expense Account"),
(A) an amount equal to the Consolidation
Loan Fees with respect to the Collection
Period most recently ended and any overdue
Consolidation Loan Fees from prior
Collection Periods, and (B) an amount up
to the estimated Transaction Fees for the
three immediately succeeding Collection
Periods and all overdue Transaction Fees
from prior Collection Periods (plus (or
minus) the difference (or excess) of the
actual Transaction Fees for the three
immediately preceding Collection Periods
and the Transaction Fees deposited into
the Expense Account on the preceding
Quarterly Distribution Date), (ii) to a
separate account held with and in the name
of the Indenture Trustee for the benefit
of the Noteholders (the "Note Distribution
Account"), an amount up to the sum of the
Noteholders' Interest Distribution Amount
and the Trust Swap Payment, (iii) to the
Note Distribution Account, an amount up to
the Noteholders' Principal Distribution
Amount, (iv) to a supplemental account
held with and in the name of the Eligible
Lender Trustee for the benefit of the
Certificateholders (the "Certificate
Distribution Account"), an amount up to
the Certificateholders' Interest
Distribution Amount, and (v) after the
Notes have been paid in full, to the
Certificateholder Distribution Account, an
amount up to the Certificateholders'
Principal Distribution Amount.
On each Quarterly Distribution Date (and
with respect to clause (i) below on the
25th day of each month, or if such day is
not a Business Day, the next succeeding
Business
16
<PAGE> 20
Day), following the transfer to the
Expense Account described in the preceding
paragraph, the Indenture Trustee will
distribute from the Expense Account (in
addition to any amounts transferred from
the Reserve Account as described herein)
the following amounts in the following
order of priority: (i) to the Department,
the Consolidation Loan Fees for the
immediately preceding Collection Period,
together with any overdue Consolidation
Loan Fees for any prior Collection
Periods, (ii) to the Master Servicer, the
estimated Servicing Fee for the three
immediately succeeding Collection Periods
and all overdue Servicing Fees, (iii) to
the Administrator, the estimated
Administration Fee for the three
immediately succeeding Collection Periods
and all overdue Administration Fees, (iv)
to the Indenture Trustee, the estimated
Indenture Trustee Fee for the three
immediately succeeding Collection Periods
and all overdue Indenture Trustee Fees and
(v) to the Eligible Lender Trustee, the
estimated Eligible Lender Trustee Fee for
the three immediately succeeding
Collection Periods and all overdue
Eligible Lender Trustee Fees.
On each Distribution Date, following the
transfer to the Note Distribution Account,
the Indenture Trustee will distribute to
the Noteholders as of the related Record
Date and to each Counterparty the amounts
transferred to the Note Distribution
Account as set forth above (in addition to
any amounts transferred from the Reserve
Account and the Monthly Advance Account
and any Parity Percentage Payments
transferred from the Collection Account,
each as described below) in the following
order of priority:
(i) first, to each Class of Class A
Noteholders and each Counterparty, the
Class A Noteholders' Interest Distribution
Amount and the Trust Swap Payment,
respectively (pro rata based upon the
portion thereof allocable to each such
Class and each such Counterparty);
(ii) second, to the Class B Noteholders,
the Class B Noteholders' Interest
Distribution Amount:
(iii) third, to the Class A-1 Noteholders,
the Noteholders' Principal Distribution
Amount until the principal balance of the
Class A-1 Notes has been reduced to zero;
(iv) fourth, to the Fixed Rate Notes, the
Noteholders' Principal Distribution Amount
in the following order:
(A) after the principal balance of
the Class A-1 Notes has been reduced
to zero, commencing with (but no
earlier than) the Distribution Date
occurring in October, 1998, to the
Class A-2 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-2 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table;
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<PAGE> 21
(B) after the principal balance of
the Class A-2 Notes has been reduced
to zero, commencing with (but not
earlier than) the Distribution Date
occurring in October 1999, to the
Class A-3 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-3 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table;
(C) after the principal balance of
the Class A-3 Notes has been reduced
to zero, commencing with (but not
earlier than) the Distribution Date
occurring in October 2000, to the
Class A-4 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-4 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table;
(D) after the principal balance of
the Class A-4 Notes has been reduced
to zero, commencing with (but not
earlier than) the Distribution Date
occurring in October 2001, to the
Class A-5 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-5 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table;
(E) after the principal balance of
the Class A-5 Notes has been reduced
to zero, commencing with (but not
earlier than) the Distribution Date
occurring in October 2002, to the
Class A-6 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-6 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table; and
(F) after the principal balance of
the Class A-6 Notes has been reduced
to zero, commencing with (but not
earlier than) the Distribution Date
occurring in October 2003, to the
Class A-7 Noteholders, the remaining
Noteholders' Principal Distribution
Amount until the principal balance of
the Class A-7 Notes equals the
percentage of the Original Amount for
such Class set forth for such
Distribution Date on the Scheduled
Principal Balance Table;
(v) fifth, after the principal balance of
each Class of Fixed Rate Notes equals the
percentage of the Original Amount for the
respective Class that is set forth for
such Distribution Date on the Scheduled
Principal Balance Table (regardless of
whether the principal balance of any Class
of Fixed Rate
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<PAGE> 22
Notes has been reduced to zero) to the
Class A-8 Noteholders, the remaining
Noteholders' Principal Distribution Amount
until the principal balance of the Class
A-8 Notes has been reduced to zero;
(vi) sixth, after the principal balance of
the Class A-8 Notes has been reduced to
zero and after the principal balance of
each Class of Fixed Rate Notes equals the
percentage of the Original Amount for the
respective Class that is set forth for
such Distribution Date on the Scheduled
Principal Balance Table (regardless of
whether the principal balance of any Class
of Fixed Rate Notes has been reduced to
zero), to the Class A-9 Noteholders, the
remaining Noteholders' Principal
Distribution Amount until the principal
balance of the Class A-9 Notes has been
reduced to zero; and
(vii) seventh, after the principal balance
of each Class of Class A Notes has been
reduced to zero, to the Class B
Noteholders, the remaining Noteholders'
Principal Distribution Amount until the
principal balance of the Class B Notes has
been reduced to zero.
On each Distribution Date, after making
all required transfers to the Expense
Account, the Note Distribution Account
and, if applicable, the Certificate
Distribution Account the Indenture Trustee
will transfer any amounts remaining in the
Collection Account (other than amounts
representing payments received during such
month) in the following order of priority:
(i) to the Reserve Account, the amount, if
any, necessary to increase the balance
thereof to the Specified Reserve Account
Balance, (ii) to the Note Distribution
Account the amount, if any, which when
applied as a payment of principal on such
Distribution Date to the Class of Notes
then receiving payments of principal, is
necessary for the Parity Percentage to
equal 102.5% on such Distribution Date
(the amount so transferred to the Note
Distribution Account is the "Parity
Percentage Payment") and (iii) to the Note
Distribution Account, the amount of any
outstanding Noteholders' Interest
Carryover. Any amounts remaining in the
Collection Account after such transfers
(other than amounts representing payments
received during such current month) will
be distributed first, to the
Counterparties, the amount of any
termination payments, if any, owed by the
Trust under the Swap Agreements (the "Swap
Termination Payments"), and second, after
such Swap Termination Payments have been
paid in full, to the Transferor.
No Class of Fixed Rate Notes will receive
as a payment of principal on any
Distribution Date more than the amount
needed to reduce its respective principal
balance to the percentage of the Original
Amount set forth for such Class for such
Distribution Date on the Scheduled
Principal Balance Table. Therefore, on any
Distribution Date the portion, if any, of
the Noteholders' Principal Distribution
Amount
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<PAGE> 23
remaining after the outstanding principal
balance of each Class of Fixed Rate Notes
has been reduced to such amount and the
principal balance of the Class A-8 Notes
and the Class A-9 Notes has been paid in
full will remain on deposit in the Note
Distribution Account and applied as
payments of principal on the Fixed Rate
Notes on future Distribution Dates in
accordance with the priorities described
above. The Class B Notes will receive no
payments of principal so long as any Class
A Notes are outstanding.
Notwithstanding the foregoing, if (x) on
any Distribution Date following all
distributions to be made on such
Distribution Date, the principal amount of
the Class A Notes would exceed the sum of
the Pool Balance at the end of the
immediately preceding Collection Period
plus the aggregate balance on deposit in
the Trust Accounts on such Distribution
Date following such distributions, or (y)
an Event of Default has occurred with
respect to payment of the Notes or the
Trust Swap Payment, after paying
Transaction Fees, overdue Transaction
Fees, Consolidation Loan Fees and overdue
Consolidation Loan Fees, distributions
will be made in the following priority:
(i) first, to each Class of Class A
Noteholders and the Counterparties, the
Noteholders' Interest Distribution Amount
applicable to each such Class and the
Trust Swap Payment, respectively, pro rata
based upon the portion thereof allocable
to each such Class and the Counterparties;
(ii) second, in the case of clause (x)
above, to the Class A-1 Noteholders, the
Noteholders' Principal Distribution
Amount, in the order and priority set
forth above in clauses third through
sixth, inclusive, of the third preceding
paragraph, or in the case of clause (y)
above, to each Class of Class A
Noteholders, the Noteholders' Principal
Distribution Amount applicable to such
Distribution Date, pro rata based upon the
principal balance of each Class of Class A
Notes until the principal balance of each
Class of Class A Notes has been paid in
full; (iii) third, to the Class B
Noteholders, the Noteholders' Interest
Distribution Amount applicable to the
Class B Notes; (iv) fourth, after the
principal balance of each of the Class A
Notes has been paid in full, to the Class
B Noteholders, the Noteholders' Principal
Distribution Amount until the principal
balance of the Class B Notes has been paid
in full; (v) fifth, to the Class A-8
Noteholders and the Class A-9 Noteholders,
the Noteholders' Interest Carryover
applicable to the respective Class of
Class A Notes, pro rata based upon the
portion thereof allocable to each such
Class; (vi) sixth, to the Class B
Noteholders, the Noteholders' Interest
Carryover applicable to the Class B Notes;
(vii) seventh, to Counterparties, any Swap
Termination Payments, (viii) eighth, to
the Certificateholders, the
Certificateholders' Interest Distribution
Amount; and (ix) ninth, to the
Certificateholders, the
Certificateholders' Principal Distribution
Amount.
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<PAGE> 24
All principal payments of Notes of any
Class shall be made pro rata within that
Class. In connection with each principal
payment of Notes of any Class, the
Indenture Trustee shall compute the
Principal Factor for that Class. The
"Principal Factor" shall be a seven-digit
decimal indicating the principal balance
of each Note of a Class as of a
Distribution Date (after giving effect to
any payments made on that date) as a
fraction of the original principal amount
of such Note. The principal balance of any
Note can be determined by multiplying the
original principal amount of such Note by
the Principal Factor applicable to that
class of Notes.
C. Reserve Account............ Pursuant to the Transfer and Servicing
Agreement, an account in the name of the
Indenture Trustee (the "Reserve Account")
will be established with and maintained by
the Indenture Trustee and will be an asset
of the Trust. On the Closing Date, the
Transferor will make an initial deposit
into the Reserve Account of cash or
Eligible Investments (as defined in
"Description of the Transfer and Servicing
Agreements--Accounts") equal to
$10,300,000 (the "Reserve Account
Deposit"). The Reserve Account Deposit
will be augmented on each Distribution
Date by the deposit into the Reserve
Account of any Available Funds remaining
after making all prior distributions on
such date. See "Description of the
Transfer and Servicing
Agreements--Distributions."
Amounts, if any, on deposit in the Reserve
Account will be available on each
Distribution Date to cover any shortfalls
in payments of the Transaction Fees, the
Consolidation Loan Fees, the Noteholders'
Interest Distribution Amount and the Trust
Swap Payment for such applicable
Distribution Date for which Available
Funds are insufficient to make such
payments and distributions. Additionally,
on the Final Maturity Date for a Class of
Notes, amounts in the Reserve Account will
be available to reduce the principal
balance of such Class of Notes to zero to
the extent that Available Funds are
insufficient to make such payment.
Amounts, if any, in the Reserve Account on
any Distribution Date (after giving effect
to all distributions to be made or
allocated on such Distribution Date) in
excess of the then applicable Specified
Reserve Account Balance generally will be
distributed to the Transferor. The
"Specified Reserve Account Balance" with
respect to any Distribution Date will
equal the greater of (i) 1.00% of the sum
of the outstanding principal balance of
the Notes and the Certificates on such
Distribution Date, after giving effect to
all payments to be made on such date, or
(ii) $500,000; provided, however, that
such balance shall not exceed the sum of
the aggregate outstanding principal amount
of the Notes and the Certificate Balance.
See "Description of the Transfer and
Servicing Agreements--Credit
Enhancement--Reserve Account."
The funding and maintenance of the Reserve
Account is intended to enhance the
likelihood of timely payment to the
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<PAGE> 25
Noteholders of the Noteholders'
Distribution Amount. In certain
circumstances, however, the Reserve
Account could be depleted and shortfalls
in distributions to the Noteholders could
result.
D. Eligible Investments....... Pursuant to the Transfer and Servicing
Agreement, funds on deposit in the Trust
Accounts will be invested in "Eligible
Investments." See "Description of the
Transfer and Servicing
Agreements--Accounts."
E. Transfer and Servicing
Agreement....................... Under the Transfer and Servicing
Agreement, the Transferor will contribute
the Initial Financed Student Loans to the
Trust on the Closing Date, and may
contribute the Exchanged Financed Student
Loans to the Trust during the Exchange
Period. The Eligible Lender Trustee will
hold legal title to all Financed Student
Loans contributed to the Trust. In
addition, the Master Servicer will be
responsible for servicing, managing,
maintaining custody of and making
collections on the Financed Student Loans.
The obligations of the Transferor and the
Master Servicer under the Transfer and
Servicing Agreement include the following:
The Transferor and the Master Servicer
will be obligated to purchase any Financed
Student Loan if the interests of the
Noteholders or the Certificateholders
therein are materially adversely affected
by a breach of any representation,
warranty or covenant (including the Master
Servicer's covenant to service all the
Financed Student Loans in accordance with
applicable laws, restrictions and
guidelines) made by the Transferor or the
Master Servicer, as the case may be, with
respect to the Financed Student Loan, if
the breach has not been cured within 90
days following the discovery by or notice
to the Transferor or the Master Servicer,
as the case may be, of the breach (it
being understood that any such breach that
does not adversely affect any Guarantor's
obligation to guarantee payment of such
Financed Student Loan will not be
considered to have a material adverse
effect for this purpose). In addition, the
Transferor or the Master Servicer, as the
case may be, will be obligated to
reimburse the Trust for any accrued
interest amounts not guaranteed by a
Guarantor due to, or any lost Interest
Subsidy Payments or Special Allowance
Payments as a result of, a breach of the
Transferor's representations and
warranties or the Master Servicer's
covenants, as the case may be; provided,
however, that such reimbursements shall
not exceed the amount that would have been
paid if not for such breach.
Pursuant to the Transfer and Servicing
Agreement, the Master Servicer will be
responsible for, among other things,
preparing and filing with the Department
and the Guarantors all appropriate claims
forms and other documents and filings on
behalf of the Eligible Lender Trustee in
order to claim the Interest Subsidy
Payments and Special Allowance Payments
from the Department and the Guarantee
Payments from the Guarantors, in respect
of the Financed Student
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<PAGE> 26
Loans entitled thereto and preparing and
providing periodic and annual statements
to the Eligible Lender Trustee and the
Indenture Trustee with respect to
distributions to Noteholders and
Certificateholders.
The Certificates................ Pursuant to the Trust Agreement, the Trust
has issued its Series 1997-1 Certificates
in the aggregate principal amount of
$1,000 and the Trust may, from time to
time, issue one or more additional series
of Certificates pursuant to a supplement
to the Trust Agreement. The Certificates
represent undivided beneficial interests
in the Trust. See "Formation of the
Trust."
The rights of Certificateholders in the
assets of the Trust to receive payments of
principal and interest will be fully
subordinated to the rights of the
Noteholders. See "Description of the
Transfer and Servicing Agreements--Credit
Enhancement--Subordination of the
Certificates."
Monthly Advances................ If the Master Servicer has applied for a
Guarantee Payment from a Guarantor or an
Interest Subsidy Payment or a Special
Allowance Payment from the Department, and
the Master Servicer has not received the
related payment prior to the end of the
Collection Period immediately preceding
the Distribution Date on which such amount
would be required to be distributed as a
payment of interest, the Master Servicer
may, no later than the Determination Date
relating to such Distribution Date,
deposit into an account in the name of the
Indenture Trustee (the "Monthly Advance
Account") an amount up to the amount of
such payments applied for but not received
(such deposits by the Master Servicer are
referred to herein as "Monthly Advances").
Monthly Advances will be distributed to
the Noteholders or Certificateholders on
the upcoming Distribution Date. Monthly
Advances are recoverable by the Master
Servicer (i) first, from the source for
which such Monthly Advance was made and
(ii) second, from collections received
generally on or with respect to the
Financed Student Loans. The Master
Servicer will have no obligation, legal or
otherwise, to make any Monthly Advance,
and the making of or decision to make a
particular Monthly Advance will not create
any obligation on the Master Servicer,
legal or otherwise, to make any future
Monthly Advances.
Auction of Trust Assets......... Any Financed Student Loans remaining in
the Trust as of May 1, 2007 will be
offered for sale by the Indenture Trustee
on or prior to the July 2007 Distribution
Date. The Transferor, its affiliates and
unrelated third parties may offer bids to
purchase such Financed Student Loans on or
prior to such Distribution Date. If at
least two bids are received, the Indenture
Trustee will accept the highest bid equal
to or in excess of the greater of (x) the
aggregate Purchase Amounts of such
Financed Student Loans as of the end of
the Collection Period immediately
preceding such Distribution Date or (y) an
amount that would be sufficient to (i)
reduce
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<PAGE> 27
the outstanding principal amount of the
Notes on such Distribution Date to zero
and (ii) pay to Noteholders the
Noteholders' Interest Distribution amount
payable on such Distribution Date and pay
to the Counterparties any Trust Swap
Payments payable on such Distribution Date
(the "Minimum Purchase Price"). If at
least two bids are not received or the
highest bid is not equal to or in excess
of the Minimum Purchase Price, the
Indenture Trustee will not consummate such
sale. The proceeds of any such sale will
be used to redeem any outstanding Notes on
such Distribution Date and pay any Trust
Swap Payment. If the sale is not
consummated in accordance with the
foregoing, the Indenture Trustee may, but
shall not be under any obligation to,
solicit bids for sale of the Financed
Student Loans on future Distribution Dates
upon terms similar to those described
above. No assurance can be given as to
whether the Indenture Trustee will be
successful in soliciting acceptable bids
to purchase the Financed Student Loans on
either the July, 2007 Distribution Date or
any subsequent Distribution Date. There
will be no continuing liability on the
part of the Trust or the Noteholders to
the purchaser of the Financed Student
Loans in connection with such auction
sale. See "Description of the Transfer and
Servicing Agreements-- Termination".
Optional Purchase............... The Transferor may repurchase all
remaining Financed Student Loans, and thus
effect the early retirement of the Notes
and the Certificates, on any Distribution
Date on or after the Distribution Date on
which (i) the Pool Balance is equal to 5%
or less of the Initial Pool Balance and
(ii) the outstanding aggregate principal
amount of the Fixed Rate Notes has been
reduced to zero, at a price equal to, for
each Financed Student Loan, the
outstanding principal balance of such
Financed Student Loan as of the end of the
preceding Collection Period, together with
all accrued interest thereon and certain
unamortized premiums, if any. Without the
prior written consent of Moody's, the
Transferor may not effect any purchase of
the remaining Financed Student Loans as
long as the rating of the Transferor's
long-term debt obligations is less than
"Baa3" by Moody's, unless the Eligible
Lender Trustee and the Indenture Trustee
shall have received an opinion of counsel
to the effect that such purchase would not
constitute a fraudulent conveyance. See
"Description of the Transfer and Servicing
Agreements--Termination." The "Initial
Pool Balance" will equal approximately
$1,013,726,000.
Tax Considerations.............. In the opinion of special Federal tax
counsel for the Trust, the Notes will be
characterized as debt for Federal income
tax purposes.
In the opinion of special Federal tax
counsel for the Trust, for Federal income
tax purposes the Trust will not be
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<PAGE> 28
characterized as an association (or
publicly traded partnership) taxable as a
corporation.
See "Federal Tax Consequences" for
additional information concerning the
application of Federal laws with respect
to the Notes and the Trust.
ERISA Considerations............ The Notes are eligible for purchase by or
on behalf of employee benefit plans,
retirement arrangements, individual
retirement accounts and Keogh Plans,
subject to the considerations discussed
under "ERISA Considerations."
Registration of Notes........... The Notes will be represented by global
certificates registered in the name of
Cede, as nominee of DTC or another
nominee. The Noteholders will not be
entitled to receive definitive
certificates representing such Holders'
interests, except in certain
circumstances. See "Description of the
Notes--Book-Entry Registration."
Rating of the Securities........ It is a condition to the issuance and sale
of the Class A-1 Notes that they be rated
"A-1+" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies ("Standard & Poor's"), "P-1" by
Moody's Investors Service, Inc.
("Moody's"), and F-1+ by Fitch Investors
Service, LP ("Fitch"). It is a condition
of the issuance of each of the Class A-2
Notes, the Class A-3 Notes, the Class A-4
Notes, the Class A-5 Notes, the Class A-6
Notes, the Class A-7 Notes, the Class A-8
Notes and the Class A-9 Notes that they be
rated "AAA" by Standard & Poor's and Fitch
and "Aaa" by Moody's, and it is a
condition to the issuance and sale of each
of the Class B Notes that they be rated at
least "A" by Standard & Poor's and Fitch
and at least "A2" by Moody's. Each of
Standard & Poor's, Fitch and Moody's is
also referred to herein as a "Rating
Agency" and collectively as the "Rating
Agencies." A securities rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating agency. The Rating Agencies do not
evaluate, and the ratings of the Notes do
not address, the likelihood of prepayments
on the Notes or the likelihood of payment
of the Noteholders' Interest Carryover.
See "Risk Factors--Risk of Change of
Ratings on the Notes."
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<PAGE> 29
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
discussion of certain risk factors associated with an investment in the Notes.
Risk That Failure to Comply with Student Loan Origination and Servicing
Procedures for Financed Student Loans May Result in the Department's Refusal to
Make Certain Payments to Guarantors and the Eligible Lender Trustee and the
Guarantors' Refusal to Make Guarantee Payments to the Eligible Lender
Trustee. The failure by the Transferor or the other originators to follow
procedures relating to the origination of Financed Student Loans or of the
Servicers to follow certain servicing procedures for the Financed Student Loans,
as described below, may result in the Department's refusal to make reinsurance
payments to the Guarantors or to make Interest Subsidy Payments and Special
Allowance Payments to the Eligible Lender Trustee with respect to the Financed
Student Loans, or may also result in the Guarantors' inability or refusal to
honor their obligations to make payments under the Guarantee Agreements
("Guarantee Payments"). Loss of any such Guarantee Payments, Interest Subsidy
Payments or Special Allowance Payments with respect to the Financed Student
Loans could adversely affect the amount of Available Funds for any Collection
Period and the Trust's ability to pay principal and interest on the Notes. The
Higher Education Act, including the implementing regulations thereunder,
requires lenders and their assignees making and servicing Federal Loans, and
guarantors guaranteeing Federal Loans, to follow specified procedures, including
due diligence procedures, to ensure that the Federal Loans are properly made and
disbursed to, and repaid on a timely basis by or on behalf of, borrowers.
Certain of those procedures, which are specifically set forth in the Higher
Education Act, are summarized herein. See "The Student Loan Financing Business"
and "Description of the Transfer and Servicing Agreements--Servicing
Procedures." Generally, these procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower attending an eligible institution under the Higher Education
Act be made, the borrower's responsibilities under the loan be explained to him
or her, the promissory note evidencing the loan be executed by the borrower and
then that the loan proceeds be disbursed in a specified manner by the lender.
After the loan is made, the lender must establish repayment terms with the
borrower, properly administer deferrals and forbearances and credit the borrower
for payments made. If a borrower becomes delinquent in repaying a loan, a lender
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent. The
Master Servicer has agreed pursuant to the Transfer and Servicing Agreement to
perform (or provide for third party servicers to perform) servicing and
collection procedures on behalf of the Trust.
Risk of Inability of Transferor and Master Servicer to Honor their
Obligations to Repurchase Financed Student Loans. Under certain circumstances,
pursuant to the Transfer and Servicing Agreement, the Transferor is obligated to
purchase, or the Master Servicer is obligated to purchase, any Financed Student
Loan if a breach of the representations, warranties or covenants of the
Transferor or the Master Servicer, as the case may be, with respect to such
Financed Student Loan has a material adverse effect on the interests of the
Noteholders or the Certificateholders therein and such breach is not cured
within any applicable cure period (it being understood that any such breach that
does not affect any Guarantor's obligation to guarantee payment of such Financed
Student Loans will not be considered to have such a material adverse effect). In
addition, under certain circumstances pursuant to the Transfer and Servicing
Agreement, the Transferor or the Master Servicer, as the case may be, is
obligated to reimburse the Trust for any accrued interest amounts not guaranteed
by a Guarantor due to, or any lost Interest Subsidy Payments or Special
Allowance Payments as a result of, a breach of the Transferor's representations
and warranties or the Master Servicer's covenants, as the case may be, with
respect to a Financed Student Loan. If the Transferor is obligated to purchase a
Financed Student Loan as a result of the Transferor's or a third party's failure
to originate such Financed Student Loan in compliance with the Higher Education
Act, it will reimburse the Trust for the remaining principal balance of such
Financed Student Loan and any accrued but unpaid interest thereon. If the Master
Servicer is obligated to purchase a Financed Student Loan as a result of a
failure to service such Financed Student Loan in accordance with the Higher
Education Act and the applicable Guarantee Agreement, as the case may be, it
will reimburse the Trust for the remaining principal balance of such Financed
Student Loan and any accrued but unpaid interest thereon. See "Description of
the Transfer and Servicing Agreements--Conveyance of
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<PAGE> 30
Financed Student Loans; Representations and Warranties" and "--Servicer
Covenants." There can be no assurance, however, that the Transferor or the
Master Servicer will have the financial resources to do so. The failure of the
Transferor to so purchase or the Master Servicer to so purchase a Financed
Student Loan would constitute a breach of the Transfer and Servicing Agreement,
enforceable by the Eligible Lender Trustee on behalf of the Trust or by the
Indenture Trustee on behalf of the Noteholders, but would not constitute an
Event of Default under the Indenture or permit the exercise of remedies
thereunder.
Risk of Offset by Guarantors or the Department Against Federal Benefit
Payments Due to Shared Lender Identification Number. Due to Department policy
limiting the granting of new lender identification numbers, the Eligible Lender
Trustee will be allowed under the Trust Agreement to permit trusts (other than
the Trust) established by the Transferor in the future to securitize other
Student Loans to use the Department lender identification number applicable to
the Trust. In that event, the billings submitted to the Department for Interest
Subsidy and Special Allowance Payments on loans in the Trust would be
consolidated with the billings for such payments for Student Loans in such other
trusts using the same lender identification number and payments on such billings
would be made by the Department to the Eligible Lender Trustee in lump sum form.
Such lump sum payments would then be allocated by the Eligible Lender Trustee
among the various trusts using the same lender identification number.
In addition, the sharing of the lender identification number by the Trust
with such other trusts may result in the receipt of claim payments by guarantors
in lump sum form. In that event, such payments would be allocated by the
Eligible Lender Trustee among the trusts in a manner similar to the allocation
process for Interest Subsidy and Special Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
guarantors resulting from the Eligible Lender Trustee's activities in the
Federal Loan Program. As a result, if the Department or a guarantor were to
determine that the Eligible Lender Trustee owes a liability to the Department or
a guarantor on any Financed Student Loan for which the Eligible Lender Trustee
is or was legal titleholder, including loans held in the Trust or other trusts,
the Department or guarantor might seek to collect that liability by offset
against payments due the Eligible Lender Trustee under the Trust. In the event
that the Department or a guarantor determines such a liability exists in
connection with a trust using the shared lender identification number, the
Department or a guarantor would be likely to collect that liability by
offsetting against amounts due the Eligible Lender Trustee under the shared
lender identification number, including amounts owed in connection with the
Trust. Such offsetting of payments due to the Eligible Lender Trustee with
respect to the Trust could adversely affect the amount of Available Funds for
any Collection Period and the Trust's ability to pay interest and principal on
the Notes.
In addition, other trusts using the shared lender identification number may
in a given quarter incur origination fees that exceed the Interest Subsidy and
Special Allowance Payments payable by the Department on the loans in such other
trusts, resulting in the payment from the Department received by the Eligible
Lender Trustee under such shared lender identification number for that quarter
equaling an amount that is less than the amount owed by the Department on the
loans in the Trust for that quarter.
The Trust Agreement for the Trust and the trust agreement for other trusts
established by the Transferor which share the lender identification number to be
used by the Trust (such Trust and such other trusts, collectively, the
"Transferor Trusts") may require a Transferor Trust (including the Trust) to
indemnify the other Transferor Trusts for a shortfall or an offset by the
Department or a guarantor arising from the Financed Student Loans held by the
Eligible Lender Trustee on such Transferor Trust's behalf. To the extent that
the Trust is required to indemnify other Transferor Trusts with respect to an
offset by the Department or a Guarantor arising from Financed Student Loans held
by the Eligible Lender Trustee for the Trust, such indemnification obligation
could adversely affect the amount of Available Funds for any Collection Period
and the Trust's ability to pay principal and interest on the Notes. Also, to the
extent that the Trust may be entitled to indemnification with respect to an
offset by the Department or a Guarantor arising from Financed Student Loans held
by the Eligible Lender Trustee for a Transferor Trust other than the Trust,
there can be no assurance that the amount of funds available to the Trust with
respect to such right of indemnification may be
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adequate to compensate the Trust and Noteholders for any previous reduction in
the Available Funds for a Collection Period.
Risk Resulting From Limited Liquidity of the Notes. The Notes will not be
listed on any national security exchange. While Smith Barney Inc. intends to,
and PNC Capital Markets, Inc. may, make a secondary market for the Notes, they
are not obligated to do so. There can be no assurance that a secondary market
for the Notes will develop or, if a secondary market does develop, that it will
provide Noteholders with liquidity of investment or that it will continue for
the life of the Notes. As a result, investors must be prepared to bear the risk
of holding the Notes for as long as the Notes are outstanding.
Risk Resulting from Principal Balance of Notes Exceeding Initial Pool
Balance of the Financed Student Loans. On the Closing Date, the aggregate
initial principal amount of the Notes will be greater than the Initial Pool
Balance of the Financed Student Loans as of the Cut-off Date. As a result, if an
Event of Default should occur under the Indenture or an Insolvency Event should
occur and the Financed Student Loans were liquidated at a time when the
outstanding principal amount of the Notes exceeded the sum of the Pool Balance
and the amounts in the other Trust Accounts, such Financed Student Loans would
likely have to be liquidated at a premium for the Class B Noteholders and, in
some circumstances, the Class A Noteholders, not to suffer a loss. Because the
actual rate and timing of any accelerated payments of principal, if any, will
depend on a number of factors, including the rate and timing of the payments on
the Financed Student Loans, there can be no assurance of the actual rate or
timing of such accelerated payments of principal or when the aggregate principal
amount of the Notes will be equal to or less than the sum of the Pool Balance
and the amounts in the other Trust Accounts.
Risk of Reduction in Amounts Paid on the Notes Resulting From Variability
of Actual Cash Flows; Risk of Reduction in Amounts Paid on the Notes From
Inability of Guarantors to Make Guarantee Payments. Amounts received with
respect to the Financed Student Loans for a particular Collection Period may
vary in both timing and amount from the payments actually due on the Financed
Student Loans as of such Collection Period for a variety of economic, social and
other factors, including both individual factors such as additional periods of
deferral or forbearance prior to or after a borrower's commencement of
repayment, and general factors, such as a general economic downturn which could
increase the amount of defaulted Financed Student Loans. Failures by borrowers
to pay timely the principal and interest on the Financed Student Loans will
affect the amount of Available Funds, which may reduce the amount of principal
and interest paid to the Noteholders. In addition, failures by borrowers of
Student Loans generally to pay timely the principal and interest due on such
Student Loans could obligate the Guarantors to make payments thereon, which
could adversely affect the solvency of the Guarantors and their ability to meet
their guarantee obligations (including with respect to the Financed Student
Loans).
Risk of Inability of Indenture Trustee to Liquidate Financed Student
Loans. If an Event of Default occurs under the Indenture, subject to certain
conditions, the Indenture Trustee is authorized, with the consent of the
Noteholders holding 66 2/3% of the outstanding principal balance of the Notes,
to sell the Financed Student Loans. There can be no assurance, however, that the
Indenture Trustee will be able to find a purchaser for the Financed Student
Loans in a timely manner or that the market value of such Financed Student Loans
would, at any time, be equal to the aggregate outstanding principal amount of
the Notes and accrued interest thereon. If the net proceeds of any such sale,
together with amounts then on deposit in the Reserve Account, do not exceed the
aggregate outstanding principal amount of Notes and accrued interest thereon,
the Noteholders will suffer a loss. In addition, the amount of principal
required to be distributed to Noteholders under the Indenture is generally
limited to amounts available to be so distributed. Therefore, the failure to pay
principal on the Notes may not result in the occurrence of an Event of Default
until the Final Maturity Date of the Notes. See "Description of the Transfer and
Servicing Agreements--Credit Enhancement."
Risk That Financial Status of Guarantors Will Affect Their Ability to Make
Guarantee Payments. The Higher Education Act requires all Financed Student Loans
to be unsecured. As a result, the only security for payment of the Financed
Student Loans are the Guarantee Agreements between the Eligible Lender Trustee
and the Guarantors. A deterioration in the financial status of the Guarantors
and their ability to honor
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guarantee claims with respect to the Financed Student Loans could result in a
delay in making or a failure to make Guarantee Payments to the Eligible Lender
Trustee. Loss of any such Guarantee Payments could adversely affect the amount
of Available Funds for any Collection Period and the Trust's ability to pay
principal and interest on the Notes. One of the primary causes of a possible
deterioration in a Guarantor's financial status is directly related to the
amount and percentage of defaulting Financed Student Loans guaranteed by a
Guarantor. Moreover, to the extent that the Department pays reimbursement claims
submitted by a Guarantor for any fiscal year exceeding certain specified levels,
the Department's obligation to reimburse the Guarantor for losses will be
reduced on a sliding scale from 100% (98% for loans made on or after October 1,
1993) to a minimum of 80% (78% for loans made on or after October 1, 1993),
except that death, disability, bankruptcy, closed school and false certification
claims are reimbursed 100% by the Department.
The effect of the above factors, including the effect on a Guarantor's
ability to meet its guarantee obligations with respect to the Financed Student
Loans or the Trust's ability to pay principal and interest with respect to the
Notes, is impossible to predict. Pursuant to the 1992 Amendments, under Section
432(o) of the Higher Education Act, if the Department has determined that a
Guarantor of a Federal Loan is unable to meet its insurance obligations, the
loan holder may submit claims directly to the Department and the Department is
required to pay the full Guarantee Payment due with respect thereto in
accordance with guarantee claim processing standards no more stringent than
those applied by the Guarantor of such Federal Loans. However, the Department's
obligation to pay guarantee claims directly in this fashion is contingent upon
the Department making the determination referred to above. There can be no
assurance that the Department would ever make such a determination with respect
to a Guarantor or, if such a determination was made, whether such determination
or the ultimate payment of such guarantee claims would be made in a timely
manner.
Risk That Changes in Law Could Adversely Affect the Federal Family
Education Loan Program and the Financed Student Loans. Changes in the Higher
Education Act or other relevant federal or state laws, rules and regulations and
the programs implemented thereunder may adversely impact the programs described
herein and the loans made thereunder, including the Financed Student Loans and
the Guarantors. Such changes could result in a reduction of the Trust's ability
to pay principal and interest on the Notes, including as a result of a reduction
in the ability of the Guarantors to make Guaranty Payments to the Eligible
Lender Trustee with respect to the Financed Student Loans. Thus, there can be no
assurance that the Higher Education Act or such other relevant federal or state
laws, rules and regulations and the programs implemented thereunder will not be
amended or modified in the future in a manner that will adversely impact the
programs described herein and the loans made thereunder, including the Financed
Student Loans, or the Guarantors. In addition, existing legislation and future
measures to reduce the federal budget deficit may adversely affect the amount
and nature of federal financial assistance available with respect to these
programs. In recent years, federal budget legislation has provided for the
recovery of certain funds held by guarantee agencies in order to achieve
reductions in federal spending. There can be no assurance that future federal
budget legislation or administrative actions will not adversely affect
expenditures by the Department, or the financial condition of the Guarantors.
Under the Omnibus Budget Reconciliation Act of 1993, Congress made a number
of changes that may adversely affect the financial condition of the Guarantors
of Federal Loans, including reducing to 98% the maximum percentage of Guarantee
Payments the Department will reimburse for loans first disbursed on or after
October 1, 1993, reducing substantially the premiums and default collections
that Guarantors of Federal Loans are entitled to receive and/or retain and
giving the Department broad powers over Guarantors of Federal Loans and their
reserves. These powers include the authority to require a Guarantor of Federal
Loans to return all reserve funds to the Department if the Department determines
such action is necessary to ensure an orderly termination of such Guarantor, to
serve the best interests of the Federal Loan Programs or to ensure the proper
maintenance of such Guarantor's funds or assets. The Department is also now
authorized to direct a Guarantor of Federal Loans to return a portion of its
reserve funds which the Department determines is unnecessary to pay the program
expenses and contingent liabilities of such Guarantor and/or to cease any
activities involving the use of such Guarantor's reserve funds or assets which
the Department determines is a
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misapplication or otherwise improper. The Department may also terminate the
reinsurance agreement of a Guarantor of Federal Loans if the Department
determines that such action is necessary to protect the federal fiscal interest
or to ensure an orderly transition to full implementation of direct federal
lending. In such event, however, the Department is required to assume the
functions of such Guarantor as described herein under the heading "The Financed
Student Loan Pool--Insurance of Student Loans; Guarantors of Federal Loans."
These various changes create a significant risk that the resources available to
the Guarantors of Federal Loans to meet their guarantee obligations will be
significantly reduced.
In addition, this legislation greatly expands the loan volume under the
direct lending program by the Department (the "Federal Direct Student Loan
Program") to a target of approximately 60% of student loan demand in academic
year 1998-1999, which could result in increasing reductions in the volume of
loans made under the Federal Loan Programs. As the Federal Direct Student Loan
Program expands, the Servicers may experience increased costs due to reduced
economies of scale to the extent the volume of new loans serviced by the
Servicers is reduced. Such cost increases could affect the ability of the
Servicers to satisfy their obligations to service the Financed Student Loans.
Such volume reductions could further reduce revenues received by the Guarantors
of Federal Loans available to pay claims on defaulted Federal Loans.
Finally, the level of competition currently in existence in the secondary
market for loans made under the Federal Loan Programs could be reduced,
resulting in fewer potential buyers of the Federal Loans and lower prices
available in the secondary market for those loans. Further, the Department is
implementing a direct consolidation loan program. To the extent that borrowers
of Financed Student Loans elect to consolidate their Student Loans with Financed
Student Loans under such direct consolidation loan program, the Noteholders will
receive as a prepayment of principal the aggregate principal amount of such
Financed Student Loan. See "The Financed Student Loan Pool--Maturity and
Prepayment Assumptions."
Proposed federal budget legislation being considered by Congress could
modify many of the provisions of the Higher Education Act and could result in
reductions in reserves of the Guarantors. Until final legislation is adopted,
the impact on the Financed Student Loans, if any, is impossible to determine.
During the 105th session of the United States Congress, the reauthorization of
the Higher Education Act is expected to be considered. The potential impacts on
the Financed Student Loans resulting from the reauthorization process, if any,
cannot be determined at this time.
Risk of Loss to Noteholders of Class B Notes Resulting From Subordination
of the Class B Notes. The rights of the Class B Noteholders to receive payments
of interest and principal will be subordinated to those of the Class A
Noteholders as described herein. If amounts otherwise allocable to the Class B
Notes are used to fund payments on the Class A Notes, distributions with respect
to the Class B Notes may be delayed or reduced. Notwithstanding the foregoing,
distributions to the Class B Noteholders of amounts representing the Class B
Noteholders' Interest Distribution Amount will not be subordinated to the
payment of any Noteholders' Interest Carryover that may exist from time to time.
See "Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit Enhancement--Subordination of the Class B Notes."
Risk Resulting From Limited Assets of the Trust. The Trust does not have,
nor is it permitted to have, any significant assets or sources of funds other
than the Financed Student Loans (and the related Guarantee Agreements to the
extent assigned to the Trust by the Transferor ("Assigned Rights")), the
Collection Account, the Note Distribution Account, the Reserve Account and the
Monthly Advance Account. The Notes represent obligations solely of the Trust and
its assets, and will not be insured or guaranteed by the Transferor, the Master
Servicer, the Guarantors, the Eligible Lender Trustee, any of their affiliates
or the Department. Consequently, holders of the Notes must rely for repayment
upon proceeds realized upon the sale of, or payments with respect to, the
Financed Student Loans and, if and to the extent available under the
circumstances described herein, amounts on deposit in the Reserve Account.
Amounts to be deposited in the Reserve Account are limited in amount and will be
reduced, subject to a specified minimum, as the Pool Balance is reduced. If the
Reserve Account is exhausted, the Trust will depend solely on payments with
respect to the Financed Student Loans to make payments on the Notes. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Credit Enhancement."
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Reinvestment Risk to Noteholders From Prepayments of LIBOR Rate
Notes. Financed Student Loans may be prepaid by borrowers at any time. (For this
purpose the term "prepayments" includes prepayments in full or in part
(including pursuant to Consolidation Loans or Serial Loans) and liquidations due
to default (including receipt of Guarantee Payments).) To the extent such
prepayments result in a prepayment of the LIBOR Rate Notes prior to their
expected Final Maturity Dates, the holders of the LIBOR Rate Notes may not be
able to reinvest such funds at the same yield as the yield on the LIBOR Rate
Notes. The rate of payment on the Financed Student Loans cannot be predicted,
and any reinvestment risks resulting from a faster or slower incidence of
prepayment of Financed Student Loans will be borne entirely by the holders of
the LIBOR Rate Notes. The effect of such prepayments will be to increase the
rate of payment on the Class A-1 Notes and, therefore, increase the reinvestment
risk with respect to the Class A-1 Notes. After the Class A-1 Notes have been
paid in full, the entire amount of such prepayments that are not required to be
applied on each Distribution Date as part of the Noteholders' Principal
Distribution Amount to reduce the outstanding principal balance of the Class of
Fixed Rate Notes then receiving payments of principal to the required amount for
such Class, will be applied to the payment of the principal balance of the Class
A-8 Notes until they are paid in full, and then to the Class A-9 Notes,
regardless of whether any other Class of Fixed Rate Notes is still outstanding.
See "Description of the Transfer and Servicing Agreements--Distributions". As a
result, the reinvestment risk resulting from such prepayments will be borne
entirely by the holders of the Class A-8 Notes, and after the principal balance
of the Class A-8 Notes has been paid in full by the holders of the Class A-9
Notes. The rate of prepayments on the Financed Student Loans may be influenced
by a variety of economic, social and other factors affecting borrowers,
including interest rates, the availability of alternative financing and the
general job market for graduates of institutions of higher education. In
addition, under certain circumstances, the Transferor will be obligated to
purchase, or the Master Servicer will be obligated to purchase, Financed Student
Loans from the Trust pursuant to the Transfer and Servicing Agreement as a
result of breaches of its representations, warranties or covenants. See
"Description of the Transfer and Servicing Agreements--Conveyance of Financed
Student Loans; Representations and Warranties" and "--Master Servicer
Covenants." Moreover, to the extent borrowers of Financed Student Loans elect to
borrow money through Consolidation Loans with respect to such Financed Student
Loans from the Transferor or from another lender, or to the extent the Trust
sells a Financed Student Loan to serialize the ownership of such Financed
Student Loan and other loans to the same borrower (each, a "Serial Loan"), the
Noteholders will receive as a prepayment of principal the aggregate principal
amount of such Financed Student Loans. The effect of such prepayments may be
mitigated during the Exchange Period if the Transferor makes such Consolidation
Loans or Serial Loans and elects to transfer such Consolidation Loans or Serial
Loans, as applicable, to the Eligible Lender Trustee on behalf of the Trust. See
"Description of Transfer and Servicing Agreements--Exchange Period and Exchanged
Finance Student Loans". There can be no assurance that borrowers with Financed
Student Loans will not seek to obtain Consolidation Loans with respect to such
Financed Student Loans or when Serial Loans will be sold and no assurance that
if such loans are obtained from or sold to, the Transferor, that the Transferor
will elect to exchange them into the Trust as Exchanged Financed Student Loans
during the Exchange Period. In addition there is no assurance that the
Transferor rather than another lender will make any particular Consolidation
Loan with respect to borrowers with Financed Student Loans during the Exchange
Period. See "The Student Loan Financing Business" and "The Financed Student Loan
Pool--Maturity and Prepayment Assumptions."
Risk That Average Life of Notes May Be Lengthened As a Result of Extension
of Payments on the Financed Student Loans. Scheduled payments with respect to,
and maturities of, the Financed Student Loans may be extended, including
pursuant to the applicable Deferral Phase certain other grace periods authorized
by the Higher Education Act ("Grace Periods") and, under certain circumstances,
periods of forbearance ("Forbearance Periods") or as a result of the conveyance
of Exchanged Financed Student Loans to the Eligible Lender Trustee on behalf of
the Trust during the Exchange Period, as described herein, which may lengthen
the remaining term of the Financed Student Loans and the average life of the
Notes. See "The Student Loan Financing Business" and "The Financed Student Loan
Pool--Maturity and Prepayment Assumptions." See also "Description of the
Transfer and Servicing Agreements--Insolvency Event" regarding the sale of the
Financed Student Loans if a Transferor Insolvency Event occurs and
"--Termination"
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regarding the Transferor's option to purchase the Financed Student Loans and the
auction of the Financed Student Loans on or after the July 2007 Distribution
Date.
Any Financed Student Loans remaining in the Trust as of the end of May 1,
2007 will be offered for sale by the Indenture Trustee on or prior to the July
2007 Distribution Date. If acceptable bids to purchase such Financed Student
Loans on such Distribution Date are received, as described herein, the proceeds
of the sale will be applied on such Distribution Date to redeem any outstanding
Notes on such date. In addition, if acceptable bids to purchase such Financed
Student Loans on such Distribution Date are not received, the sale of such
Financed Student Loans may occur on a subsequent Distribution Date, as described
herein, in which case the proceeds thereof will be applied on such date to
redeem any outstanding Notes. No assurance can be given as to whether the
Indenture Trustee will be successful in soliciting acceptable bids to purchase
the Financed Student Loans on the July 2007 Distribution Date or any subsequent
Distribution Date. See "Description of the Transfer and Servicing
Agreements--Termination."
Risk Resulting From Differences between Classes of Notes with Respect to
Receipt of Payments on the Financed Student Loans. The Classes of Notes
receiving principal earlier bear relatively greater risk than each Class
receiving principal later of (i) principal repayments with respect to the
Financed Student Loans (whether as a result of voluntary prepayments,
Consolidation Loans not transferred to the Eligible Lender Trustee as Exchanged
Financed Student Loans or liquidations due to default or breach), or (ii)
Financed Student Loans being sold by the Trust. Thus, the holders of the Class
A-1 Notes bear the greatest risk of such principal prepayments, with the holders
of the Class A-8 Notes and Class A-9 Notes bearing the next most significant
risk of such principal prepayments. On the other hand, holders of Notes
receiving principal later would bear a greater risk of loss of principal than do
holders of Notes receiving principal earlier in the event of a shortfall in
Available Funds and amounts on deposit in the Reserve Account.
Risk That Interest Rate on Financed Student Loans May Be Insufficient to
Cover Interest on LIBOR Rate Notes at the Class Interest Rate Due to Rate-Index
Difference. The interest rate for the LIBOR Rate Notes will be based generally
on One-Month LIBOR. The Financed Student Loans, however, generally bear interest
at an effective rate (taking into account any Special Allowance Payments) equal
to the average bond equivalent rates of weekly auctions of 91-day Treasury bills
for each quarter (the "91-day Treasury Bill Rate") (or, in certain
circumstances, 52-week Treasury bills) plus margins specified for such Financed
Student Loans under "The Student Loan Financing Business." As a result, if in
respect of any Distribution Date, there does not exist a positive spread between
(a) the Net Loan Rate and (b) the interest rate on each Class of LIBOR Rate
Notes, the interest rate on such Class of LIBOR Rate Notes for such Distribution
Date will be the Net Loan Rate. See "Description of the Notes--The
Notes--Distributions of Interest." Any Noteholders' Interest Carryover arising
as a result of the applicable interest rate for any Class of Notes, being
determined on the basis of the Net Loan Rate will be paid on the following
Distribution Date or on any succeeding Distribution Date to the extent funds are
allocated and available therefor after making all required prior distributions
and deposits with respect to such date. Payment of such amounts, however, will
not be covered by amounts on deposit in the Reserve Account (other than amounts
in excess of the Specified Reserve Account Balance). See "Description of
Transfer and Servicing Agreements--Distributions."
Insolvency Risk of Transferor. The Transferor intends that the transfer of
the Financed Student Loans by it to the Eligible Lender Trustee on behalf of the
Trust under the Transfer and Servicing Agreement constitutes a valid
contribution and assignment of such Financed Student Loans. However, a court
could treat the transfer of the Financed Student Loans to the Eligible Lender
Trustee as an assignment of collateral as security for the benefit of the Trust.
If the transfer of the Financed Student Loans to the Eligible Lender Trustee is
deemed to create a security interest therein, a tax or government lien on
property of the Transferor arising before the Financed Student Loans came into
existence may have priority over the Eligible Lender Trustee's interest in such
Financed Student Loans and, if the Federal Deposit Insurance Corporation (the
"FDIC") were appointed receiver or conservator of the Transferor, the FDIC's
administrative expenses may also have priority over the Eligible Lender
Trustee's interest in such Financed Student Loans. In the event that the
Transferor becomes insolvent, the Federal Deposit Insurance Act ("FDIA"), as
amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), sets forth certain powers which the FDIC could exercise if it
were appointed as receiver or conservator of the Transferor.
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Subject to clarification by FDIC regulations or interpretations, it would appear
from the positions taken by the FDIC that the FDIC, in its capacity as a
receiver or conservator for the Transferor, would not interfere with the timely
transfer to the Trust of collections with respect to the Financed Student Loans.
To the extent that the transfer of the Financed Student Loans is deemed to
create a security interest, and that interest was validly perfected before the
Transferor's insolvency and was not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Transferor or its creditors, based
upon opinions and statements of policy issued by the general counsel of the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for a
depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance and payments to the Trust with respect to the Financed Student Loans
should not be subject to recovery by the FDIC as receiver or conservator of the
Transferor. If, however, the FDIC were to assert a contrary position, certain
provisions of the FDIA which, at the request of the FDIC, have been applied in
recent lawsuits to avoid security interests in collateral granted by depository
institutions, would permit the FDIC to avoid such security interest, thereby
resulting in possible delays and reductions in payments on the Notes. In
addition, if the FDIC were to require the Indenture Trustee or the Eligible
Lender Trustee to establish its right to such payments by submitting to and
completing the administrative claims procedure under the FDIA, as amended by the
FIRREA, delays in payments on the Notes and possible reductions in the amount of
those payments could occur. See "Legal Aspects of the Financed Student Loans."
Risk Resulting From Changes in Repayment Terms of Financed Student Loans
Pursuant to Incentive Programs. The Transferor currently makes available and may
hereafter make available certain incentive programs to borrowers. See "The
Financed Student Loan Pool--Incentive Programs". Under these programs, the
Transferor retains the option to terminate or change the terms of the incentives
with respect to any or all of the borrower's loans, including loans originated
prior to the termination or change which have been assigned to the Trust. It
cannot be predicted with certainty which borrowers will qualify or decide to
participate in these programs. The effect of these incentive programs may be to
reduce the yield on the Financed Student Loans.
Risk of Change of Ratings on the Notes. It is a condition to the issuance
and sale of each Class of Notes that such Classes receive the respective ratings
from each of the Rating Agencies described in "Rating." A rating is not a
recommendation to purchase, hold or sell the Notes, inasmuch as such rating does
not comment as to market price or suitability for a particular investor. The
ratings of the Notes address the likelihood of the ultimate payment of principal
of and interest on the Notes pursuant to their terms. However, the Rating
Agencies do not evaluate, and the ratings of the Notes do not address, the
likelihood of prepayments on the Notes or the likelihood of payment of any
Noteholders' Interest Carryover. There can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant.
Risk That a Default By a Counterparty Under the Swap Agreements May Result
in the Trust's Inability to Make Payments on the Notes. The Financed Student
Loans generally bear interest at a floating rate of interest, while the Fixed
Rate Notes bear interest at a fixed rate of interest. The Trust will enter into
separate Swap Agreements with respect to each Class of Fixed Rate Notes as a
hedge against the fixed rate with respect to such Fixed Rate Class exceeding the
floating rate index on the Financed Student Loans. If the fixed rate being paid
by a Counterparty under its Swap Agreement is greater than the Variable Swap
Rate payable by the Trust, a default by such Swap Counterparty will affect the
Trust's ability to make principal and interest payments on the Notes, which
could result in a loss to the holders of the Class B Notes, and thereafter to
the holders of the Class A Notes, to the extent that amounts on deposit in the
Reserve Account are not sufficient to cover the shortfall resulting from the
default by such Counterparty.
Effect of Book-Entry Registration. The Notes will each be initially
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the holders of such
Notes or their nominees. Because of this, unless and until Definitive Notes are
issued, holders of the Notes will not be recognized by the Indenture Trustee or
the Eligible Lender Trustee as "Noteholders" (as such terms are used in the
Indenture). Hence, until Definitive Notes are issued, holders of the Notes will
only be able to exercise the rights of Noteholders indirectly through DTC and
its participating organizations. See "Description of the Notes--Book-Entry
Registration" and "--Definitive Notes."
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FORMATION OF THE TRUST
THE TRUST
PNC Student Loan Trust I is a statutory business trust that was formed on
March 27, 1997, under the laws of the State of Delaware for the transactions
described in this Prospectus. The Trust will not engage in any activity other
than (i) acquiring, holding, selling and managing the Financed Student Loans and
the other assets of the Trust and proceeds therefrom, (ii) issuing one or more
classes of its certificates and notes, (iii) making payments thereon and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith. For
so long as the Transferor is a Certificateholder, the Trust's activities will be
limited to activities that are part of, or incidental to, the business of
banking as well.
The Trust was initially capitalized with equity equal to $1,000 on the date
of its formation, representing the initial principal balance of the Certificates
issued on such date. Approximately 4.9% of such Certificates were sold to the
Transferor and the remaining Certificates were offered for sale in transactions
exempt from the registration requirements of the Securities Act. On such date,
the Trust also issued its Series 1997-1 notes, which will be repaid in full
immediately prior to the issuance of the Notes. The equity of the Trust,
together with the proceeds from the sale of the Notes, will be used by the
Eligible Lender Trustee in connection with its acquisition, on behalf of the
Trust, of the Initial Financed Student Loans from the Transferor pursuant to the
Transfer and Servicing Agreement. A portion of the net proceeds received from
the transfer of the Initial Financed Student Loans will be used by the
Transferor to make a Reserve Account Deposit in the amount of $10,300,000. Upon
the consummation of such transaction, the property of the Trust will consist of
(a) the pool of Financed Student Loans, legal title to which is held by the
Eligible Lender Trustee on behalf of the Trust, (b) all funds collected in
respect thereof after the applicable cut-off date or Subsequent Cut-off Date,
(c) all moneys and investments on deposit in the Collection Account, the
Certificate Distribution Account, the Note Distribution Account, the Expense
Account, the Monthly Advance Account and the Reserve Account, and (d) all the
Trust's rights under the Swap Agreements. The Notes will be collateralized by
the property of the Trust. The Collection Account, the Note Distribution
Account, the Expense Account, the Reserve Account and the Monthly Advance
Account will be maintained with and in the name of the Indenture Trustee. The
Certificate Distribution Account will be maintained with and in the name of the
Eligible Lender Trustee. To facilitate servicing and to minimize administrative
burden and expense, either the Master Servicer or the related Servicer will be
appointed custodian of the promissory notes representing the Financed Student
Loans by the Eligible Lender Trustee.
The Trust's principal offices are in Chicago, Illinois, in care of The
First National Bank of Chicago, as Eligible Lender Trustee, at the address
listed below.
ELIGIBLE LENDER TRUSTEE
The First National Bank of Chicago, the Eligible Lender Trustee for the
Trust under the Trust Agreement, is a national banking association organized
under the laws of the United States with its chief executive office in Chicago,
Illinois. The office of the Eligible Lender Trustee for purposes of
administering the Trust is located at One First National Plaza, Chicago,
Illinois 60670. The Eligible Lender Trustee will acquire on behalf of the Trust
legal title to all the Financed Student Loans acquired pursuant to the Transfer
and Servicing Agreement. The Eligible Lender Trustee on behalf of the Trust will
enter into a Guarantee Agreement with each of the Guarantors with respect to
such Financed Student Loans. The Eligible Lender Trustee qualifies as an
eligible lender and owner of all Financed Student Loans for all purposes under
the Higher Education Act and the Guarantee Agreements. Failure of the Financed
Student Loans to be owned by an eligible lender would result in the loss of
Guarantee Payments, with respect to such Financed Student Loans. See "The
Financed Student Loan Pool--Insurance of Student Loans; Guarantors of Student
Loans."
The Transferor or its affiliates maintain from time to time other banking
relationships with The First National Bank of Chicago, the Eligible Lender
Trustee, and its affiliates.
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USE OF PROCEEDS
The net proceeds from the sale of the Notes will be paid to the Transferor
on the Closing Date as consideration for the Initial Financed Student Loans
being conveyed on such date. The Transferor will use such proceeds to make the
initial Reserve Account Deposit, deposits into certain other Trust Accounts and
for general corporate purposes.
THE TRANSFEROR
The Transferor is a national banking association that offers a wide range
of domestic and international commercial banking, retail banking and trust and
asset management services to its customers. The Transferor and its predecessors
have been originating Student Loans since the enactment of the Higher Education
Act.
The Transferor's business is subject to examination and regulation by
federal banking authorities. Its primary federal bank regulatory authority is
the Office of the Comptroller of the Currency. The principal executive offices
of the Transferor are located at One PNC Plaza, 249 Fifth Avenue, Pittsburgh,
Pennsylvania 15222-2707. Its telephone number is (412) 762-1553.
The Transferor is a wholly owned indirect subsidiary of PNC Bank Corp. (the
"Holding Company" and together with its subsidiaries, the "Corporation"), a bank
holding company organized under the laws of the Commonwealth of Pennsylvania and
registered under the Bank Holding Company Act of 1956, as amended. The Holding
Company was incorporated in 1983 with the consolidation of Pittsburgh National
Corporation and Provident National Corporation. Since 1983, the Corporation has
diversified its geographical presence and product capabilities through strategic
bank and non-bank acquisitions and the formation of various nonbanking
subsidiaries. The Corporation operates banking subsidiaries in Pennsylvania,
Delaware, Florida, Indiana, Kentucky, Massachusetts, New Jersey and Ohio and
conducts certain non-banking operations throughout the United States. The
Corporation's major businesses include consumer banking, corporate banking, real
estate banking, mortgage banking and asset management.
THE NOTES ARE NEITHER OBLIGATIONS OF NOR GUARANTEED BY THE HOLDING COMPANY
OR ANY OF THE HOLDING COMPANY'S SUBSIDIARIES (INCLUDING THE TRANSFEROR).
THE SERVICERS
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
PHEAA is a body corporate and politic constituting a public corporation and
government instrumentality created pursuant to an act of the Pennsylvania
Legislature. PHEAA has approximately 2,300 employees. PHEAA's headquarters is
located in Harrisburg, Pennsylvania, with six regional offices located
throughout Pennsylvania and additional offices located in California, Delaware
and West Virginia.
Under its enabling legislation, PHEAA is authorized to issue bonds or
notes, with the approval of the Governor of the Commonwealth of Pennsylvania for
the purpose of purchasing, making, or guaranteeing loans to students or parents,
or to lending institutions or post secondary institutions to make student or
parent loans. PHEAA's enabling legislation also authorizes PHEAA to undertake
the origination of loans and the servicing of loans made by PHEAA and others.
As of March 31, 1997 PHEAA has outstanding debt and/or credit facilities
(under which the entire aggregate amount of funds available had not been drawn)
in the amount (including amounts drawn or available under such credit
facilities) of approximately $2.2 billion. As of March 31, 1997, PHEAA owned
approximately $1.6 billion outstanding principal amounts of student loans
financed with the proceeds of its long-term debt, and had funds available for
acquisition of student loans in the amount of approximately $465 million.
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PHEAA has been guaranteeing student loans since 1964. PHEAA has guaranteed
a total of approximately $16.5 billion principal amount of Stafford Loans and
approximately $1.6 billion principal amount of PLUS Loans and SLS Loans under
the Higher Education Act. In addition to guaranteeing loans under the Higher
Education Act, PHEAA also operates certain guarantee programs for which its
receives no federal reinsurance. PHEAA has outstanding guarantee obligations of
such loans in the amount of approximately $42 million as of March 31, 1997.
PHEAA's two principal servicing products are its full servicing operation
(in which it performs all student loan servicing functions on behalf of its
customers) and its remote servicing operation (in which it provides only data
processing services to its customers that have their own servicing operations).
As of March 31, 1997 PHEAA was servicing under its full service program
approximately 1.3 million student loan accounts representing approximately $11.1
billion outstanding principal amounts for more than 320 customers and under its
remote servicing operation, approximately 700,000 student loans representing
approximately $3.5 billion outstanding principal amounts for four customers.
Pursuant to a sub-servicing agreement, PHEAA has agreed to service, and
perform all other related tasks with respect to certain of the Financed Student
Loans. PHEAA is required to perform all services and duties customary to the
servicing of such Financed Student Loans in compliance with all applicable
standards and procedures. See "Description of the Transfer and Servicing
Agreements--Servicing Procedures."
The above information relating to PHEAA has been obtained from PHEAA and
the Transferor has not conducted any independent verification of such
information. PHEAA has agreed that it will provide a copy of its most recent
audited financial statements to Noteholders upon receipt of a written request
directed to Mr. Tim Guenther, Chief Financial Officer(-)Financial Management,
1200 North Seventh Street, Harrisburg, Pennsylvania 17102.
AFSA DATA CORPORATION
AFSA Data Corporation ("AFSA") is a for-profit corporation and wholly owned
subsidiary of Fleet Holding Corporation, a subsidiary of Fleet National Bank,
which in turn is a wholly-owned subsidiary of Fleet Financial Group of Boston,
Massachusetts, a diversified financial services company. AFSA services 4.7
million accounts nationwide and is the largest third-party student loan servicer
in the United States, with over $23 billion in loans serviced. AFSA has its
principal office in Long Beach, California and Regional Processing Centers in
Utica, New York and Lombard, Illinois. AFSA has approximately 1,350 employees.
AFSA's principal office is located at 2277 E. 220th Street, Long Beach,
California 90810-1690.
Pursuant to a sub-servicing agreement, AFSA has agreed to service, and
perform all other related tasks with respect to, certain of Financed Student
Loans. AFSA is required to perform all services and duties customary to the
servicing of such Financed Student Loans in compliance with all applicable
standards and procedures. See "Description of the Transfer and Servicing
Agreements--Servicing Procedures."
The above information relating to AFSA has been obtained from AFSA and the
Transferor has not conducted any independent verification of such information.
AFSA has agreed that it will provide a copy of its most recent audited financial
statements to Noteholders upon receipt of a written request directed to Mr.
Steve Allen, Vice President and Controller, AFSA Data Corporation, 2277 E. 220th
Street, Long Beach, California 90810-1690.
USA GROUP LOAN SERVICES, INC.
USA Group Loan Services, Inc. ("USAG"), formerly known as Education Loan
Servicing Center, Inc., is a private, non-profit, non-stock membership
corporation which was organized in 1982 under the General Corporation Law of the
State of Delaware. USAG is an affiliate of USA Group, Inc., a non-profit
corporation which is also affiliated with USA Funds, a student loan guarantor
and one of the USAG's guaranty agencies. As of March 31, 1997, USAG provided
loan servicing for in excess of 3,034,900 student and parent loans with
outstanding balances of over $10.81 billion for approximately 150 different
lenders and secondary market corporations. USAG's principal office is located in
Indianapolis, Indiana, where it currently has nearly 800
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full-time employees. USAG is located at 30 S. Meridian Street, Indianapolis,
Indiana, 46206, telephone number (317) 849-6510.
Pursuant to a sub-servicing agreement, USAG has agreed to service, and
perform all other related tasks with respect to certain of the Financed Student
Loans. USAG is required to perform all services and duties customary to the
servicing of such Financed Student Loans in compliance with all applicable
standards and procedures. See "Description of the Transfer and Servicing
Agreements--Servicing Procedures."
The above information relating to USAG has been obtained from USAG and the
Transferor has not conducted any independent verification of such information.
USAG has agreed that it will provide a copy of its most recent audited financial
statements to Noteholders upon receipt of a written request directed to Ms.
Laurie Blackburn, Vice President--Marketing and Contract Administration, USA
Group Loan Services, Inc, 30 S. Meridian Street, Indianapolis, Indiana, 46206.
THE STUDENT LOAN FINANCING BUSINESS
GENERAL
The Student Loans to be contributed by the Transferor to the Eligible
Lender Trustee on behalf of the Trust pursuant to the Transfer and Servicing
Agreement will be selected from Student Loans originated or purchased by the
Transferor and made to students enrolled in or recently graduated from
accredited institutions of higher education within the meaning of the Higher
Education Act. The proceeds of these loans are used by students to finance a
portion of the costs of school. Each of the Financed Student Loans will be
guaranteed by private, non-profit corporations or state agencies, and are and
will be reinsured by the United States Department of Education (the
"Department") and subject to the limitations described in this Prospectus.
Payment of principal and interest with respect to the Financed Student
Loans is guaranteed against default, death, bankruptcy, disability, school
closure or false certification by the school with respect to the applicable
borrower by a Guarantor pursuant to a guarantee agreement between the applicable
Guarantor and the Eligible Lender Trustee (such agreements, each as amended or
supplemented from time to time, the "Guarantee Agreements"). Each Guarantor of
Financed Student Loans is entitled, subject to certain conditions, to be
reimbursed for 98% (or 100% for loans made prior to October 1, 1993) and all
loans filed as nondefault claims of all Federal Guarantee Payments it makes by
the Department pursuant to a program of federal reinsurance under the Higher
Education Act. In addition, the Eligible Lender Trustee, as a holder of the
Financed Student Loans on behalf of the Trust, is entitled to receive from the
Department certain Interest Subsidy Payments and Special Allowance Payments with
respect to certain of such Financed Student Loans as described herein. See
"--The Federal Loan Program" and "The Financed Student Loan Pool--Insurance of
Student Loans; Guarantors of Student Loans."
Legal title to all the Financed Student Loans that comprise assets of the
Trust will be held by the Eligible Lender Trustee, as trustee on behalf of the
Trust. See "Formation of the Trust--Eligible Lender Trustee."
The description and summaries of the Higher Education Act, the Federal Loan
Programs, the Guarantee Agreements and the other statutes, regulations and
documents referred to in this Prospectus do not purport to be comprehensive, and
are qualified in their entirety by reference to each such statute, regulation or
document. There can be no assurance that future amendments or modifications will
not materially change any of the terms or provisions of the programs described
in this Prospectus or of the statutes and regulations implementing these
programs. See "Risk Factors--Risk That Changes in Law Could Adversely Affect the
Federal Family Education Loan Program and the Financed Student Loans."
THE FEDERAL LOAN PROGRAM
General. The Transferor's loan program for Federal Loans (the "Program")
provides educational financing to students (or their parents) enrolled in or
recently graduated from accredited institutions of higher education. The
Transferor has been originating loans under the Program since the enactment of
the Higher
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Education Act and had, as of March 31, 1997, Student Loan assets under
management in an aggregate principal amount of approximately $1.8 billion. The
Program consists of certain Federal Loans, each of which is guaranteed by a
Guarantor and reinsured by the Department. As described below, Federal Loans
include "Stafford Loans," "SLS Loans," "PLUS Loans," "Unsubsidized Stafford
Loans" and "Consolidation Loans"
Eligibility. To be eligible to obtain a loan under the Program, a student
must, among other things, (i)(a) be enrolled in, or be admitted for enrollment
in, a school that is an accredited and licensed State or nonprofit institution
of higher education and be enrolled in, or enroll in, an eligible undergraduate
or graduate degree or certificate program, be attending at least half-time and
be making satisfactory progress toward the completion of such program according
to the standards of the school, or (b) be enrolled in, or admitted for
enrollment in, an eligible degree or certificate program at an accredited and
licensed Proprietary School (i.e., a privately owned school offering
post-secondary education and operating on a for profit basis), (ii) be a U.S.
citizen, U.S. national or eligible noncitizen, (iii) not have borrowed, together
with the loan being requested, more than the applicable annual and aggregate
limits specified from time to time under the Program, (iv) meet the applicable
"needs" requirements and agree to notify promptly the holder of the loan of any
address change and (v) not be in default on any Federal education loan or owe a
refund on a Federal educational grant (each such student, an "Eligible
Student").
Origination Process. The Higher Education Act specifies rules regarding
loan origination practices, which lenders must comply with in order for their
loans to be guaranteed and to be eligible to receive Federal assistance. Lenders
are prohibited from offering points, premiums, payments or other inducements,
directly or indirectly, to any educational institution, guarantee agency or
individual in order to secure loan applications, and no lender may conduct
unsolicited mailings of student loan applications to students who have not
previously received student loans from that lender.
With respect to all Federal Loans made under the Program (other than
Consolidation Loans discussed below), the Transferor or its agent receives from
a borrower an application for a Federal Loan (which includes an executed
promissory note). The Transferor reviews or causes to be reviewed each
application to confirm its completeness, to confirm that the applicant is an
Eligible Student and that such loan complies with certain other conditions of
the Program. The Transferor forwards or causes to be forwarded a copy of each
application (or electronically transmits the data from such application) that
satisfies the foregoing reviews to the respective Guarantor, who reviews such
application to determine that such application satisfies all applicable
conditions, including the foregoing, for the loan to be eligible to receive
Guarantee Payments, subject to compliance with the terms of the respective
Guarantee Agreements, including the proper servicing of the loan. Upon approval
of an application by both the Transferor and the respective Guarantor and
receipt of evidence from such Guarantor that the applicable loan is guaranteed,
the Transferor causes the proceeds of such loan to be disbursed in one or more
installments. For each loan that is made, the Transferor forwards or causes to
be forwarded the completed loan application and executed promissory note to the
Master Servicer, which serves as custodian for such materials.
With respect to borrower inquiries concerning Consolidation Loans, the
applicable Servicer will contact the borrower and prepare and send to the
borrower an application (which includes a promissory note) for a Consolidation
Loan for the borrower's review and signature. Although the borrower is permitted
to choose any lender from whom he or she currently has federally guaranteed
education loans (including undergraduate loans) to make such Consolidation Loan,
borrowers typically express no preference as to the identity of the lender. In
that event, the Servicer will choose a lender based on various considerations,
which may include the lender that has the highest balance of the loans to be
consolidated or, if there is no such lender, the lender that has made the most
recent loan to the borrower to be consolidated. Pursuant to the Program, the
applicable Servicer will be required to obtain certifications from the lenders
of the loans to be consolidated and to review the loan application and the
certifications to confirm that the borrower is eligible for a Consolidation
Loan. Upon approval of an application for a Consolidation Loan, the applicable
lender will cause the proceeds of such Consolidation Loan to be disbursed to
each lender of the loans being consolidated in amounts sufficient to retire each
of such loans. For each Consolidation Loan that is made by the Transferor, the
Servicer will retain the completed loan application and executed promissory note
as custodian.
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Servicing and Collections Process. The Higher Education Act, the Federal
Loan Program and the applicable Guarantee Agreements require the holder of
Federal Loans to cause specified procedures, including due diligence procedures
and the taking of specific steps at specific intervals, to be performed with
respect to the servicing of the Federal Loans that are designed to ensure that
such Federal Loans are repaid on a timely basis by or on behalf of borrowers.
The Master Servicer will perform such procedures and has agreed, pursuant to the
Transfer and Servicing Agreement, to perform, or cause to be performed,
specified and detailed servicing and collection procedures with respect to the
Financed Student Loans on behalf of the Trust. Such procedures generally include
periodic attempts to contact any delinquent borrower by telephone and by mail,
commencing with a written notice at the tenth day of delinquency and including
multiple written notices and telephone calls to the borrower thereafter at
specified times during any such delinquency. All telephone calls and letters are
automatically registered, and a synopsis of each call or the mailing of each
letter is noted in the Master Servicer's loan file for the borrower. The Master
Servicer is also required to perform, or cause to be performed, skip tracing
procedures on delinquent borrowers whose current location is unknown, including
contacting such borrowers' schools and references. Failure to comply with the
established procedures could adversely affect the ability of the Eligible Lender
Trustee, as holder of legal title to the Financed Student Loans on behalf of the
Trust, to realize the benefits of any Guarantee Agreement or to receive the
benefits of Federal assistance from the Department with respect thereto. Failure
to comply with certain of the established procedures with respect to a Federal
Loan may also result in the denial of coverage under a Guarantee Agreement for
certain accrued interest amounts, in circumstances where such failure has not
caused the loss of the guarantee of the principal of such Federal Loan. See
"Risk Factors--Risk That Failure to Comply with Loan Origination and Servicing
Procedures for Financed Student Loans May Result in the Department's Refusal to
Make Certain Payments to Guarantors and the Eligible Lender Trustee and the
Guarantor's Refusal to Make Guarantee Payments to the Eligible Lender Trustee."
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Financed Student Loan, the Master Servicer
is required to notify the applicable Guarantor of the existence of such
delinquency. These requests notify the Guarantors of seriously delinquent
accounts and allow the Guarantors to make additional attempts to collect on such
loans prior to the filing of claims. If a loan is delinquent for 180 days, the
Master Servicer is required to file a default claim with the respective
Guarantor. Failure to file a claim within 240 days of delinquency may result in
denial of the guarantee claim with respect to such Financial Student Loan, and
failure to file within 210 days may result in a reduction in the accrued
interest included in the claim payment. The failure by the Master Servicer to
file a guarantee claim in a timely fashion would constitute a breach of its
covenants and create an obligation of the Master Servicer to purchase the
applicable Federal Loan. See "Description of the Transfer and Servicing
Agreements--Master Servicer Covenants."
TYPES OF FEDERAL LOANS UNDER THE PROGRAM
General. The following descriptions of the Stafford Student Loan Program,
the Unsubsidized Stafford Loan Program, the Supplemental Loans for Students
Program, the Parental Loans for Undergraduate Students Program and the
Consolidation Loan Program as authorized under the Higher Education Act are
qualified in their entirety by reference to the Higher Education Act. Since its
original enactment in 1965, the Higher Education Act has been amended and
reauthorized several times, including by the Higher Education Amendments of 1992
(the "1992 Amendments"), the Student Loan Reform Act of 1993 (the "1993
Amendments") and the Higher Education Technical Amendments Act of 1993 (the
"1993 Technical Amendments"). The 1992 Amendments extended the principal
provisions of the Federal Loan Programs through October 1, 1998 (or, in the case
of borrowers who have received Federal Loans prior to that date, September 30,
2002).
Also, effective for student loans first disbursed after October 1, 1993,
lenders will be assessed an up-front, user/origination fee equal to .5% of the
principal amount of the student loan.
There can be no assurance that the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a manner that will
adversely impact the programs described in this Prospectus and the Federal Loans
made
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thereunder, or the Guarantors. In addition, existing legislation and future
measures to reduce the federal budget deficit may adversely affect the amount
and nature of federal financial assistance available with respect to these
programs. In recent years, federal budget legislation has provided for the
recovery of certain funds held by guarantee agencies in order to achieve
reductions in federal spending. There can be no assurance that future federal
budget legislation or administrative actions will not adversely affect
expenditures by the Department or the financial condition of the Guarantors.
Stafford Loans. "Stafford Loans" are loans made by eligible lenders in
accordance with the Higher Education Act to Eligible Students, based on
financial need, to finance a portion of the costs of attending an eligible
institution of higher education or a vocational school. The Higher Education Act
limits the amount of Stafford Loans that may be made to a student in any given
academic year and the amount of Stafford Loans that a student may have
outstanding in the aggregate and specifies certain payment terms, including the
interest rates that may be charged on Stafford Loans. Holders of Stafford Loans
complying with these limitations and the other conditions specified in the
Higher Education Act will be entitled to the benefits of: (i) a guarantee of the
payment of principal and interest with respect to such Stafford Loans by a
guarantee agency, which guarantee will be supported by federal reinsurance of
all or most of such guaranteed amounts as described herein; (ii) federal
interest subsidy payments equal to the interest payable on such Stafford Loans
prior to the time the borrower begins repayment of such Stafford Loans and
during any applicable Deferral Periods, together with interest on any such
amounts not paid by the Department when due ("Interest Subsidy Payments"), and
(iii) federal special allowance payments, together with interest on any such
amounts not paid by the Department when due ("Special Allowance Payments"),
during the term of such Stafford Loans in varying amounts to ensure that
interest payable by the borrowers on such Stafford Loans, together with these
payments, approximates current market interest rates (such federal reinsurance
obligations, together with those obligations referred to in clauses (ii) and
(iii) above, being collectively referred to herein as "Federal Assistance").
(1) Eligibility Requirements. Subject to the annual and aggregate limits on
the amount of Stafford Loans that a student can borrow discussed below, Stafford
Loans are available to eligible students in amounts not exceeding their unmet
need for financing as determined in accordance with the provisions of the Higher
Education Act.
In addition to complying with the borrower's eligibility requirements set
forth above under the caption "--The Federal Loan Program," each Stafford Loan
(i) must be unsecured, (ii) must provide for deferral of the obligation of the
borrower to make (x) interest payments for as long as the Department makes
Interest Subsidy Payments and (y) principal payments so long as the borrower
remains an Eligible Student and thereafter during any applicable Grace Periods,
Deferral Periods or Forbearance Periods and (iii) must provide for repayment
over a period generally not to exceed 10 years (excluding any Deferral Periods
or Forbearance Periods) from the date repayment commences.
(2) Loan Limits. In order to qualify for Federal Assistance under the
Stafford Federal Student Loan Program, the Higher Education Act imposes an
annual limit on the amount of Stafford Loans and other Federal Loans that may be
made to any single student and an aggregate limit on the amount of such Federal
Loans such student may have outstanding. Under the 1992 Amendments, the annual
Stafford limit for first year students is $2,625 (except that lower limits apply
to certain short-term courses of study), increasing to $3,500 for second year
students, $5,500 for third and fourth year students, and $8,500 for graduate and
professional students. The aggregate limit is $23,000 for undergraduates and
$65,500 for graduate and professional students.
(3) Interest. Stafford Loans made to students with respect to periods of
enrollment in school commencing prior to July 1, 1988 (or thereafter to students
who had Federal Loans outstanding on such date), bear interest at either 7%, 8%
or 9% per annum, depending on the date of issuance and the interest rate
applicable to such student's outstanding Federal Loans. For the time periods
applicable to the Financed Student Loans, Stafford Loans made on or after July
l, 1988, to students with no outstanding Federal Loans on the date such Stafford
Loan is made ("new borrowers"), bear interest at rates of 8% per annum from
disbursement through four years after repayment commences and 10% per annum
thereafter, subject to a provision requiring annual
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discharge of principal or rebate to the borrower to the extent that, for each
quarter, the interest due at the 10% rate (or, for Stafford Loans to such
borrowers which are first disbursed after July 23, 1992, the interest rate then
applicable thereto) exceeds the interest that would be payable at a rate per
annum equal to the sum of the 91-day Treasury Bill Rate plus 3.25% (or, for
Stafford Loans to such borrowers which are first disbursed after July 23, 1992,
and from the date of disbursement, 3.10%). Notwithstanding the foregoing, no
such discharge of principal or rebate to a borrower will be payable if such
borrower is more than 30 days delinquent in making payments on such Stafford
Loan. However, under the 1993 Technical Amendments, by January 1, 1995 lenders
had to convert all loans subject to this provision to a variable rate equal to
the 91-day Treasury Bill Rate plus 3.25% or, in the case of a loan made to a
borrower with outstanding Federal Loans under the Federal Loan Programs after
October 1, 1993, the 91-day Treasury Bill Rate plus 3.1%. The converted loans
will not thereafter be subject to the rebate requirements described above.
A Stafford Loan made on or after October 1, 1992 to a student with no
outstanding Federal Loans on the date such Stafford Loan is made, bears interest
at a variable rate, based on the 91-day Treasury Bills Rate plus 3.10% or 9%,
whichever is less. A Stafford Loan made on or after October 1, 1992, to a
student with prior outstanding Federal Loans on the date such Stafford Loan is
made, bears interest at a variable rate, equal to the 91-day Treasury Bill Rate
plus 3.10%, with a maximum rate ranging from 7% to 10% based upon the borrower's
outstanding loans and how long the new Stafford Loan has been in repayment.
Stafford Loans first disbursed on or after July 1, 1995 and prior to July 1,
1998 bear interest at a rate equal to the 91-day Treasury Bill Rate plus 2.50%
while the borrowers are in in-school, grace, or deferment status, and at a rate
equal to the 91-day Treasury Bill Rate plus 3.10% during periods in which the
loan does not qualify for Interest Subsidy Payments. Stafford Loans made on or
after July 1, 1998 will bear interest at a rate equal to the bond equivalent
rate of U.S Treasury securities with a comparable maturity plus 1.0% with a
8.25% cap.
Interest is payable on each Stafford Loan monthly in arrears until the
principal amount thereof is paid in full. However, prior to the date the
borrower begins repaying the principal of such Stafford Loan and during any
applicable Deferral Period or Grace Period, the borrower has no obligation to
make interest payments. Instead, the Department makes quarterly Interest Subsidy
Payments to the holder of the Stafford Loan on behalf of the borrower during
such periods, in amounts equal to the accrued and unpaid interest for the
previous quarter with respect to such Stafford Loan. During a Forbearance
Period, the Department will not make any Interest Subsidy Payments; instead, at
the borrower's option, interest on each Stafford Loan may be paid currently or
accrue and be capitalized and added to the outstanding principal balance of such
Stafford Loan at the end of such Forbearance Period. See "--(6) Interest Subsidy
Payments."
(4) Repayment. No principal and/or interest payments with respect to a
Stafford Loan are required to be made during the time a borrower remains an
Eligible Student and during the existence of an applicable Grace Period,
Deferral Period or Forbearance Period. In general, a borrower must repay each
Stafford Loan in monthly installments over a period generally not to exceed 10
years (excluding any Deferral Period or Forbearance Period) after commencement
of repayment. Any borrower may voluntarily prepay without premium or penalty any
Federal Loan and in connection therewith may waive any Grace Period or Deferral
Period. The Higher Education Act presently requires a minimum annual principal
and interest payment with respect to a Stafford Loan of $600 in the aggregate
(but in no event less than accrued interest), unless the borrower and the lender
agree to a lesser amount. The 1992 Amendments adopted several provisions that
affect loan repayment terms. These include, among others, provisions to grant
new borrowers with respect to loans for which the first disbursement is on or
after July 1, 1993, the right to choose a graduated or income-sensitive
repayment schedule.
(5) Grace Periods, Deferral Periods, Forbearance Periods. Borrowers of
Stafford Loans must generally commence repaying the loans following a period of
(a) not less than 9 months nor more than 12 months (with respect to loans for
which the applicable interest rate is 7% per annum) and (b) not more than 6
months (with respect to loans for which the applicable interest rate is in
excess of 7% per annum and for loans to first time borrowers on or after July 1,
1988) (a "Grace Period") after the borrower ceases to be an Eligible Student.
However, subject to certain conditions, no principal repayments need be made
with respect to Stafford Loans during periods when the borrower has returned to
an eligible educational institution on at least a half-time basis or is pursuing
studies pursuant to an approved graduate fellowship program and during certain
other
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periods (varying from six months to three years) when the borrower has joined
the military or certain volunteer organizations (for all loans made after July
1, 1993, or loans made after such date to borrowers with loans already
outstanding on such date), for periods when the borrower is unable to secure
employment (up to three years) or for periods during which the borrower is
experiencing economic hardship (for loans made after July 1, 1993, to borrowers
with no outstanding loans on such date) (each a "Deferral Period"). The lender
may also allow, in accordance with standards and guidelines approved by the
applicable guarantor and the Department, periods of forbearance during which the
borrower may defer principal and/or interest payments because of temporary
financial hardship (a "Forbearance Period").
(6) Interest Subsidy Payments. Interest Subsidy Payments are payments made
quarterly to the holder of a qualifying Stafford Loan by the Department with
respect to those Stafford Loans as to which the applicable conditions of the
Higher Education Act have been satisfied, in an amount equal to the accrued and
unpaid interest on the outstanding principal amount of each Stafford Loan for
such quarter, commencing from the date such Stafford Loan is made until the end
of the applicable Grace Period after the borrower ceases to be an eligible
student and during any applicable Deferral Period. The Department will not make
Interest Subsidy Payments during any Forbearance Period. The Higher Education
Act provides that the holder of such a qualifying Stafford Loan has a
contractual right, as against the United States, to receive Interest Subsidy
Payments from the Department (including the right to receive interest on any
Interest Subsidy Payments not timely paid). Receipt of Interest Subsidy Payments
is conditioned on compliance with the requirements of the Higher Education Act,
including satisfaction of certain need-based criteria (and the delivery of
sufficient information by the borrower and the lender to the Department to
confirm the foregoing) and continued eligibility of the Stafford Loan for
federal reinsurance. Such eligibility may be lost, however, if the loans are not
originated and serviced, or are not held by an eligible lender, in accordance
with the requirements of the Higher Education Act and the applicable guarantee
agreements. See "--(1) Eligibility Requirements"; "Risk Factors--Risk That
Failure to Comply With Student Loan Origination and Servicing Procedures for
Financed Student Loans May Result in the Department's Refusal to Make Certain
Payments to Guarantors and Eligible Lender Trustee and the Guarantors Refusal to
Make Guarantee Payments to Eligible Lender Trustee"; "Formation of the
Trust--Eligible Lender Trustee" and "Description of the Transfer and Servicing
Agreements--Servicing Procedures." The Transferor expects that each of the
Stafford Loans that are part of the pool of Financed Student Loans will be
eligible to receive Interest Subsidy Payments.
(7) Special Allowance Payments. The Higher Education Act requires, subject
to certain conditions, the Department to make quarterly Special Allowance
Payments to holders of qualifying Federal Loans (including Stafford Loans) in an
amount equal to a specified percentage of the average outstanding principal
amount of each such Federal Loan during each quarter.
The percentage or rate used to determine the Special Allowance Payments for
a particular loan varies based on a number of factors, including when the loan
was disbursed and the period of enrollment with respect to which it was made.
Generally, the Special Allowance Payment with respect to a loan such as any
Federal Loan for a quarter will be equal to the excess, if any, of (i) the
amount of interest that would be payable on such loan at a rate per annum equal
to the 91-day Treasury Bill Rate plus 3.10% (3.25% for loans first disbursed
before October 1, 1992 and 2.50% while the borrower is in school, grace or
deferment status for loans made on or after July 1, 1995) over (ii) the stated
amount of interest payable on such loan.
The Higher Education Act provides that a holder of a qualifying loan who is
entitled to receive Special Allowance Payments has a contractual right against
the United States to receive those Special Allowance Payments (including the
right to receive interest on any Special Allowance Payments not timely paid).
Receipt of Special Allowance Payments, however, is conditioned on compliance
with the requirements of the Higher Education Act, including satisfaction of
certain need-based criteria (and the delivery of sufficient information by the
borrower and the lender to the Department to confirm the foregoing) and
continued eligibility for federal reinsurance. Such eligibility may be lost,
however, if the loans are not originated and serviced, or are not held by an
eligible lender, in accordance with the requirements of the Higher Education Act
and the applicable guarantee agreement. See "--(1) Eligibility Requirements";
"Risk Factors--Risk That Failure to Comply with Student Loan Origination and
Servicing Procedures for Financed Student Loans May Result in Department's
Refusal to Make Certain Payments to Guarantors and the Eligible Lender
42
<PAGE> 46
Trustee and the Guarantors' Refusal to Make Guarantee Payments to the Eligible
Lender Trustee"; "Formation of the Trust--Eligible Lender Trustee" and
"Description of the Transfer and Servicing Agreements--Servicing Procedures."
The Transferor expects that each of the Stafford Loans that are part of the pool
of Financed Student Loans will be eligible to receive Special Allowance
Payments, if any are payable from time to time.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 to 60 days after submission to the Department of the
applicable claims forms for any given calendar quarter, although there can be no
assurance that such payments will in fact be received from the Department within
that period. See "Risk Factors--Risk of Reduction in Amounts Paid on the Notes
Resulting From Variability of Actual Cash Flows; Risk of Reduction in Amounts
Paid on the Notes From Inability of Guarantors to Make Guarantee Payments" and
"--Risk of Inability of Indenture Trustee to Liquidate Financed Student Loans."
The Master Servicer has agreed to prepare and file with the Department all such
claims forms and any other required documents or filings on behalf of the
Eligible Lender Trustee as owner of the Financed Student Loans on behalf of the
Trust. The Master Servicer has also agreed to assist the Eligible Lender Trustee
in monitoring, pursuing and obtaining such Interest Subsidy Payments and Special
Allowance Payments, if any, with respect to such Federal Loans. The Eligible
Lender Trustee will be required to remit to the Indenture Trustee, for deposit
in the Collection Account, Interest Subsidy Payments and Special Allowance
Payments it receives with respect to the Federal Loans within two Business Days
of receipt thereof.
Unsubsidized Stafford Loans. The Federal Loans also may include Stafford
Loans that do not qualify for Interest Subsidy Payments but otherwise qualify
for all other forms of Federal Assistance ("Unsubsidized Stafford Loans"). These
loans are identical to Stafford Loans in all material respects, except that
interest accruing thereon during periods when the borrower is in school or in a
Deferral Period or Grace Period is either paid periodically by the borrower
during such periods or added periodically to the principal balance of the loan
by the holder thereof. A borrower qualifies for an Unsubsidized Stafford Loan
if, and to the extent that, the borrower's need for a Stafford Loan, as
calculated pursuant to the Higher Education Act, is less than the maximum
Stafford Loan authorized by statute due to the borrower's expected family
contribution as calculated thereunder. As discussed below, no SLS Loans may be
made on or after July 1, 1994. As a result of this change, on July 1, 1994, the
maximum amount a single borrower may receive under the Unsubsidized Stafford
Loan program was increased by the amount such borrower could formerly have
obtained under the SLS Program.
SLS Loans. In addition to the Stafford Student Loan Program, the Higher
Education Act provides a separate program to facilitate additional loans to
graduate and professional students and independent undergraduate students. This
program is referred to as the "Supplemental Loans for Students Program" (the
"SLS Program"). The basic framework and principal provisions of the Stafford
Student Loan Program as described above are similar in many respects to those
that are applicable to loans under the SLS Program ("SLS Loans"). In particular,
SLS Loans are subject to similar eligibility requirements and, provided that
such requirements are satisfied, are entitled to the same guarantee and federal
reinsurance arrangements. SLS Loans differ significantly from Stafford Loans,
however, in the context of the Interest Subsidy Payments and Special Allowance
Payments discussed above.
The annual and aggregate limitations that are applicable to SLS Loans are
as follows: SLS Loans to a single borrower cannot exceed $4,000 per academic
year for first year and second year students, increasing to $5,000 for third
year and fourth year students, and to $10,000 for graduate and professional
students, with aggregate limits of $23,000 for undergraduate students ($20,000
for loans first disbursed on or before July 1, 1993) and $73,000 for graduate
and professional students (exclusive of any capitalized interest) at any one
time outstanding. SLS Loans are also limited, generally, to the cost of
attendance minus other financial aid for which the borrower is eligible. A
determination of a borrower's eligibility for the Stafford Student Loan Program,
among other programs, is a condition to the making of an SLS Loan.
As specified by the Higher Education Act, the applicable interest rate for
an SLS Loan depends upon the date of issuance of the loan and the period of
enrollment for which the loan is made. The interest rate per annum for SLS Loans
made and disbursed on or after July 1, 1987 is fixed each July 1 for each
succeeding
43
<PAGE> 47
12-month period at a rate equal to the sum of (i) the bond equivalent rate of
52-week Treasury bills auctioned at the final auction held prior to the
preceding June 1 and (ii) 3.10% (3.25% for loans first disbursed before October
1, 1992), with a maximum rate of 11% per annum (12% for loans first disbursed
before October 1, 1992).
Although holders of SLS Loans are not entitled to receive Interest Subsidy
Payments with respect thereto, interest on such SLS Loans accrues from the date
each such SLS Loan is made and may either be paid currently by a borrower or may
be capitalized and added to the outstanding principal amount of such SLS Loan at
the time the borrower begins repayment. SLS Loans are eligible for Special
Allowance Payments only if and to the extent that the interest rate for such SLS
Loans calculated based on the 52-week Treasury bill rate referred to above would
exceed the applicable per annum maximum interest rate. Because the basis for
determining the amount, if any, of Special Allowance Payments due to lenders is
based on the 91-day Treasury Bill Rate while the interest rate for SLS Loans is
based on the 52-week Treasury bill rate (which may differ from the 91-day
Treasury Bill Rate), there can be no assurance that any Special Allowance
Payments will be due and payable with respect to SLS Loans even though such SLS
Loans are deemed to be eligible therefor. See "--(7) Special Allowance
Payments."
A borrower of an SLS Loan is required to begin repayment of the principal
of such SLS Loan within 60 days after the date the last installment of such SLS
Loan is advanced, subject to deferral so long as such borrower remains an
Eligible Student or as a result of any applicable Deferral Period or Forbearance
Period. In addition, any borrower of an SLS Loan made and advanced after July
23, 1992, who also has Stafford Loans outstanding may defer commencing repayment
of such SLS Loan for the Grace Period applicable to such Stafford Loans.
Pursuant to the Omnibus Budget Reconciliation Act of 1993, no SLS Loans may be
made on or after July 1, 1994.
PLUS Loans. The Higher Education Act authorizes Parental Loans for
Undergraduate Students ("PLUS Loans") to be made to parents of eligible
dependent undergraduate students. The basic provisions applicable to PLUS Loans
are similar to those of Stafford Loans with respect to the involvement of
guaranty agencies and the Department in providing guarantees and federal
reinsurance on the loans. However, PLUS Loans differ significantly from Stafford
Loans, particularly because Interest Subsidy Payments are not available and in
some instances Special Allowance Payments are more restricted.
Pursuant to the 1992 Amendments, with respect to PLUS Loans originated
after July 1, 1993, there are no annual loan limits for PLUS Loans. PLUS Loans,
however, are limited by a formula whereby the amount borrowed annually, when
combined with the student's other loans and grants for that year, may not exceed
the student's estimated educational costs. The 1992 Amendments prohibit
origination of PLUS Loans to borrowers determined, pursuant to regulations of
the Department, to have adverse credit histories for loans with first
disbursement on or after July 1, 1993.
The interest rates on a PLUS Loan depend upon the date of issuance of the
loan and the period of enrollment for which the loan is to apply. PLUS Loans
disbursed or refinanced on or after July 1, 1987 bear interest at a variable
rate which is in effect from each July 1 through June 30, which is determined on
the June 1 preceding the commencement of the interest rate period, and which is
equal to the bond equivalent rate of 52-week Treasury bills auctioned at the
final auction held prior to such June 1 plus 3.10% (3.25% for PLUS Loans
disbursed before October 1, 1992), except that such rate cannot exceed 10% (or
12% for PLUS Loans disbursed before October 1, 1992). The 1993 Amendments reduce
this interest rate ceiling to 9% for PLUS Loans made to new borrowers on or
after July 1, 1994. PLUS Loans made on or after July 1, 1998 are to bear a rate
equal to the bond equivalent rate of the U.S. Treasury security with a
comparable maturity, as established by the Department, plus 2.1% (not to exceed
9%).
Lenders are required to charge a 5% origination fee, payable to the
Department, to any borrower of a PLUS Loan made on or after October 1, 1992,
except that such fee is 3% for PLUS Loans first disbursed on or after July 1,
1994.
Repayment of the principal of PLUS Loans is required to commence no later
than 60 days after the date of final disbursement of such loan, subject to
certain deferment provisions. A parent borrower may defer
44
<PAGE> 48
principal payments for periods during which the borrower has a dependent student
for whom the parent borrowed a PLUS Loan, if such student is engaged in a
qualifying educational program, graduate fellowship program or rehabilitation
training program and the PLUS Loan was originated before July 1, 1993; a parent
borrower of a PLUS Loan made thereafter may defer principal payments only if
such parent borrower is engaged in a qualifying educational program, graduate
fellowship program or rehabilitation training program.
Interest Subsidy Payments are not available with respect to PLUS Loans.
However, the capitalization of interest is allowed during deferral periods.
Thus, the borrower and lender may agree either to capitalize interest or to have
the borrower make the interest payments during an authorized period. The annual
loan limits are not violated by any decision to capitalize interest.
PLUS Loans are eligible for Special Allowance Payments only if and to the
extent that the interest rate for such PLUS Loans calculated based on the
52-week Treasury bill rate referred to above would exceed the applicable per
annum maximum interest rate. Because the basis for determining the amount, if
any, of Special Allowance Payments due to lenders is based on the 91-day
Treasury Bill Rate while the interest rate for PLUS Loans is based on the
52-week Treasury bill rate (which may differ from the 91-day Treasury Bill
Rate), there can be no assurance that any Special Allowance Payments will be due
and payable with respect to PLUS Loans even though such PLUS Loans are deemed to
be eligible therefor. See "-- (7) Special Allowance Payments".
Consolidation Loans. The Higher Education Act established a program to
facilitate the ability of eligible borrowers of Stafford Loans, SLS Loans and
PLUS Loans (each an "Underlying Federal Loan") to consolidate such Federal
Loans, together with such borrowers' other education loans that are made or
guaranteed by the federal government, into a single loan (a "Consolidation
Loan"). Subject to the satisfaction of certain conditions set forth in the
Higher Education Act, including limitations on the timing and payment of
principal and interest with respect to Consolidation Loans and a requirement
that the proceeds of Consolidation Loans are to be used to repay the respective
Underlying Federal Loans (and any other loans consolidated thereunder) of any
borrower, each holder of a Consolidation Loan will be entitled to the same
guarantee and federal reinsurance arrangements as are available on Stafford
Loans, SLS Loans and PLUS Loans. Consolidation Loans, like Stafford Loans, are
also eligible for Interest Subsidy Payments and Special Allowance Payments;
however, for Consolidation Loan applications received by lenders on or after
August 10, 1993, the Department will no longer make Interest Subsidy Payments on
Consolidation Loans other than those loans which consolidate only subsidized
Stafford Loans. Under this program, an eligible borrower of Consolidation Loans
means a borrower who has begun repaying, who is in a grace period preceding
repayment of, or who is a delinquent or defaulted borrower who will, through
such loan consolidation, recommence repayment of such Underlying Federal Loans.
A married couple, each of whom has outstanding Underlying Federal Loans, may
apply for and obtain a single Consolidation Loan so long as both individuals
agree to be held jointly and severally liable on such Consolidation Loan.
Under this program, a lender may make a Consolidation Loan to an eligible
borrower at the request of the borrower if the lender holds an outstanding
Underlying Federal Loan of the borrower or the borrower certifies that he or she
has been unable to obtain a Consolidation Loan from any of the holders of the
outstanding Underlying Federal Loans of the borrower. The lender making any
Consolidation Loan will pay the amount thereof to the various lenders of the
respective Underlying Federal Loans and other loans being consolidated thereby.
The Trust may be affected by Consolidation Loans in the following way. The
Trust may own Underlying Federal Loans with respect to which an institution
other than the Transferor, or the Department pursuant to the Federal Direct
Student Loan Program, makes the Consolidation Loan, in which case such
Underlying Federal Loans will be prepaid in full and such prepayment amount will
constitute Available Funds for the applicable Collection Period. See
"Description of the Transfer and Servicing Agreements--Distributions."
In accordance with the Higher Education Act, Consolidation Loans may bear
interest at a rate per annum equal to the weighted average of the interest rates
on the Underlying Federal Loans (rounded up to the nearest whole percent). In
general, a borrower must repay each Consolidation Loan in scheduled monthly
installments over a period of not more than 10 to 30 years (excluding any
Deferral Period and any
45
<PAGE> 49
Forbearance Period), depending on the original principal amount of such
Consolidation Loan. The repayment schedules for Consolidation Loans will not
exceed: 12 years for loans greater than or equal to $7,500, but less than
$10,000; 15 years for loans greater than or equal to $10,000, but less than
$20,000; 20 years for loans greater than or equal to $20,000, but less than
$40,000; 25 years for loans greater than or equal to $40,000, but less than
$60,000; and not more than 30 years for loans in excess of $60,000. Effective
July 1, 1994, Consolidation Loans for less than $7,500 will have a repayment
schedule of not more than 10 years. Borrowers may voluntarily prepay all or a
portion of any Consolidation Loan without premium or penalty. Repayment of a
Consolidation Loan must commence within 60 days after all holders of Underlying
Federal Loans have discharged the liability of the borrower thereon; provided,
however, that such repayment obligation is deferred for as long as the borrower
remains an Eligible Student and during any applicable Deferral Phase and
Forbearance Phase.
The 1993 Amendments made a number of changes to the Consolidation Loan
Program, including requiring holders of Consolidation Loans made on or after
October 1, 1993, to pay to the Department a monthly fee equal to 1.05% per annum
of the outstanding principal amount of the Consolidation Loan.
The Federal Direct Consolidation Loan Program provides borrowers with the
opportunity to consolidate outstanding student loans at interest rates below,
and income contingent repayment terms that some borrowers may find preferable
to, those that would be available from the Transferor on a Consolidation Loan
originated by the Transferor under the Federal Loan Program. The availability of
such lower rate, income contingent loans may decrease the likelihood that the
Transferor would be the originator of a Consolidation Loan with respect to
borrowers with Federal Loans, as well as increase the likelihood that a Federal
Loan in a Trust will be prepaid through the issuance of a Federal Direct
Consolidation Loan.
Proposed federal budget legislation being considered by Congress could
modify many of the provisions of the Higher Education Act. Until final
legislation is adopted, the impact on the Financed Student Loans, if any, is
impossible to determine. See "Risk Factors--Risk That Changes in Law Could
Adversely Affect Federal Family Education Loan Program and the Financed Student
Loans."
46
<PAGE> 50
THE FINANCED STUDENT LOAN POOL
The Initial Financed Student Loans were, and the Exchanged Financed Student
Loans will be, selected from the Transferor's portfolio of Federal Loans by
several criteria, including the following: each Financed Student Loan (i) was or
will be originated in the United States or its territories or possessions under
and in accordance with the Federal Loan Program to or on behalf of a student who
has graduated or is expected to graduate from an accredited institution of
higher education within the meaning of the Higher Education Act, (ii) contains
terms in accordance with those required by the Program, the Guarantee Agreements
and other applicable requirements and (iii) is not more than 90 days past due as
of its cut-off date set forth in the Transfer and Servicing Agreement or, in the
case of an Exchanged Financed Student Loan, as of the subsequent cut-off date
set forth in the related Transfer Agreement (each, a "Subsequent Cut-Off Date").
No selection procedures believed by the Transferor to be adverse to the
Noteholders will be used in selecting the Financed Student Loans.
However, except for the criteria described above and under "Description of
the Transfer and Servicing Agreements--Exchange Period and Exchanged Financed
Student Loans", there will be no required characteristics of the Exchanged
Financed Student Loans and no limitations on the amount of Exchanged Financed
Student Loans that may be included in the Trust. Therefore, following the
transfer of Exchanged Financed Student Loans to the Eligible Lender Trustee on
behalf of the Trust, the aggregate characteristics of the entire pool of
Financed Student Loans, including the composition of the Financed Student Loans
and of the borrowers thereof, the distribution by interest rate and the
distribution by principal balance described in the following tables, will vary
from those of the Initial Financed Student Loans as of the Cut-Off Date.
Each of the Financed Student Loans provides for the amortization of the
outstanding principal balance of such Financed Student Loan over a series of
regular payments. Each regular payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of such
Financed Student Loan multiplied by the applicable interest rate and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received in respect of
such Financed Student Loan, the amount received is applied first to outstanding
late fees, if any, then to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular 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 a borrower pays a
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, subject to any applicable Deferral
Periods or Forbearance Periods, the borrower pays a regular installment until
the final scheduled payment date, at which time the amount of the final
installment is increased or decreased as necessary to repay the then outstanding
principal balance of such Financed Student Loan.
Set forth below in the following tables is a description of certain
additional characteristics of the Initial Financed Student Loans as of the
Cut-Off Date. Such characteristics are based on a preliminary pool of Initial
Financed Student Loans with an outstanding principal balance as of the Cut-off
Date of $982,839,748. The Transferor expects that additional Initial Financed
Student Loans that were not contained in the preliminary pool and having an
outstanding principal balance as of the Cut-off Date of approximately
$17,100,000 will be added to the final pool of Initial Financed Student Loans
delivered to the Eligible Lender Trustee on the Closing Date. While the
statistical distribution of the characteristics for the final pool of Initial
Financed Student Loans will vary somewhat from the statistical distribution of
such characteristics for the preliminary pool presented below, the Transferor
does not believe that the characteristics of the final pool will differ
materially.
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<PAGE> 51
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance........................................ $982,839,748
Number of Borrowers............................................................ 165,551
Average Outstanding Principal Balance Per Borrower............................. $ 5,937
Number of Loans................................................................ 606,478
Average Outstanding Principal Balance Per Loan................................. $ 1,621
Weighted Average Annual Interest Rate.......................................... 8.30%
Weighted Average Annual Effective Rate......................................... 8.30%
Weighted Average Remaining Term (months) (does not include the months remaining
for the in-school, grace, deferment or forbearance periods).................. 115
Weighted Average Remaining Term (months) (including the months remaining for
the in-school, grace, deferment or forbearance periods)...................... 117
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
LOAN TYPES LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Consolidated........................................... 14,829 $185,125,849 18.84%
PLUS................................................... 46,696 109,799,105 11.17
SLS.................................................... 11,678 24,256,274 2.47
Stafford--Subsidized................................... 462,574 561,470,890 57.12
Stafford--Unsubsidized................................. 70,701 102,187,630 10.40
------- ------------ ------
Total................................................ 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY INTEREST RATE
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
INTEREST RATE LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Less than 7.50%........................................ 15,934 $ 22,808,668 2.32%
7.50% to 8.49%......................................... 499,274 668,002,086 67.97
8.50% to 9.49%......................................... 89,885 284,834,593 28.98
9.50% to greater....................................... 1,385 7,194,401 0.73
------- ------------ ------
Total................................................ 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
48
<PAGE> 52
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY OUTSTANDING BALANCE
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
OUTSTANDING BALANCE BORROWERS BALANCE BALANCE
- ------------------------------------------------------- ---------- ------------ -----------
<S> <C> <C> <C>
Less than $1,000....................................... 15,493 $ 9,276,597 0.94%
$1,000-$1,999.......................................... 22,670 34,081,485 3.47
$2,000-$2,999.......................................... 27,254 68,257,160 6.94
$3,000-$3,999.......................................... 19,277 67,205,440 6.84
$4,000-$4,999.......................................... 14,692 65,829,237 6.70
$5,000-$5,999.......................................... 13,116 71,546,873 7.28
$6,000-$6,999.......................................... 8,639 55,752,866 5.67
$7,000-$7,999.......................................... 6,773 50,678,462 5.16
$8,000-$8,999.......................................... 5,703 48,416,210 4.93
$9,000-$9,999.......................................... 4,708 44,652,410 4.54
$10,000-$10,999........................................ 4,104 43,020,909 4.38
$11,000-$11,999........................................ 3,455 39,624,113 4.03
$12,000-$12,999........................................ 2,686 33,528,067 3.41
$13,000-$13,999........................................ 2,320 31,294,195 3.18
$14,000-$14,999........................................ 2,242 32,448,531 3.30
$15,000 or greater..................................... 12,418 287,227,193 29.23
------- ------------ ------
Total.................................................. 165,551 $982,839,748 100.00%
======= ============ ======
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER PAYMENT STATUS
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
BORROWER PAYMENT STATUS LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Claim.................................................. 0 $ 0 0.00%
Deferment.............................................. 57,282 99,867,107 10.16
Forbearance............................................ 40,906 91,445,881 9.30
Grace.................................................. 28,534 46,480,689 4.73
In School.............................................. 44,300 72,852,542 7.41
Repayment.............................................. 435,456 672,193,529 68.40
------- ------------ ------
Total................................................ 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
49
<PAGE> 53
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
LOCATION (1) LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
California............................................. 12,369 $ 23,110,500 2.35%
Florida................................................ 11,954 21,358,337 2.17
Georgia................................................ 23,207 27,252,497 2.77
Indiana................................................ 10,272 21,592,787 2.20
Kentucky............................................... 73,139 110,830,416 11.28
New Jersey............................................. 39,686 64,139,955 6.53
New York............................................... 14,271 29,137,849 2.96
Ohio................................................... 34,892 51,037,321 5.19
Pennsylvania........................................... 288,983 446,236,221 45.40
Others (2)............................................. 97,705 188,143,865 19.15
------- ------------ ------
TOTAL.................................................. 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
- ---------
(1) Based on the permanent billing addresses of the borrowers of the Initial
Financed Student Loans shown on the Servicer's records.
(2) Consist of locations that include 41 other states, the District of Columbia,
various other U.S. territories, possessions and commonwealths, foreign
countries, overseas military establishments, and unknown locations, none of
the aggregate principal balance of the Student Loans relating to which
exceed 2.00% of the Initial Pool Balance.
Approximately 45.40% and 11.28% of the Initial Financed Student Loans were
originated to borrowers with permanent billing addresses in Pennsylvania and
Kentucky, respectively. To the extent such states experience adverse economic or
other conditions to a greater degree than other areas of the country, the
ability of such borrowers to repay their Financed Student Loans may be impacted
to a larger extent than if such borrowers were dispersed more geographically.
The Transferor is not aware of any material adverse conditions that are unique
to such states.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY DATE OF DISBURSEMENT
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
DISBURSEMENT DATE LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Pre-October 1, 1993.................................... 349,795 $436,354,129 44.40%
October 1, 1993 and thereafter......................... 256,683 546,485,619 55.60
------- ------------ ------
Total................................................ 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
50
<PAGE> 54
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTOR
<TABLE>
<CAPTION>
PERCENT OF
LOANS BY
NUMBER OF OUTSTANDING OUTSTANDING
GUARANTORS LOANS BALANCE BALANCE
- ------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
Georgia Higher Education Assistance Corporation........ 23,105 $ 20,976,042 2.13%
Great Lakes Higher Education Corporation............... 28,010 32,604,414 3.32
Kentucky Higher Education Assistance Authority......... 82,966 120,936,061 12.30
New Jersey Higher Education Assistance Authority....... 38,469 47,905,354 4.87
Pennsylvania Higher Education Assistance Authority..... 405,826 680,563,165 69.24
United Student Aid Funds............................... 18,821 66,772,900 6.79
Other.................................................. 9,281 13,081,812 1.35
------- ------------ ------
Total................................................ 606,478 $982,839,748 100.00%
======= ============ ======
</TABLE>
INCENTIVE PROGRAMS
The Transferor currently makes available and may hereafter make available
certain incentive programs to borrowers. As of the Cut-off Date, Financed
Student Loans in the aggregate principal amount of approximately $35 million are
subject to the PNC Bank Preferred Payment Program (the "PP Program").
The PP Program applies to all Stafford Loans and Unsubsidized Stafford
Loans with a first disbursement made by the Transferor on or after July 1, 1996
("PP Loans"). Under the PP Program, if the borrower makes the first 48
consecutive monthly payments of a PP Loan on time, the applicable interest rate
on such PP Loan is reduced by 2%.
MATURITY AND PREPAYMENT ASSUMPTIONS
The rate of payment of principal of the LIBOR Rate Notes and the yield on
the LIBOR Rate Notes will be affected by (i) prepayments of the Financed Student
Loans that may occur as described below, (ii) the sale by the Trust of Financed
Student Loans and (iii) Parity Percentage Payments. All the Financed Student
Loans are prepayable in whole or in part by the borrowers at any time (including
by means of Consolidation Loans as discussed below) and may be prepaid as a
result of a borrower default, death, disability or bankruptcy and subsequent
liquidation or collection of Guarantee Payments with respect thereto. The rate
of such prepayments cannot be predicted and may be influenced by a variety of
economic, social and other factors, including those described below. In general,
the rate of prepayments may tend to increase to the extent that alternative
financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Financed Student Loans.
However, because many of the Financed Student Loans bear interest at a rate that
either actually or effectively is floating, it is impossible to determine
whether changes in prevailing interest rates will be similar to or vary from
changes in the interest rates on the Financed Student Loans. To the extent
borrowers of Financed Student Loans elect to borrow Consolidation Loans that are
not transferred to the Eligible Lender Trustee as Exchanged Financed Student
Loans or the proceeds of such Consolidation Loans are not used to make Issuer
Consolidation Payments, or the Trust sells Serial Loans, such Financed Student
Loans will be prepaid. See "The Student Loan Financing Business--Types of
Federal Loans Under the Program--Consolidation Loans." In addition, the
Transferor is obligated to purchase any Financed Student Loan pursuant to the
Transfer and Servicing Agreement as a result of a breach of any of its
representations and warranties, and the Master Servicer is obligated to purchase
any Financed Student Loan pursuant to the Transfer and Servicing Agreement as a
result of a breach of certain covenants with respect to such Financed Student
Loan, in each case where such breach materially and adversely affects the
interests of the Certificateholders or the Noteholders in that Financed Student
Loan and is not cured within the applicable cure period (it being understood
that any such breach that does not affect any Guarantor's obligation to
guarantee payment of such Financed Student Loan will not be considered to have a
material adverse effect for this purpose). See "Description of the Transfer and
Servicing Agreements--
51
<PAGE> 55
Conveyance of Financed Student Loans; Representations and Warranties" and
"--Master Servicer Covenants." See also "Description of the Transfer and
Servicing Agreements--Termination" regarding the Transferor's option to purchase
the Financed Student Loans when the aggregate Pool Balance is less than or equal
to 5% of the Initial Pool Balance and the outstanding principal amount of the
Fixed Rate Notes has been reduced to zero and "--Insolvency Event" regarding the
sale of Financed Student Loans if a Transferor Insolvency Event occurs.
Scheduled payments with respect to, and maturities of, the Financed Student
Loans may be extended, including pursuant to Grace Periods, Deferral Periods
and, under certain circumstances, Forbearance Periods. The rate of payment of
principal of the LIBOR Rate Notes and the yield on the LIBOR Rate Notes may also
be affected by the rate of defaults resulting in losses on Financed Student
Loans, by the severity of those losses and by the timing of those losses, which
may affect the ability of the Guarantors to make Guarantee Payments with respect
thereto.
The rate of prepayment on the Financed Student Loans cannot be predicted,
and any reinvestment risks resulting from a faster or slower incidence of
prepayment of Financed Student Loans or a faster or slower incidence of sales by
the Trust will be borne entirely by the LIBOR Rate Noteholders. Such
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time LIBOR Rate
Noteholders receive payments from the Trust than such interest rates and such
spreads would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time.
INSURANCE OF STUDENT LOANS; GUARANTORS OF FEDERAL LOANS
General. Each Financed Student Loan is required to be guaranteed as to
principal and interest by a Guarantor and reinsured by the Department under the
Higher Education Act and must be eligible for Special Allowance Payments and,
with respect to each Financed Student Loan that is not an SLS Loan, PLUS Loan or
Unsubsidized Stafford Loan, Interest Subsidy Payments paid by the Department.
Federal Reinsurance. Under the Higher Education Act, each Guarantor is
reimbursed by the Department pursuant to certain agreements between the
Department and such Guarantor for amounts paid under its Guarantee Agreement.
The amount of reimbursement by the Department for Federal Loans for each fiscal
year commencing October 1 varies for each Guarantor depending on the annual
claims rate for that Guarantor (i.e., the dollar amount of reimbursement claims
filed by that Guarantor during that fiscal year as a percentage of the
outstanding aggregate principal amount at the end of the preceding fiscal year
of those Federal Loans it guarantees whose borrowers were repaying such Federal
Loans at the end of the preceding fiscal year) as follows:
<TABLE>
<CAPTION>
CLAIMS RATE REIMBURSEMENT TO GUARANTOR BY THE
OF GUARANTOR DEPARTMENT OF EDUCATION
- ------------------------------ ------------------------------------------------------------
<S> <C>
0% to and including 5%........ 98% (100% for loans disbursed before October 1, 1993)
Greater than 5% to and
including 9%................ 88% (90% for loans disbursed before October 1, 1993)
Greater than 9%............... 78% (80% for loans disbursed before October 1, 1993)
</TABLE>
The claims experience for any Guarantor is not accumulated from year to
year for purposes of this test but is determined solely on the basis of claims
filed in any one federal fiscal year. The Higher Education Act provides that the
obligation of the Department to reimburse each such Guarantor as described above
is, subject to compliance with the Higher Education Act, supported by the full
faith and credit of the United States and that Guarantors are deemed to have a
contractual right against the United States to receive reinsurance in accordance
with its provisions.
Under the 1993 Amendments, Congress made a number of changes that may
adversely affect the financial condition of the Guarantors, including reducing
to 98% the maximum percentage of Guarantee Payments the Department will
reimburse for loans first disbursed on or after October 1, 1993, reducing
52
<PAGE> 56
substantially the premiums and default collections that Guarantors are entitled
to receive and/or retain and giving the Department broad powers over Guarantors
and their reserves. The 1993 Amendments also reduced Guarantors' default
collection retention rate from 30% to 27%, reduced the maximum insurance premium
charged by a Guarantor from 3% to 1% and authorized the Secretary to terminate a
Guarantor's reinsurance agreement if the Secretary determines such action is
necessary to protect federal fiscal interests or ensure an orderly transition to
full implementation of the Federal Direct Student Loan Program. The
Administrative Cost Allowance ("ACA") was eliminated; however, legislative
history and recent Department actions suggest that Congress intended that
Guarantors will continue to receive a substantial ACA. For Stafford Loans
disbursed on or after July 1, 1995, the Lender yield on student loans during in
school, grace and deferment periods is reduced from the 91-day Treasury Bill
Rate plus 3.1% to the 91-day Treasury Bill Rate plus 2.5% (not to exceed 8.25%,
before giving effect to any applicable Special Allowance Payments). Lenders will
also be required to pay a 1.05% annual fee to the Secretary on the principal
plus accrued but unpaid interest of all Consolidation Loans made on or after
October 1, 1993 and such loans bear interest at the 91-day Treasury Bill Rate
plus 3.1% with no floor applicable. Also, effective for student loans first
disbursed after October 1, 1993, lenders will be assessed an up-front,
user/origination fee equal to .5% of the principal amount of the student loan.
The Department's powers over Guarantors include the authority to require a
Guarantor to return all reserve funds to the Department if the Department
determines such action is necessary to ensure an orderly termination of the
Guarantor, to serve the best interests of the Federal Loan Programs or to ensure
the proper maintenance of such Guarantor's funds or assets. The Department is
also now authorized to direct a Guarantor to return a portion of its reserve
funds which the Department determines is unnecessary to pay the program expenses
and contingent liabilities of the Guarantor and/or to cease any activities
involving the use of the Guarantor's reserve funds or assets which the
Department determines is a misapplication or otherwise improper. Subject to the
requirements described in the following paragraphs, the Department may also
terminate a Guarantor's reinsurance agreement if the Department determines that
such action is necessary to protect the federal fiscal interest or to ensure an
orderly transition to full implementation of direct federal lending. These
various changes create a significant risk that the resources available to the
Guarantors to meet their guarantee obligations will be significantly reduced. In
addition, this legislation greatly expands the Federal Direct Student Loan
Program volume to a target of approximately 60% of student loan demand in
academic year 1998-1999, which could result in increasing reductions in the
volume of loans made under the Program. Such changes could have an adverse
effect on the financial condition of the Guarantors and on the ability of a
Guarantor to satisfy its obligations under its Guarantee Agreement with respect
to the Federal Loans. See "Risk Factors--Risk That Changes in Law Could
Adversely Affect the Federal Family Education Loan Program and the Financed
Student Loans."
In issuing guarantees with respect to Federal Loans, each Guarantor is
required by the Higher Education Act to review loan applications to verify the
completion of required information and to make a determination that the
applicant has not borrowed amounts in excess of any applicable annual and
aggregate limits imposed by the Higher Education Act.
Pursuant to the 1992 Amendments, each Guarantor is required to maintain a
current minimum reserve level of at least 0.5% of the aggregate principal amount
of all outstanding Federal Loans guaranteed by such Guarantor for the fiscal
year that begins in 1993, with such minimum increasing to 0.7% and 0.9% for
fiscal years beginning in 1994 and 1995, respectively, and 1.1% for fiscal years
beginning on or after January 1, 1996. Annually, the Department will collect
information from each Guarantor to determine the amount of such Guarantor's
reserves and other information regarding its solvency. If a Guarantor's current
reserve level falls below the required minimum for any two consecutive years,
that Guarantor's annual claims rate exceeds 9% or the Department determines that
a Guarantor's administrative or financial condition jeopardizes that Guarantor's
continued ability to perform its responsibilities, then that Guarantor must
submit and implement a management plan acceptable to the Department. The 1992
Amendments also provide that under certain circumstances the Department is
authorized, on terms and conditions satisfactory to the Department, but is not
obligated, to terminate its reimbursement agreement with any Guarantor. In that
event, however, the Department is required to assume the functions of such
Guarantor and in connection therewith is authorized to do one or more of the
following: to assume the guarantee obligations of, to assign to other guarantors
the guarantee obligations of, or to make advances to, a Guarantor in order to
assist such Guarantor in meeting its
53
<PAGE> 57
immediate cash needs and to ensure uninterrupted payment of default claims to
lenders or to take any other action the Department deems necessary to ensure the
continued availability of student loans and the full honoring of guarantee
claims thereunder. In addition, the 1992 Amendments provide that if the
Department determines that a Guarantor is unable to meet its guarantee
obligations, holders of Federal Loans covered thereby may submit guarantee
claims directly to the Department until such time as such guarantee obligations
are transferred to a new guarantor capable of meeting such obligations or until
a successor guarantor assumes such obligations. There can be no assurance,
however, that the Department would under any given circumstances assume such
obligation to ensure satisfaction of a guarantee obligation by exercising its
right to terminate a reimbursement agreement with a Guarantor or by making a
determination that such Guarantor is unable to meet its guarantee obligations.
Amounts received or receivable from the Department for reimbursement for
claims paid are subject to periodic audit and adjustment by the Department. Any
disallowed claims, including amounts already collected, may constitute a
liability of the respective Guarantor.
Guarantors for the Financed Student Loans. The Higher Education Act
requires every state to designate a guarantee agency, either by establishing its
own or by designating another guarantee agency. A Guarantor who has been
designated by a particular state is obligated to guarantee loans for students
who reside or attend school in such state and must agree to provide loans to any
such students who are otherwise unable to obtain a loan from any other lender.
Guarantee agencies may guarantee a loan made to any eligible borrower and are
generally not limited to guaranteeing loans for students attending institutions
in their particular state or region or for their residents attending schools in
another state or region. The Eligible Lender Trustee has entered, or will enter,
into a Guarantee Agreement with each Guarantor guaranteeing the Finance Student
Loans acquired, or to be acquired, by the Trust.
Pursuant to its respective Guarantee Agreement, each Guarantor guarantees
payment of 98% (except that such guarantee against defaults will be 100% of
principal and accrued interest for loans first disbursed prior to October 1,
1993) of the principal (including any interest capitalized from time to time)
and accrued interest for each Federal Loan guaranteed by it as to which any one
of the following events has occurred:
(a) failure by the borrower thereof to make monthly principal or
interest payments on such Federal Loan when due, provided such failure continues
for a period of 180 days;
(b) any filing by or against the borrower thereof of a petition in
bankruptcy pursuant to any chapter of the Federal bankruptcy code, as amended;
(c) the death of the borrower thereof; or
(d) the total and permanent disability of the borrower thereof to work
and earn money or attend school, as certified by a qualified physician.
When these conditions are satisfied, the Higher Education Act requires the
Guarantor generally to pay the claim within 90 days of its submission by the
lender. The obligations of the Guarantors pursuant to their respective Guarantee
Agreements are obligations solely of the applicable Guarantor, and are not
supported by the full faith and credit of any state government.
Each Guarantor's guarantee obligations with respect to any Financed Student
Loan are conditioned upon the satisfaction of all the conditions set forth in
the applicable Guarantee Agreement. These conditions include, but are not
limited to, the following: (i) the origination and servicing of such Financed
Student Loan being performed in accordance with the Program, the Higher
Education Act and other applicable requirements, (ii) the timely payment to the
applicable Guarantor of the guarantee fee payable with respect to such Financed
Student Loan, (iii) the timely submission to the applicable Guarantor of all
required preclaim delinquency status notifications and of the claim with respect
to such Financed Student Loan and (iv) the transfer and endorsement of the
promissory note evidencing such Financed Student Loan to the applicable
Guarantor upon and in connection with making a claim to receive Guarantee
Payments thereon. Failure to comply with any of the applicable conditions,
including the foregoing, may result in the refusal of the applicable Guarantor
to honor its Guarantee Agreement with respect to such Financed Student Loan, in
the
54
<PAGE> 58
denial of guarantee coverage with respect to certain accrued interest amounts
with respect thereto or in the loss of certain Interest Subsidy Payments and
Special Allowance Payments with respect thereto. Under the Transfer and
Servicing Agreement, such failure to comply would constitute a breach of the
Master Servicer's covenants or the Transferor's representations and warranties,
as the case may be, and would create an obligation of the Transferor or the
Master Servicer, as the case may be, to repurchase or purchase such Financed
Student Loan or to reimburse the Trust for such non-guaranteed interest amounts
or such lost Interest Subsidy Payments and Special Allowance Payments with
respect thereto. See "Description of the Transfer and Servicing
Agreements--Conveyance of Financed Student Loans; Representations and
Warranties" and "--Master Servicer Covenants."
GUARANTORS FOR THE FEDERAL LOANS
The Financed Student Loans are guaranteed to the extent described herein as
to the payment of principal and interest by the California Student Aid
Commission, an agency of the State of California, the Florida Department of
Education, an agency of the State of Florida, the Georgia Higher Education
Assistance Corporation, a public non-profit corporation, Great Lakes Higher
Education Corporation, a public non-profit corporation, the Illinois Student
Assistance Commission, an agency of the State of Illinois, KHEAA, the Michigan
Higher Education Assistance Authority, an autonomous agency of the Michigan
Department of the Treasury, the New Jersey Higher Education Assistance
Authority, an agency of the State of New Jersey, the New Mexico Student Loan
Guarantee Corporation, a New Mexico non-profit corporation, PHEAA and USAF,
which are in each case reinsured to the extent described herein by the
Department.
Set forth below is certain historical information with respect to each
Guarantor of the Financed Student Loans that is expected to guaranty 5% or more
of the Financed Student Loans as of the Cut-off Date. Except as otherwise
indicated below, the information regarding each Guarantor has been obtained from
the Department of Education's Federal Fiscal Year 1993 Loan Programs Data Book
(a "DOE Data Book"). No independent verification has been or will be made by the
Transferor of such information.
Guarantee Volume. The following table sets forth the approximate aggregate
principal amount of federally reinsured education loans that have first become
committed to be guaranteed by each of the Guarantors and by all guarantors of
Federal Loans in each of the five Federal Fiscal Years 1992 through 1996.*
<TABLE>
<CAPTION>
STAFFORD, UNSUBSIDIZED STAFFORD, SLS, PLUS AND
CONSOLIDATED LOANS GUARANTEED
-----------------------------------------------
FEDERAL
FISCAL DOLLARS IN MILLIONS ALL
YEAR KHEAA PHEAA USAF GUARANTORS
- ------- ------ -------- -------- ----------
<S> <C> <C> <C> <C>
1992 $126.6 $1,410.2 $3,372.1 $16,114.0
1993 160.9 1,707.0 4,087.7 19,356.1
1994 234.2 1,977.1 5,474.2 **
1995 244.2 2,221.4 6,326.3 **
1996 283.8 2,149.9 6,935.6 **
</TABLE>
- ---------
* The information set forth in the table above has been obtained from the
Federal Fiscal Year 1993 DOE Data Book (with respect to fiscal years 1992 and
1993) and from the Department (with respect to fiscal years 1994, 1995 and
1996).
** Not available.
Reserve Ratio. Each Guarantor's reserve ratio is determined by dividing its
cumulative cash reserves by the original principal amount of the outstanding
loans it has agreed to guarantee. The term "cumulative cash reserves" refers to
cash reserves plus (i) sources of funds (including insurance premiums, state
appropriations, federal advances, federal reinsurance payments, administrative
cost allowances, collections on claims paid and investment earnings) minus (ii)
uses of funds (including claims paid to lenders, operating expenses, lender
fees, the Department's share of collections on claims paid, returned advances
and reinsurance fees). The "original principal amount of outstanding loans"
consists of the original principal amount of loans guaranteed
55
<PAGE> 59
by such Guarantor minus (i) the original principal amount of loans canceled,
claims paid, loans paid in full and loan guarantees transferred from such
Guarantor to other guarantors, plus (ii) the original principal amount of loan
guarantees transferred to such Guarantor from other guarantors. The following
table sets forth each Guarantor's cumulative cash reserves and their
corresponding reserve ratios and the national average reserve ratio for all
guarantors for the five Federal Fiscal Years 1992 through 1996:*
<TABLE>
<CAPTION>
KHEAA PHEAA USAF
---------------------- ---------------------- ---------------------- NATIONAL
FEDERAL CUMULATIVE CUMULATIVE CUMULATIVE AVERAGE
FISCAL CASH RESERVE CASH RESERVE CASH RESERVE RESERVE
YEAR RESERVES** RATIO RESERVES** RATIO RESERVES** RATIO RATIO
- ------- ---------- ------- ---------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 $ 12.6 1.9% $162.6 2.1% $100.1 1.0% 1.4%
1993 19.4 2.6 113.4 1.3 169.9 1.3 1.7
1994 23.2 2.6 133.6 1.4 215.8 1.2 1.4
1995 25.0 2.0 166.3 1.5 377.9 1.5 1.6
1996 *** *** 210.6 1.7 423.9 1.5 1.6
</TABLE>
- ---------
* The information set forth in the table above has been obtained from the
Federal Fiscal Year 1993 DOE Data Book (with respect to fiscal years 1992
and 1993) and from the Department (with respect to fiscal years 1994, 1995
and 1996). The cash reserves and the reserve ratio increased substantially
between Federal Fiscal Years 1992 and 1993. As described in the Federal
Fiscal Year 1993 DOE Data Book, this difference was caused, in part, because
default costs were decreasing, while insurance premiums, administrative
costs allowances and investment income were increasing. According to the
Department, available cash reserves may not always be an accurate barometer
of a guarantor's financial health.
** Dollars in millions.
*** Not available.
Recovery Rates. A Guarantor's recovery rate, which provides a measure of
the effectiveness of the collection efforts against defaulting borrowers after
the guarantee claim has been satisfied, is determined by dividing the amount
recovered from borrowers by such Guarantor by the aggregate amount of default
claims paid by such Guarantor during the applicable Federal Fiscal Year with
respect to borrowers. The table below sets forth the recovery rates for each
Guarantor and the national average recovery rates for all guarantors with
respect to Stafford Loans (the only type of Student Loan for which the DOE Data
Book discloses recovery rates) for the five Federal Fiscal Years 1992 through
1996:*
<TABLE>
<CAPTION>
FEDERAL RECOVERY RATE
FISCAL -------------------------- NATIONAL
YEAR KHEAA PHEAA USAF AVERAGE
- ------- ----- ------ ----- -------
<S> <C> <C> <C> <C>
1992 44.0 % 46.5 % 28.1 % 35.1%
1993 50.7 49.5 30.7 38.1
1994 54.0 52.90 29.28 39.38
1995 54.6 53.29 34.90 40.67
1996 46.3 55.03 39.21 43.20**
</TABLE>
- ---------
* The information set forth in the table above has been obtained from the
Department.
** 1996 national average does not include all guarantor data, as all guarantors
have not been processed.
Loan Loss Reserve. The DOE Data Book does not disclose whether any
Guarantor has established a segregated loan loss reserve with respect to its
student loan guarantee obligations. Accordingly, to the extent that a Guarantor
has not established such a segregated loan loss reserve, in the event that a
Guarantor receives less than full reimbursement of its guarantee obligations
from the Department, the Guarantor would be forced to look to its existing
assets to satisfy any such guarantee obligations not so reimbursed.
56
<PAGE> 60
Claims Rate. The following table sets forth the claims rate of each
Guarantor and the national average for all guarantors of Federal Loans for the
last five Federal Fiscal Years 1992 through 1996:*
<TABLE>
<CAPTION>
FEDERAL CLAIMS RATE
FISCAL -------------------------- NATIONAL
YEAR KHEAA PHEAA USAF AVERAGE
- ------- ----- ------ ----- -------
<S> <C> <C> <C> <C>
1992 3.6% 2.8 % 5.00% 4.15%
1993 4.0% 2.3 7.30 3.83
1994 4.2% 2.2 4.99 3.44
1995 4.3% 1.97 4.69 3.21
1996 4.3% 1.58 4.65 3.25
</TABLE>
- ---------
* The information set forth in the table above has been obtained from the
Department.
For Federal Fiscal Years 1993, USAF experienced a claims rate of 7.30%. For such
Federal Fiscal Year, the claims of USAF were not fully reimbursed by the
Department. No assurance can be made that any of the Guarantors will receive
full reimbursement for reinsurance claims (or the full 98% maximum reimbursement
for loans first disbursed on or after October 1, 1993).
The most recent national default rate reported by the Department was 10.7%
for Federal Fiscal Year 1994. Additionally, the national average of the claims
rate for Guarantors, as shown in the Claims Rate table above, has generally
trended downward for the five Federal Fiscal Years presented. Consequently, the
repayment behavior of student loan obligors has, generally, shown a trend toward
improvement over the past four years as shown in the accompanying Claims Rate
and Recovery Rate tables. PHEAA's recovery rate has exceeded the national
average recovery rate in each of the five Federal Fiscal Years shown in the
Recovery Rate table above, and PHEAA's claims rate has been lower than the
national average claims rate in each of the five Federal Fiscal Years shown in
the Claims Rate table above. The trends in KHEAA's and USAF's recovery rates and
claims rates have been steady during the five years shown in the accompanying
tables. Management of PHEAA, KHEAA and USAF have all indicated to the Transferor
that they are currently unaware of any trends or conditions which would cause
their respective claims rate to exceed 5% and thereby result in less than
maximum reimbursement for reinsurance claims to the Department. Notwithstanding
the above, no assurance can be made that any such trends will continue or not
deteriorate, and that any Guarantor will receive full reimbursement for
reinsurance claims (or the full 98% maximum reimbursement for loans first
disbursed on or after October 1, 1993).
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summary describes the material terms of the Notes and
the Indenture. The summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Notes, the Indenture and the
Terms Supplement, which provisions are incorporated by reference herein.
The Notes will initially be represented by one or more Notes registered in
the name of the nominee of DTC (together with any successor depository selected
by the Administrator, the "Depository") except as set forth below. The Notes
will be available for purchase in denominations of $50,000 and integral
multiples of $1,000 in excess thereof in book-entry form only. The Trust has
been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of the Notes. Unless and until Definitive
Notes are issued under the limited circumstances described herein, no Noteholder
will be entitled to receive a physical certificate representing a Note. All
references herein to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Noteholders refer to distributions, notices, reports and statements to DTC or
Cede, as the registered holder of the Notes, for distribution to Noteholders in
accordance with DTC's procedures with respect thereto. See "--Book-Entry
Registration" and "Definitive Notes."
57
<PAGE> 61
THE NOTES
Distributions of Interest. Interest will accrue during each Interest Period
on the principal balance of each Class of Notes at a rate per annum equal to the
related Class Interest Rate (calculated as provided below) and will be payable
on each Distribution Date to the Noteholders of the related Record Date.
Interest distributions due on any Class of Notes for any Distribution Date but
not distributed on such Distribution Date will be due on the next Distribution
Date increased by an amount equal to interest on such amount at the applicable
Class Interest Rate for the period from the Distribution Date for which such
interest was first due until the Distribution Date such interest is paid.
Interest payments on the Notes will generally be funded from Available Funds,
Monthly Advances and amounts, if any, on deposit in the Reserve Account
remaining after the deposit of the Transaction Fees and Consolidation Loan Fees
in the Expense Account. Interest will be paid pro rata to the holders of each
such Class of Notes outstanding. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Credit Enhancement."
The initial Class Interest Rates are as follows:
% per annum with respect to the Class A-1 Notes;
% per annum with respect to the Class A-2 Notes;
% per annum with respect to the Class A-3 Notes;
% per annum with respect to the Class A-4 Notes;
% per annum with respect to the Class A-5 Notes;
% per annum with respect to the Class A-6 Notes;
% per annum with respect to the Class A-7 Notes;
% per annum with respect to the Class A-8 Notes;
% per annum with respect to the Class A-9 Notes; and
% per annum with respect to the Class B Notes.
Except as otherwise described in the following paragraph, the Class
Interest Rate for each Interest Period for each Class of Notes will equal (i) in
the case of the Class A-1 Notes as of the LIBOR Determination Date for such
Interest Period minus the applicable Margin for such Class, and in the case of
the remaining LIBOR Rate Notes, One-Month LIBOR as of the LIBOR Determination
Date for such Interest Period plus the applicable Margin for such Class and (ii)
in the case of the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class A-5
Notes, Class A-6 Notes and Class A-7 Notes, % per annum, % per annum,
% per annum, % per annum, % per annum and % per annum,
respectively. See "--The Notes-- Distributions of Interest." The "Margin" will
be % for the Class A-1 Notes, % for the Class A-8 Notes, % for
the Class A-9 Notes and % for the Class B Notes. Interest on each Class of
LIBOR Rate Notes will be calculated on the basis of the actual number of days
elapsed in each Interest Period divided by 360, and interest on each class of
Fixed Rate Notes will be calculated on the basis of a year consisting of 12
months of 30 days each.
Notwithstanding the foregoing, if the Class Interest Rate with respect to
any Class of LIBOR Rate Notes, other than the Class A-1 Notes, for any Interest
Period is greater than the Net Loan Rate, then such Class Interest Rate for such
Interest Period will be the Net Loan Rate. However, in no event will the Class
Interest Rate for any Class of LIBOR Rate Notes, other than the Class A-1 Notes,
exceed 18.0% per annum. See "--The Notes--Distributions of Interest."
Noteholders' Interest Carryover. If the Class Interest Rate for any Class
of LIBOR Rate Notes (other than the Class A-1 Notes) for any Interest Period is
based on the Net Loan Rate, the excess of (a) the amount of interest on such
Class of Notes that would have accrued in respect of the related Interest Period
had interest been calculated based on the applicable Class Interest Rate
(without giving effect to the Net Loan Rate) over (b) the amount of interest
such Class of Notes actually accrued in respect of such Interest
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Period based on the Net Loan Rate (such excess, together with the unpaid portion
of any such excess from prior Interest Periods (and interest accrued thereon
calculated based on One-Month LIBOR) is referred to as the "Noteholders'
Interest Carryover") will be paid on the dates and in the priority as described
herein under "Description of the Transfer and Servicing
Agreements--Distributions."
Distributions of Principal. Principal of the Notes will be payable
quarterly (or in the case of the Class A-1 Notes, monthly), on each Distribution
Date, generally in the order of priority described in "The Transfer and
Servicing Agreements--Distributions." Principal payments on a Class of Notes
will generally be derived from Available Funds remaining after the Indenture
Trustee has deposited in the Expense Account the Transaction Fees, the
Consolidation Loan Fees, overdue Transaction Fees and overdue Consolidation Loan
Fees and deposited in the Note Distribution Account the Noteholders' Interest
Distribution Amount and the Trust Swap Payment. Additionally, until the Parity
Percentage equals 102.5%, amounts otherwise required to be distributed to the
Transferor will be applied as additional principal payments. See "Description of
the Transfer and Servicing Agreements--Distributions" and "--Credit
Enhancement." If such sources are insufficient to pay the Noteholders' Principal
Distribution Amount for such Note Distribution Date, such shortfall will be
added to the principal payable to the Noteholders on subsequent Note
Distribution Dates and (except with respect to the Final Maturity Date of a
Class of Notes) such shortfall will not constitute an Event of Default.
Additionally, on the Final Maturity Date for a Class of Notes amounts in the
Reserve Account will be available to reduce the principal balance of such Class
of Notes to zero to the extent Available Funds are insufficient to make such
payment. Notwithstanding the foregoing, if an Event of Default has occurred with
respect to payment of the Notes, principal will be paid to each Class of Class A
Notes pro rata, based upon the outstanding principal amount of each Class of
Class A Notes. See "Description of the Transfer and Servicing
Agreements--Distributions."
The aggregate outstanding principal amount of each Class of Notes will be
payable in full on the Distribution Date identified in the Summary of Terms
under "Final Maturity Date" (the "Final Maturity Date"). The actual date on
which the aggregate outstanding principal and accrued interest of any Class of
Notes are paid may be earlier than its respective Final Maturity Date, based on
a variety of factors, including those described above under "Risk
Factors--Reinvestment Risk to Noteholders from Prepayments of LIBOR Rate Notes"
and "The Financed Student Loan Pool--Maturity and Prepayment Assumptions."
DETERMINATION OF LIBOR
Pursuant to the Transfer and Servicing Agreement, the Master Servicer will
determine One-Month LIBOR for purposes of calculating the interest due on the
LIBOR Rate Notes and the Noteholders' Interest Carryover for each given Interest
Period on the second Business Day prior to the commencement of each Interest
Period (each, a "LIBOR Determination Date"). For purposes of calculating
One-Month LIBOR, a Business Day is any day on which banks in London and New York
City are open for the transaction of business. Interest due for any Interest
Period will be determined based on the actual number of days in such Interest
Period over a 360-day year.
"One-Month LIBOR" means the London interbank offered rate for deposits in
U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are offered
at approximately 11:00 a.m., London time, on such LIBOR Determination Date to
prime banks in the London interbank market by the Reference Banks. The Master
Servicer will request the principal London office of each of such Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations.
If fewer than two quotations are provided, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Master Servicer, at approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date for loans in the U.S. dollars to leading European banks
having the Index Maturity and in a principal amount equal to an amount of not
less than U.S. $1,000,000; provided that if the
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banks selected as aforesaid are not quoting as mentioned in this sentence,
One-Month LIBOR in effect for the applicable LIBOR Reset Period will be
One-Month LIBOR in effect for the previous LIBOR Reset Period.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Bank" means a leading bank (i) engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the Administrator or the
Transferor and (iii) having an established place of business in London.
THE INDENTURE
Modification of the Indenture. With the consent of the holders of a
majority of the aggregate principal amount of Notes then outstanding (or, with
respect to any change affecting only certain Series of Notes, the holders of a
majority of the aggregate principal amount of Notes of such Series), the
Indenture Trustee and the Trust may execute a supplemental indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to the Notes, or to modify (except as provided below) in
any manner the rights of the Noteholders; provided, however, that, so long as a
Swap Agreement is in effect, no change adversely affecting the rights of the
Counterparty may be made without the consent of such Counterparty (so long as
such Counterparty is not in default under such Swap Agreement).
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will (i) change the date of payment
of any installment of principal of or interest on any Note or reduce the
principal amount thereof or the interest rate thereon, change the provisions of
the Indenture relating to the application of collections on, or the proceeds of
the sale of, the assets of the Trust to payment of principal of or interest on
the Notes, or change any place of payment where, or the coin or currency in
which, any Note or any interest thereon is payable, (ii) impair the right to
institute suit for the enforcement of certain provisions of the Indenture
regarding payment, (iii) reduce the percentage of the aggregate amount of the
outstanding Notes of any series of Notes (each such series, a "Series") 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 Indenture or certain defaults thereunder and
their consequences as provided for in the Indenture, (iv) modify or alter
certain provisions of the Indenture regarding the determination of Notes that
are considered "outstanding" for consent, waivers and other matters, (v) reduce
the percentage of the aggregate outstanding amount of the Notes the consent of
the holders of which is required to direct the Eligible Lender Trustee on behalf
of the Trust to sell or liquidate the Financed Student Loans, (vi) decrease the
percentage of the aggregate principal amount of the Notes required to amend the
sections of the Indenture which specify the applicable percentage of aggregate
principal amount of the Notes necessary to amend the Indenture or certain other
related agreements, (vii) modify any of the provisions of the Indenture in such
manner as to affect the calculation of the amount of any payment of interest on
any Note or (viii) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the holder
of any Note of the security afforded by the lien of the Indenture; provided,
however, that, so long as the Swap Agreements are in effect, no change adversely
affecting the rights of any Counterparty may be made without the consent of such
Counterparty (so long as such Counterparty is not in default under its Swap
Agreement).
The Trust and the Indenture Trustee may also enter into supplemental
indentures, but without obtaining the consent of Noteholders or the
Counterparties, 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 Noteholders or the Counterparties so long as such action
will not, in the opinion of counsel satisfactory to the Indenture Trustee,
materially and adversely affect the interest of any Noteholder or the
Counterparties.
Events of Default; Rights Upon Event of Default. An "Event of Default" with
respect to the Notes is defined in the Indenture as consisting of the following
(except as described in the remaining sentences of this paragraph): (i) a
default for five business days or more in the payment of any interest on any
Note or any Trust Swap Payment after the same becomes due and payable; (ii) a
default for five business days in the
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payment of principal of any Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
Trust made in the Indenture or the Transfer and Servicing Agreement and the
continuation of any such default for a period of 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 aggregate principal amount of the
Notes then outstanding; (iv) 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 a material respect as of the time made, and
such 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 aggregate principal amount of the Notes then
outstanding; or (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust. However, the amount of principal required to be
distributed to Noteholders on any Distribution Date is limited to the amount of
Available Funds after payment of the Transaction Fees, overdue Transaction Fees,
the Consolidation Loan Fees, overdue Consolidation Loan Fees, the Noteholders'
Interest Distribution Amount and the Trust Swap Payment. Additionally, on the
Final Maturity Date for a Class of Notes amounts in the Reserve Account will be
available to reduce the principal balance of such Class of Notes to zero to the
extent Available Funds are insufficient to make such payment. ANY SUCH PRINCIPAL
SHORTFALLS ON ANY DISTRIBUTION DATE WILL BE CARRIED OVER AS A NOTEHOLDERS'
PRINCIPAL CARRYOVER SHORTFALL TO BE PAID ON SUCCEEDING DISTRIBUTION DATES.
THEREFORE, THE FAILURE TO PAY PRINCIPAL ON ANY CLASS OF NOTES MAY NOT RESULT IN
THE OCCURRENCE OF AN EVENT OF DEFAULT UNTIL THE FINAL MATURITY DATE OF SUCH
CLASS OF NOTES. IN ADDITION, THE FAILURE TO PAY THE AGGREGATE AMOUNT OF
NOTEHOLDERS' INTEREST CARRYOVER AS A RESULT OF INSUFFICIENT AVAILABLE FUNDS WILL
NOT RESULT IN THE OCCURRENCE OF AN EVENT OF DEFAULT.
If an Event of Default should occur and be continuing with respect to any
Series of Notes, the Indenture Trustee or holders of a majority in aggregate
principal amount of the Notes then outstanding may declare all outstanding Notes
to be immediately due and payable, by notice to the Trust or notice to the
Indenture Trustee if given by the Noteholders. Such declaration may be rescinded
by the holders of a majority in aggregate principal amount of the Notes then
outstanding at any time prior to the entry of judgment in a court of competent
jurisdiction for the payment of such amount if (i) the Trust has paid to the
Indenture Trustee a sum equal to all amounts then due with respect to the Notes
(without giving effect to such acceleration) and due to the Indenture Trustee
and (ii) all Events of Default (other than nonpayment of amounts due solely as a
result of such acceleration) have been cured or waived.
If the Notes have been declared to be due and payable following an Event of
Default with respect thereto, the Indenture Trustee may, in its discretion,
require the Eligible Lender Trustee to sell the Financed Student Loans or elect
to have the Eligible Lender Trustee maintain possession of the Financed Student
Loans and continue to apply collections with respect to such Financed Student
Loans as if there had been no declaration of acceleration. In addition, the
Indenture Trustee is prohibited from directing the Eligible Lender Trustee to
sell the Financed Student Loans following an Event of Default, other than a
default for five days or more in the payment of any principal or a default for
five days or more in the payment of any interest on any Note or any Trust Swap
Payment, unless (i) the holders of 66 2/3% of the aggregate amount of the Notes
outstanding consent to such sale, (ii) the proceeds of such sale are sufficient
to pay in full the principal of and the accrued interest on the Notes and any
Trust Swap Payments outstanding at the date of such sale or (iii) the Indenture
Trustee determines that the collections on the Financed Student Loans and other
assets of the Trust would not be sufficient on an ongoing basis to make all
payments on the Notes and any Trust Swap Payments as such payments would have
become due if such 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
principal amount of the Notes then outstanding and if the Swap Agreement is in
effect, each Counterparty (so long as such Counterparty is not in default under
the Swap Agreement).
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default should occur and be continuing with
respect to the Notes, 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 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 such request.
Subject to such
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provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the Indenture Trustee and
the holders of a majority in aggregate principal amount of the Notes then
outstanding, 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 all the holders of the outstanding Notes.
No holder of any Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
requested in writing that the Indenture Trustee institute such proceeding in its
own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days after notice failed to institute such proceeding and (v) no direction
inconsistent with such written request has been given to the Indenture Trustee
during such 60-day period by the holders of a majority in aggregate principal
amount of the outstanding Notes.
In addition, the Indenture Trustee and the Noteholders will covenant that
they will not, prior to the date which is one year and a day after the
termination of the Indenture, institute against the Trust any bankruptcy,
reorganization or other proceeding under any Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or Related Documents (as defined below).
Certain Covenants. The Trust may not consolidate with or merge into any
other entity, unless (i) the entity formed by or surviving such consolidation or
merger is organized under the laws of the United States, or any state, and such
entity expressly assumes the Trust's obligation to make due and punctual
payments upon the Notes and the performance or observance of every agreement and
covenant of the Trust under the Indenture and any supplemental indenture, (ii)
no Event of Default has occurred and is continuing immediately after such merger
or consolidation, (iii) the Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse federal
or Illinois or Delaware state tax consequence to the Trust or to any
Certificateholder or Noteholder, (iv) any action as is necessary to maintain the
lien and security interest created by the Indenture shall have been taken and
(v) the Trust shall have delivered to the Indenture Trustee an officer's
certificate of the Trust and an opinion of counsel each stating that such
consolidation or merger and any supplemental indenture relating thereto comply
with the terms of the Indenture and that all conditions precedent provided for
in the Indenture to such transaction have been complied with (including any
Exchange Act filings) in all material respects.
Except as otherwise permitted by the Indenture, the Transfer and Servicing
Agreement and related documents (the "Related Documents"), the Trust may not
convey or transfer all or substantially all its properties or assets, including
the assets securing the Notes, unless for the most part the conditions specified
in (i) through (v) above with respect to a permitted merger or consolidation are
met, plus the acquiror must agree (a) that all right, title and interest in the
property and assets so conveyed or transferred are subordinate to the rights of
the Noteholders and the Swap Counterparties, (b) to indemnify the Trust (unless
otherwise provided in the supplemental indenture) and (c) to make all filings
with the Commission required by the Exchange Act in connection with the Notes.
The Trust will not, among other things, (i) except as expressly permitted
by the Related Documents, sell, transfer, exchange or otherwise dispose of any
of the assets of the Trust, (ii) claim any credit on or make any deduction from
the principal and interest payable in respect of any Notes (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of Notes because of the payment of taxes levied or
assessed upon the Trust, (iii) except as contemplated by the Related Documents,
dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the Indenture or any supplemental indenture to be impaired, or
permit the lien of the Indenture and any supplemental indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any person to be
released from any covenants or obligations with respect to any Notes under the
Indenture except as may be expressly permitted thereby, (v) permit any lien,
charge, excise, claim, security interest, mortgage or other
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encumbrance (other than the lien of the Indenture and any supplemental
indenture) 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 (other than certain tax and other liens arising by operation of law,
except as expressly permitted by the Related Documents) or (vi) permit the lien
of the Indenture and any supplemental indenture not to constitute a valid first
priority (other than with respect to such tax or other lien) security interest
in the assets securing the Notes and the Swap Agreement.
The Trust may not engage in any activity other than financing, purchasing,
owning, selling, servicing and managing the Financed Student Loans and
activities incidental thereto.
The Trust will not issue, incur, assume or guarantee or otherwise become
liable for any indebtedness other than the Notes or otherwise in accordance with
the Related Documents.
Annual Compliance Statement and Other Notices. The Administrator, on behalf
of the Trust will be required to file annually, commencing in 1998, with the
Indenture Trustee a written statement as to the fulfillment of its obligations
under the Indenture. The Trust is required to give the Indenture Trustee written
notice of each Event of Default among other notices. The Indenture Trustee will
notify Noteholders and the Swap Counterparty of known defaults under the
Indenture within 90 days after their occurrence.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the Notes and the Swap Agreement upon
the delivery to the Indenture Trustee for cancellation of all the Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds sufficient
for the payment in full of all the Notes and all unpaid Trust Swap Payments.
The Indenture Trustee. Bankers Trust Company, a New York banking
corporation, will be the Indenture Trustee under the Indenture.
Bankers Trust Company, the Indenture Trustee, may serve from time to time
as trustee under indentures or trust agreements with the Transferor or its
affiliates relating to other issues of their securities. In addition, the
Transferor or its affiliates may have other banking relationships with Bankers
Trust Company and its affiliates.
BOOK-ENTRY REGISTRATION
Noteholders may hold their certificates through DTC (in the United States)
or Cedel or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Notes. Cedel and Euroclear
will hold omnibus positions on behalf of the Cedel Participants and the
Euroclear Participants, respectively, through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers' securities accounts in the Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities for its Participants ("DTC Participants") and
facilitates the clearance and settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic book-entry changes in DTC Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. DTC Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to the DTC system
is also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its DTC Participants are on file with the
Commission.
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Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depository to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositories.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Purchases of Notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual owner of a Note (a "Note Owner") is in turn to
be recorded on the DTC Participants' and Indirect Participants' records. Note
Owners will not receive written confirmation from DTC of their purchase, but
Note Owners are expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the DTC
Participant or Indirect Participant through which the Note Owner entered into
the transaction. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of DTC Participants acting on behalf
of Note Owners. Note Owners will not receive certificates representing their
ownership interest in Notes, except in the event that use of the book-entry
system for the Notes is discontinued.
To facilitate subsequent transfers, all Notes deposited by DTC Participants
with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of
Notes with DTC and their registration in the name of Cede & Co. effects no
change in beneficial ownership. DTC has no knowledge of the actual Note Owners
of the Notes; DTC's records reflect only the identity of the DTC Participants to
whose accounts such Notes are credited, which may or may not be the Note Owners.
The DTC Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Note Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede & Co.'s consenting or voting
rights to those DTC Participants to whose accounts the Notes are credited on the
record date (identified in a listing attached thereto).
Principal and interest payments on the Notes will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the applicable Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such Distribution
Date. Payments by DTC Participants to Note Owners will be governed by standing
instructions and customary
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practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name" and will be the responsibility of
such DTC Participant and not of DTC, the Indenture Trustee or the Transferor,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the responsibility of
the Indenture Trustee, disbursement of such payments to DTC Participants shall
be the responsibility of DTC, and disbursement of such payments to Note Owners
shall be the responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Transferor
or the Indenture Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Notes are required
to be printed and delivered. The Transferor may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Notes will be delivered to Noteholders.
See "--Definitive Notes."
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 32
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants 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 the underwriters of any Series of Notes. Indirect
access to Cedel is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in 25 countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, Societe Cooperative, a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative Board establishes policy for the Euroclear System. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of Notes. Indirect access to the Euroclear System is
also available to other firms that maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System (collectively, the "Terms
and Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held
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on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See "Federal
Tax Consequences." Cedel or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Noteholder under the Agreement
on behalf of a Cedel Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to its Depository's ability
to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES
Notes will be issued in fully registered, certificated form (the
"Definitive Notes") to Note Owners or their nominees rather than to DTC or its
nominee, only if (i) the Administrator advises the Indenture Trustee for such
Series in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Depository with respect to such Series of Notes, and the
Administrator is unable to locate a qualified successor, (ii) the Administrator,
at its option, advises the Trustee in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default, Master Servicer Default or Administrator Default Noteholders
representing not less than 50% of the outstanding principal balance of the Notes
advise the Indenture Trustee and DTC through DTC Participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the best interest of the Noteholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will cause DTC to notify all DTC
Participants of the availability through DTC of Definitive Notes. Upon surrender
by DTC of the definitive certificate representing the Notes and instructions for
registration, the Indenture Trustee will issue the Notes as Definitive Notes,
and thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as holders under the Indenture ("Holders").
Distribution of principal and interest on the Notes will be made by the
Indenture Trustee directly to Holders of Definitive Notes in accordance with the
procedures set forth herein and in the Agreement. Interest payments and any
principal payments on each Distribution Date will be made to Holders in whose
names the Definitive Notes were registered at the close of business on the
related Record Date. The final payment on any Note (whether Definitive Notes or
the Notes registered in the name of Cede representing the Notes), will be made
only upon presentation and surrender of such Note at the office or agency
specified in the notice of final distribution to Noteholders. The Indenture
Trustee will provide such notice to registered Noteholders prior to the
Distribution Date on which it expects such final distributions to occur.
Definitive Notes will be transferable and exchangeable at the offices of
the transfer agent and registrar for the Notes, which shall initially be the
Indenture Trustee. No service charges will be imposed for any registration of
transfer or exchange, but the Transfer Agent and Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
LIST OF NOTEHOLDERS
A Noteholder may, by written request to the Indenture Trustee, 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 Indenture or the 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 and at the expense of the
requesting Noteholders, to all Noteholders.
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REPORTS TO NOTEHOLDERS
On each Distribution Date, the Indenture Trustee will provide to the
applicable Noteholders of record as of the related Record Date, a statement
setting forth substantially the same information as is required to be provided
on the report provided to the Indenture Trustee and the Trust described under
"Description of Transfer and Servicing Agreements--Statements to Indenture
Trustee."
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Indenture, the Indenture
Trustee will mail to each person who at any time during such calendar year was a
Noteholder and received any payment thereon, a statement containing certain
information for the purposes of such Noteholder's preparation of federal income
tax returns. See "Federal Tax Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of the material terms of the Transfer and
Servicing Agreement, pursuant to which the Eligible Lender Trustee on behalf of
the Trust will obtain, the Master Servicer will service and the Administrator
will perform certain administrative functions with respect to the Financed
Students Loans; the Administration Agreement, pursuant to which the
Administrator will undertake certain other administrative duties with respect to
the Trust and the Financed Student Loans; and the Trust Agreement, pursuant to
which the Trust has been created and the Certificates have been issued
(collectively, the "Transfer and Servicing Agreements"). The summary does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Transfer and Servicing Agreements. Each of such Transfer and
Servicing Agreements will be substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
CONVEYANCE OF INITIAL FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On the Closing Date, the Transferor will contribute and assign to the
Eligible Lender Trustee on behalf of the Trust, without recourse, its entire
interest in the Initial Financed Student Loans described in the Transfer and
Servicing Agreement, all collections received and to be received with respect
thereto for the period after the Cut-off Date and all the Assigned Rights
pursuant to the Transfer and Servicing Agreement. Each Financed Student Loan
will be identified in schedules appearing as an exhibit to the Transfer and
Servicing Agreement. The Eligible Lender Trustee will, concurrently with such
contribution and assignment, execute, authenticate and deliver the Notes, which
will be authenticated by the Indenture Trustee.
In the Transfer and Servicing Agreement, the Transferor will make certain
representations and warranties with respect to the Financed Student Loans to the
Trust for the benefit of the Certificateholders, the Noteholders, including,
among other things, that (i) each Financed Student Loan, at the time of transfer
to the Trust, is free and clear of all security interests, liens, charges and
encumbrances and no offsets, defenses or counterclaims have been asserted or, to
the Transferor's knowledge, threatened; (ii) the information provided with
respect to the Financed Student Loans is true and correct as of the Cut-off
Date, (or in the case of an Exchanged Financed Student Loan, as of its
Subsequent Cut-off Date); and (iii) each Financed Student Loan, at the time it
was originated, complied and, at the Closing Date, (or in the case of an
Exchanged Financial Student Loan, as of its Subsequent Cut-off Date), complies
in all material respects with applicable federal and state laws (including,
without limitation, the Higher Education Act, consumer credit, truth-in-lending,
equal credit opportunity and disclosure laws) and applicable restrictions
imposed by the Program or under any Guarantee Agreement.
Following the discovery by or notice to the Transferor of a breach of any
such representation or warranty with respect to any Financed Student Loan that
materially and adversely affects the interests of the Certificateholders or the
Noteholders in such Financed Student Loan (it being understood that any such
breach that does not affect any Guarantor's obligation to guarantee payment of
such Financed Student Loan will not be considered to have such a material
adverse effect), the Transferor will, unless such breach is cured
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within 90 days, purchase such Financed Student Loan from the Eligible Lender
Trustee, as of the first day following the end of such 90-day period that is the
last day of a Collection Period, at a price equal to the applicable Purchase
Amount (as defined below). In addition, the Transferor will reimburse the Trust
for any accrued interest amounts that a Guarantor refuses to pay pursuant to its
Guarantee Agreement, or for any Interest Subsidy Payments and Special Allowance
Payments that are lost or that must be repaid to the Department, with respect to
a Financed Student Loan as a result of a breach of any such representation or
warranty by the Transferor. The purchase and reimbursement obligations of the
Transferor will constitute, together with the right to receive certain amounts
from the Reserve Account, the sole remedy available to or on behalf of the
Trust, the Certificateholders or the Noteholders for any such uncured breach.
The Transferor's purchase and reimbursement obligations are contractual
obligations pursuant to the Transfer and Servicing Agreement that may be
enforced against the Transferor, but the breach of which will not constitute an
Event of Default.
"Purchase Amount" means, as to any Financed Student Loan on any date of
determination, the amount required to prepay in full the outstanding principal
balance of such Financed Student Loan as of the last day of the most recently
completed Collection Period, including all accrued but unpaid interest thereon
(including interest to be capitalized) through the last day of the Collection
Period in which such Financed Student Loan is being purchased.
EXCHANGE PERIOD AND EXCHANGED FINANCED STUDENT LOANS
During the period (the "Exchange Period") from the Closing Date until June
30, 2002, if a borrower on a Financed Student Loan who is also a borrower under
one or more Student Loans (whether or not all such loans are in the Trust)
elects to consolidate such loans with the proceeds of a Consolidation Loan to be
made by the Transferor, the Eligible Lender Trustee, at the option of the
Transferor and subject to certain conditions, will be obligated to transfer to
the Transferor the Financed Student Loans being consolidated by the Transferor
in exchange for the related Consolidation Loan to be made by the Transferor
(each an "Exchanged Consolidation Loan" and collectively, the "Exchanged
Consolidation Loans"). In addition, during the Exchange Period, the Eligible
Lender Trustee, at the option of the Transferor and subject to certain
conditions, will be obligated to exchange with the Transferor existing Financed
Student Loans owned by the Trust for one or more Federal Loans owned by the
Transferor that are serial (i.e. made to the same borrower under the same loan
program and guaranteed by the same Guarantor) to an existing Financed Student
Loan owned by the Trust (each such loan exchanged into the Trust, an "Exchanged
Serial Loan" and together with the Exchanged Consolidation Loans, the "Exchanged
Financed Student Loans") provided that each Exchanged Serial Loan meets certain
criteria including that (i) the Exchanged Serial Loan was originated under the
same loan program as the Financed Student Loan for which it is being exchanged
and entitles the holder thereof to receive interest based on the same interest
rate index as the Financed Student Loan for which it is being exchanged, (ii)
the Exchanged Serial Loan will not, at any level of such interest rate index,
have an interest rate that is less than the Financed Student Loan for which it
is being exchanged and (iii) the average principal balance per borrower of the
Exchanged Serial Loans being transferred into the Trust on each Exchange Date
and the existing Financed Student Loans to which they are serial is within 10%
(plus or minus) of the average principal balance per borrower of the Financed
Student Loans being transferred to the Transferor on such Exchange Date and the
existing Federal Loans owned by the Transferor to which they are serial, if any.
In addition, if on any date (each, an "Exchange Date") that any Exchanged
Financed Student Loans are being exchanged into the Trust, the outstanding
principal balance as of the related Subsequent Cut-off Date of all the Exchanged
Financed Student Loans being exchanged into the Trust on such Exchange Date is
less than the outstanding principal balance of all the Financed Student Loans
for which they are being exchanged plus any Issuer Consolidation Payments being
made on such Exchange Date, an amount (an "Adjustment Payment") equal to such
difference will be required to be deposited by the Transferor into the
Collection Account on such Exchange Date.
If on any Exchange Date the aggregate outstanding principal balance as of
the related Subsequent Cut-off Date of all the Exchanged Financed Student Loans
that are Consolidation Loans being exchanged into the
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Trust on such Exchange Date is greater than the outstanding principal balance of
all the Financed Student Loans for which they are being exchanged, an amount up
to the amount of such excess (the "Issuer Consolidation Payments") will be
remitted to the Transferor from Consolidation Prepayments on deposit in the
Collection Account. "Consolidation Prepayments" means, for any Exchange Date,
the amount of principal then on deposit in the Collection Account representing
payments received as a result of Financed Student Loans being repaid with the
proceeds of Consolidation Loans (provided, however, if an Exchange Date occurs
during the month of a Distribution Date, Consolidation Prepayments will not
include amounts received during the month of such Distribution Date).
An acquisition of Exchanged Financed Student Loans will be prohibited at
any time that an Event of Default under the Indenture, a Master Servicer Default
under the Transfer and Servicing Agreement or an Administration Default under
the Administration Agreement, is continuing.
The Exchanged Financed Student Loans are not expected to have any
materially adverse impact on the overall performance of the Trust. To the extent
there are Exchanged Financed Student Loans, the adverse effect of certain
prepayments of Financed Student Loans may be mitigated. See "The Financed
Student Pool--Maturity and Prepayment Assumptions" and "Risk
Factors--Reinvestment Risk to Noteholders from Prepayments of LIBOR Rate Notes."
ACCOUNTS
The Indenture Trustee will establish and maintain the Collection Account,
the Note Distribution Account, the Expense Account, the Reserve Account and the
Monthly Advance Account. The Eligible Lender Trustee will establish and maintain
the Certificate Distribution Account and the Certificate Monthly Advance Account
in the name of the Eligible Lender Trustee on behalf of the Certificateholders.
The foregoing accounts are referred to collectively as the "Trust Accounts" in
the name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
Funds in the Trust Accounts will be invested as provided in the Transfer
and Servicing Agreement in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of the Notes. For so long as the Transferor is a
Certificateholder, all investments of the Trust will be required to be made in
investments permissible for a national bank. Eligible Investments are also
limited to obligations or securities that mature not later than the Business Day
immediately preceding the day on which funds in the applicable Trust Account may
be required to be withdrawn. If the amount required to be withdrawn from the
Reserve Account to cover shortfalls in the amount of Available Funds exceeds the
amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the Noteholders could result. This could, in turn, increase the
average life of the Notes. Investment earnings on funds deposited in the Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be deposited in the Collection Account and will be treated as
collections of interest on the Financed Student Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America 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.
An "Eligible Institution" is generally a depository institution organized under
the federal or any state banking laws whose deposits are insured by the Federal
Deposit Insurance Corporation and whose unsecured long-term debt obligations or
short-term debt ratings are acceptable to Standard & Poor's, Moody's and Fitch.
SERVICING PROCEDURES
Pursuant to the Transfer and Servicing Agreement, the Master Servicer has
agreed to service, and perform all other related tasks with respect to, all the
Financed Student Loans acquired from time to time. The Master Servicer is
required pursuant to the Transfer and Servicing Agreement to perform all
services and
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duties customary to the servicing of Financed Student Loans (including all
collection practices), and to do so with reasonable care and in compliance with
all standards and procedures provided for in the Higher Education Act, the
Guarantee Agreements, and all other applicable federal and state laws.
Without limiting the foregoing, the duties of the Master Servicer under the
Transfer and Servicing Agreement include, but are not limited to, the following:
collecting and depositing into the Collection Account all payments with respect
to the Financed Student Loans, including claiming and obtaining any Guarantee
Payments with respect thereto and with respect to Interest Subsidy Payments and
Special Allowance Payments, responding to inquiries from borrowers on the
Financed Student Loans, investigating delinquencies and sending out statements,
payment coupons and tax reporting information to borrowers. In addition, the
Master Servicer will keep ongoing records with respect to such Financed Student
Loans and collections thereon and will furnish monthly and annual statements to
the Administrator with respect to such information, in accordance with the
customary standards and as otherwise required in the Transfer and Servicing
Agreement.
The Master Servicer may enter into sub-servicing agreements with
sub-servicers pursuant to which some or all of the Financed Student Loans may be
serviced on behalf of the Master Servicer. No such sub-servicing arrangement
will relieve the Master Servicer of its duties and obligations under the
Transfer and Servicing Agreement.
PAYMENTS ON FINANCED STUDENT LOANS
The Master Servicer will deposit all payments on Financed Student Loans for
which it is acting as primary servicer (from whatever source) and all proceeds
of such Financed Student Loans collected by it during each Collection Period
into the Collection Account (i) within one Business Day after it has received an
aggregate of $30,000 during any month and (ii) on the last Business Day of each
month, all other collections received during such month. The Master Servicer
shall cause each other Servicer to deposit in the Collection Account, no less
frequently than weekly, all payments on Financed Student Loans for which such
other Servicer is acting as primary servicer (from whatever source) and all
proceeds of such Financed Student Loans collected by it during each Collection
Period.
MASTER SERVICER COVENANTS
In the Transfer and Servicing Agreement, the Master Servicer covenants
that: (a) it will duly satisfy or cause to be duly satisfied all obligations on
its part to be fulfilled under or in connection with the Financed Student Loans,
maintain in effect all qualifications required in order to service the Financed
Student Loans and comply in all material respects with all requirements of law
in connection with servicing the Financed Student Loans, the failure to comply
with which would have a materially adverse effect on the Certificateholders or
the Noteholders; (b) it will not permit any rescission or cancellation of a
Financed Student Loan except as ordered by a court of competent jurisdiction or
other government authority or as otherwise consented to by the Eligible Lender
Trustee and the Indenture Trustee; (c) it will do nothing to impair the rights
of the Certificateholders and the Noteholders in the Financed Student Loans; and
(d) it will not reschedule, revise, defer or otherwise compromise with respect
to payments due on any Financed Student Loan except pursuant to any applicable
deferral or forbearance periods or otherwise in accordance with its guidelines
with respect to the servicing of the Financed Student Loans (notwithstanding the
foregoing, the Master Servicer may, in its sole discretion, without having to
obtain the consent or approval of any other party, waive amounts owing under a
Financed Student Loan up to and including $50.00); provided, however, that the
Master Servicer may not agree to any decrease of the interest rate on, or the
principal amount payable with respect to, any Financed Student Loan except as
otherwise permitted by the Higher Education Act or any Guarantee Agreement.
Under the terms of the Transfer and Servicing Agreement, if the Master
Servicer discovers, or receives written notice, that any covenant of the Master
Servicer set forth above has not been complied with in all material respects and
such noncompliance has not been cured within 90 days thereafter and has a
materially adverse effect on the interest of the Certificateholders or the
Noteholders in any Financed Student Loan (it
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being understood that any such breach that does not affect any Guarantor's
obligation to guarantee payment of such Financed Student Loan will not be
considered to have such a material adverse effect), unless such breach is cured,
the Master Servicer will purchase such Financed Student Loan as of the first day
following the end of such 90-day period that is the last day of a Collection
Period. In that event, the Master Servicer will be obligated to deposit into the
Collection Account an amount equal to the Purchase Amount of such Financed
Student Loan and the Trust's interest in any such purchased Financed Student
Loan will be automatically assigned to the Master Servicer. Notwithstanding the
above, if the Master Servicer is obligated to purchase a Financed Student Loan
as a result of a failure to service such Financed Student Loan in accordance
with the Higher Education Act and the applicable Guarantee Agreement, the
Purchase Amount will not exceed the amount the related Guarantor would be
obligated to pay if not for such breach. In addition, the Master Servicer will
reimburse the Trust for any accrued interest amounts that a Guarantor refuses to
pay pursuant to its Guarantee Agreement, or for any Interest Subsidy Payments
and Special Allowance Payments that are lost or that must be repaid to the
Department with respect to a Financed Student Loan as a result of a breach of
any such covenant of the Master Servicer; provided, however, that such
reimbursements shall not exceed the amount the Guarantor would have paid if not
for such breach.
SERVICING COMPENSATION
The Master Servicer will be entitled to receive the Servicing Fee. The
Servicing Fee will be payable quarterly in advance, out of Available Funds and
amounts on deposit in the Reserve Account, on each Quarterly Distribution Date
(or in the case of the initial Servicing Fee, on the Closing Date) based on the
Administrator's good faith estimate of the Servicing Fee that will accrue during
the three Collection Periods immediately succeeding such Quarterly Distribution
Date (or in the case of the initial Servicing Fee, the three Collection Periods
immediately succeeding the Closing Date) plus (or minus) the difference (or
excess) of the actual Servicing Fee accrued for the three Collection Periods
immediately preceding such Quarterly Distribution Date.
The Servicing Fee will compensate the Master Servicer and each other
Servicer for performing the functions of a thirdparty servicer of student loans
as an agent for their beneficial owner, including collecting and posting all
payments, responding to inquiries of borrowers on the Financed Student Loans,
investigating delinquencies, pursuing, filing and collecting any Guarantee
Payments, accounting for collections and furnishing monthly and annual
statements to the Administrator. The Servicing Fee also will reimburse the
Master Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Financed Student Loans.
DISTRIBUTIONS
Deposits to Collection Account. On or before the 15th day of each month,
the Administrator will provide the Indenture Trustee and the Eligible Lender
Trustee a report setting forth by component the Available Funds for the
immediately preceding Collection Period.
For purposes hereof, the term "Available Funds" means the excess of (A)
sum, without duplication, of the following amounts with respect to the related
Collection Period: (i) all collections received by the Master Servicer or any
Servicer on the Financed Student Loans (including any Guarantee Payments
received with respect to the Financed Student Loans during such Collection
Period); (ii) any payments, including without limitation Interest Subsidy
Payments and Special Allowance Payments received by the Eligible Lender Trustee
during such Collection Period with respect to the Financed Student Loans; (iii)
all proceeds from any sales of Financed Student Loans by the Trust during such
Collection Period; (iv) any payments of or with respect to interest received by
the Master Servicer or a Servicer during such Collection Period with respect to
a Financed Student Loan for which a Realized Loss was previously allocated; (v)
the aggregate Purchase Amounts received for those Financed Student Loans
purchased by the Transferor or purchased by the Master Servicer under an
obligation which arose during the related Collection Period; (vi) the aggregate
amounts, if any, received from the Transferor or the Master Servicer as
reimbursement of non-guaranteed interest amounts, or lost Interest Subsidiary
Payments and Special Allowance Payments with respect to the Financed Student
Loans pursuant to the Transfer and Servicing Agreement; (vii) all Adjustment
Payments, if any,
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received from the Transferor during such Collection Period; and (viii)
Investment Earnings for such Collection Period over (B) the Issuer Consolidation
Payments for such Collection Period; provided, however, that Available Funds
will exclude all payments and proceeds of any Financed Student Loans the
Purchase Amount of which has been included in Available Funds for a prior
Collection Period (which payments and proceeds shall be paid to the Transferor),
and amounts used to reimburse the Master Servicer for Monthly Advances pursuant
to the terms of the Transfer and Servicing Agreement. For any Distribution Date,
the term Available Funds also includes any Counterparty Swap Payments received
with respect to such Distribution Date.
Distributions from Collection Account. On each Determination Date, the
Administrator will advise the Indenture Trustee and the Eligible Lender Trustee
in writing of the applicable Noteholders' Interest Distribution Amount and
Certificateholders' Interest Distribution Amount. Additionally, on each
Determination Date the Administrator will advise the Indenture Trustee and the
Eligible Lender Trustee in writing of the applicable Noteholders' Principal
Distribution Amount (or, after all the Notes have been paid in full, the
Certificateholders' Principal Distribution Amount). Further, on each
Determination Date relating to a Quarterly Distribution Date the Administrator
will advise the Indenture Trustee in writing of the estimated Servicing Fee,
Administration Fee, Indenture Trustee Fee, and Eligible Lender Trustee Fee
(collectively, the "Transaction Fees") payable for the three succeeding
Collection Periods.
On each Quarterly Distribution Date, the Indenture Trustee will transfer
from the Collection Account, in the following priority and from Available Funds
for the three Collection Periods immediately preceding the month of such
Quarterly Distribution Date (or (x) with respect to the first Quarterly
Distribution Date, from the Closing Date through and including the Collection
Period immediately preceding such Quarterly Distribution Date, (y) with respect
to clause (i)(A) below, the Indenture Trustee will transfer on the 25th day of
each month (or if such day is not a Business Day, on the next succeeding
Business Day) from Available Funds for the Collection Period immediately
preceding such day, the amount described in clause (i)(A) below, and (z) with
respect to clauses (ii) and (iii) below, in the case of the Class A-1 Notes the
Indenture Trustee will transfer the required amounts from the Available Funds
for the Collection Period immediately preceding the month of each Distribution
Date for the Class A-1 Notes), (i) to the Expense Account (A) an amount equal to
the Consolidation Loan Fees with respect to the Collection Period most recently
ended and all overdue Consolidation Loan Fees from prior Collection Periods, and
(B) an amount up to the estimated Transaction Fees for the three immediately
succeeding Collection Periods and all overdue Transaction Fees from prior
Collection Periods (plus (or minus) the difference (or excess) of the actual
Transaction Fees for the three immediately preceding Collection Periods and the
Transaction Fees deposited into the Expense Account on the preceding Quarterly
Distribution Date), (ii) to a separate account held with and in the name of the
Indenture Trustee for the benefit of the Noteholders (the "Note Distribution
Account"), an amount up to the sum of the Noteholders' Interest Distribution
Amount and the Trust Swap Payment, (iii) to the Note Distribution Account, an
amount up to the Noteholders' Principal Distribution Amount, (iv) to a
supplemental account held with and in the name of the Eligible Lender Trustee
for the benefit of the Certificateholders (the "Certificate Distribution
Account"), an amount up to the Certificateholders' Interest Distribution Amount,
and (v) after the Notes have been paid in full, to the Certificateholder
Distribution Account, an amount up to the Certificateholders' Principal
Distribution Amount.
On each Quarterly Distribution Date (and with respect to clause (i) below
on the 25th day of each month, or if such day is not a Business Day, the next
succeeding Business Day) following the transfer to the Expense Account described
in the preceding paragraph, the Indenture Trustee will distribute from the
Expense Account (in addition to any amounts transferred from the Reserve Account
as described herein) the following amounts in the following order of priority;
(i) to the Department, the Consolidation Loan Fees for the immediately preceding
Collection Period together with any overdue Consolidation Loan Fees for any
prior Collection Periods, (ii) to the Master Servicer, the estimated Servicing
Fee for the three immediately succeeding Collection Periods and all overdue
Servicing Fees, (iii) to the Administrator, the estimated Administration Fee for
the three immediately succeeding Collection Periods and all overdue
Administration Fees, (iv) to the Indenture Trustee, the estimated Indenture
Trustee Fee for the three immediately succeeding Collection Periods and all
overdue Indenture Trustee Fees, and (v) to the Eligible Lender Trustee,
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the estimated Eligible Lender Trustee Fee for the three immediately succeeding
Collection Periods and all overdue Eligible Lender Trustee Fees.
On each Distribution Date, following the transfer to the Note Distribution
Account, the Indenture Trustee will distribute to the Noteholders as of the
related Record Date and to each Counterparty the amounts transferred to the Note
Distribution Account as set forth above (in addition to any amounts transferred
from the Reserve Account and the Monthly Advance Account and any Parity
Percentage Payments transferred from the Collection Account, each as described
below) in the following order of priority:
(i) first, to each Class of Class A Noteholders and each Counterparty,
the Class A Noteholders' Interest Distribution Amount and the Trust Swap
Payment, respectively (pro rata based upon the portion thereof allocable to
each such Class and each such Counterparty);
(ii) second, to the Class B Noteholders, the Class B Noteholders'
Interest Distribution Amount:
(iii) third, to the Class A-1 Noteholders, the Noteholders' Principal
Distribution Amount until the Outstanding Amount of the Class A-1 Notes has
been paid in full;
(iv) fourth, to the Fixed Rate Notes, the Noteholders' Principal
Distribution Amount in the following order:
(A) after the principal balance of the Class A-1 Notes has been
reduced to zero, commencing with (but no earlier than) the Distribution
Date occurring in October, 1998, to the Class A-2 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-2 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table;
(B) after the principal balance of the Class A-2 Notes has been
reduced to zero, commencing with (but not earlier than) the Distribution
Date occurring in October 1999, to the Class A-3 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-3 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table;
(C) after the principal balance of the Class A-3 Notes has been
reduced to zero, commencing with (but not earlier than) the Distribution
Date occurring in October 2000, to the Class A-4 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-4 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table;
(D) after the principal balance of the Class A-4 Notes has been
reduced to zero, commencing with (but not earlier than) the Distribution
Date occurring in October 2001, to the Class A-5 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-5 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table;
(E) after the principal balance of the Class A-5 Notes has been
reduced to zero, commencing with (but not earlier than) the Distribution
Date occurring in October 2002, to the Class A-6 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-6 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table; and
(F) after the principal balance of the Class A-6 Notes has been
reduced to zero, commencing with (but not earlier than) the Distribution
Date occurring in October 2003, to the Class A-7 Noteholders, the
remaining Noteholders' Principal Distribution Amount until the principal
balance of the Class A-7 Notes equals the percentage of the Original
Amount for such Class set forth for such Distribution Date on the
Scheduled Principal Balance Table;
(v) fifth, after the principal balance of each Class of Fixed Rate
Notes equals the percentage of the Original Amount for the respective Class
that is set forth for such Distribution Date on the Scheduled
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Principal Balance Table (regardless of whether the principal balance of any
Class of Fixed Rate Notes has been reduced to zero) to the Class A-8
Noteholders, the remaining Noteholders' Principal Distribution Amount until
the principal balance of the Class A-8 Notes has been reduced to zero;
(vi) sixth, after the principal balance of the Class A-8 Notes has
been reduced to zero and after the principal balance of each Class of Fixed
Rate Notes equals the percentage of the Original Amount for the respective
Class that is set forth for such Distribution Date on the Scheduled
Principal Balance Table (regardless of whether the principal balance of any
Class of Fixed Rate Notes has been reduced to zero), to the Class A-9
Noteholders, the remaining Noteholders' Principal Distribution Amount until
the principal balance of the Class A-9 Notes has been reduced to zero; and
(vii) seventh, after the principal balance of each Class of Class A
Notes has been reduced to zero, to the Class B Noteholders, the remaining
Noteholders' Principal Distribution Amount until the principal balance of
the Class B Notes has been reduced to zero.
On each Distribution Date, after making all required transfers to the
Expense Account, the Note Distribution Account and, if applicable, the
Certificate Distribution Account, the Indenture Trustee will transfer any
amounts remaining in the Collection Account (other than amounts representing
payments received during such month) in the following order of priority: (i) to
the Reserve Account, the amount, if any, necessary to increase the balance
thereof to the Specified Reserve Account Balance, (ii) to the Note Distribution
Account, the amount, if any, which when applied as a payment of principal on
such Distribution Date to the Class of Notes then receiving payments of
principal, is necessary for the Parity Percentage to equal 102.5% on such
Distribution Date (the amount so transferred to the Note Distribution Account is
the "Parity Percentage Payment") and (iii) to the Note Distribution Account, the
amount of any outstanding Noteholders' Interest Carryover. Any amounts remaining
in the Collection Account after such transfers (other than amounts representing
payments received during such current month) will be distributed first, to the
Counterparties, the amount of any Swap Termination Payments, and second, after
such Swap Termination Payments have been paid in full, to the Transferor.
No Class of Fixed Rate Notes will receive as a payment of principal on any
Distribution Date more than the amount needed to reduce its respective principal
balance to the percentage of the Original Amount set forth for such Class on the
Scheduled Principal Balance Table. Therefore, on any Distribution Date the
portion, if any, of the Noteholders Principal Distribution Amount remaining
after the principal balance of each Class of Fixed Rate Notes has been reduced
to such amount and the principal balance of the Class A-8 Notes and the Class
A-9 Notes has been paid in full will remain on deposit in the Note Distribution
Account and applied as payments of principal on the Fixed Rate Notes on future
Distribution Dates. The Class B Notes will receive no payments of principal so
long as any Class A Notes are outstanding.
Notwithstanding the foregoing, if (x) on any Distribution Date following
all distributions to be made on such Distribution Date, the principal amount of
the Class A Notes would exceed the sum of the Pool Balance at the end of the
immediately preceding Collection Period plus the aggregate balance on deposit in
the Trust Accounts on such Distribution Date following such distributions, or
(y) an Event of Default has occurred with respect to payment of the Notes or the
Trust Swap Payment, after paying Transaction Fees, overdue Transaction Fees,
Consolidation Loan Fees and overdue Consolidation Loan Fees, distributions will
be made in the following priority: (i) first, to each Class of Class A
Noteholders and the Counterparties, the Noteholders' Interest Distribution
Amount applicable to each such Class and the Trust Swap Payment, respectively,
pro rata based upon the portion thereof allocable to each such Class and the
Counterparties; (ii) second, in the case of clause (x) above, to the Class A-1
Noteholders, the Noteholders' Principal Distribution Amount in the order and
priority set forth above in clauses third through sixth, inclusive, or in the
case of clause (y) above, to each Class of Class A Noteholders, the Noteholders'
Principal Distribution Amount applicable to such Distribution Date, pro rata
based upon the principal balance of each Class of Class A Notes until the
principal balance of each Class of Class A Notes has been paid in full; (iii)
third, to the Class B Noteholders, the Noteholders' Interest Distribution Amount
applicable to the Class B Notes; (iv) fourth, after the principal balance of
each of the Class A Notes has been paid in full, to the Class B Noteholders, the
Noteholders' Principal Distribution Amount until the principal balance of the
Class B Notes
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has been paid in full; (v) fifth, to the Class A-8 Noteholders and the Class A-9
Noteholders, the Noteholders' Interest Carryover applicable to the respective
Class of Class A Notes, pro rata based upon the portion thereof allocable to
each such Class; (vi) sixth, to the Class B Noteholders, the Noteholders'
Interest Carryover applicable to the Class B Notes; (vii) seventh, to the
Counterparties, any Swap Termination Payments; (viii) eighth, to the
Certificateholders, the Certificateholders' Interest Distribution Amount; and
(ix) ninth, to the Certificateholders, the Certificateholders' Principal
Distribution Amount.
All principal payments of Notes of any Class shall be made pro rata within
that Class. In connection with each principal payment of Notes of any Class, the
Administrator shall compute the Principal Factor for that Class. The "Principal
Factor" shall be a number, carried to a seven-digit decimal, indicating the
principal balance of each Note of a Class as of a Distribution Date (after
giving effect to any payments made on that date) as a fraction of the original
principal amount of such Note. The Principal Factor for each Class of Notes
shall be initially 1.0000000 and will thereafter decline to reflect the
reduction in the principal balance of the Notes of that Class after any payment
of principal. The principal balance of any Note can be determined by multiplying
the original principal amount of such Note by the Principal Factor applicable to
that Class of Notes.
"Certificate Balance" equals the original principal balance of each Class
of Certificates issued reduced by all amounts allocable to principal previously
distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, as to any Class of
Certificates, with respect to any Distribution Date, the Certificateholders'
Interest Distribution Amount for such Distribution Date plus, for each
Distribution Date on and after which the Notes have been paid in full, the
Certificateholders' Principal Distribution Amount for such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, as to any Class
of Certificates, with respect to any Distribution Date, the excess, if any, of
(i) the sum of the related Certificateholders' Interest Distribution Amount on
the preceding Distribution Date and any outstanding Certificateholders' Interest
Carryover Shortfall on such preceding Distribution Date over (ii) the amount of
interest actually distributed to the Certificateholders of such Class on such
preceding Distribution Date, plus interest on the amount of such excess interest
due to the Certificateholders of such Class, to the extent permitted by law, at
the related Certificate Rate from such preceding Distribution Date to the
current Distribution Date.
"Certificateholders' Interest Distribution Amount" means, as to any Class
of Certificates, with respect to any Distribution Date relating to such
Certificates, the sum of (i) the amount of interest accrued at One-Month LIBOR
plus 1.50% per annum for each related Interest Period since the last
Distribution Date (or, in the case of the first Distribution Date, the Closing
Date) on the outstanding principal amount of such Certificates on the
immediately preceding Distribution Date, after giving effect to all
distributions of principal to Certificateholders of such Class on such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date) and (ii) the Certificateholders' Interest Carryover Shortfall
relating to such Certificates for such Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date relating to a class of Certificates on or after which
the Notes have been paid in full, the excess, if any, of (i) the sum of the
Certificateholders' Principal Distribution Amount on such Distribution Date and
any outstanding Certificateholders' Principal Carryover Shortfall for the
preceding Distribution Date over (ii) the amount of principal actually
distributed to the Certificateholders on such Distribution Date.
"Certificateholders' Principal Distribution Amount" means, on each
Distribution Date occurring after the principal balance of each Class of Notes
has been paid in full, the sum of (i) the Principal Distribution Amount for the
three Collection Periods preceding such Distribution Date, and (ii) the
Certificateholders' Principal Carryover Shortfall as of the close of the
preceding Distribution Date; provided, however, that the Certificateholders'
Principal Distribution Amount will in no event exceed the outstanding principal
balance of the applicable class of Certificates. Further, on the first
Distribution Date occurring on or after the Distribution Date on which the
principal balance of the last outstanding Class of Notes is paid in full, the
Certificateholders' Principal Distribution Amount also will include the excess,
if any, of the amount of
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principal available to be distributed on such Distribution Date over the amount
of principal paid on the Notes on such date.
"Consolidation Loan Fees" means, as to any Collection Period, an amount
accrued during such Collection Period equal to 1.05% per annum of the average
outstanding principal balance of the Consolidation Loans owned by the Trust
during such Collection Period.
"Counterparty Swap Payment" means, as to the Swap Agreements, with respect
to any Quarterly Distribution Date, the excess, if any, of (i) the aggregate of
the amounts accrued during the three Interest Periods immediately preceding such
Quarterly Distribution Date (or, in the case of the first Quarterly Distribution
Date, since the Closing Date) on the Notional Amounts of the Swap Agreements at
the fixed rates set forth therein (calculated on the basis of a year consisting
of 12 months of 30 days each) over (ii) the amount payable under the Swap
Agreement on such Quarterly Distribution Date by the Trust to the Swap
Counterparties.
"Noteholders' Distribution Amount" means, as to any Class of Notes, with
respect to any Distribution Date, the sum of the related Noteholders' Interest
Distribution Amount and the Noteholders' Principal Distribution Amount for such
Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, as to any Class of
Notes, with respect to any Distribution Date, the excess of (i) the sum of the
related Noteholders' Interest Distribution Amount on the preceding Distribution
Date and any Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date over (ii) the amount of interest actually allocated to such
Noteholders on such preceding Distribution Date, plus interest on the amount of
such excess interest due to the Noteholders, to the extent permitted by law, at
the related Class Interest Rate from such preceding Distribution Date to the
current Distribution Date.
"Noteholders' Interest Distribution Amount" means, as to any Class of
Notes, with respect to any Distribution Date, the sum of (i) the amount of
interest accrued at the respective Class Interest Rate for each Interest Period
since the last Distribution Date for such Class of Notes (or, in the case of the
first Distribution Date, the Closing Date) on the outstanding principal balance
of such Class of Notes on the immediately preceding Distribution Date after
giving effect to all principal distributions to holders of Notes of such Class
on such date (or, in the case of the first Distribution Date, on the Closing
Date) and (ii) the Noteholders' Interest Carryover Shortfall for such Class for
such Distribution Date; provided, however, that the Noteholders' Interest
Distribution Amount will not include any Noteholders' Interest Carryover.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of (i) the sum of the Noteholders' Principal
Distribution Amount on such Distribution Date and any outstanding Noteholders'
Principal Carryover Shortfall for the preceding Distribution Date over (ii) the
amount of principal actually allocated to the Noteholders on such Distribution
Date.
"Noteholders' Principal Distribution Amount" means, as to any Distribution
Date, the sum of (i) the Principal Distribution Amount for the three Collection
Periods (or with respect to the Class A-1 Notes, the one Collection Period)
immediately preceding the month of such Distribution Date, (ii) any Parity
Percentage Payments to be made on such Distribution Date, (iii) the Noteholders'
Principal Carryover Shortfall as of the close of the preceding Distribution Date
and (iv) the amount, if any, remaining on deposit in the Note Distribution
Account following the preceding Distribution Date; provided, however, that the
Noteholders' Principal Distribution Amount allocable to a Class of Notes will
not exceed the outstanding principal balance of such Class of Notes. In
addition, with respect to each Class of Notes, on the related Final Maturity
Date the Noteholders' Principal Distribution Amount will include the amount
required to reduce the outstanding principal balance of such Notes to zero.
"Principal Distribution Amount" means, with respect to any Collection
Period, the excess of (A) the sum of the following amounts: (i) that portion of
all collections received by the Master Servicer or any Servicer on the Financed
Student Loans that is allocable to principal (including the portion of any
Guarantee Payments received that is allocable to principal of the Financed
Student Loans); (ii) the portion of the proceeds allocable to principal from the
sale of Financed Student Loans by the Trust during such Collection Period; (iii)
all Realized Losses incurred during such Collection Period; (iv) to the extent
attributable to
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principal, the Purchase Amount received with respect to each Financed Student
Loan purchased by the Transferor or purchased by the Master Servicer or under an
obligation which arose during the related Collection Period and (v) the
Adjustment Payments, if any, received from the Transferor during such Collection
Period; over (B) the Issuer Consolidation Payments for such Collection Period;
provided, however, that the Principal Distribution Amount will exclude all
payments and proceeds of any Financed Student Loans, the Purchase Amount of
which has been included in Available Funds for a prior Collection Period.
"Trust Swap Payment" means, as to the Swap Agreements, with respect to any
Quarterly Distribution Date, the excess, if any, of (i) the aggregate amounts
accrued on the Notional Amounts of the Swap Agreements during the three Interest
Periods immediately preceding such Quarterly Distribution Date (or, in the case
of the first Quarterly Distribution Date, since the Closing Date) at the
Variable Swap Rate (calculated on the basis of the actual number of days elapsed
in each such Interest Period divided by 365 or 366, as applicable,) over (ii)
the amount payable under the Swap Agreements on such Quarterly Distribution Date
by the Counterparties to the Trust.
With respect to each Financed Student Loan submitted to a Guarantor for a
Guarantee Payment, a "Realized Loss" means the excess, if any, of (i) the unpaid
principal balance of such Financed Student Loan on the date it was first
submitted to a Guarantor for a Guarantee Payment over (ii) all amounts received
on or with respect to principal on such Financed Student Loan up through the
earlier to occur of (A) the date a related Guarantee Payment is made or (B) the
last day of the Collection Period occurring 12 months after the date the claim
for such Guarantee Payment is first denied.
MONTHLY ADVANCES
If the Master Servicer has applied for a Guarantee Payment from a Guarantor
or an Interest Subsidy Payment or a Special Allowance Payment from the
Department, and the Master Servicer has not received the related payment prior
to the end of the Collection Period immediately preceding the Distribution Date
on which such amount would be required to be distributed as a payment of
interest, the Master Servicer may, no later than the Determination Date relating
to such Distribution Date, deposit into the Monthly Advance Account an amount up
to the amount of such payments applied for but not received (such deposits by
the Master Servicer are referred to herein as "Monthly Advances"). On each
related Distribution Date, the Indenture Trustee will distribute from the
Monthly Advance Account to the Noteholders the Monthly Advance for such
Distribution Date. Such Monthly Advances are recoverable by the Master Servicer
(i) first, from the source for which such Monthly Advance was made and (ii)
second, from payments received generally on or with respect to the Financed
Student Loans. The Master Servicer will have no obligation, legal or otherwise,
to make any Monthly Advance, and a determination by the Master Servicer to make
a Monthly Advance will not create any obligation of the Master Servicer, legal
or otherwise, to make any future Monthly Advances.
CREDIT ENHANCEMENT
Reserve Account. Pursuant to the Transfer and Servicing Agreement, the
Reserve Account will be created and on or prior to the Closing Date and the
Transferor will deposit to the Reserve Account cash or Eligible Investments in
an amount equal to the Reserve Account Deposit. The initial Reserve Account
Deposit is $10.3 million. The Reserve Account will be augmented on each
Distribution Date by deposit therein of the amount, if any, necessary to
reinstate the balance of the Reserve Account to the Specified Reserve Account
Balance from the amount of Available Funds remaining after making all prior
distributions on such date as described above under the heading
"--Distributions--Distributions from the Collection Account". Also, if amounts
were transferred from the Reserve Account to cover a Realized Loss on a Financed
Student Loan, any subsequent payments of principal received on or with respect
to such Financed Student Loan will be deposited into the Reserve Account. As
described below, subject to certain limitations, amounts on deposit in the
Reserve Account will be released to the Transferor to the extent that the amount
on deposit in the Reserve Account exceeds the Specified Reserve Account Balance.
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If the amount, if any, on deposit in the Reserve Account on any
Distribution Date (after giving effect to all deposits or withdrawals therefrom
on such Distribution Date) is greater than the Specified Reserve Account
Balance, subject to certain limitations, the Administrator will instruct the
Indenture Trustee to distribute the amount of the excess, after payment of any
unpaid Noteholders' Interest Carryover or to purchase Financed Student Loans for
which there has been an uncured breach of certain representations and
warranties, to the Transferor. Upon any distribution to the Transferor of
amounts from the Reserve Account, the Noteholders will not have any rights in,
or claims to, such amounts.
The Reserve Account is intended to enhance the likelihood of timely receipt
by the Noteholders of the full amount of interest due them, the ultimate receipt
by the Noteholders of the full amount of principal and to decrease the
likelihood that the Noteholders will experience losses. In certain
circumstances, however, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in the
amount of Available Funds exceeds the amount of cash in the Reserve Account, a
temporary shortfall in the amount of principal and interest distributed to the
Noteholders could result. This could, in turn, increase the average life of the
Notes. Moreover, amounts on deposit in the Reserve Account (other than amounts
in excess of the Specified Reserve Account Balance) will not be available to
cover any aggregate unpaid Noteholders' Interest Carryover.
Subordination of the Class B Notes. The rights of the holders of the Class
B Notes to receive distributions with respect to interest and principal will be
subordinated to such rights of the holders of the Class A Notes to the extent
described herein. This subordination is intended to enhance the likelihood of
regular receipt by holders of the Class A Notes of the full amount of the
Noteholders' Interest Distribution Amount and, after distribution of the Class B
Interest Distribution Amount, the Noteholders' Principal Distribution Amount.
See "--Distributions".
Subordination of the Certificates. The rights of Certificateholders to
receive distributions of interest and principal will be subordinated to such
rights of the holders of the Notes to the extent described herein.
SWAP AGREEMENTS
Pursuant to the Transfer and Servicing Agreements, on the Closing Date the
Trust will enter into separate Swap Agreements with respect to each Class of
Fixed Rate Notes with a Counterparty, pursuant to which the Trust will be
obligated to pay such Counterparty on each Quarterly Distribution Date an amount
accrued on the Notional Amount of such Swap Agreement during the three Interest
Periods immediately preceding such Quarterly Distribution Date (or in the case
of the first Quarterly Distribution Date, since the Closing Date) at the
Variable Swap Rate, and the Counterparty under such Swap Agreement will be
obligated to pay the Trust on such Quarterly Distribution Date an amount accrued
during such Interest Periods on the Notional Amount of such Swap Agreement at a
fixed rate. The payment obligations of the Trust and the Counterparties to each
other will be netted on each Quarterly Distribution Date and only the party with
any payment remaining after such netting will be required to remit such amount
to the other. The Trust's obligations to make such payments to the
Counterparties under the Swap Agreements will rank equally without preference
with the Trust's obligations to pay interest on the Class A Notes and will
generally be funded from Available Funds, Monthly Advances and amounts, if any,
on deposit in the Reserve Account remaining after deposit of the Transaction
Fees, overdue Transaction Fees, the Consolidation Loan Fees and overdue
Consolidation Loan Fees in the Expense Account. Any net payments from the
Counterparties to the Trust under the Swap Agreement will be deposited in the
Collection Account and will be included as Available Funds for the related
Quarterly Distribution Date. See "--Distributions."
COUNTERPARTIES UNDER THE SWAP AGREEMENTS
Deutsche Bank AG, New York Branch ("Deutsche Bank"), a member of the
Deutsche Bank Group, currently has a long-term credit rating of "AAA" from
Standard & Poor's and "Aaa" from Moody's. Deutsche Bank will provide, upon
request, without charge to each person to whom this Prospectus is delivered, a
copy of (i) the rating analysis from each of Standard & Poor's and Moody's
evidencing those respective long-term credit ratings and (ii) the consolidated
financial information of the Deutsche Bank Group based on
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International Accounting Standards, which can be obtained upon written or oral
request from Corporate Communications, Deutsche Bank AG, 31 West 52nd Street,
New York, New York 10019, telephone (212) 469-5000.
Morgan Guaranty Trust Company of New York ("Morgan") is a trust company,
incorporated under the laws of the State of New York in 1864. Morgan extends
credit, accepts deposits, arranges financings, and provides a number of other
traditional banking and financial facilities and services. Morgan also provides
worldwide financial and advisory services to its clients in addressing their
corporate finance needs, including those related to international capital
markets. In addition to providing merger and acquisitions, leasing, real estate,
and other advisory services, Morgan also acts as a broker and principal in the
interest rate and currency swap markets.
Morgan buys and sells foreign currencies as principal, engaging in spot,
forward, futures, and options transactions. Morgan executes trades with
counterparties around the world, including commercial and institutional clients.
To complement its international activities and to serve its clients, Morgan
trades precious metals, engaging in spot, forward, futures, and options
transaction as principal.
Morgan currently has a long-term credit rating of "AAA" from Standard &
Poor's and "Aa1" from Moody's.
The principal executive office of Morgan is located at 60 Wall Street, New
York, New York 10260-0060 and its telephone number is (212) 483-2323.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon request, a copy of the most recent quarterly Consolidated Reports of
Condition and Income of Morgan filed with the Board of Governors of the Federal
Reserve System, except for the exhibits to such documents. Written requests
should be mailed to the Office of the Secretary, Morgan Guaranty Trust Company
of New York, 60 Wall Street, New York, New York 10260-0060. Telephone requests
may be directed to (212) 648-3380.
STATEMENTS TO INDENTURE TRUSTEE
On each Determination Date preceding a Distribution Date, the Master
Servicer or the Administrator will provide to the Indenture Trustee (for the
Indenture Trustee to forward on each succeeding Distribution Date to each
Noteholder) a statement which will include the following information with
respect to such Distribution Date or for the preceding Collection Period or
Collection Periods, to the extent applicable:
(i) the Principal Factor for each class of Notes;
(ii) the amount of the distribution allocable to principal of each
class of Notes;
(iii) the amount of the distribution allocable to interest on each
class of Notes and Certificates, together with the interest rates
applicable with respect thereto (indicating, in the case of the LIBOR Rate
Notes, whether such interest rates are based on One-Month LIBOR or on the
Net Loan Rate, with respect to each class of LIBOR Rate Notes, and
specifying what each such interest rate would have been if it had been
calculated using the alternate basis);
(iv) the amount of the distribution, if any, allocable to any
Noteholders' Interest Carryover together with the outstanding amount, if
any, thereof after giving effect to any such distribution;
(v) the Pool Balance as of the close of business on the last day of
each preceding Collection Period since the last Distribution Date;
(vi) the aggregate outstanding principal balance of each class of
Notes as of such Distribution Date, after giving effect to payments
allocated to principal reported under clause (i) above;
(vii) the amount of the Servicing Fee to be allocated to the Master
Servicer, the amount of the Administration Fee to be allocated to the
Administrator, the amount of the Indenture Trustee Fee to be allocated to
the Indenture Trustee and the amount of the Eligible Lender Trustee Fee to
be allocated to the Eligible Lender Trustee, respectively, with respect to
the upcoming Distribution Date;
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(viii) the amount of the aggregate Realized Losses, if any, for each
Collection Period since the last Distribution Date and the aggregate
amount, if any, received (stated separately for interest and principal)
with respect to Financed Student Loans for which Realized Losses were
allocated previously;
(ix) the amount of the distribution attributable to amounts in the
Reserve Account, the amount of any other withdrawals from the Reserve
Account for such Distribution Date, the balance of the Reserve Account on
such Distribution Date, after giving effect to changes therein on such
Distribution Date, the then applicable Parity Percentage and the amount of
the distribution, if any, attributable to Parity Percentage Payments;
(x) the aggregate amount, if any, paid for Financed Student Loans
purchased from the Trust during each preceding Collection Period since the
last Distribution Date;
(xi) during the Exchange Period only, the aggregate Issuer
Consolidation Payments and Adjustment Payments, stated separately, for each
preceding Collection Period since the last Distribution Date (or since the
Closing Date in the case of the first Distribution Date); and
(xii) the number and principal amount of Financed Student Loans, as of
each preceding Collection Period since the last Distribution Date, that are
(i) 30 to 60 days delinquent, (ii) 61 to 90 days delinquent, (iii) 91 to
120 days delinquent, (iv) more than 120 days delinquent and (v) for which
claims have been filed with the appropriate Guarantor and which are
awaiting payment.
EVIDENCE AS TO COMPLIANCE
The Transfer and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the Eligible Lender Trustee and
the Indenture Trustee annually a statement (based on the examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the Master Servicer
during the preceding calendar year (or, in the case of the first such
certificate, the period from March 27, 1997 to December 31, 1997) with certain
provisions of the Transfer and Servicing Agreement relating to the servicing of
the Financed Student Loans.
The Transfer and Servicing Agreement will further provide that a firm of
independent public accountants (which may be the same firm referred to in the
immediately preceding paragraph) will furnish to the Eligible Lender Trustee and
the Indenture Trustee annually a statement (based on the examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the Administrator
during the preceding calendar year (or, in the case of the first such
certificate, the period from the Closing Date to December 31, 1997) with certain
provisions of the Transfer and Servicing Agreement and the Administration
Agreement relating to the administration of the Trust and the Financed Student
Loans.
The Transfer and Servicing Agreement will also provide for delivery to the
Eligible Lender Trustee and the Indenture Trustee, concurrently with the
delivery of each statement of compliance referred to above, of a certificate
signed by an officer of the Master Servicer or the Administrator, as the case
may be, stating that, to his knowledge, the Master Servicer or the
Administrator, as the case may be, has fulfilled in all material respects all
its obligations under the Transfer and Servicing Agreement and the
Administration Agreement, respectively, throughout the preceding calendar year
(or, in the case of the first such certificate, the period from the Closing Date
to December 31, 1997) or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and statute thereof. Each of the Master Servicer and the Administrator
has agreed to give the Indenture Trustee and the Eligible Lender Trustee notice
of certain Servicer Defaults and Administrator Defaults, respectively, under the
Transfer and Servicing Agreement.
Copies of such statements and certificates may be obtained by Noteholders
by a request in writing addressed to the Indenture Trustee at Four Albany
Street, New York, New York, 10006, Attention: Corporate Trust and Agent Group,
Structural Finance; facsimile: (212) 250-6439.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Transfer and Servicing Agreement will provide that the Master Servicer
may not resign from its obligations and duties as Master Servicer thereunder,
except upon determination that the Master Servicer's performance of such duties
is no longer permissible under applicable law or shall violate any final order
of a court or administrative agency with jurisdiction over the Master Servicer
or its properties. No such resignation will become effective until the Indenture
Trustee or a successor servicer has assumed the Master Servicer's servicing
obligations and duties under the Transfer and Servicing Agreement.
The Transfer and Servicing Agreement will further provide that neither the
Transferor, the Master Servicer nor any of its directors, officers, employees or
agents will be under any liability to the Trust, the Noteholders, the
Certificateholders, the Swap Counterparty, the Indenture Trustee or the Eligible
Lender Trustee, except as provided under the Transfer and Servicing Agreement or
the Administration Agreement for taking any action or for refraining from taking
any action pursuant to the Transfer and Servicing Agreement, or for errors in
judgment; provided, however, that neither the Transferor, the Master Servicer
nor any such 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 their respective duties thereunder. In addition, the Transfer and
Servicing Agreement will provide that the Transferor and the Master Servicer
shall not be under any obligation to appear in, prosecute, or defend any legal
action that is not incidental to its duties in accordance with the Transfer and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability.
The Transfer and Servicing Agreement will provide that the Master Servicer
will be permitted to perform its services thereunder through any of its
affiliates, provided that the Master Servicer shall continue to be responsible
for all performance of such services.
Under the circumstances and subject to conditions specified in the Transfer
and Servicing Agreement, any entity into which the Master Servicer may be merged
or consolidated, or any entity resulting from any merger or consolidation to
which the Master Servicer is a party, or any entity succeeding to the business
of the Master Servicer will be the successor of the Master Servicer under the
Transfer and Servicing Agreement. Successors (other than the Holding Company or
a PNC Subsidiary (as defined below)) must execute an agreement expressly
assuming the Master Servicer's obligations under the Transfer and Servicing
Agreement.
PERMITTED MERGER OF TRANSFEROR, MASTER SERVICER AND ADMINISTRATOR WITH PNC
SUBSIDIARIES
Nothing in the Transfer and Servicing Agreements prohibits or restricts the
merger of PNC Bank, National Association with the Holding Company or certain
subsidiaries of the Holding Company, including without limitation PNC Bank,
Ohio, National Association, PNC Bank, Kentucky, Inc., PNC Bank, Delaware, PNC
Bank, Indiana, Inc., PNC National Bank, PNC Mortgage Bank, N.A. and PNC Bancorp,
Inc. (each a "PNC Subsidiary"), the consolidation of PNC Bank, National
Association and the Holding Company or any PNC Subsidiary, or the sale of all or
substantially all of the assets of PNC Bank, National Association to the Holding
Company or another PNC Subsidiary. In such event, no consent of the Noteholders,
Certificateholders or Counterparties will be required.
MASTER SERVICER DEFAULT; ADMINISTRATOR DEFAULT
"Master Servicer Default" under the Transfer and Servicing Agreement will
consist of: (i) any failure by the Master Servicer to deliver to the Indenture
Trustee for deposit in any of the Trust Accounts any collections, Guarantee
Payments or other amounts received with respect to the Financed Student Loans,
which failure continues unremedied for three Business Days after written notice
from the Indenture Trustee, the Administrator or the Eligible Lender Trustee is
received by the Master Servicer or after discovery by the Master Servicer; (ii)
any failure by the Master Servicer duly to observe or perform in any material
respect any other covenant or agreement of the Master Servicer in the Transfer
and Servicing Agreement which failure materially and adversely affects the
rights of Noteholders and Certificateholders and which continues unremedied for
60 days after the giving of written notice of such failure (A) to the Master
Servicer by the Indenture Trustee, the Eligible Lender Trustee or the
Administrator or (B) to the Master Servicer and to the
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Indenture Trustee and the Eligible Lender Trustee by holders of Notes evidencing
not less than 25% in principal amount of the outstanding Notes; (iii) certain
events of insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings with respect to the Master Servicer and
certain actions by the Master Servicer indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations; and (iv)
any limitation, suspension or termination by the Department of the Master
Servicer's eligibility to service Student Loans which materially and adversely
affects the Master Servicer's ability to service Financed Student Loans.
"Administrator Default" under the Transfer and Servicing Agreement or the
Administration Agreement will consist of (i) any failure by the Administrator to
direct the Indenture Trustee or the Eligible Lender Trustee, as applicable, to
make any required distributions from any of the Trust Accounts, which failure
continues unremedied for three Business Days after written notice from the
Indenture Trustee or the Eligible Lender Trustee is received by the
Administrator or after discovery of such failure by the Administrator; (ii) any
failure by the Administrator duly to observe or perform in any material respect
any other covenant or agreement in the Administration Agreement or the Transfer
and Servicing Agreement which failure materially and adversely affects the
rights of Noteholders, and which continues unremedied for 60 days after the
giving of written notice of such failure (A) to the Administrator, the Indenture
Trustee or the Eligible Lender Trustee or (B) to the Administrator and to the
Indenture Trustee and the Eligible Lender Trustee by holders of Notes evidencing
not less than 25% in principal amount of the outstanding Notes; and (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Administrator and
certain actions by the Administrator indicating its insolvency or inability to
pay its obligations.
RIGHTS UPON SERVICER DEFAULT AND ADMINISTRATOR DEFAULT
As long as a Servicer Default under the Transfer and Servicing Agreement or
an Administrator Default under the Transfer and Servicing Agreement or the
Administration Agreement remains unremedied, the Indenture Trustee or holders of
Notes evidencing not less than 25% in principal amount of then outstanding Notes
may terminate all the rights and obligations of the Master Servicer under the
Transfer and Servicing Agreement, or the Administrator under the Transfer and
Servicing Agreement and the Administration Agreement, as the case may be,
whereupon a successor servicer or administrator appointed by the Indenture
Trustee or the Indenture Trustee will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under the Transfer and Servicing
Agreement, or the Administrator under the Transfer and Servicing Agreement and
the Administration Agreement, as the case may be, and will be entitled to
similar compensation arrangements. In the event that a successor Master Servicer
or Administrator, as the case may be, has not been appointed at the time when
the predecessor Master Servicer or Administrator has ceased to act as Master
Servicer or Administrator, then the Indenture Trustee shall automatically be
appointed successor Master Servicer or Administrator. Notwithstanding the above,
the Indenture Trustee shall, if it shall be unwilling or legally unable so to
act, appoint or petition a court of competent jurisdiction to appoint, any
established institution whose regular business shall include the servicing of
student loans, as the successor to the Master Servicer or Administrator, as the
case may be, under this Agreement. In the event that a successor Master Servicer
or Administrator, as the case may be, has not been appointed at the time when
the predecessor Master Servicer or Administrator has ceased to act as Master
Servicer or Administrator, then the Indenture Trustee shall automatically be
appointed as successor Master Servicer or Administrator.
WAIVER OF PAST DEFAULTS
The holders of Notes evidencing at least a majority in principal amount of
the then outstanding Notes may, on behalf of all Noteholders and
Certificateholders, waive any default by the Master Servicer in the performance
of its obligations under the Transfer and Servicing Agreement, or any default by
the Administrator of its obligations under the Transfer and Servicing Agreement
and the Administration Agreement, as the case may be, and their respective
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts or giving instructions regarding the same in
accordance with the
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Transfer and Servicing Agreement. No such waiver will impair the Noteholders' or
the Certificateholders' rights with respect to subsequent defaults.
AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties
thereto, with the consent of the Indenture Trustee, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Transfer and Servicing Agreements or of modifying in any manner the
rights of Noteholders or Certificateholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments with respect to the Financed
Student Loans or distributions that are required to be made for the benefit of
the Noteholders, the Certificateholders or the Counterparties or (ii) reduce the
aforesaid percentage of the Notes or Certificates which are required to consent
to any such amendment, without the consent of the holders of all the outstanding
Notes and Certificates and the Counterparties affected thereby.
INSOLVENCY EVENT
If any of certain events of insolvency or receivership, readjustment of
debt, marshaling of assets and liabilities, or similar proceedings with respect
to the Transferor or certain actions by the Transferor indicating its insolvency
or inability to pay its obligations (each, an "Insolvency Event") occurs, the
Financed Student Loans will be liquidated and the Trust will be terminated.
Promptly after the occurrence of any Insolvency Event, notice thereof is
required to be given to Noteholders, Certificateholders and the Counterparties;
provided, however, that any failure to give such required notice will not
prevent or delay termination of the Trust. Upon termination of the Trust, the
Eligible Lender Trustee will direct the Indenture Trustee promptly to sell the
assets of the Trust (other than the Trust Accounts) in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of the Financed Student Loans will be treated as
collections thereon and deposited in the Collection Account. If the proceeds
from the liquidation of the Financed Student Loans and any amounts on deposit in
the Reserve Account are not sufficient to pay the Notes in full, the amount of
principal returned to the Noteholders will be reduced and the Noteholders will
incur a loss.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction and
discharge of the Indenture, the Eligible Lender Trustee will succeed to all the
rights of the Indenture Trustee, and the Certificateholders will succeed to all
the rights of the Noteholders, under the Transfer and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
The obligations of the Master Servicer, the Transferor, the Administrator,
the Eligible Lender Trustee and the Indenture Trustee pursuant to the Transfer
and Servicing Agreements will terminate upon (i) the maturity or other
liquidation of the last Financed Student Loan and the disposition of any amount
received upon liquidation of any remaining Financed Student Loans and (ii) the
payment to the Noteholders, the Certificateholders and the Counterparties of all
amounts required to be paid to them pursuant to the Transfer and Servicing
Agreements. In order to avoid excessive administrative expense, the Transferor
is permitted at its option to repurchase from the Eligible Lender Trustee, as of
the end of any Collection Period immediately preceding a Distribution Date, if
the then outstanding Pool Balance is 5% or less of the Initial Pool Balance and
the outstanding aggregate principal amount of the Fixed Rate Notes has been
reduced to zero, all remaining Financed Student Loans at a price equal to the
aggregate Purchase Amounts thereof as of the end of such Collection Period,
which amounts will be used to retire the Notes and the Certificates concurrently
therewith. Upon termination of the Trust, all right, title and interest in the
Financed Student Loans and other funds of the Trust, after giving effect to any
final distributions to Noteholders, Certificateholders and the Counterparties
therefrom, will be conveyed and transferred to the Transferor.
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Any Financed Student Loans remaining in the Trust as of the end of May 1,
2007 will be offered for sale by the Indenture Trustee on or prior to the July
2007 Distribution Date. The Transferor, its affiliates and unrelated third
parties may offer bids to purchase such Financed Student Loans on or prior to
such Distribution Date. If at least two bids are received, the Indenture Trustee
will accept the highest bid equal to or in excess of the greater of (x) the
aggregate Purchase Amounts of such Financed Student Loans as of the end of the
Collection Period immediately preceding such Distribution Date or (y) an amount
that would be sufficient to (i) reduce the outstanding principal amount of the
Notes on such Distribution Date to zero and (ii) pay to the Noteholders the
Noteholders' Interest Distribution Amount payable on such Distribution Date and
pay to the Counterparties any Trust Swap Payments payable on such Distribution
Date, if any (the "Minimum Purchase Price"). If at least two bids are not
received or the highest bid is not equal to or in excess of the Minimum Purchase
Price, the Indenture Trustee will not consummate such sale. The proceeds of any
such sale will be used to redeem any outstanding Notes on such Distribution Date
and pay any Trust Swap Payments. If the sale is not consummated in accordance
with the foregoing, the Indenture Trustee may, but shall not be under any
obligation to, solicit bids to purchase the Financed Student Loans on future
Distribution Dates upon terms similar to those described above. No assurance can
be given as to whether the Indenture Trustee will be successful in soliciting
acceptable bids to purchase the Financed Student Loans on either the July, 2007
Distribution Date or any subsequent Distribution Date.
ADMINISTRATOR
PNC Bank, National Association, in its capacity as Administrator, has
entered into the Administration Agreement with the Trust and the Indenture
Trustee, pursuant to which the Administrator will agree, to the extent provided
therein, (i) to direct the Indenture Trustee to make the required distributions
from the Trust Accounts on each Distribution Date, (ii) to prepare (based on the
reports received from the Master Servicer) and provide periodic and annual
statements to the Eligible Lender Trustee and the Indenture Trustee with respect
to distributions to Noteholders and Certificateholders and any related Federal
income tax reporting information and (iii) to provide the notices and to perform
other administrative obligations required by the Indenture and the Trust
Agreement. As compensation for the performance of the Administrator's
obligations under the Administration Agreement and as reimbursement for its
expenses related thereto, the Administrator will be entitled to an
administration fee equal to 0.02% per annum of the outstanding principal amount
of the Notes and Certificates (the "Administration Fee"). Affiliates of the
Administrator may assist it in performing its obligations under the
Administration Agreement.
LEGAL ASPECTS OF THE FINANCED STUDENT LOANS
TRANSFER OF FINANCED STUDENT LOANS
The Transferor intends that the transfer of the Financed Student Loans by
it to the Eligible Lender Trustee on behalf of the Trust will constitute a valid
contribution and assignment of such Financed Student Loans. Notwithstanding the
foregoing, if the transfer of the Financed Student Loans is deemed to be an
assignment of collateral as security for the benefit of the Trust, a security
interest in the Federal Loans created on behalf of the Eligible Lender Trustee
may, pursuant to the provisions of 20 U.S.C. Section 1087-2(d)(3), be perfected
by the filing of notice of such security interest in the manner provided by the
applicable state law version Uniform Commercial Code ("UCC") for perfection of a
security interest in accounts. A financing statement or statements covering the
Financed Student Loans will be filed under the UCC to protect the interest of
the Eligible Lender Trustee in the event the transfer by the Transferor is
deemed to be subject to the UCC.
If the transfer of the Financed Student Loans is deemed to be an assignment
as security for the benefit of the Trust, there are certain limited
circumstances under the UCC in which prior or subsequent transferees of Financed
Student Loans could have an interest in such Financed Student Loans with
priority over the Eligible Lender Trustee's interest. A tax or other government
lien on property of the Transferor arising prior to the time a Financed Student
Loans came into existence may also have priority over the interest of the
Eligible Lender Trustee in such Financed Student Loan. Under the Transfer and
Servicing Agreement, however, the
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Transferor will warrant that it has caused the Financed Student Loans to be
transferred to the Eligible Lender Trustee on behalf of a Trust free and clear
of any lien of any third party. In addition, the Transferor will covenant that
it will not sell, pledge, assign, transfer or grant any lien on any Financed
Student Loan (or any interest therein) other than to the Eligible Lender Trustee
on behalf of a Trust.
Pursuant to the Transfer and Servicing Agreement, either the Master
Servicer or a sub-servicer as custodian on behalf of the Trust will have custody
of the promissory notes evidencing the Financed Student Loans following the
conveyance of the Financed Student Loans to the Eligible Lender Trustee and the
pledge thereof to the Indenture Trustee. Although the accounts of the Transferor
will be marked to indicate the conveyance and the Transferor will cause UCC
financing statements to be filed with the appropriate authorities, the Financed
Student Loans will not be physically segregated in the Master Servicer's or such
sub-servicer's offices. If, through inadvertence or otherwise, any of the
Financed Student Loans were sold to another party, or a security interest
therein were granted to another party, that purchased (or took such security
interest in) any of such Financed Student Loans in the ordinary course of its
business and took possession of such Financed Student Loans, then the purchaser
(or secured party) would acquire an interest in the Financed Student Loans
superior to the interest of the Eligible Lender Trustee and the Indenture
Trustee if the purchaser (or secured party) acquired (or took a security
interest in) the Financed Student Loans for new value and without actual
knowledge of the Eligible Lender Trustee's and the Indenture Trustee's
respective interests. See "Description of the Transfer and Servicing
Agreements--Conveyance of Financed Student Loans; Representations and
Warranties" and "--Servicer Covenants."
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC
could exercise if it were appointed as receiver or conservator of the
Transferor.
Subject to clarification by FDIC regulations or interpretations, it would
appear form the positions taken by the FDIC that the FDIC, in its capacity as a
receiver or conservator for the Transferor, would not interfere with the timely
transfer to the Trust of collections with respect to the Financed Student Loans.
To the extent that the transfer of the Financed Student Loans is deemed to
create a security interest, and that interest was validly perfected before the
Transferor's insolvency and was not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Transferor or its creditors, based
upon opinions and statements of policy issued by the general counsel of the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for a
depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance and payments to the Trust with respect to the Financed Student Loans
should not be subject to recovery by the FDIC as receiver or conservator of the
Transferor. If, however, the FDIC were to assert a contrary position, certain
provisions of the FDIA which, at the request of the FDIC, have been applied in
recent lawsuits to avoid security interests in collateral granted by depository
institutions, would permit the FDIC to avoid such security interests, thereby
resulting in possible delays and reductions in payments on the Notes. In
addition, if the FDIC were to require the Indenture Trustee or the Eligible
Lender Trustee to establish its rights to such payments by submitting to and
completing the administrative claims procedure under the FDIA, as amended by
FIRREA, delays in payments on the Notes and possible reductions in the amount of
the payments could occur.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other
restrictions on certain consumer transactions and require contract disclosures
in addition to those required under federal law. Many of these requirements are
preempted by the provisions of the Higher Education Act. For a discussion of the
Trust's rights if the Financed Student Loans were not originated or serviced in
compliance in all material respects with applicable laws, See "Description of
the Transfer and Servicing Agreements--Conveyance of Financed Student Loans;
Representations and Warranties" and "--Master Servicer Covenants."
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LOAN ORIGINATION AND SERVICING PROCEDURES APPLICABLE TO FINANCED STUDENT LOANS
The Higher Education Act, including the implementing regulations thereunder
(in the case of Federal Loans), impose specified requirements, guidelines and
procedures with respect to originating and servicing Student Loans such as the
Financed Student Loans. Generally, those procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower under applicable standards (including a review of a financial
need analysis in the case of certain Federal Loans) be made, the borrower's
responsibilities under the loan be explained to him or her, the promissory note
evidencing the loan be executed by the borrower and then that the loan proceeds
be disbursed in a specified manner by the lender. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferrals and forbearance and credit the borrower for payments made thereon. If
a borrower becomes delinquent in repaying a loan, a lender or a servicing agent
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent. The
Master Servicer has agreed pursuant to the Transfer and Servicing Agreement to
perform collection and servicing procedures on behalf of the Trust. However,
failure to follow these procedures or failure of the Transferor to follow
procedures relating to the origination of any Financed Student Loans could
result in adverse consequences. In the case of any Financed Student Loans, any
such failure could result in the Department's refusal to make reinsurance
payments to the Guarantors or to make Interest Subsidy Payments and Special
Allowance Payments to the Eligible Lender Trustee with respect to such Financed
Student Loans or in the Guarantors' refusal to honor their Guarantee Agreements
with the Eligible Lender Trustee with respect to such Financed Student Loans.
Failure of the Guarantors to receive reinsurance payments from the Department
could adversely affect the Guarantors' ability or legal obligation to make
Guarantee Payments to the Eligible Lender Trustee with respect to such Financed
Student Loans.
Loss of any such Guarantee Payments, Interest Subsidy Payments or Special
Allowance Payments could adversely affect the amount of Available Funds on any
Distribution Date and the Trust's ability to pay principal and interest on the
Notes. Under certain circumstances, pursuant to the Transfer and Servicing
Agreement, the Transferor is obligated to repurchase any Financed Student Loan,
or the Master Servicer is obligated to purchase any Financed Student Loan, if a
breach of the representations, warranties or covenants of the Transferor or the
Master Servicer, as the case may be, with respect to such Financed Student Loan
has a material adverse effect on the interest of the Trust therein and such
breach is not cured within any applicable cure period (it being understood that
any such breach that does not affect any Guarantor's or the Secretary's
obligation to guarantee payment of such Financed Student Loan will not be
considered to have such a material adverse effect). See "Description of the
Transfer and Servicing Agreements--Conveyance of Financed Student Loans;
Representations and Warranties" and "--Master Servicer Covenants." The failure
of the Master Servicer to so purchase a Financed Student Loan would constitute a
breach of the Transfer and Servicing Agreement, enforceable by the Eligible
Lender Trustee on behalf of the Trust or by the Indenture Trustee on behalf of
the Noteholders, but would not constitute an Event of Default under the
Indenture.
FINANCED STUDENT LOANS MAY BE SUBJECT TO DISCHARGE IN BANKRUPTCY
The Financed Federal Loans are generally not dischargeable by a borrower in
bankruptcy pursuant to the Bankruptcy Code, unless (i) such loan first became
due before seven years (exclusive of any applicable suspension of the repayment
period) before the date of the bankruptcy or (ii) excepting such debt from
discharge will impose an undue hardship on the debtor and the debtor's
dependents.
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FEDERAL TAX CONSEQUENCES
Set forth below is a summary of Federal income tax consequences of the
purchase, ownership and disposition of the Notes. Mayer, Brown & Platt, special
Federal tax counsel for the Trust ("Federal Tax Counsel") is of the opinion that
the discussion hereunder fully and fairly discloses all material Federal tax
consequences associated with the purchase, ownership and disposition of the
Notes.
This summary does not deal with all aspects of Federal income taxation
applicable to all categories of holders of the Notes, some of which may be
subject to special rules or special treatment under the Federal income tax laws.
For example, it does not discuss the specific tax treatment of Notes that are
held by insurance companies, banks and certain other financial institutions,
regulated investment companies, individual retirement accounts life insurance
companies, tax-exempt organizations or dealers in securities. Furthermore, this
summary is based upon present provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the regulations promulgated thereunder, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. Moreover, there are no cases or Internal Revenue Service (the
"IRS") rulings on similar transactions involving a trust that issues debt and
equity interests with terms similar to those of the Notes and the Certificates.
As a result, the IRS may disagree with all or part of the discussion below.
This discussion is directed to prospective investors who purchase Notes in
the initial distribution thereof and who hold the Notes as "capital assets"
within the meaning of Section 1221 of the Code. Prospective investors are
advised to consult their own tax advisors with regard to the Federal income tax
consequences of the purchase, ownership and disposition of the Securities, as
well as the tax consequences arising under the laws of any state, foreign
country or other jurisdiction. The Trust has been provided with an opinion of
Federal Tax Counsel regarding certain of the Federal income tax matters
discussed below. An opinion of counsel, however, is not binding on the IRS, and
no ruling on any of the issues discussed below will be sought from the IRS.
FEDERAL TAX CONSEQUENCES WITH RESPECT TO THE NOTES
Tax Characterization of the Notes and the Trust. Federal Tax Counsel is of
the opinion that based on the terms of the Notes and the transactions relating
to the Financed Student Loans as set forth herein, the Notes will be treated as
debt for Federal income tax purposes. There is, however, no specific authority
with respect to the characterization for Federal income tax purposes of
securities having the same terms as the Notes.
Federal Tax Counsel is also of the opinion that based on the applicable
provisions of the Trust Agreement and related documents and the minimum
denomination of the Certificates, the Trust will not be classified as an
association or publicly traded partnership taxable as a corporation for Federal
income tax purposes, and because the Trust has not elected and will not elect
under Treasury Regulation 301.7701-3 to be classified as an association, the
Trust also will not be so classified for Federal income tax purposes. If the IRS
were to successfully characterize the Trust as a corporation for Federal income
tax purposes, the income from the Financed Student Loans (reduced by deductions,
possibly including interest on the Notes) would be subject to Federal income tax
at corporate rates, which would reduce the amounts available to make payments on
the Notes.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that the Notes were not debt for Federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so, the Trust might be
treated as a publicly traded partnership taxable as a corporation with the
adverse consequences described above (and the taxable corporation would not be
able to deduct interest on the Notes). The remainder of this discussion assumes
that the Notes will be treated as debt and that the Trust will not be treated as
a publicly traded partnership taxable as a corporation.
Interest Income on the Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. It is not
anticipated that the Notes will be issued with "original issue discount" within
the meaning of Section 1273 of the Code ("OID"). A holder who purchases a Note
at a discount that exceeds a statutorily
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defined de minimis amount will be subject to the "market discount" rules of the
Code, and a holder who purchases a Note at a premium will be subject to the
premium amortization rules of the Code.
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 OID (if any), market discount and gain
previously included by such 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 such Noteholder with respect
to such Note. Subject to the rules of the Code concerning market discount on the
Notes, any such gain or loss generally will be capital gain or loss if the note
was held as a capital asset. Capital losses generally may be deducted only to
the extent the Noteholder has capital gains for the taxable year, although under
certain circumstances non-corporate Noteholders can deduct losses in excess of
available capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest," and generally will not be subject to
United States Federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or
Student Holdings (including a holder of 10% of the outstanding Certificates) or
a "controlled foreign corporation" with respect to which the Trust or Student
Holdings is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold U.S. tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold U.S. tax within
30 days of such change. The statement generally must be provided in the year a
payment occurs (prior to such payment) or in either of the two preceding years.
If a Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the withholding agent. However, in that case, the signed statement
must be accompanied by a Form W-8 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 United States Federal income and withholding tax at a rate of
30%, unless reduced or eliminated pursuant to an applicable tax treaty.
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 (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year or does not have a tax home in the United States.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States Federal income tax on the
interest, gain or income at regular Federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Proposed Treasury regulations, which would be effective with respect to
payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means for obtaining the
exemption from federal income and withholding tax.
Information Reporting and Withholding. The Trust will be required to report
annually to the IRS, and to each Noteholder of record, the amount of interest
paid on the Notes (and the amount of interest withheld for Federal income taxes,
if any) for each calendar year, except as to exempt holders (generally, holders
that are corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement
88
<PAGE> 92
accounts.). For nonresident aliens who provide certification as to their status
as nonresidents interest paid will be reported on Form 1042-S. However,
withholding will not apply as long as the certification is valid. Generally,
certification must be renewed every three calendar years. Accordingly, each
holder (other than exempt holders who are not subject to the reporting
requirements) will be required to provide, under penalties 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 or recertify its foreign status, the Trust will be required to
withhold 31% for U.S. residents or 30% for nonresident aliens 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.
STATE AND LOCAL TAX CONSEQUENCES
The above discussion does not address the tax treatment of the Trust, the
Notes or the Noteholders under any state or local tax laws. The activities to be
undertaken in servicing and collecting the Financed Student Loans will take
place in a number of states and, therefore, many different tax regimes
potentially apply to different portions of the transactions. Prospective
investors are urged to consult with their tax advisors regarding the state and
local tax treatment of the Trust as well as any state and local tax consequences
of them purchasing, holding and disposing of Notes.
ERISA CONSIDERATIONS
Subject to the following discussion, the Notes may be acquired by pension,
profit-sharing or other employee benefit plans or retirement arrangements, as
well as an individual retirement accounts and Keogh plan (each a "Benefit
Plan"). Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a Benefit Plan from
engaging in certain transactions with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to such
Benefit Plan (which may include the Transferor, the Depositor, the
Administrator, the Master Servicer, the Indenture Trustee or the Eligible Lender
Trustee). A violation of these "prohibited transaction" rules may result in an
excise tax or other penalties and liabilities under ERISA and the Code for such
persons or the fiduciaries of the Benefit Plan. In addition, Title I of ERISA
also requires fiduciaries of a Benefit Plan subject to ERISA to make investments
that are prudent, diversified and in accordance with the governing plan
documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Regulation was applicable. An equity interest is defined under the
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Transferor
believes that, at the time of their issuance, the Notes should be treated as
indebtedness of the Trust without substantial equity features for purposes of
the Regulation. This determination is based in part upon the traditional debt
features of the Notes, including the reasonable expectation of purchasers of
Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Transferor, the Depositor, the Administrator, the
Master Servicer, the Indenture Trustee or the Eligible Lender Trustee is or
becomes a party in interest or a disqualified person with respect to such
Benefit Plan or a transfer of a Note occurs between a party in interest or a
disqualified person and a Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are:
89
<PAGE> 93
Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions
effected by "in-house asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 90-1, regarding investments by insurance
company pooled separate accounts; and PTCE 84-14, regarding transactions
effected by "qualified professional asset managers." By acquiring a Note, each
purchaser will be deemed to represent that either (i) it is not acquiring the
Notes with the assets of a Benefit Plan; or (ii) the acquisition of the Notes
will not give rise to a non-exempt prohibited transaction under Section 406(a)
of ERISA or Section 4975 of the Code.
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, governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its legal
advisors regarding whether the assets of the Trust would be considered plan
assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
90
<PAGE> 94
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated June , 1997 (the "Underwriting Agreement"), among the Transferor, Smith
Barney Inc. and PNC Capital Markets, Inc. (the "Underwriters"), the Transferor
has agreed to sell to the Underwriters, and each Underwriter has severally
agreed to purchase from the Transferor, the principal balance of each Class of
Notes set forth below its name on the following chart:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
----------------------------------------------------
PNC CAPITAL
MARKETS,
CLASS OF NOTES SMITH BARNEY INC. INC. TOTAL
- ----------------------------------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Class A-1 Notes................................ $ $ $
Class A-2 Notes................................ $ $ $
Class A-3 Notes................................ $ $ $
Class A-4 Notes................................ $ $ $
Class A-5 Notes................................ $ $ $
Class A-6 Notes................................ $ $ $
Class A-7 Notes................................ $ $ $
Class A-8 Notes................................ $ $ $
Class A-9 Notes................................ $ $ $
Class B Notes.................................. $ $ $
------------ ------------ ------------
Total.......................................... $ $ $
============ ============ ============
</TABLE>
The Transferor has agreed to pay Smith Barney Inc. a structuring fee equal
to $515,000.
In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes offered hereby, if any Notes are purchased. In the event of a default by
any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriter may be
increased or purchase commitments of all Underwriters may be terminated. The
Transferor has been advised by the Underwriters that the Underwriters propose
initially to offer the Notes to the public at the public offering price with
respect to each Class set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of % of such principal amount to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Underwriting Agreement provides that the Transferor will indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with the
Regulation M under the Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Notes to be higher than it would
otherwise be in the absence of such transactions.
Each Underwriter has represented and agreed that (a) it has not offered or
sold, and will not offer or sell Notes to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted, and will
not result in an offer to the public in the United Kingdom within the meaning of
the U.K. Regulations, (b) it has complied and will comply with all applicable
91
<PAGE> 95
provisions of the Financial Services Act of 1986 of Great Britain with respect
to anything done by it in relation to the Notes in, from or otherwise involving
the United Kingdom and (c) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document in connection with the issue of
the Notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986, as amended, (Investment Advertisement) (Exemptions)
Order 1996, as amended, or is a person to whom the document may otherwise
lawfully be issued or passed on.
PNC Capital Markets, Inc., formerly known as PNC Securities Corp, is an
affiliate of the Transferor and a wholly owned indirect subsidiary of the PNC
Bank Corp.
Smith Barney Inc. has provided from time to time, and may provide in the
future, investment or commercial banking services to the Transferor and its
affiliates, for which Smith Barney Inc. or its affiliates have received or will
receive customary fees and commissions. An affiliate of Smith Barney Inc. holds
all the Series 1997-1 notes previously issued by the Trust, which will be paid
in full immediately prior to the issuance of the Notes.
LEGAL MATTERS
Certain legal matters relating to the Transferor, the Master Servicer and
the Administrator will be passed upon by Libby G. Fishman, General
Counsel-Consumer Bank of PNC Bank Corp. Certain legal matters relating to the
validity of the issuance of the Notes will be passed upon for the Trust by
Mayer, Brown & Platt. Mayer, Brown & Platt has performed legal services for the
Transferor and it is expected that it will continue to perform such services in
the future. Certain federal income tax and other matters will be passed upon for
the Trust by Mayer, Brown & Platt. Certain legal matters will be passed upon for
the Underwriters by Stroock & Stroock & Lavan LLP.
FINANCIAL INFORMATION
The Transferor has determined that its financial statements are not
material to the offering made hereby. The Trust will engage in no activities
other than as described herein. Accordingly, no financial statements with
respect to the Trust are included in this Prospectus.
RATING
It is a condition to the issuance and sale of the Class A-1 Notes that they
be rated "A-1+" by Standard & Poor's, "P-1" by Moody's, and "F-1+" by Fitch. It
is a condition to the issuance and sale of the Class A-2, Notes, the Class A-3
Notes, the Class A-4 Notes, the Class A-5 Notes, the Class A-6 Notes, the Class
A-7 Notes, the Class A-8 Notes and the Class A-9 Notes that they each be rated
"AAA" by Standard & Poor's and Fitch and "Aaa" by Moody's. It is a condition to
the issuance of the Class B Notes that they be rated at least "A" by Standard &
Poor's and Fitch and at least "A2" by Moody's. Each of Standard & Poor's,
Moody's and Fitch is also referred to herein as a "Rating Agency" and
collectively, as the "Rating Agencies." A securities rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. The ratings of the Notes
address the likelihood of the ultimate payment of principal of and interest on
the Notes pursuant to their terms. The Rating Agencies do not evaluate, and the
ratings on the Notes do not address, the likelihood of prepayments on the Notes
or the likelihood of payment of the Noteholders' Interest Carryover.
92
<PAGE> 96
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
ACA........................................................................... 53
Adjustment Payment............................................................ 68
Administration Agreement...................................................... 5
Administration Fee............................................................ 11, 84
Administrator................................................................. 3
Administrator Default......................................................... 82
AFSA.......................................................................... 5, 36
Assigned Rights............................................................... 30
Available Funds............................................................... 71
Benefit Plan.................................................................. 89
Business Day.................................................................. 15
Cede.......................................................................... 3
Cedel......................................................................... 5
Cedel Participants............................................................ 65
Certificate Balance........................................................... 75
Certificate Distribution Account.............................................. 16, 72
Certificateholders............................................................ 15
Certificateholders' Distribution Amount....................................... 75
Certificateholders' Interest Carryover Shortfall.............................. 75
Certificateholders' Interest Distribution Amount.............................. 75
Certificateholders' Principal Carryover Shortfall............................. 75
Certificateholders' Principal Distribution Amount............................. 75
Certificates.................................................................. 5
Class......................................................................... 4
Class A Noteholders........................................................... 4
Class A-1 Noteholders......................................................... 4
Class A-2 Noteholders......................................................... 4
Class A-3 Noteholders......................................................... 4
Class A-4 Noteholders......................................................... 4
Class A-5 Noteholders......................................................... 4
Class A-6 Noteholders......................................................... 4
Class A-7 Noteholders......................................................... 4
Class A-8 Noteholders......................................................... 4
Class A-9 Noteholders......................................................... 4
Class A Notes................................................................. 4
Class A-1 Notes............................................................... 4
Class A-2 Notes............................................................... 4
Class A-3 Notes............................................................... 4
Class A-4 Notes............................................................... 4
Class A-5 Notes............................................................... 4
Class A-6 Notes............................................................... 4
Class A-7 Notes............................................................... 4
Class A-8 Notes............................................................... 4
Class A-9 Notes............................................................... 4
Class B Noteholders........................................................... 4
Class B Notes................................................................. 4
</TABLE>
93
<PAGE> 97
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Class Interest Rate........................................................... 6
Closing Date.................................................................. 12
Code.......................................................................... 87
Collection Account............................................................ 15
Collection Period............................................................. 15
Commission.................................................................... 3
Consolidation Loan............................................................ 45
Consolidation Loan Fees....................................................... 76
Consolidation Prepayments..................................................... 69
Cooperative................................................................... 65
Corporation................................................................... 35
Counterparties................................................................ 8
Counterparty.................................................................. 8
Counterparty Swap Payment..................................................... 76
Cut-off Date.................................................................. 12
Deferral Period............................................................... 42
Deferral Phase................................................................ 14
Definitive Notes.............................................................. 66
Department.................................................................... 13, 37
Depositor..................................................................... 3
Depositories.................................................................. 63
Depository.................................................................... 57
Determination Date............................................................ 15
Deutsche Bank................................................................. 8, 78
Distribution Date............................................................. 2, 6
DOE Data Book................................................................. 55
DTC........................................................................... 3
DTC Participants.............................................................. 63
Effective Interest Rate....................................................... 8
Eligible Deposit Account...................................................... 69
Eligible Institution.......................................................... 69
Eligible Investments.......................................................... 69
Eligible Lender Trustee....................................................... 1, 5
Eligible Lender Trustee Fee................................................... 16
Eligible Student.............................................................. 38
ERISA......................................................................... 89
Euroclear..................................................................... 5, 65
Euroclear Operator............................................................ 65
Euroclear Participants........................................................ 65
Event of Default.............................................................. 60
Exchange Act.................................................................. 3
Exchange Date................................................................. 68
Exchange Period............................................................... 13, 68
Exchanged Consolidation Loan.................................................. 68
Exchanged Consolidation Loans................................................. 68
Exchanged Financed Student Loans.............................................. 12, 68
Exchanged Serial Loan......................................................... 68
Expense Account............................................................... 16
FDIA.......................................................................... 32
</TABLE>
94
<PAGE> 98
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
FDIC.......................................................................... 32
Federal Assistance............................................................ 40
Federal Direct Student Loan Program........................................... 30
Federal Loan Program.......................................................... 12
Federal Loans................................................................. 12
Federal Tax Counsel........................................................... 87
Final Maturity Date........................................................... 59
Financed Student Loans........................................................ 1
FIRREA........................................................................ 32
Fitch......................................................................... 25
Fixed Rate Notes.............................................................. 7
Forbearance Period............................................................ 42
Forbearance Periods........................................................... 31
Grace Period.................................................................. 41
Grace Periods................................................................. 31
Guarantee Agreements.......................................................... 37
Guarantee Payments............................................................ 26
Guarantor..................................................................... 13
Guarantors.................................................................... 13
Higher Education Act.......................................................... 14
Holders....................................................................... 66
Holding Company............................................................... 35
Indenture..................................................................... 5
Indenture Trustee............................................................. 5
Indenture Trustee Fee......................................................... 16
Index Maturity................................................................ 59
Indirect Participants......................................................... 63
Initial Financed Student Loans................................................ 12
Initial Pool Balance.......................................................... 12
Insolvency Event.............................................................. 6, 83
Interest Period............................................................... 6
Interest Subsidy Payments..................................................... 40
Investment Earnings........................................................... 69
IRS........................................................................... 87
Issuer Consolidation Payments................................................. 69
KHEAA......................................................................... 12
LIBOR Determination Date...................................................... 59
LIBOR Rate Notes.............................................................. 7
Margin........................................................................ 7, 58
Master Servicer............................................................... 5
Master Servicer Default....................................................... 81
Minimum Purchase Price........................................................ 24, 84
Monthly Advance Account....................................................... 23
Monthly Advances.............................................................. 23, 77
Moody's....................................................................... 25
Morgan........................................................................ 8, 79
Net Loan Rate................................................................. 7
1992 Amendments............................................................... 39
1993 Amendments............................................................... 39
</TABLE>
95
<PAGE> 99
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
1993 Technical Amendments..................................................... 39
91-day Treasury Bills......................................................... 9
91-day Treasury Bill Rate..................................................... 32
Note Distribution Account..................................................... 16, 72
Noteholders................................................................... 6
Noteholders' Distribution Amount.............................................. 76
Noteholders' Interest Carryover............................................... 7, 59
Noteholders' Interest Carryover Shortfall..................................... 76
Noteholders' Interest Distribution Amount..................................... 76
Noteholders' Principal Carryover Shortfall.................................... 76
Noteholders' Principal Distribution Amount.................................... 76
Note Owner.................................................................... 64
Notes......................................................................... 1, 4
Notional Amount............................................................... 9
Obligors...................................................................... 15
OID........................................................................... 87
One-Month LIBOR............................................................... 7, 59
Original Amount............................................................... 4
Parity Percentage............................................................. 10
Parity Percentage Payments.................................................... 19, 74
Participants.................................................................. 57
PHEAA......................................................................... 5
PLUS Loans.................................................................... 12, 44
PNC Subsidiary................................................................ 81
Pool Balance.................................................................. 14
PP Loans...................................................................... 51
PP Program.................................................................... 51
Principal Distribution Amount................................................. 76
Principal Factor.............................................................. 21, 75
Program....................................................................... 37
Program Operating Expense Percentage.......................................... 8
PTCE.......................................................................... 90
Purchase Amount............................................................... 68
Quarterly Distribution Date................................................... 5
Rating Agency................................................................. 25
Rating Agencies............................................................... 25
Realized Loss................................................................. 77
Record Date................................................................... 6
Reference Bank................................................................ 60
Registration Statement........................................................ 3
Regulation.................................................................... 89
Related Documents............................................................. 62
Repayment Phase............................................................... 14
Reserve Account............................................................... 21
Reserve Account Deposit....................................................... 21
Reset Date.................................................................... 9
Scheduled Principal Balance Table............................................. 9
Securities Act................................................................ 3
Serial Loan................................................................... 31
</TABLE>
96
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Series........................................................................ 60
Servicer...................................................................... 5
Servicers..................................................................... 5
Servicing Fee................................................................. 11, 16
SLS Loans..................................................................... 12, 43
SLS Program................................................................... 43
Special Allowance Payments.................................................... 40
Specified Reserve Account Balance............................................. 21
Stafford Loans................................................................ 40
Standard & Poor's............................................................. 25
Student Loans................................................................. 12
Subsequent Cut-off Date....................................................... 47
Swap Agreement................................................................ 8
Swap Agreements............................................................... 8
Swap Termination Payments..................................................... 19
T-Bill Rate................................................................... 9
Telerate Page 3750............................................................ 60
Terms and Conditions.......................................................... 65
Terms Supplement.............................................................. 5
Transaction Fees.............................................................. 16, 72
Transfer Agreement............................................................ 14
Transfer and Servicing Agreement.............................................. 5
Transfer and Servicing Agreements............................................. 67
Transferor.................................................................... 1, 5
Transferor Trusts............................................................. 27
Trust......................................................................... 1, 4
Trust Accounts................................................................ 69
Trust Agreement............................................................... 11
Trust Swap Payment............................................................ 77
UCC........................................................................... 84
Underlying Federal Loan....................................................... 45
Underwriters.................................................................. 91
Underwriting Agreement........................................................ 91
Unsubsidized Stafford Loans................................................... 43
U.K. Regulations.............................................................. 2
USAF.......................................................................... 13
USAG.......................................................................... 5, 36
Variable Swap Rate............................................................ 8
</TABLE>
97
<PAGE> 101
[This Page Intentionally Left Blank]
<PAGE> 102
SCHEDULE I
SCHEDULED PRINCIPAL BALANCE TABLE
<TABLE>
<CAPTION>
% OF ORIGINAL AMOUNT
DISTRIBUTION -------------------------------------------------------------------------------------
DATE CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
7/25/1997 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
10/25/1997 100.00 100.00 100.00 100.00 100.00 100.00
1/25/1998 100.00 100.00 100.00 100.00 100.00 100.00
4/25/1998 100.00 100.00 100.00 100.00 100.00 100.00
7/25/1998 100.00 100.00 100.00 100.00 100.00 100.00
10/25/1998 73.95 100.00 100.00 100.00 100.00 100.00
1/25/1999 47.42 100.00 100.00 100.00 100.00 100.00
4/25/1999 23.89 100.00 100.00 100.00 100.00 100.00
7/25/1999 0.00 100.00 100.00 100.00 100.00 100.00
10/25/1999 0.00 72.90 100.00 100.00 100.00 100.00
1/25/2000 0.00 48.60 100.00 100.00 100.00 100.00
4/25/2000 0.00 24.30 100.00 100.00 100.00 100.00
7/25/2000 0.00 0.00 100.00 100.00 100.00 100.00
10/25/2000 0.00 0.00 75.00 100.00 100.00 100.00
1/25/2001 0.00 0.00 50.00 100.00 100.00 100.00
4/25/2001 0.00 0.00 25.00 100.00 100.00 100.00
7/25/2001 0.00 0.00 0.00 100.00 100.00 100.00
10/25/2001 0.00 0.00 0.00 73.40 100.00 100.00
1/25/2002 0.00 0.00 0.00 47.34 100.00 100.00
4/25/2002 0.00 0.00 0.00 22.87 100.00 100.00
7/25/2002 0.00 0.00 0.00 0.00 100.00 100.00
10/25/2002 0.00 0.00 0.00 0.00 72.41 100.00
1/25/2003 0.00 0.00 0.00 0.00 46.21 100.00
4/25/2003 0.00 0.00 0.00 0.00 22.07 100.00
7/25/2003 0.00 0.00 0.00 0.00 0.00 100.00
10/25/2003 0.00 0.00 0.00 0.00 0.00 87.60
1/25/2004 0.00 0.00 0.00 0.00 0.00 76.03
4/25/2004 0.00 0.00 0.00 0.00 0.00 65.29
7/25/2004 0.00 0.00 0.00 0.00 0.00 55.37
10/25/2004 0.00 0.00 0.00 0.00 0.00 46.28
1/25/2005 0.00 0.00 0.00 0.00 0.00 38.02
4/25/2005 0.00 0.00 0.00 0.00 0.00 30.17
7/25/2005 0.00 0.00 0.00 0.00 0.00 23.14
10/25/2005 0.00 0.00 0.00 0.00 0.00 16.53
1/25/2006 0.00 0.00 0.00 0.00 0.00 10.33
4/25/2006 0.00 0.00 0.00 0.00 0.00 4.96
7/25/2006 0.00 0.00 0.00 0.00 0.00 0.00
10/25/2006 0.00 0.00 0.00 0.00 0.00 0.00
1/25/2007 0.00 0.00 0.00 0.00 0.00 0.00
4/25/2007 0.00 0.00 0.00 0.00 0.00 0.00
7/25/2007 0.00 0.00 0.00 0.00 0.00 0.00
10/25/2007 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
S-1
<PAGE> 103
[This Page Intentionally Left Blank]
<PAGE> 104
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered PNC Student
Loan Trust I Asset Backed Notes (the "Global Securities") to be issued in Series
from time to time (each, a " Series") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of The Depository Trust Company ("DTC"), Cedel or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & 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, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
A-1
<PAGE> 105
Euroclear Participant at least one business day prior to settlement. Cedel 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 payment 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 Cedel Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system through the
respective Depositary to a DTC Participant. The seller will send instructions to
Cedel or Euroclear through a Cedel Participant or Euroclear Participant at least
one business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver Global Securities
to the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date. Finally, day traders that use Cedel or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to Cedel Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At lease three techniques should be readily available to eliminate this
potential problem:
A-2
<PAGE> 106
(i) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(ii) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(iii) 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 Cedel
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Notes that
are non-U.S. Persons can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Note Owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Note). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner of a Global
Security or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Securities.
A-3
<PAGE> 107
===============================================================================
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES OFFERED HEREBY NOR AN OFFER OF
SUCH NOTES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. 3
Reports to Noteholders................ 3
Incorporation of Certain Documents by
Reference........................... 3
Summary of Terms...................... 4
Risk Factors.......................... 26
Formation of the Trust................ 34
Use of Proceeds....................... 35
The Transferor........................ 35
The Servicers......................... 35
The Student Loan Financing Business... 37
The Financed Student Loan Pool........ 47
Description of the Notes.............. 57
Description of the Transfer and
Servicing Agreements................ 67
Legal Aspects of the Financed Student
Loans............................... 84
Federal Tax Consequences.............. 87
State and Local Tax Consequences...... 89
ERISA Considerations.................. 89
Underwriting.......................... 91
Legal Matters......................... 92
Financial Information................. 92
Rating................................ 92
Index of Principal Terms.............. 93
Schedule I--Scheduled Principal
Balance Table....................... S-1
Annex I--Global Clearance, Settlement
and Tax Documentation Procedures.... A-1
</TABLE>
===============================================================================
===============================================================================
$1,030,000,000
PNC STUDENT LOAN TRUST I
STUDENT LOAN
ASSET BACKED NOTES
SERIES 1997-2
$90,000,000
Senior LIBOR Rate Class A-1 Notes
$107,000,000
Senior Fixed Rate Class A-2 Notes
$107,000,000
Senior Fixed Rate Class A-3 Notes
$102,000,000
Senior Fixed Rate Class A-4 Notes
$94,000,000
Senior Fixed Rate Class A-5 Notes
$72,500,000
Senior Fixed Rate Class A-6 Notes
$121,000,000
Senior Fixed Rate Class A-7 Notes
$175,000,000
Senior LIBOR Rate Class A-8 Notes
$125,450,000
Senior LIBOR Rate Class A-9 Notes
$36,050,000
Subordinate LIBOR Rate Class B Notes
------------
PROSPECTUS
------------
SMITH BARNEY INC.
PNC CAPITAL MARKETS, INC.
JUNE , 1997
===============================================================================
<PAGE> 108
[Alternate Page]
$1,030,000,000
PNC STUDENT LOAN TRUST I
STUDENT LOAN ASSET BACKED NOTES, SERIES 1997-2
------------------
PNC BANK, NATIONAL ASSOCIATION
Transferor
------------------
PNC Student Loan Trust I, a Delaware business trust (the "Trust"), will
issue $1,030,000,000 aggregate principal amount of its Student Loan Asset Backed
Notes, Series 1997-2, in the classes and original principal amounts set forth
below (collectively, the "Notes"). The assets of the Trust will include a pool
of guaranteed education loans to students and parents of students acquired by
The First National Bank of Chicago, as eligible lender trustee on behalf of the
Trust (the "Eligible Lender Trustee"), from PNC Bank, National Association (the
"Transferor") (the "Financed Student Loans"), collections and other payments
with respect to the Financed Student Loans and monies on deposit in certain
trust accounts to be established (including the Collection Account, the Reserve
Account, the Note Distribution Account, the Expense Account and the Monthly
Advance Account). The Notes will be collateralized by the assets of the Trust.
------------------
(Continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 26.
------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE TRANSFEROR, THE MASTER SERVICER, THE SERVICERS, THE
ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES OR SUBSIDIARIES. THE NOTES ARE NOT DEPOSITS OF
A BANK. THE NOTES ARE NOT GUARANTEED OR INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENTAL AGENCY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================================
CLASS FINAL
INTEREST MATURITY
RATE DATE(2)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
$90,000,000 Senior LIBOR Rate Class A-1 Notes........................................ (1) July 25, 1998
- -------------------------------------------------------------------------------------------------------------------------
$107,000,000 Senior Fixed Rate Class A-2 Notes....................................... % January 25, 2000
- -------------------------------------------------------------------------------------------------------------------------
$107,000,000 Senior Fixed Rate Class A-3 Notes....................................... % January 25, 2001
- -------------------------------------------------------------------------------------------------------------------------
$102,000,000 Senior Fixed Rate Class A-4 Notes....................................... % January 25, 2002
- -------------------------------------------------------------------------------------------------------------------------
$94,000,000 Senior Fixed Rate Class A-5 Notes........................................ % January 25, 2003
- -------------------------------------------------------------------------------------------------------------------------
$72,500,000 Senior Fixed Rate Class A-6 Notes........................................ % January 25, 2004
- -------------------------------------------------------------------------------------------------------------------------
$121,000,000 Senior Fixed Rate Class A-7 Notes....................................... % January 25, 2007
- -------------------------------------------------------------------------------------------------------------------------
$175,000,000 Senior LIBOR Rate Class A-8 Notes....................................... (1) January 25, 2008
- -------------------------------------------------------------------------------------------------------------------------
$125,450,000 Senior LIBOR Rate Class A-9 Notes....................................... (1) January 25, 2017
- -------------------------------------------------------------------------------------------------------------------------
$36,050,000 Subordinate LIBOR Rate Class B Notes..................................... (1) January 25, 2027
- -------------------------------------------------------------------------------------------------------------------------
Total............................................................................
=========================================================================================================================
</TABLE>
(1) The Class Interest Rate for the Class A-1 Notes will equal One-Month LIBOR
minus %, and the Class Interest Rates for the Class A-8, Class A-9 and
Class B Notes will equal, subject to certain limitations described herein,
One-Month LIBOR plus %, % and %, respectively.
(2) Payment in full of the Notes could occur earlier than their respective final
maturity dates as described herein.
This Prospectus is to be used by PNC Capital Markets, Inc., an affiliate of
PNC Bank, National Association, in connection with offers and sales relating to
market-making transactions in the Notes in which PNC Capital Markets, Inc. acts
as principal. PNC Capital Markets, Inc. may also act as agent in such
transactions. Sales will be made at prices related to the prevailing prices at
the time of sale.
PNC CAPITAL MARKETS, INC.
The date of this Prospectus is [ ], 1997
<PAGE> 109
[Alternate Page]
(Cover continued from previous page)
The Notes will be available for purchase in denominations of $50,000 and
integral multiples of $1,000 in excess thereof in book-entry form only. Interest
on and principal of the Notes will be payable quarterly on or about the 25th day
of each January, April, July and October, (or in the case of the Class A-1 Notes
monthly on or about the 25th day of each month), in each case, commencing July
25, 1997 (each, a "Distribution Date"). No distribution in respect of principal
of the Class B Notes will be payable until each Class of Class A Notes are paid
in full. See generally "Description of the Notes--The Notes." Interest on the
Notes will accrue, subject to certain limitations described herein, for each
Interest Period the per annum rates set forth herein.
Payment in full of the Notes could occur earlier than their respective
final maturity dates as described herein. In addition, the Notes will be repaid
(i) on any Distribution Date on which the Transferor exercises its option to
purchase the Financed Student Loans, exercisable when the outstanding Pool
Balance is reduced to 5% or less of the Initial Pool Balance and the aggregate
outstanding principal amount of the Fixed Rate Notes has been reduced to zero,
(ii) on or after the Distribution Date occurring in July, 2007, if the Financed
Student Loans are sold pursuant to the auction procedures described under
"Description of the Transfer and Servicing Agreement--Termination," and (iii)
under certain circumstances as described in "Description of the Transfer and
Servicing Agreements--Insolvency Events," upon the insolvency of the Transferor
and subsequent termination of the Trust pursuant to the Trust Agreement (as
defined in "Summary of Terms--The Trust").
There is currently no secondary market for the Notes. Smith Barney Inc.
intends to, and PNC Capital Markets, Inc. may, make a secondary market for the
Notes, but neither of them has any obligation to do so. There can be no
assurance that a secondary market for the Notes will develop or, if one does
develop, that it will continue. The Notes will not be listed on any national
securities exchange.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION."
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN
THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 110
[Alternate Page]
PLAN OF DISTRIBUTION
This Prospectus is to be used by PNC Capital Markets, Inc., formerly known
as PNC Securities Corp, an affiliate of PNC Bank, National Association, in
connection with offers and sales related to market-making transactions in the
Notes in which PNC Capital Markets, Inc. acts as principal. PNC Capital Markets,
Inc. may also act as agent in such transactions. Sales will be made at prices
related to the prevailing prices at the time of sale. Any obligations of PNC
Capital Markets, Inc. are the sole obligations of PNC Capital Markets, Inc. and
do not create any obligations on the part of any affiliate of PNC Capital
Markets, Inc.
LEGAL MATTERS
Certain legal matters relating to the Transferor, the Master Servicer and
the Administrator will be passed upon by Libby G. Fishman, General
Counsel-Consumer Bank of PNC Bank Corp. Certain legal matters relating to the
validity of the issuance of the Notes will be passed upon for the Trust by
Mayer, Brown & Platt. Mayer, Brown & Platt has performed legal services for the
Transferor and it is expected that it will continue to perform such services in
the future. Certain federal income tax and other matters will be passed upon for
the Trust by Mayer, Brown & Platt. Certain legal matters relating to the
validity of the issuance of the Notes will be passed upon for the Underwriters
by Stroock & Stroock & Lavan LLP.
91
<PAGE> 111
[Alternate Page]
FINANCIAL INFORMATION
The Transferor has determined that its financial statements are not
material to the offering made hereby. The Trust will engage in no activities
other than as described herein. Accordingly, no financial statements with
respect to the Trust are included in this Prospectus.
RATING
It is a condition to the issuance and sale of the Class A-1 Notes that they
each be rated "A-1+" by Standard & Poor's, "P-1" by Moody's and "F-1+" by Fitch,
it is a condition of the issuance of the Class A-2 Notes, Class A-3 Notes, Class
A-4 Notes, Class A-5 Notes, Class A-6 Notes, Class A-7 Notes, Class A-8 Notes
and Class A-9 Notes that they be rated "AAA" by Standard & Poor's and Fitch and
"Aaa" by Moody's, and it is a condition to the issuance of the Class B Notes
that they be rated at least "A" by Standard & Poor's and Fitch and at least "A2"
by Moody's. Each of Standard & Poor's, Moody's and Fitch is also referred to
herein as a "Rating Agency" and collectively, as the "Rating Agencies." A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
agency. The ratings of the Notes address the likelihood of the ultimate payment
of principal of and interest on the Notes pursuant to their terms. The Rating
Agencies do not evaluate, and the ratings on the Notes do not address, the
likelihood of prepayments on the Notes or the likelihood of payment of the
Noteholders' Interest Carryover.
92
<PAGE> 112
[Alternate Page]
===============================================================================
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES OFFERED HEREBY NOR AN OFFER OF
SUCH NOTES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. 3
Reports to Noteholders................ 3
Incorporation of Certain Documents by
Reference........................... 3
Summary of Terms...................... 4
Risk Factors.......................... 26
Formation of the Trust................ 34
Use of Proceeds....................... 35
The Transferor........................ 35
The Servicers......................... 35
The Student Loan Financing Business... 37
The Financed Student Loan Pool........ 47
Description of the Notes.............. 57
Description of the Transfer and
Servicing Agreements................ 67
Legal Aspects of the Financed Student
Loans............................... 84
Federal Tax Consequences.............. 87
State and Local Tax Consequences...... 89
ERISA Considerations.................. 89
Plan of Distribution.................. 91
Legal Matters......................... 91
Financial Information................. 92
Rating................................ 92
Index of Principal Terms.............. 93
Schedule I--Scheduled Principal
Balance Table....................... S-1
Annex I--Global Clearance, Settlement
and Tax Documentation Procedures.... A-1
</TABLE>
===============================================================================
===============================================================================
$1,030,000,000
PNC STUDENT LOAN TRUST I
STUDENT LOAN
ASSET BACKED NOTES
SERIES 1997-2
$90,000,000
Senior LIBOR Rate Class A-1 Notes
$107,000,000
Senior Fixed Rate Class A-2 Notes
$107,000,000
Senior Fixed Rate Class A-3 Notes
$102,000,000
Senior Fixed Rate Class A-4 Notes
$94,000,000
Senior Fixed Rate Class A-5 Notes
$72,500,000
Senior Fixed Rate Class A-6 Notes
$121,000,000
Senior Fixed Rate Class A-7 Notes
$175,000,000
Senior LIBOR Rate Class A-8 Notes
$125,450,000
Senior LIBOR Rate Class A-9 Notes
$36,050,000
Subordinate LIBOR Rate Class B Notes
------------
PROSPECTUS
------------
PNC CAPITAL MARKETS, INC.
JUNE , 1997
===============================================================================
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
*Registration Fee................................................. $ 312,121.21
Printing and Engraving Expenses.................................. 150,000.00
Trustee Fees and Expenses........................................ 15,000.00
Legal Fees and Expenses.......................................... 500,000.00
Accountants' Fees and Expenses................................... 200,000.00
*Rating Agencies' Fees............................................ 180,000.00
Servicers/Conversion Fees........................................ 200,000.00
Structuring Fee.................................................. 515,000.00
Miscellaneous.................................................... 77,878.79
-------------
Total........................................................ $2,150,000.00
=============
</TABLE>
* Actual.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Association of PNC Bank, National Association ("PNC Bank"),
expressly permit PNC Bank to indemnify its directors and officers, subject to
certain conditions. Article Seventh provides in relevant part:
(a) Subject to any prohibitions or limitations set forth in section
(b) of this Article or [PNC Bank's] By-laws, [PNC Bank] may indemnify or
reimburse any Director, officer, employee for, or advance amounts in
payment of, any expenses actually incurred in any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative, or
investigative, to which such individual was or is a party or a potential
party by reason of his or her performance of official duties on behalf of
or at the request of [PNC Bank]. Such duties shall specifically include,
but not be limited to, service performed at the request of [PNC Bank] as a
representative of a domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise. For
purposes of this Article, "expenses" shall include, but not be limited to,
attorneys' fees and costs, judgments, fines, taxes, penalties, and amounts
paid or to be paid in settlement.
According to section (b) of Article Seventh, no indemnification shall be
made:
(i) . . . in any case where the act or failure to act giving rise to
the claim for indemnification is determined by a court of competent
jurisdiction to have constituted willful misconduct or recklessness;
(ii) . . . for any expenses incurred in an administrative proceeding
or action instituted by a federal bank regulatory agency which proceeding
or action results in a final order assessing civil money penalties or
requiring affirmative action by the Director, officer, or employee in the
form of payments to [PNC Bank], or a final removal or prohibition order
against such individual issued pursuant to 12 U.S.C. Sections 1818(e) or
(g). . .; and
(iii) . . . with respect to amounts provided for by any compromise
settlement unless such settlement shall have been approved by a court of
competent jurisdiction, or the holders of record of a majority of the
outstanding shares of [PNC Bank], or the Board of Directors, acting by vote
of Directors not parties to the same or substantially the same action, suit
or proceeding, constituting a majority of the whole number of Directors.
Section (b) also enumerates conditions for advancement of expenses as
follows:
II-1
<PAGE> 114
[PNC Bank] may advance expenses to a Director, officer or employee in
connection with an action or proceeding under 12 U.S.C. Sections 164 or
1818 [relating to penalties for failure to make reports and termination of
status as an insured depository institution, respectively,] only if the
Board of Directors has first made such determinations and otherwise
satisfied such procedural requirements, if any, as may be specified by
rule, regulation, advice or guidance, issued by a Federal bank regulatory
agency having jurisdiction over [PNC Bank]. . . . Any advance of expenses
must be subject to a written and legally binding agreement which specifies,
at a minimum, that reimbursement to [PNC Bank] of expenses advanced
(including expenses already paid) shall be required if and to the extent
that the Board of Directors finds that the Director, officer, or employee
willfully misrepresented factors relevant to the Board's decision to
advance expenses, or a final order is issued assessing civil money
penalties or requiring affirmative action by the individual in the form of
payments to [PNC Bank], or a removal or prohibition order against the
individual is issued pursuant to 12 U.S.C. Sections 1818(e) or (g). . . .
[Such] agreement shall [also] provide that [PNC Bank] shall cease advancing
expenses at any time the Board of Directors believes, or reasonably should
believe, that any of the necessary conditions then imposed by rule,
regulation, advice, or guidance issued by a federal bank regulatory agency
having jurisdiction over [PNC Bank] upon such advancement are no longer
met.
Article Seventh expressly states that such indemnification or reimbursement
right is not exclusive of other rights to which such person may be entitled as a
matter of law.
In addition, Article Seventh, section (c), specifically authorizes PNC Bank
to pay reasonable premiums for insurance covering the expenses and the
liabilities of its Directors, officers, and employees, provided that no such
insurance coverage may be purchased for a final order assessing civil money
penalties against such individuals by a federal bank regulatory agency. PNC Bank
Corp., PNC Bank's parent bank holding company, has purchased directors' and
officers' liability insurance that covers certain liabilities which may be
incurred by directors and officers of PNC Bank in connection with the
performance of their duties.
In August 1995, after reviewing Article Seventh, the OCC indicated that
Article Seventh was consistent with the law and the requirements of the OCC.
PNC Bank's By-laws provide for the mandatory indemnification of its
Directors, subject to specified conditions, Article II, Section 13 of the
By-laws provides in relevant part:
(a) To the fullest extent permitted by applicable law, each Director
shall be indemnified and held harmless by [PNC] Bank for all actions taken
by him or her and for all failures to take action to the fullest extent
permitted by Pennsylvania law against all expense, liability and loss
(including without limitation attorneys' fees, judgments, fines, taxes,
penalties, and amounts paid or to be paid in settlement) reasonably
incurred or suffered by him or her.
There are certain circumstances where indemnification under Section 13 is
not permitted. No indemnification shall be made "in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court of competent jurisdiction to have constituted willful misconduct or
reckless." In addition, Section 13 does not apply to any administrative
proceeding or action instituted by a Federal bank regulatory agency which
"results in a final order assessing civil money penalties or requiring
affirmative action by the Director in the form of making payments to [PNC]
Bank."
II-2
<PAGE> 115
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Articles of Association of PNC BANK, NATIONAL ASSOCIATION.*
3.2 By-Laws of PNC BANK, NATIONAL ASSOCIATION.*
4.1 Indenture between the Trust and the Indenture Trustee.*
4.2 Form of Second Terms Supplement to Indenture between the Trust and the Indenture
Trustee.**
4.3 Trust Agreement between the Transferor, the Eligible Lender Trustee and the
Delaware Trustee.*
4.4 Form of Transfer and Servicing Agreement, among the Trust, the Master Servicer
and the Eligible Lender Trustee.**
4.5 Form of Interest Rate Swap Agreement**
4.6 Guarantee Agreement with the California Student Aid Commission.**
4.7 Guarantee Agreement with the Florida Department of Education.**
4.8 Guarantee Agreement with the Georgia Higher Education Assistance Corporation.**
4.9 Guarantee Agreement with the Great Lakes Higher Education Corporation.**
4.10 Guarantee Agreement with the Illinois Student Assistance Commission.**
4.11 Guarantee Agreement with the Kentucky Higher Education Assistance Authority.**
4.12 Guarantee Agreement with the Michigan Higher Education Assistance Authority.**
4.13 Guarantee Agreement with the New Jersey Higher Education Assistance Authority.**
4.14 Guarantee Agreement with the New Mexico Student Loan Guarantee Corporation.**
4.15 Guarantee Agreement with the Pennsylvania Higher Education Assistance Agency.**
4.16 Guarantee Agreement with the United Student Aid Funds, Inc.**
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Mayer, Brown & Platt with respect to federal tax matters.**
23.1 Consents of Mayer, Brown & Platt (included in their opinions filed as Exhibits
5.1 and 8.1).**
24.1 Powers of Attorney of certain officers and directors of the Transferor.*
24.2 Power of Attorney of B.R. Brown.*
24.3 Power of Attorney of Rocco A. Ortenzio.*
25.1 T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Bankers
Trust Company.*
99.1 Administration Agreement among the Transferor, the Master Servicer and the
Indenture Trustee.*
</TABLE>
- ---------
* Previously filed.
** Filed herewith.
II-3
<PAGE> 116
ITEM 17. UNDERTAKINGS
The Undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided, however, that (a)(i) and
(a) (ii) will not apply if the information required to be included in a
post-effective amendment thereby is contained in periodic reports filed pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of an action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(i) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(g) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth
of Pennsylvania, on the 16th day of June, 1997.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ BRYAN W. RIDLEY
------------------------------------
Bryan W. Ridley
Senior Vice President
PNC STUDENT LOAN TRUST I
By: PNC Bank, National Association
not in its individual capacity
but solely as Administrator
By: /s/ BRYAN W. RIDLEY
------------------------------------
Bryan W. Ridley
Senior Vice President
II-5
<PAGE> 118
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ---------------------------------------- ----------------
<C> <S> <C>
* Chairman and Director June 16, 1997
- -----------------------------------------
THOMAS H. O'BRIEN
* President and Chief Executive Officer June 16, 1997
- ----------------------------------------- (principal executive officer) and
JAMES E. ROHR Director
* Controller (principal financial and June 16, 1997
- ----------------------------------------- accounting officer)
WILLIAM J. JOHNS
* Director June 16, 1997
- -----------------------------------------
B.R. BROWN
* Director June 16, 1997
- -----------------------------------------
CONSTANCE C. CLAYTON, ED. D.
* Director June 16, 1997
- -----------------------------------------
EBERHARD FABER IV
* Director June 16, 1997
- -----------------------------------------
STUART HEYDT, M.D.
* Director June 16, 1997
- -----------------------------------------
EDWARD P. JUNKER III
* Director June 16, 1997
- -----------------------------------------
THOMAS A. MCCONOMY
* Director June 16, 1997
- -----------------------------------------
ROCCO A. ORTENZIO
* Director June 16, 1997
- -----------------------------------------
JANE G. PEPPER
* Director June 16, 1997
- -----------------------------------------
ROBERT C. ROBB, JR.
* Director June 16, 1997
- -----------------------------------------
DANIEL M. ROONEY
* Director June 16, 1997
- -----------------------------------------
SETH E. SCHOFIELD
[*] Signature by Libby G. Fishman as
Attorney-in-Fact under Powers of Attorney
/s/ LIBBY G. FISHMAN
- -----------------------------------------
</TABLE>
II-6
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Articles of Association of PNC BANK, NATIONAL ASSOCIATION.*
3.2 By-Laws of PNC BANK, NATIONAL ASSOCIATION.*
4.1 Indenture between the Trust and the Indenture Trustee.*
4.2 Form of Second Terms Supplement to Indenture between the Trust and
the Indenture Trustee.**
4.3 Trust Agreement between the Transferor, the Eligible Lender Trustee
and the Delaware Trustee.*
4.4 Form of Transfer and Servicing Agreement, among the Trust, the Master
Servicer and the Eligible Lender Trustee.**
4.5 Form of Interest Rate Swap Agreement.**
4.6 Guarantee Agreement with the California Student Aid Commission.**
4.7 Guarantee Agreement with the Florida Department of Education.**
4.8 Guarantee Agreement with the Georgia Higher Education Assistance
Corporation.**
4.9 Guarantee Agreement with the Great Lakes Higher Education
Corporation.**
4.10 Guarantee Agreement with the Illinois Student Assistance
Commission.**
4.11 Guarantee Agreement with the Kentucky Higher Education Assistance
Authority.**
4.12 Guarantee Agreement with the Michigan Higher Education Assistance
Authority.**
4.13 Guarantee Agreement with the New Jersey Higher Education Assistance
Authority.**
4.14 Guarantee Agreement with the New Mexico Student Loan Guarantee
Corporation.**
4.15 Guarantee Agreement with the Pennsylvania Higher Education Assistance
Agency.**
4.16 Guarantee Agreement with the United Student Aid Funds, Inc.**
5.1 Opinion of Mayer, Brown & Platt with respect to legality.**
8.1 Opinion of Mayer, Brown & Platt with respect to federal tax
matters.**
23.1 Consents of Mayer, Brown & Platt**
(included in their opinions filed as Exhibits 5.1 and 8.1).**
24.1 Power of Attorney of certain officers and directors of the
Transferor.*
24.2 Power of Attorney of B.R. Brown.*
24.3 Power of Attorney of Rocco A. Ortenzio.*
25.1 T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
Bankers Trust Company.*
99.1 Administration Agreement among the Transferor, the Master Servicer
and the Indenture Trustee.*
</TABLE>
- ---------
* Previously filed.
** Filed herewith.
<PAGE> 1
Exhibit 1.1
PNC STUDENT LOAN TRUST I
$1,030,000,000 STUDENT LOAN ASSET BACKED NOTES
SERIES 1997-2
UNDERWRITING AGREEMENT
June _____, 1997
SMITH BARNEY INC.
As Representative of the
several Underwriters
390 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
PNC Bank, National Association, a national banking
association (as transferor of the Financed Student Loans to the Trust (each as
defined below), the "Bank"), has formed a trust known as PNC Student Loan Trust
I (the "Trust") under the laws of the State of Delaware and the Bank proposes
to cause the Trust to sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representative") are acting as
representative, pursuant to the terms of this Underwriting Agreement, Series
1997-2 Asset Backed Notes in the following Classes and initial principal
amounts: $90,000,000 Senior LIBOR Rate Class A-1 Asset Backed Notes (the "Class
A-1 Notes"), $107,000,000 Senior Fixed Rate Class A-2 Asset Backed Notes (the
"Class A-2 Notes"), $107,000,000 Senior Fixed Rate Class A-3 Asset Backed Notes
(the "Class A-3 Notes"), $102,000,000 Senior Fixed Rate Class A-4 Asset Backed
Notes (the "Class A-4 Notes"), $94,000,000 Senior Fixed Rate Class A-5 Asset
Backed Notes (the "Class A-5 Notes"), $72,500,000 Senior Fixed Rate Class A-6
Asset Backed Notes (the "Class A-6 Notes"), $121,000,000 Senior Fixed Rate
Class A-7 Asset Backed Notes (the "Class A-7 Notes"), $175,000,000 Senior LIBOR
Rate Class A-8 Asset Backed Notes (the "Class A-8 Notes"), $125,450,000 Senior
LIBOR Rate Class A-9 Asset Backed Notes (the "Class A-9 Notes" and together
with the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class
A-4 Notes, the Class A-5 Notes, the Class A-6 Notes, the Class A-7 Notes and
the Class A-8 Notes, the "Class A Notes") and $36,050,000 Subordinate LIBOR
Rate Class B Asset
1
<PAGE> 2
Backed Notes (the "Class B Notes" and together with the Class A Notes, the
"Notes"). The First National Bank of Chicago, a national banking association,
acts as eligible lender trustee (the "Eligible Lender Trustee") of the Trust.
On the Closing Date, Financed Student Loans (as defined in the Transfer and
Servicing Agreement defined below) will have been transferred to the Eligible
Lender Trustee on behalf of the Trust by the Bank. The Notes will be issued
under an indenture dated as of March 27, 1997 (the "Master Indenture") between
the Trust and Bankers Trust Company, as indenture trustee ("Indenture
Trustee"), as supplemented by a related Second Terms Supplement (the "Second
Terms Supplement" and collectively with the Master Indenture, the "Indenture").
Upon issuance, the Notes will be secured by, among other things, Financed
Student Loans pledged to the Indenture Trustee and described in the Prospectus
(as defined in Section 3 below). This Agreement, the Transfer and Servicing
Agreement, the Indenture, the Administration Agreement and the Trust Agreement
shall collectively hereinafter be referred to as the "Basic Documents."
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Transfer and Servicing Agreement dated as of June ____,
1997, (the "Transfer and Servicing Agreement") among the Trust, the Bank and
the Eligible Lender Trustee.
1. Purchase, Sale and Delivery of the Notes.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Bank agrees to cause the Trust to sell to the Underwriters, and the
Underwriters agree, severally and not jointly, to purchase from the Trust: the
Class A-1 Notes, at a purchase price of _____% of the principal amount of the
Class A-1 Notes; the Class A-2 Notes, at a purchase price of _____% of the
principal amount of the Class A-2 Notes; the Class A-3 Notes, at a purchase
price of ___% of the principal amount of the Class A-3 Notes; the Class A-4
Notes, at a purchase price of ____% of the principal amount of the Class A-4
Notes; the Class A-5 Notes, at a purchase price of ___% of the principal amount
of Class A-5 Notes; the Class A-6 Notes, at a purchase price of ___% of the
principal amount of the Class A-6 Notes; the Class A-7 Notes, at a purchase
price of ___% of the principal amount of the Class A-7 Notes; the Class A-8
Notes, at a purchase price of ___% of the principal amount of the Class A-8
Notes; the Class A-9 Notes, at a purchase price of ___% of the principal amount
of the Class A-9 Notes; and the Class B Notes at a purchase price of _____% of
the principal amount of the Class B Notes, the respective principal amounts of
each Class of Notes set forth opposite the names of the Underwriters in
Schedule I hereto. In addition, the Bank agrees to pay Smith Barney Inc. a
structuring fee equal to 5% of the initial principal amount of the Notes.
2
<PAGE> 3
(b) Delivery to the Representative of and payment for the
Notes shall be made at the office of Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York, New York 10038, at 10:00 A.M., New York City time, on June ___,
1997 (the "Closing Date"). The place of such closing and the Closing Date may
be varied by agreement between the Representative and the Bank.
The Notes will be delivered by the Bank to the Representative
for the respective accounts of the Underwriters against payment of the purchase
price therefor to or upon the order of the Bank in Federal Funds, by wire, or
such other form of payment as to which the parties may agree. Each Class of
Notes will be evidenced by a single global security in definitive form and/or
by additional definitive securities, and will be registered, in the case of the
global Classes of Notes, in the name of Cede & Co. as nominee of The Depository
Trust Company ("DTC"), and in the other cases, in such names and in such
denominations as the Representative shall request prior to 1:00 p.m., New York
City time, no later than the business day preceding the Closing Date. The Notes
to be delivered to the Representative shall be made available to the
Representative in New York City for inspection and packaging not later than
9:30 a.m., New York City time, on the business day next preceding the Closing
Date.
2. Offering by the Underwriters.
(a) It is understood that, after the Registration Statement
becomes effective, the Underwriters propose to offer the Notes for sale to the
public (which may include selected dealers) as set forth in the Prospectus. The
Underwriters agree not to offer or sell the Notes in any state or jurisdiction
where registration, qualification or any filing to effect any exemption is
required under such state's or jurisdiction's securities or Blue Sky laws,
except where, with the consent of the Bank (which may be withheld in the
Bank's sole discretion), such registration, qualification or filing has been
completed. To the extent the Underwriters engage in overallotment, stabilizing
transactions, syndicate covering transactions and penalty bids, the
Underwriters agree that such activities shall be in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(b) Each Underwriter severally represents and agrees that (i)
it has not offered or sold and will not offer or sell any Notes to persons in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
3
<PAGE> 4
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable provisions of the
Financial Services Act of 1986 with respect to anything done by it in relation
to the Notes in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issue of the Notes
to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or to a
person to whom such document may otherwise lawfully be issued, distributed or
passed on.
3. Representations and Warranties of the Bank. The Bank
represents and warrants to and agrees with the Underwriters that:
(a) A registration statement on Form S-3 (No. 333-25433),
including a prospectus and such amendments thereto as may have been required to
the date hereof, relating to the Notes and the offering thereof has been filed
with the Securities and Exchange Commission (the "SEC") and such registration
statement, as amended, has become effective under the Securities Act of 1933,
as amended (the "Act"); such registration statement, as amended, including all
information (if any) deemed to be a part of such registration statement as of
the Effective Time (as defined below) pursuant to Rule 430A under the Act, and
including the exhibits thereto and any material incorporated by reference
therein, and the prospectus relating to the sale of the Notes offered thereby
constituting a part thereof, as amended or supplemented, are respectively
referred to herein as the "Registration Statement" and the "Prospectus"; and
the conditions to the use of a registration statement on Form S-3 under the
Act, as set forth in the General Instructions to Form S-3, have been satisfied
with respect to the Registration Statement. For purposes of this Agreement,
"Effective Time" means (x) if the Bank has advised the Representative that it
does not propose to amend the Registration Statement, the date and time as of
which the Registration Statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this Agreement,
was declared effective by the SEC, or (y) if the Bank has advised the
Representative that it proposes to file an amendment or post-effective
amendment to the Registration Statement, the date and time as of which the
Registration Statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the SEC. "Effective
Date" means the date of the Effective Time.
4
<PAGE> 5
(b) On the Effective Date, the Registration Statement, and at
the time of the filing of the Prospectus pursuant to Rule 424(b), the
Registration Statement and the Prospectus, conformed in all material respects
to the requirements of the Act, the rules and regulations of the SEC (the
"Rules and Regulations") and the Trust Indenture Act of 1939, as amended, and
the rules and regulations thereunder (the "Trust Indenture Act"), and in the
case of the Registration Statement, did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and, in the case of
the Prospectus, did not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and on
the date of this Agreement, the Registration Statement and the Prospectus
conforms in all material respects to the requirements of the Act, the Rules and
Regulations and the Trust Indenture Act, and the Registration Statement does
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; the Prospectus does not include any untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements in or omissions from the Registration Statement or the Prospectus
based upon written information furnished to the Bank by any Underwriter
specifically for use therein.
(c) The SEC has not issued and, to the best knowledge of the
Bank, is not threatening to issue any order preventing or suspending the use of
the Registration Statement.
(d) This Agreement has been duly authorized, executed and
delivered by the Bank. The execution, delivery and performance of this
Agreement and the issuance and sale of the Notes and compliance with the terms
and provisions hereof will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, the organizational
documents or by-laws of the Bank or any agreement or instrument to which the
Bank is a party or by which the Bank is bound or to which any of the properties
of the Bank is subject which could reasonably be expected to have a material
adverse effect on the transactions contemplated herein.
(e) The Bank is duly organized and validly existing as a
national banking association with the power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is presently
5
<PAGE> 6
conducted, except for such power and authority the absence of which would not
have a material adverse effect on the Bank or its ability to consummate the
transactions contemplated hereby.
(f) There are no legal or governmental proceedings pending
or, to the knowledge of the Bank, threatened, against the Bank, or to which
Bank or any of its properties is subject, of a character required to be
disclosed in the Prospectus that are not disclosed in the Prospectus.
(g) All authorizations, consents, orders or approvals of or
registrations or declarations with any court, regulatory body, administrative
agency or other government instrumentality required to be obtained, effected or
given by the Bank in connection with the execution and delivery by the Bank of
this Agreement and the performance by the Bank of the transactions expressly
contemplated by this Agreement, have been duly obtained, effected or given and
are in full force and effect, except such as may be required by the blue sky
laws of any jurisdiction in connection with the sale and distribution of the
Notes for which no representation is being given.
(h) The Bank has all requisite corporate power and
authority to execute and deliver this Agreement and carry out its terms.
(i) The Bank is not required to register as an "investment
company" under the Investment Company Act of 1940, as amended (the "1940 Act")
by reason of the issuance of the Notes.
(j) The representations and warranties made by the Bank as
Transferor in Section 3.1 and Section 6.1 of the Transfer and Servicing
Agreement will be true and correct in all material respects at the time made
and on and as of the Closing Date.
(k) Other than as contemplated by this Agreement or as
disclosed in the Prospectus, there is no broker, finder or other party that is
entitled to receive from the Bank or any of its subsidiaries any brokerage or
finder's fee or other fee or commission as a result of any of the transactions
contemplated by this Agreement.
4. Agreements of the Bank. The Bank agrees with the
Underwriters as follows:
(a) If the Effective Time is prior to the execution and
delivery of this Agreement, the Bank will file the Prospectus, properly
completed, with the SEC pursuant to and in accordance with subparagraph (1)
(or, if applicable and if
6
<PAGE> 7
consented to by the Representative, subparagraph (4)) of Rule 424(b) not later
than the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the Effective
Date. The Bank will advise the Representative promptly of any such filing
pursuant to Rule 424(b). The Bank will advise the Representative promptly of
any proposal to amend or supplement the Registration Statement or the
Prospectus and will not effect such amendment or supplementation without the
consent of the Representative prior to the Closing Date, and thereafter will
not effect any such amendment or supplementation to which the Representative
reasonably objects; provided, however, except for the Current Report on Form
8-K described in Section 4(m), no consent of the Representative shall be
required in connection with any filing made pursuant to the Exchange Act and
the rules and regulations promulgated thereunder; the Bank will also advise the
Representative promptly of any request by the Commission for any amendment of
or supplement to the Registration Statement or the Prospectus or for any
additional information; and the Bank will also advise the Representative
promptly of the effectiveness of the Registration Statement (if the Effective
Time is subsequent to the execution of this Agreement) and of any amendment or
supplement to the Registration Statement or the Prospectus and of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or known threat of any proceeding for
that purpose and the Bank will use its best efforts to prevent the issuance of
any such stop order and to obtain as soon as possible the lifting of any issued
stop order.
(b) If, at any time when the Prospectus relating to the Notes
is required to be delivered under the Act, any event occurs as a result of
which such Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the Bank
promptly will prepare and file with the SEC, an amendment or supplement to such
Prospectus that will correct such statement or omission or an amendment that
will effect such compliance.
(c) The Bank will immediately inform the Representative (i)
of the receipt by the Bank or the Trust of any communication from the SEC or
any state securities authority concerning the offering or sale of the Notes and
(ii) of the commencement of any lawsuit or proceeding to which either the Bank
or the Trust is a party relating to the offering or sale of the Notes;
provided, however, with respect to the Trust, the Trust has so informed the
Bank to the extent the Bank did not
7
<PAGE> 8
receive such communication provided in clause (i) or is
not a party to the lawsuit or proceeding as provided in clause (ii) and did not
receive notice of such lawsuit.
(d) The Bank will furnish to the Underwriters, without
charge, copies of the Registration Statement (including all documents and
exhibits thereto or incorporated by reference therein), the Prospectus, and all
amendments and supplements to such documents relating to the Notes, in each
case in such quantities as the Underwriters may reasonably request.
(e) No amendment or supplement will be made to the
Registration Statement or Prospectus which the Representative shall not
previously have been advised or to which it shall reasonably object after being
so advised; provided, however, after the Closing Date, excluded from this
provision shall be filings made pursuant to the Exchange Act.
(f) The Bank will cooperate with the Representative and with
its counsel in connection with the qualification of, or procurement of
exemptions with respect to, the Notes for offering and sale by the Underwriters
and by dealers under the securities or Blue Sky laws of such jurisdictions as
any Underwriter may designate and to which the Bank shall consent and, in such
jurisdictions, will file or cause the Trust to file such consents to service of
process or other documents necessary or appropriate in order to effect such
qualification or exemptions; provided that in no event shall either of the Bank
or the Trust be obligated to qualify to do business in any jurisdiction where
it is not now so qualified or to take any action which would subject it to
service of process in suits, other than those arising out of the offering or
sale of the Notes, in any jurisdiction where it is not now so subject.
(g) Subject to Section 2, the Bank and the Trust consent to
the use, in accordance with the securities or Blue Sky laws of such
jurisdictions in which the Notes are offered by the Underwriters and by
dealers, of the Prospectus furnished by the Bank.
(h) To the extent, if any, that the rating or ratings
provided with respect to the Notes by the rating agency or agencies that
initially rate a series of Notes is conditional upon the furnishing of
documents or the taking of any other actions by the Bank or the Trust, the Bank
shall cause to be furnished such documents and such other reasonable actions to
be taken.
(i) For two years from the Closing Date, the Bank will
furnish to the Representative (i) as soon as available, a copy of each document
relating to the Trust or the Notes
8
<PAGE> 9
required to be filed with the SEC pursuant to the Exchange Act or any order of
the SEC thereunder, and (ii) such other information concerning the Bank or the
Trust as the Representative may reasonably request from time to time insofar as
such information reasonably relates to the Registration Statement or the
transactions contemplated by the Basic Documents.
(j) If this Agreement shall terminate or shall be terminated
after execution and delivery pursuant to any provisions hereof (otherwise than
by notice given by the Underwriter terminating this Agreement pursuant to
Section 8 or Section 9 hereof) or if this Agreement shall be terminated by the
Representative because of any failure or refusal on the part of the Bank to
comply with the terms or fulfill any of the conditions of this Agreement, the
Bank agrees to reimburse the Underwriters for all out-of-pocket expenses
(including reasonable fees and expenses of their counsel) reasonably incurred
in connection herewith. In no event shall the Bank or the Trust be liable to
the Underwriters for loss of anticipated profits from the transactions
contemplated by this Agreement.
(k) The net proceeds from the sale of the Notes hereunder
will be applied substantially in accordance with the description set forth in
the Prospectus.
(l) Except as stated in this Agreement and in the Prospectus
the Bank has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Notes to facilitate the sale
or resale of the Notes; it being understood and agreed that no such action by
any Underwriter shall be deemed an action of the Bank.
(m) Provided that the Bank has received the Computational
Materials (as defined in Section 8 below) within the time frame set forth in
Section 8, the Bank will cause such Computational Materials to be filed with
the SEC on a Current Report on Form 8-K (the "Current Report") not later than
the date on which the Prospectus is available for distribution to investors.
(n) For the period beginning on the date of this Agreement
and ending 90 days after the Closing Date, neither the Bank nor any trust
originated, directly or indirectly, by the Bank will, without the prior written
consent of the Representative, offer to sell or sell notes (other than the
Notes) collateralized by, or certificates evidencing an ownership interest in,
student loans; provided, however, that this shall not be construed to prevent
the sale of student loans by the Bank.
9
<PAGE> 10
5. Indemnification and Contribution. (a) The Bank agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectus, or in
any amendment or supplement thereto, or the preliminary prospectus dated
__________, 1997 (the "Preliminary Prospectus"), or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
the Underwriter furnished in writing to the Bank by or on behalf of any
Underwriter through the Representative expressly for use in connection
therewith; provided, however, that the foregoing indemnity with respect to the
Prospectus or the Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, claim, damage or liability purchased Notes, if such
person did not receive a copy of the Prospectus (as then amended or
supplemented) at or prior to the written confirmation of the sale of such Notes
to such person and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability. The
foregoing indemnity agreement shall be in addition to any liability which the
Bank may otherwise have.
(b) If any action, suit or proceeding shall be brought
against an Underwriter or any person controlling an Underwriter in respect of
which indemnity may be sought against the Bank, such Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all reasonable fees and expenses. Such Underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Underwriter or such controlling person unless (i) the indemnifying parties have
agreed in writing to pay such fees and expenses, (ii) the indemnifying parties
have failed to assume the defense and employ counsel within a reasonable period
of time, or (iii) the named parties to any such action, suit or
10
<PAGE> 11
proceeding (including any impleaded parties) include both the Underwriter or
such controlling person and the indemnifying parties and the Underwriter or
such controlling person shall have been advised by its counsel that
representation of such indemnified party and any indemnifying party by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of the Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for the Underwriter
and controlling persons not having actual or potential differing interests with
the Underwriter or among themselves, which firm shall be designated in writing
by the Underwriter, and that all such fees and expenses shall be reimbursed on
a monthly basis as provided in paragraph (a) hereof. The indemnifying parties
shall not be liable for any settlement of any such action, suit or proceeding
effected without their written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
suit or proceeding, the indemnifying parties agree to indemnify and hold
harmless the Underwriter and any such controlling person from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment to the extent provided in paragraph (a).
(c) Each Underwriter agrees severally but not jointly to
indemnify and hold harmless the Bank and its respective directors and officers,
and any person who controls the Bank within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act to the same extent as the indemnity from
the Bank to such Underwriter set forth in paragraph (a) hereof, but only with
respect to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through the Representative expressly for use in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus. If any action, suit or
proceeding shall be brought against the Bank, any of its directors or officers,
or any such controlling person based on the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related preliminary
prospectus and in respect of which indemnity may be sought against an
Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to the Bank by paragraph (b) above
11
<PAGE> 12
(except that if the Bank shall have assumed the defense thereof no Underwriter
shall be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Underwriter's expense, except as otherwise provided in
paragraph (b) above), and the Bank, its respective directors and officers, and
any such controlling person shall have the rights and duties given to such
Underwriter by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Bank on the one hand and the applicable Underwriter on the other hand from
the offering of the Notes, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Bank on the one hand and such Underwriter on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Bank on the one
hand and such Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Notes (before
deducting expenses) received by the Bank bear to the total underwriting
discounts and commissions received by such Underwriter. The relative fault of
the Bank on the one hand and such Underwriter on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Bank on the one
hand or by such Underwriter on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Bank and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined
by a pro rata allocation or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses
12
<PAGE> 13
referred to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 5, no Underwriter shall be required to contribute any amount in excess
of the underwriting discounts and commissions applicable to the Notes hereunder
and, in the case of Smith Barney Inc., plus the structuring fee referred to in
Section 1. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 5 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Bank set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of an Underwriter, the Bank or any person
controlling any of them or their respective directors or officers, (ii)
acceptance of any Notes and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, the Bank or any
person controlling any of them or their respective directors or officers, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 5.
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters to purchase the Notes hereunder are subject to
the following conditions:
(a) All actions required to be taken and all filings required
to be made by the Bank under the Act prior to the sale of the Notes shall have
been duly taken or made. At and prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to
the knowledge of the Bank or the Underwriters, shall be threatened by the SEC.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Bank not
contemplated by the Registration Statement, which in the opinion of the
13
<PAGE> 14
Representative, would materially adversely affect the market for the Notes, or
(ii) any event or development which makes any statement made in the
Registration Statement or Prospectus untrue in any material respect or which,
in the opinion of the Bank and its counsel or the Underwriters and their
counsel, requires the filing of any amendment to or change in the Registration
Statement or Prospectus in order to state a material fact required by any law
to be stated therein or necessary in order to make the statements therein not
misleading, if amending or supplementing the Registration Statement or
Prospectus to reflect such event or development would, in the opinion of the
Representative, materially adversely affect the market for the Notes.
(c) The Representative shall have received on the Closing
Date an opinion of Richards, Layton & Finger, special Delaware counsel for the
Trust, dated the Closing Date and addressed to the Underwriters, in form and
scope reasonably satisfactory to the Representative and its counse1 and
substantially in the form of Exhibit A hereto.
(d) The Representative shall have received on the Closing
Date opinions of Dean Blakey & Moskowitz, special counsel for the Bank, dated
the Closing Date and addressed to the Underwriters and B-2, in form and scope
reasonably satisfactory to the Representative and its counse1 and substantially
in the form of Exhibit B hereto.
(e) The Representative shall have received on the Closing
Date an opinion of Libby G. Fishman, Esq., General Counsel-Consumer Bank of PNC
Bank Corp., dated the Closing Date and addressed to the Underwriters, in form
and scope reasonably satisfactory to the Representative and its counse1 and
substantially in the form of Exhibit C hereto.
(f) The Representative shall have received on the Closing
Date an opinion of the Law Department of the Eligible Lender Trustee, dated the
Closing Date and addressed to the Underwriters, in form and scope reasonably
satisfactory to the Representative and its counse1 and substantially in the
form of Exhibit D hereto.
(g) The Representative shall have received on the Closing
Date an opinion of White & Case, counsel for the Indenture Trustee, dated the
Closing Date and addressed to the Underwriters, in form and scope satisfactory
to the Representative and its counse1 and substantially in the form of Exhibit
E hereto.
(h) The Representative shall have received on the Closing
Date an opinion of Stroock & Stroock & Lavan LLP,
14
<PAGE> 15
special counsel for the Underwriters, dated the Closing Date, and addressed to
the Underwriters, in form and scope Satisfactory to the Representative and its
counse1 and substantially in the form of Exhibit F hereto.
(i) The Representative shall have received on the Closing
Date opinions of Mayer, Brown & Platt, counsel for the Bank, dated the Closing
Date and addressed to the Underwriters , in form and scope reasonably
satisfactory to the Representative and its counse1 and substantially in the
form of Exhibits G-1 and G-2 hereto.
(j) The Representative shall have received a letter dated the
date of delivery thereof (which shall be on or prior to the date of this
Agreement) from Ernst & Young LLP, and in form and substance reasonably
satisfactory to the Representative, to the effect that they have carried out
certain specified procedures, not constituting an audit, with respect to
certain information regarding the Financed Student Loans and setting forth the
results of such specified procedures.
(k) There shall not have been, since the respective dates as
of which information is given in the Registration Statement (or any amendment
or supplement thereto), except as may otherwise be stated therein or
contemplated thereby, any material adverse change in the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Bank, and (ii) all the representations and warranties of the Bank
contained in this Agreement and the Basic Documents shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date and the Representative
shall have received a certificate, dated the Closing Date and signed by an
executive officer of the Bank, to the effect set forth in this Section 6(k) and
in Section 6(l) hereof.
(l) The Bank shall not have failed at or prior to the Closing
Date to have performed or complied in any material respect with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(m) The Representative shall have received by instrument
dated the Closing Date (at the option of the Representative), in lieu of or in
addition to the opinions referred to in clauses (c) through (i) of this Section
(6), the right to rely on opinions provided by such counsel and all other
counsel under the terms of the Basic Documents to Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Services ("Standard & Poor's") and
Fitch Investor's Service, L.P. ("Fitch").
15
<PAGE> 16
(n) Moody's, Standard & Poor's and Fitch shall have rated the
Class A-1 Notes "P-1", "A-1+" and "F-1", respectively, and each other Class of
the Class A Notes "Aaa", "AAA" and "AAA", respectively, and Moody's, Standard &
Poor's and Fitch shall have rated the Class B Notes at least "A2," "A" and "A,"
respectively, and there shall not have been any announcement by Moody's,
Standard & Poor's or Fitch that (i) it is downgrading any of its ratings
assigned to any Class of Notes or (ii) it is reviewing its ratings assigned to
any Class of Notes with a view to possible downgrading, or with negative
implications, or direction not determined.
(o) The Bank shall have furnished or caused to be furnished
to the Representative an executed copy of each of the Basic Documents, each
Guaranty Agreement, each Subservicing Agreement and such further certificates
and documents as the Representative shall have reasonably requested.
(p) The Representative shall have received evidence
satisfactory to it that, on or before the Closing Date, UCC-1 financing
statements have been or are being filed in the office of the Secretary of State
of the Commonwealth of Pennsylvania reflecting the transfer of the interest of
the Bank in the Financed Student Loans to the Eligible Lender Trustee on behalf
of the Trust and the proceeds thereof to the Trust and in the offices of the
Secretaries of State of the States of Illinois and Delaware reflecting the
grant of the security interest by the Trust in the Financed Student Loans and
the proceeds thereof to the Indenture Trustee.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Representative and counsel for the
Representative.
7. Expenses. The Bank agrees to pay or to otherwise cause the
payment of the following costs and expenses and all other costs and expenses
incident to the performance by it and the Trust of their respective obligations
hereunder: (i) the preparation, printing or reproduction of the Registration
Statement, each Prospectus and each amendment or supplement to any of them,
this Agreement and each other Basic Document; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prospectus and all amendments or supplements to any of them as may be
reasonably requested for use in connection with the offering and sale of the
Notes; (iii) the preparation, printing, authentication, issuance and delivery
of definitive certificates
16
<PAGE> 17
for the Notes; (iv) the printing (or reproduction) and delivery of this
Agreement, the Blue Sky Memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Notes; (v) qualification of the Indenture under the Trust Indenture Act; (vi)
the qualification of the Notes for offer and sale under the securities or Blue
Sky laws of such states as the Bank and the Representative may agree (including
the reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of any Blue
Sky Memorandum prepared in connection with such qualification); (vii) the fees
and disbursements of (A) the Bank's counsel, (B) the Representative's counsel
(in an amount not to exceed $________ without the consent of the Bank), (C) the
Indenture Trustee and its counsel, (D) the Eligible Lender Trustee, (E) the
Depository Trust Company in connection with the book-entry registration of the
Notes, (F) Ernst & Young LLP, accountants for the Bank and issuer of the
letters described in Section 6(j), (G) Richards, Layton and Finger, Special
Delaware Counsel to the Bank in connection with the preparation of the opinion
referred to in Section 6(c) and (H) Dean Blakey & Moskowitz, special counsel to
the Bank in connection with the preparation of the opinion referred to in
Section 6(d); (viii) the fees charged by Moody's and Standard & Poor's for
rating the Notes and (ix) the reasonable travel and other out-of-pocket
expenses incurred by the Representative in connection with the transactions
contemplated hereby.
8. Computational Materials. (a) Not later than 10:30 a.m. New
York City time, on the Business Day before the date on which the Current Report
relating to the Notes is required to be filed by the Bank with the SEC pursuant
to Section 4(m) hereof, each Underwriter shall deliver to the Bank a complete
copy of all materials, if any, provided by such Underwriter to prospective
investors in such Notes which constitute "Computational Materials" within the
meaning of the no-action letter dated May 20, 1994 issued by the Division of
Corporation Finance of the SEC to Kidder, Peabody Acceptance Corporation I,
Kidder, Peabody & Co. Incorporated, and Kidder Structured Asset Corporation,
the no-action letter dated May 27, 1994 issued by the Division of Corporation
Finance of the SEC to the Public Securities Association and the no-action
letter of February 17, 1995 issued by the SEC to the Public Securities
Association (collectively, the "Kidder/PSA Letters") and the filing of which is
a condition of the relief granted in such letters (such materials being the
"Computational Materials").
17
<PAGE> 18
Each Underwriter severally and not jointly represents and
warrants to and agrees with the Bank, as of date hereof and as of the Closing
Date, that the Computational Materials furnished to the Bank by such
Underwriter pursuant to Section 8(a) constitute (either in original, aggregated
or consolidated form) all of the materials furnished to prospective investors
in the Notes by such Underwriter prior to the time of delivery thereof to the
Bank that are required to be filed with the SEC with respect to the Notes in
accordance with the Kidder/PSA Letters and such Computational Materials comply
with the requirements of the Kidder/PSA Letters.
Notwithstanding the foregoing, such Underwriter makes no
representation or warranty with respect to statements in any Computational
Materials relating to the Financed Student Loans which were furnished by or on
behalf of the Bank to such Underwriter.
9. Default by One of the Underwriters. If any of the
Underwriters shall fail at the Closing Date to purchase the Notes which it is
obligated to purchase hereunder (the "Defaulted Notes"), the remaining
Underwriter (the "Non-Defaulting Underwriter") shall have the right, but not
the obligation, within one (1) Business Day thereafter, to make arrangements to
purchase all, but not less than all, of the Defaulted Notes upon the terms
herein set forth; if, however, the Non-Defaulting Underwriters shall have not
completed such arrangements within such one (1) Business Day period, then this
Agreement shall terminate without liability on the part of the Non-Defaulting
Underwriters.
No action taken pursuant to this Section 9 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Non-Defaulting Underwriter or the
Bank shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
10. Effective Date of Agreement. This Agreement shall become
effective upon the execution and delivery hereof by all the parties hereto.
Until such time as this Agreement shall have become effective, it may be
terminated by the Bank, by notifying the Representative, or by the
Representative, by notifying the Bank.
18
<PAGE> 19
Any notice under this Section 8 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject
to termination in the absolute discretion of the Representative, without
liability on the part of any Underwriter, by notice to the Bank, if prior to
the Closing Date, (i) trading in securities generally on the New York Stock
Exchange shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York state authorities, (iii) there shall
have occurred any outbreak or escalation of hostilities or other international
or domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States
is such as to make it, in the reasonable judgment of the Representative,
impracticable or inadvisable to commence or continue the offering of the Notes
on the terms set forth in the Prospectus, or to enforce contracts for the
resale of the Notes by the Underwriters, (iv) legislation shall be enacted by
the Congress of the United States or a decision by a court of the United States
or the Tax Court of the United States shall be rendered, or an officially
published ruling, regulation, proposed regulation or official statement by or
on behalf of the Treasury Department of the United States, the Internal Revenue
Service or any other governmental agency shall be made, with respect to federal
taxation upon revenues or other income of the general character expected to be
pledged under the Indenture or upon interest received on securities of the
general character of the Notes, or which would have the effect of changing,
directly or indirectly, the federal income tax consequences of interest on
securities of the general character of the Notes in the hands of the holders
thereof, which in the opinion of counsel to the Representative materially
affects the market price of the Notes, or (v) legislation shall be enacted by
the States of Delaware or Illinois or the Commonwealth of Pennsylvania, or a
decision by a court of competent jurisdiction of the States of Delaware or
Illinois or the Commonwealth of Pennsylvania or any administrative tribunal of
the States of Delaware or Illinois or the Commonwealth of Pennsylvania or other
governmental agency or department thereof shall be rendered with respect to
taxation by the States of Delaware or Illinois or the Commonwealth of
Pennsylvania or any of their political subdivisions upon revenues or other
income of the general character expected to be pledged under the Indenture or
upon interest received on securities of the general character of the Notes, or
which would have the effect of changing, directly or indirectly, the tax
consequences under the States of Delaware or Illinois or the Commonwealth of
Pennsylvania tax law of interest on securities of the general character of the
Notes in the hands of the
19
<PAGE> 20
holders thereof, which in the opinion of counsel to the Representative
materially affects the market price of the Notes. Notice of such termination
may be given to the Bank, by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriter. The statements
set forth in the second sentence of the fourth from last paragraph on the cover
page, the second sentence under the subsection "Risk Resulting From Limited
Liquidity of the Notes" under the heading "Risk Factors" and under the heading
"Underwriting" in the Preliminary Prospectus and the Prospectus constitute the
only information furnished by or on behalf of the Underwriters as such
information is referred to in Sections 3(b) and 5 hereof, and each Underwriter
confirms that such statements relating to such Underwriter are correct.
13. Representation of Underwriters. The Representative shall
act for the several Underwriters in connection with this financing, and any
action under this Agreement taken by the Representative will be binding upon
all the Underwriters.
14. Miscellaneous. Except as otherwise provided in Sections
4, 10 and 11 hereof, notice given pursuant to any provision of this Agreement
shall be in writing and shall be delivered (i) if to the Bank, two copies, one
to PNC Bank, National Association, 2600 Liberty Avenue, Suite 200, Pittsburgh,
Pennsylvania 15222, Attention: Mr. John Peters; facsimile: (800) 300-2213, with
a copy to PNC Bank, National Association, One PNC Plaza, 249 Fifth Avenue,
Pittsburgh, Pennsylvania 15222, Attention: Helen Pudlin, Esq.; Senior Vice
President and General Counsel; facsimile (412) 762-5920, (ii) if to the Trust,
to the Eligible Lender Trustee, at the Corporate Trust Office of the Eligible
Lender Trustee and (iii) if to the Representative, to Smith Barney Inc., 390
Greenwich Street, New York, NY 10013, Attention: Debt Organization Group;
facsimile (212) 723-8853.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Bank, their respective directors, officers, trustees
and controlling persons referred to in Section 5 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Notes in
its status as such purchaser.
20
<PAGE> 21
15. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York
without giving effect to the choice of laws or conflict of laws principles
thereof.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof or thereof shall have been executed and delivered on behalf of each
party hereto.
16. Effect on Letter Agreement. This Agreement supersedes
that certain letter agreement dated as of March 18, 1997, between Smith Barney
Inc. and PNC Bank Corp., except for Section 5 thereof relating to the
confidentiality obligations of such parties which survives.
21
<PAGE> 22
Please confirm that the foregoing correctly sets forth the
agreement among the Bank, the Trust and the Underwriters.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
Title:
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee
on behalf of the Trust,
By:
-----------------------------------
Name:
Title:
Confirmed as of the date first above mentioned.
SMITH BARNEY INC.
By:
--------------------------------
Name:
Title:
Acting on behalf of itself and as
Representative of the several
Underwriters.
Confirmed with respect to Section 16 only as of
the date first above mentioned.
PNC BANK CORP.
By:
--------------------------------
Name:
Title:
22
<PAGE> 23
SCHEDULE I
Underwriters
<TABLE>
<CAPTION>
Smith Barney PNC Capital
Underwriter Inc. Markets, Inc. Total
<S> <C> <C> <C>
Class A-1................................... $_______________ $_______________ $ 90,000,000
Class A-2................................... $_______________ $_______________ $107,000,000
Class A-3................................... $_______________ $_______________ $107,000,000
Class A-4................................... $_______________ $_______________ $102,000,000
Class A-5................................... $_______________ $_______________ $ 94,000,000
Class A-6................................... $_______________ $_______________ $ 72,500,000
Class A-7................................... $_______________ $_______________ $121,000,000
Class A-8................................... $_______________ $_______________ $175,000,000
Class A-9................................... $_______________ $_______________ $125,450,000
Class B..................................... $_______________ $_______________ $ 36,050,000
</TABLE>
<PAGE> 1
Exhibit 4.2
- ------------------------------------------------------------------------------
SECOND TERMS SUPPLEMENT
TO THE
INDENTURE
DATED AS OF MARCH 27, 1997
between
PNC STUDENT LOAN TRUST I
and
BANKERS TRUST COMPANY
Indenture Trustee
----------------------------
Dated as of June __, 1997
-----------------------------
Securing
$1,030,000,000
PNC STUDENT LOAN TRUST I STUDENT LOAN ASSET BACKED NOTES
SERIES 1997-2
- ------------------------------------------------------------------------------
1
<PAGE> 2
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I. ----
DEFINITIONS
ARTICLE II.
AUTHORIZATION, TERMS AND ISSUANCE
<S> <C>
SECTION 2.1. Authorization of Series 1997-2 Notes........................6
SECTION 2.2. Purposes....................................................6
SECTION 2.3. Terms of Series 1997-2 Notes................................6
SECTION 2.4 Series 1997-2 Notes.........................................8
SECTION 2.5. Class Interest Rates.......................................10
SECTION 2.6. Additional Provisions Regarding the
Class Interest Rates on the Series
1997-2 Notes...............................................11
ARTICLE III
DISTRIBUTIONS
Section 3.1. Distributions of Interest and Principal....................12
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Issuer for This Second Terms Supplement....................12
SECTION 4.2. Counterparts...............................................12
SECTION 4.3. Indenture Constitutes a Security
Agreement..................................................12
SECTION 4.4. Governing Law..............................................13
SECTION 4.5. Ratification of Indenture..................................13
EXHIBIT A-1 Form of LIBOR Rate Note
EXHIBIT A-2 Form of Fixed Rate Note
EXHIBIT A-3 Form of Class B Note
</TABLE>
i
<PAGE> 3
SECOND TERMS SUPPLEMENT, dated as of June __, 1997, between
PNC STUDENT LOAN TRUST I, a Delaware business trust (the "Issuer") acting
through THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, not
in its individual capacity but solely as eligible lender trustee (the "Eligible
Lender Trustee"), and BANKERS TRUST COMPANY, a New York banking corporation
duly established, existing and authorized to accept and execute trusts of the
character herein set out under and by virtue of the laws of the State of New
York, with its principal corporate trust office in New York, New York (the
"Indenture Trustee"), as Indenture Trustee under an Indenture dated as of March
27, 1997 (the "Indenture").
PRELIMINARY STATEMENT
Section 2.3 of the Indenture provides, among other things,
that the Issuer, as provided in the Trust Agreement, and the Indenture Trustee
may enter into an indenture supplemental to the Indenture for the purpose of
authorizing a Series of Notes and to specify certain terms of such Series of
Notes. The Issuer has duly authorized the creation of a Series of Notes in an
aggregate principal amount not to exceed $1,030,000,000 to be known as the
Issuer's Asset Backed Notes, Series 1997-2 (the "Series 1997-2 Notes"), and the
Issuer and the Indenture Trustee are executing and delivering this Second Terms
Supplement in order to provide for the Series 1997-2 Notes. Except as otherwise
specified herein, or as the context may require, capitalized terms used but not
defined herein shall have the meanings set forth in Appendix A to the Transfer
and Servicing Agreement dated as of June __, 1997 (the "Transfer and Servicing
Agreement") among the Issuer, PNC Bank, National Association as Transferor,
Administrator and Master Servicer (in such capacities, the "Transferor", the
"Administrator" and the "Master Servicer," respectively) and the Eligible
Lender Trustee which Appendix A also contains rules as to usage that shall be
applicable herein.
GRANTING CLAUSES
The Issuer hereby Grants to the Indenture Trustee, for the exclusive
benefit of the Holders of the Series 1997-2 Notes and such Swap Counterparty,
all of the Issuer's right, title and interest in and to (a) the Financed
Student Loans listed in Schedule A to the Transfer and Servicing Agreement (as
such Schedule may be amended from time to time including, but not limited to by
the acquisition by the Trust during the Exchange Period of Exchanged Student
Loans) and all obligations of the Obligors thereunder (other than Interest
Subsidy Payments and Special Allowance Payments payable through the Cut-Off
Date (or with respect to the Exchange Student Loans, the applicable
1
<PAGE> 4
Subsequent Cut-of Date), including all moneys paid thereunder other than
Interest Subsidy Payments and Special Allowance Payments payable through the
Cut-Off Date, and all written communications received by the Transferor with
respect thereto and still retained by the Transferor in accordance with its
retention policies (including borrower correspondence, notices of death,
disability or bankruptcy and requests for deferrals or forbearance), after the
close of business on June 6, 1997 (the "Cut-Off Date") (or with respect to the
Exchanged Student Loans, the applicable Subsequent Cut-off Date), (b) all funds
on deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account and the Certificate Monthly Advance Account) and in all
investments and proceeds thereof (including all income thereon), (c) all
proceeds of the foregoing, including without limitation any proceeds of the
conversion, voluntary or involuntary, of any of the foregoing into cash or
other liquid property. Such Grants are made, however, in trust, to secure the
Series 1997-2 Notes and the Swap Agreements, equally and ratably without
prejudice, priority or distinction, between any Note and any other Note by
reason of difference in time of issuance or otherwise except to the extent that
the Class A Notes and accounts owed to each Counterparty with respect to Trust
Swap Payments are senior in right of payment to the Class B Notes and except as
otherwise described herein, in the Indenture or any other Basic Document, and
to secure (i) the payment of all amounts due on the Series 1997-2 Notes, as
such amounts become due in accordance with their terms, (ii) the payment of all
other sums payable under the Indenture, this Second Terms Supplement or any
other Basic Document with respect to the Series 1997-2 Notes and (iii)
compliance with the provisions of the Indenture, this Second Terms Supplement
or any other Basic Document with respect to the Series 1997-2 Notes, all as
provided in the Indenture and this Second Terms Supplement.
The Indenture Trustee acknowledges such Grants, accepts the trusts
hereunder in accordance with the provisions hereof and of the Indenture and
agrees to perform the duties herein or therein required.
ARTICLE I.
DEFINITIONS
In addition to the definitions set forth in Appendix A to the Transfer
and Servicing Agreement, the following terms shall be as defined below.
"Authorized Denominations" means, with respect to each Class
of Series 1997-2 Notes, $50,000 and integral multiples of $1,000 in excess
thereof.
2
<PAGE> 5
"Book-Entry Form" or "Book-Entry System" means a form or
system under which (i) the beneficial right to principal and interest may be
transferred only through a book-entry, (ii) physical securities in registered
form are issued only to a Securities Depository or its nominee as registered
owner, with the securities "immobilized" to the custody of the Securities
Depository, and (iii) the book-entry is the record that identifies the owners
of beneficial interests in that principal and interest.
"Class A Notes" means the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes, the Class A-5 Notes, the Class
A-6 Notes, the Class A-7 Notes, the Class A-8 Notes and the Class A-9 Notes.
"Class A-1 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-2 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-3 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-4 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-5 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-6 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-7 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-8 Notes" has the meaning set forth in Section 2.1
herein.
"Class A-9 Notes" has the meaning set forth in Section 2.1
herein.
"Class B Notes" has the meaning set forth in Section 2.1
herein.
3
<PAGE> 6
"Class Initial Rate" means for the LIBOR Rate Notes (i)
_______% per annum with respect to the Class A-1 Notes, (ii) ____% per annum
with respect to the Class A-8 Notes, (iii) ___% per annum with respect to the
Class A-9 Notes and (iv) ____% per annum with respect to the Class B Notes.
"Class Interest Rate" means with respect to (i) the LIBOR
Rate Notes, each variable rate of interest per annum borne by a Class of LIBOR
Rate Notes during each Interest Period and determined in accordance with the
provisions of Sections 2.4 and 2.5 hereof, (ii) the Class A-2 Notes _____% per
annum, (iii) the Class A-3 Notes _____% per annum, and (iv) the Class A-4 Notes
____% per annum (v) the Class A-5 notes, ______% per annum, (vi) the Class A-6
Notes, _____% per annum and (vii) the Class A-7 notes, _____% per annum;
provided, however, that in the case of an Event of Default the Class Interest
Rate for each Class of Series 1997-2 Notes shall equal the [applicable]
Non-Payment Rate for such Class of Series 1997-2 Notes.
"Effective Interest Rate" means, for any Financed Student
Loan and any Collection Period, the per annum rate at which such Financed
Student Loan accrues interest during such Collection Period after giving effect
to all applicable Interest Subsidy Payments and Special Allowance Payments due
with respect to such Financed Student Loan.
"Final Maturity Date" means (i) July 25, 1998 with respect
to the Class A-1 Notes, (ii) January 25, 2000 with respect to the Class A-2
Notes, (iii) January 25, 2001 with respect to the Class A-3 Notes, (iv) January
25, 2002 with respect to the Class A-4 Notes, (v) January 25, 2003 with respect
to the Class A-5 Notes, (vi) January 25, 2004 with respect to the Class A-6
Notes, and (vii) January 25, 2007 with respect to the Class A-7 Notes, and
(viii) January 25, 2008 with respect to the Class A-8 Notes, and (ix) January
25, 2017 with respect to the Class A-9 Notes, and (x) January 25, 2027 with
respect to the Class B Notes.
4
<PAGE> 7
"Fixed Rate Notes" means the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class A-5 Notes, the Class A-6 Notes and the
Class A-7 Notes.
"Initial Interest Period" means, as to each Class of Series
1997-2 Notes, the period commencing on the Closing Date and continuing through
(and including) July 24, 1997.
"Interest Period" means, with respect to each Class of Series
1997-2 Notes, the Initial Interest Period and, thereafter, each period
commencing on the 25th day of each month and ending on (and including) the 24th
day of the following month or the Final Maturity Date of such Class, as
applicable (provided that for any Interest Period ending immediately prior to a
Distribution Date, such Interest Period shall end on the day immediately
preceding such Distribution Date and the next Interest Period will begin on
such Distribution Date).
"Interest Rate" means, with respect to each Class of the
Series 1997-2 Notes, the rate of interest per annum borne by such Class as of
the time referred to, including, without limitation, the related Class Initial
Rate and the related "LIBOR Rate Adjustment Date" means the date on which a
Class Interest Rate for a Class of LIBOR Rate Notes is effective, which is the
15th day of each calendar month.
"LIBOR Rate Determination Date" means the date which is both
two Business Days and two London Banking Days immediately preceding the related
LIBOR Rate Adjustment Date.
"LIBOR Rate Notes" means the Class A-1 Notes, the Class A-8
Notes, the Class A-9 Notes and the Class B Notes.
"Net Loan Rate" means for any Interest Period, the weighted
average Effective Interest Rate for the Collection Period immediately preceding
the last day of such Interest Period, less the Program Operating Expense
Percentage (or less __% per annum during the period from the Closing Date
through December 31, 1998).
"Non-Payment Rate" means (i) for each Class of LIBOR Rate
Notes, One-Month LIBOR plus __% and (ii) for the Fixed Rate Notes, _________.
"Noteholders' Interest Carryover" means, with respect to any
Interest Period for any Class of LIBOR Rate Notes for which the Class Interest
Rate for such Interest Period is based on the Net Loan Rate, the amount equal
to the excess, if any, of (a) the amount of interest such Class of LIBOR Rate
Notes would have accrued in respect of the related Interest Period had
5
<PAGE> 8
interest been calculated based on the applicable Class Interest Rate (without
giving effect to the Net Loan Rate) over (b) the amount of interest on such
Class of Notes actually accrued in respect of such Interest Period based on the
Net Loan Rate, together with the unpaid portion of any such excess from prior
Interest Periods (and interest accrued thereon, to the extent permitted by law,
at the applicable rate calculated based on One-Month LIBOR; provided, however,
that, with respect to any Class of LIBOR Rate Notes, on the related Final
Maturity Date, the portion of the Noteholders' Interest Carryover allocable to
such Class of LIBOR Rate Notes will be equal to the lesser of (i) the
Noteholders' Interest Carryover on such date determined as described above and
(ii) the amount of funds, if any, required and available to be distributed to
such Class of LIBOR Rate Notes on such date pursuant to Sections ____ and ____
of the Transfer and Servicing Agreement.
"Second Terms Supplement" means this Second Terms Supplement,
as from time to time amended or supplemented.
"Series 1997-2 Notes" has the meaning set forth in the
Preliminary Statement.
ARTICLE II.
AUTHORIZATION, TERMS AND ISSUANCE
SECTION 2.1. Authorization of Series 1997-2 Notes. There is
hereby authorized the borrowing of funds, and to evidence such borrowing there
are hereby authorized ten (10) Classes of Series 1997-2 Notes (collectively, the
"Series 1997-2 Notes"), designated as (i)the "PNC Student Loan Trust I, Series
1997-2, Senior LIBOR Rate Class A-1 Asset Backed Notes" (the "Class A-1 Notes")
in the aggregate principal amount of $90,000,000, (ii) the "PNC Student Loan
Trust I, Series 1997-2, Senior Fixed Rate Class A-2 Asset Backed Notes" (the
"Class A-2 Notes") in the aggregate principal amount of $107,000,000, (iii) the
"PNC Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-3 Asset
Backed Notes" (the "Class A-3 Notes"), in the aggregate principal amount of
$107,000,000, (iv) the "PNC Student Loan Trust I, Series 1997-2, Senior Fixed
Rate Class A-4 Asset Backed Notes" (the "Class A-4 Notes"), in the aggregate
principal amount of $102,000,000, (v) the "PNC Student Loan Trust I, Series
1997-2, Senior Fixed Rate Class A-5 Asset Backed Notes" (the "Class A-5 Notes"),
in the aggregate principal amount of $94,000,000, (vi) the "PNC Student Loan
Trust I, Series 1997-2, Senior Fixed Rate Class A-6 Asset Backed Notes" (the
"Class A-6 Notes"), in the aggregate principal amount of $72,500,000, (vii) the
"PNC Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-7 Asset
Backed Notes" (the
6
<PAGE> 9
"Class A-7 Notes"), in the aggregate principal amount of $121,000,000, (viii)
the "PNC Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class A-8 Asset
Backed Notes" (the "Class A-8 Notes"), in the aggregate principal amount of
$175,000,000, (ix) the "PNC Student Loan Trust I, Series 1997-2, Senior LIBOR
Rate Class A-9 Asset Backed Notes" (the "Class A-9 Notes"), in the aggregate
principal amount of $125,450,000, (x) the "PNC Student Loan Trust I, Series
1997-2, Subordinate LIBOR Rate Class B Asset Backed Notes" (the "Class B Notes")
in the aggregate principal amount of $36,050,000.
SECTION 2.2. Purposes. The Series 1997-2 Notes are
authorized to finance the acquisition by the Issuer of Financed Student Loans,
and to make deposits to the Trust Accounts required hereby.
SECTION 2.3. Terms of Series 1997-2 Notes. The Series 1997-2
Notes shall be issued in fully registered form, in substantially the form set
forth in Exhibit A-1 hereof (with respect to the Class A Notes, that are LIBOR
Rate Notes), in Exhibit A-2 (with respect to the Class A Notes that are Fixed
Rate Notes) and in Exhibit A-3 (with respect to the Class B Notes), in each
case with such variations, omissions and insertions as may be required by the
circumstances, as may be required or permitted by the Indenture and this Second
Terms Supplement, or be consistent with the Indenture and this Second Terms
Supplement and necessary or appropriate to conform to the rules and
requirements of any governmental authority or any usage or requirement of law
with respect thereto.
The Series 1997-2 Notes may be issued only in Authorized
Denominations. The Series 1997-2 Notes shall be dated as of the Closing Date.
Each Class of Series 1997-2 Notes shall mature on its Final Maturity Date. Each
Class of Series 1997-2 Notes shall be numbered consecutively from 1 upwards
with the prefix A-1-(with respect to the Class A-1 Notes), A-2-(with respect to
the Class A-2 Notes, A-3- (with respect to the Class A-3 Notes), A-4- (with
respect to the Class A-4 Notes), A-5- (with respect to the Class A-5 Notes),
A-6- (with respect to the Class A-6 Notes), A-7- (with respect to the Class A-7
Notes), A-8- (with respect to the Class A-8 Notes), A-9- (with respect to the
Class A-9 Notes) and B-(with respect to the Class B Notes) preceding each
number. The Series 1997-2 Notes shall be issued to a Securities Depository for
use in a Book-Entry System in accordance with the provisions of Section 2.14 of
the Indenture.
Interest on each Series 1997-2 Note shall accrue on the
Outstanding Amount of such Series 1997-2 Note until such Series 1997-2 Note has
been paid in full or payment has been duly provided for, as the case may be,
and shall accrue from the later of the Closing Date or the most recent
Distribution Date to which interest has been paid or duly provided for. Each
Series 1997-2 Note shall bear interest at an interest rate determined in
accordance with the provisions and subject to the limitations set
7
<PAGE> 10
forth herein, and interest on Series 1997-2 Notes shall be paid for the related
Interest Period on each Quarterly Distribution Date (on each Distribution Date
in the case of the Class of A-1 Notes) and on each date of payment of principal
thereof to the extent of interest accrued on the principal then being paid.
Principal will be paid to the Series 1997-2 Notes on each
Quarterly Distribution Date (on each Distribution Date in the case of the Class
of A-1 Notes) in an amount equal to the Noteholder's Principal Distribution
Amount on such Distribution Date or Distribution Date as the case may be in the
order and priorities set forth in the Transfer and Servicing Agreement and the
Indenture.
Except as otherwise set forth in the Indenture and the
Transfer and Servicing Agreement, the rights of the Holders of the Class B
Notes to receive distributions with respect to interest shall be subordinated
to the prior rights of the Holders of the Class A Notes to receive all payments
of interest to which they are entitled and each Swap Counterparty to receive
each Trust Swap Payment to which it is entitled and, after each Class of Series
1997-2 Notes has received the full amount of interest to which it is entitled
and each Swap Counterparty has received the full amount of all Trust Swap
Payments to which it is entitled, the rights of the Holders of the Class B
Notes to receive distributions with respect to principal shall be subordinated
to the prior rights of the Holders of the Class A Notes to receive all payments
of principal to which they are entitled.
SECTION 2.4 Series 1997-2 Notes. (a) Until the initial LIBOR
Rate Adjustment Date, each Class of LIBOR Rate Notes shall bear interest at the
Class Initial Rate for such Class. Thereafter, (i) the Class A-1 Notes shall
bear interest during each Interest Period at a Class Interest Rate equal to the
lesser of (x) One-Month LIBOR less ____% and (y) the Net Loan Rate; (ii) the
Class A-8 Notes shall bear interest during each Interest Period at a Class
Interest Rate equal to the lesser of (x) One-Month LIBOR plus ____% and (y) the
Net Loan Rate; (iii) the Class A-9 Notes shall bear interest during each
Interest Period at a Class Interest Rate equal to the lesser of (x) One-Month
LIBOR plus ____% and (y) the Net Loan Rate; and
8
<PAGE> 11
(iv) the Class B Notes shall bear interest during each Interest Period at a
Class Interest Rate equal to the lesser of (x) One-Month LIBOR plus ____% and
(y) the Net Loan Rate. Each Class of Fixed Rate Notes shall bear interest
during each Interest Period, including the Initial Interest Period at the Class
Interest Rate applicable to such Class of Fixed Rate Notes. Notwithstanding the
foregoing in no event shall the Class A-8 Notes, the Class A-9 Notes or
the Class B Notes bear interest during any Interest Period at a rate greater
than 18.0% per annum.
(b) With respect to the LIBOR Rate Notes, during each
Interest Period, interest at the related Class Interest Rate shall accrue daily
and shall be computed for the actual number of days elapsed in such Interest
Period on the basis of a year consisting of 360 days. With respect to the Fixed
Rate Notes, during each Interest Period, interest at the related Class Interest
Rate shall accrue daily and shall be computed of 12 months of 30 days each.
(c) If an Event of Default shall have occurred, the Class
Interest Rate on each Class of the Series 1997-2 Notes for the Interest Period
commencing on or immediately after such Event of Default, and for each Interest
Period thereafter, to and including the Interest Period, if any, during which,
or commencing less than two Business Days after, such Event of Default is cured
in accordance with the Indenture and this Second Terms Supplement, shall equal
the Non-Payment Rate on the first day of each such Interest Period;
(d) If for any Interest Period the Class Interest Rate for a
Class of LIBOR Rate Notes (without giving effect to the Net Loan Rate) is
greater than the Net Loan Rate, then the Class Interest Rate applicable to such
Class of LIBOR Rate Notes for that Interest Period will be the Net Loan Rate.
If the Class Interest Rate applicable to such Class of LIBOR Rate Notes for any
Interest Period is the Net Loan Rate, the Master Servicer shall determine the
9
<PAGE> 12
Noteholders' Interest Carryover, if any, with respect to such Class of LIBOR
Rate Notes for such Interest Period. Such Noteholders' Interest Carryover shall
bear interest calculated at a rate equal to One-Month LIBOR (as determined by
the Master Servicer from the Distribution Date for the Interest Period with
respect to which such Noteholders' Interest Carryover was calculated, until
paid. For purposes of this Second Terms Supplement, any reference to
"principal" or "interest" herein shall not include within the meaning of such
words Noteholders' Interest Carryover or any interest accrued on any such
Noteholders' Interest Carryover. Such Noteholders' Interest Carryover shall be
separately calculated for each LIBOR Rate Note of such Class by the Master
Servicer during such Interest Period in sufficient time for the Indenture
Trustee to give notice to each Noteholder of such Noteholders' Interest
Carryover as required in the next succeeding sentence. On the Distribution Date
for an Interest Period with respect to which such Noteholders' Interest
Carryover for a Class of LIBOR Rate Notes has been calculated by the Master
Servicer, the Indenture Trustee shall give written notice to each Noteholder of
the applicable Class of the Noteholders' Interest Carryover applicable to each
Noteholder's LIBOR Rate Note of such Class, which written notice may be
included in any other written statement sent by the Indenture Trustee to such
Noteholders, and shall be mailed on such Distribution Date by first-class mail,
postage prepaid, to each such Noteholder at such Noteholder's address as it
appears on the registration books maintained by the Note Registrar. Such notice
shall state, in addition to such Noteholders' Interest Carryover, that, unless
and until the Final Maturity Date for such Class of LIBOR Rate Notes has
occurred (after which all accrued Noteholders' Interest Carryover (and all
accrued interest thereon) that remains unpaid shall be canceled and no
Noteholders' Interest Carryover (and interest accrued thereon) shall be paid
with respect to a LIBOR Rate Note of such Class), (i) the Noteholders' Interest
Carryover (and interest accrued thereon calculated at a rate equal to One-Month
LIBOR shall be paid by the Indenture Trustee on a LIBOR Rate Note of such Class
on the first occurring Distribution Date for a subsequent Interest Period if
and to the extent that (1) during such Interest Period no additional
Noteholders' Interest Carryover is accruing on such Class of LIBOR Rate Notes
and (2) moneys are available pursuant to the terms of this Second Terms
Supplement and the Transfer and Servicing Agreement in an amount sufficient to
pay all or a portion of such Noteholders' Interest Carryover and (ii) interest
shall accrue on the Noteholders' Interest Carryover at a rate equal to
One-Month LIBOR until such Noteholders' Interest Carryover is paid in full or
the related Final Maturity Date occurs.
10
<PAGE> 13
The Noteholders' Interest Carryover for a Class of LIBOR Rate
Notes shall be paid by the Indenture Trustee on Outstanding LIBOR Rate Notes of
such Class on the first occurring Distribution Date for a subsequent Interest
Period if and to the extent that during such Interest Period no additional
Noteholders' Interest Carryover is accruing on such Class of LIBOR Rate Notes.
Any Noteholders' Interest Carryover (and any interest accrued thereon) on any
LIBOR Rate Note which is due and payable on the related Final Maturity Date
shall be paid to the Noteholder thereof on said Final Maturity Date to the
extent that moneys are available therefor in accordance with the provisions of
this Second Terms Supplement and the Transfer and Servicing Agreement;
provided, however, that any Noteholders' Interest Carryover (and any interest
accrued thereon) which is not yet due and payable on said Final Maturity Date
shall be canceled with respect to said LIBOR Rate Notes on said Final Maturity
Date. To the extent that any portion of the Noteholders' Interest Carryover for
a Class of LIBOR Rate Notes remains unpaid after payment of a portion thereof,
such unpaid portion of the Noteholders' Interest Carryover shall be paid in
whole or in part as required hereunder until fully paid by the Indenture
Trustee on the next occurring Distribution Date or Dates, as necessary, for a
subsequent Interest Period or Periods for such Class, if and to the extent that
the conditions in the second preceding sentence are satisfied. On any
Distribution Date on which the Indenture Trustee pays only a portion of the
Noteholders' Interest Carryover on a LIBOR Rate Note of such Class, the
Indenture Trustee shall give written notice in the manner set forth in the
immediately preceding paragraph to the Noteholders of such LIBOR Rate Note
receiving such partial payment of the Noteholders' Interest Carryover remaining
unpaid on such LIBOR Rate Note.
(e) In the event that the Master Servicer no longer
determines, or fails to determine, when required, the Class Interest Rate with
respect to a Class of LIBOR Rate Notes, or, if for any reason such manner of
determination shall be held to be invalid or unenforceable by a court of
competent jurisdiction, the Class Interest Rate for the next succeeding
Interest Period for such Class of LIBOR Rate Notes shall be the Net Loan Rate
as determined by the Master Servicer (which is responsible for notifying the
Indenture Trustee of such Net Loan Rate), for such next succeeding Interest
Period.
SECTION 2.5. Class Interest Rates. On each LIBOR Rate
Determination Date, the Master Servicer shall determine the Class Interest Rate
for each Class
11
<PAGE> 14
of LIBOR Rate Notes that will be applicable to the Interest Period following
such LIBOR Rate Determination Date (without giving effect to the Net Loan
Rate). In connection therewith, the Master Servicer shall calculate One-Month
LIBOR and shall notify the Indenture Trustee and the Eligible Lender Trustee of
One-Month LIBOR. If an Event of Default shall have occurred, the Master
Servicer shall calculate the Non-Payment Rate applicable to the LIBOR Rate
Notes on the LIBOR Rate Determination Date for (i) each Interest Period
commencing after the occurrence and during the continuance of such Event of
Default and (ii) any Interest Period commencing less than two Business Days
after the cure of any Event of Default. The determination by the Master
Servicer of One-Month LIBOR shall (in the absence of manifest error) be final
and binding upon all parties. On each LIBOR Rate Determination Date, the
Master Servicer also shall determine the Net Loan Rate for the related Interest
Period. Based upon such calculations, the Master Servicer shall determine the
Class Interest Rate applicable to each Class of LIBOR Rate Notes for the
applicable Interest Period.
SECTION 2.6. Additional Provisions Regarding the Class
Interest Rates on the Series 1997-2 Notes. The determination of a Class
Interest Rate by the Indenture Trustee or any other Person pursuant to the
provisions of the applicable Section of this Article II shall be conclusive and
binding on the Noteholders of the Class of Series 1997-2 Notes to which such
Class Interest Rate applies, and the Issuer and the Indenture Trustee may rely
thereon for all purposes.
In no event shall the cumulative amount of interest paid or
payable on a Class of Series 1997-2 Notes (including interest calculated as
provided herein, plus any other amounts that constitute interest on the Series
1997-2 Notes of such Class under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to the Series 1997-2 Notes of
such Class or related documents) calculated from the date of issuance of the
Series 1997-2 Notes of such Class through any subsequent day during the term of
the Series 1997-2 Notes of such Class or otherwise prior to payment in full of
the Series 1997-2 Notes of such Class exceed the amount permitted by applicable
law. If the applicable law is ever judicially interpreted so as to render
usurious any amount called for under the Series 1997-2 Notes of such Class or
related documents or otherwise contracted for, charged, reserved, taken or
received in connection with the Series 1997-2 Notes of such Class, or if the
acceleration of the maturity of the Series 1997-2 Notes of such Class results
in payment to or receipt by the Noteholder or any former Noteholder of the
Series 1997-2 Notes of such Class of any interest in
12
<PAGE> 15
excess of that permitted by applicable law, then, notwithstanding any provision
of the Series 1997-2 Notes of such Class or related documents to the contrary,
all excess amounts theretofore paid or received with respect to the Series
1997-2 Notes of such Class shall be credited on the principal balance of the
Series 1997-2 Notes of such Class (or, if the Series 1997-2 Notes of such Class
have been paid or would thereby be paid in full, refunded by the recipient
thereof), and the provisions of the Series 1997-2 Notes of such Class and
related documents shall automatically and immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without
the necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount
otherwise called for under the Series 1997-2 Notes of such Class and under the
related documents.
ARTICLE III
DISTRIBUTIONS
Section 3.1 Distributions of Interest and Principal. The
Indenture Trustee shall make distributions from and to the several Trust
Accounts in the manner provided for in Section 5.5 of the Transfer and
Servicing Agreement, as such Section may be amended from time to time. All
principal payments of Notes of any Class shall be made pro rata to the Holders
of Notes of such Class. No later than each Determination Date, the Master
Servicer shall compute the Principal Factor of each Class of Series 1997-2
Notes for the upcoming Distribution Date and shall notify the Indenture Trustee
of such Principal Factors.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Issuer for This Second Terms Supplement. This
Second Terms Supplement is adopted pursuant to the provisions of the Indenture.
SECTION 4.2. Counterparts. This Second Terms Supplement may
be simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
SECTION 4.3. Indenture Constitutes a Security Agreement. This
Second Terms Supplement constitutes a security agreement for the purposes of
the Uniform Commercial Code.
13
<PAGE> 16
SECTION 4.4. Governing Law. This Second Terms Supplement
shall be governed by and construed in accordance with the laws of the State of
New York.
SECTION 4.5. Ratification of Indenture. As supplemented by
this Second Terms Supplement, the Indenture is in all respects ratified and
confirmed, and the Indenture so supplemented by this Second Terms Supplement
shall be read, taken and construed as one and the same instrument. Each
addition to and amendment of the Indenture contained herein is solely for
purposes of the Series 1997-2 Notes, and shall have no effect on any other
Series of Notes issued pursuant to the Indenture. If any term of this Second
Terms Supplement conflicts with any term of the Indenture or any previously
executed Terms Supplement, this Second Terms Supplement shall control for
purposes of the Series 1997-2 Notes.
14
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this
Second Terms Supplement to be duly executed as of the day and year first above
written.
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible
Lender Trustee
By:
------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, not in its
individual capacity but solely as
Indenture Trustee,
By:
------------------------------------
Name:
Title:
15
<PAGE> 18
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said _____________ of THE FIRST NATIONAL BANK OF CHICAGO, not in its individual
capacity but solely as Eligible Lender Trustee of PNC STUDENT LOAN TRUST I, a
Delaware trust, and that he executed the same as the act of said trust for the
purpose and consideration therein expressed, and in the capacities therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of June,
1997.
-----------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
16
<PAGE> 19
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said BANKERS TRUST COMPANY, a New York banking corporation, and that she
executed the same as the act of said corporation for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of June,
1997.
-----------------------------
Notary Public in and for
the State of New York.
[SEAL]
My commission expires:
- ----------------------
17
<PAGE> 20
EXHIBIT A-1
[FORM OF SENIOR LIBOR RATE NOTE]
PNC STUDENT LOAN TRUST I, SERIES 1997-2
SENIOR LIBOR RATE CLASS [A-1] [A-8] [A-9] ASSET BACKED NOTE
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO, FIRST CHICAGO
DELAWARE, INC. OR BANKERS TRUST COMPANY.
THIS NOTE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
No. A-[1][8][9]-_____
$__________
FINAL CLASS
MATURITY DATED INTEREST
Class DATE DATE RATE CUSIP
----- ---- ---- ---- -----
<S> <C> <C> <C> <C>
[A-1][A-8] One-Month
[A-9] LIBOR [-] [+]
____% as herein
provided
REGISTERED NOTEHOLDER: CEDE & CO.
-----------------------------------
PRINCIPAL AMOUNT:
</TABLE>
<PAGE> 21
PNC BANK STUDENT LOAN TRUST I, a Delaware business trust (the
"Issuer"), for value received, promises to pay, from the sources herein
described, to the Registered Noteholder identified above, or registered
assigns, upon presentation and surrender hereof at the Corporate Trust Office
of Bankers Trust Company, as Paying Agent, or at the principal office of any
successor or additional Paying Agent, the Principal Amount identified above on
the Final Maturity Date identified above, and to pay to the registered owner
hereof, interest and principal hereon in lawful money of the United States of
America at the Class Interest Rate on the dates as provided herein. Unless
otherwise defined herein, capitalized terms used herein shall have the
respective meanings given to such terms in the Indenture dated as of March 27,
1997 (the "Indenture"), as supplemented by the Second Terms Supplement dated as
of June __, 1997, (the "Second Terms Supplement" and, together with the
Indenture, the "Indenture") between the Issuer and Bankers Trust Company, as
Indenture Trustee.
This is one of a duly authorized issue of notes of the Issuer
designated as "PNC Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class
[A-1][A-8][A-9] Asset Backed Notes", in the aggregate principal amount of
$_________ (herein referred to as the "Class [A-1][A-8][A-9] Notes" together
with the PNC Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class
[A-1][A-8][A-9] Asset Backed Notes (the "Class [A-1][A-8][A-9] Notes"), the PNC
Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class [A-1][A-8][A-9]
Asset Backed Notes (the "Class [A-1] [A-8] [A-9] Notes") and the PNC Student
Loan Trust I, Subordinate LIBOR Rate Class B Asset Backed Notes (the "Class B
Notes and together with the Class [A-1] [A-8] [A-9] and Class [A-1] [A-8]
[A-9] Notes, the "LIBOR Rate Notes" and together with the Fixed Rate Notes, the
"Notes") issued under the Indenture. The Notes are issued to finance the
acquisition of Financed Student Loans by the Trust, and to make certain
deposits into the Pledged Accounts.
The Notes are secured under the Indenture which, together
with certain other documents, assigns to the Indenture Trustee for the benefit
of the Noteholders and each Swap Counterparty all the rights and remedies of
the Issuer under certain Financed Student Loans and rights under various
contracts providing for the issuance, guarantee and servicing of such Financed
Student Loans. Reference is hereby made to the Indenture for the provisions,
among others, with respect to the custody and application of the proceeds of
the Notes, the nature and the extent of the liens and security of the
Indenture, the collection and disposition of revenues, the funds charged with
2
<PAGE> 22
and pledged to the payment of the principal of and the interest on the Notes,
the rights, duties and immunities of the Indenture Trustee, the rights of the
registered owners of the Notes, and the rights and obligations of the Issuer.
By the acceptance of this LIBOR Rate Note, the registered owner hereof assents
to all of the provisions of the Indenture.
Distributions of principal and interest will made on each
[Quarterly] Distribution Date to the holders of this LIBOR Rate Note in the
manner described in the Transfer and Servicing Agreement.
If an Event of Default as defined in the Indenture occurs,
the principal of and interest on all Notes issued under the Indenture may be
declared due and payable upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture and the rights and obligations
of the Issuer, the Indenture Trustee and the Noteholder hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
If an Event of Default shall have occurred, the Class
Interest Rate on each Class of Notes for the Interest Period commencing on or
immediately after such Event of Default, and for each Interest Period
thereafter, to and including the Interest Period, if any, during which, or
commencing less than two Business Days after, such Event of Default is cured in
accordance with the Indenture, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
The holder of this LIBOR Rate Note shall have no right to
enforce the provisions of the Indenture or to institute action to enforce the
covenants therein, or to take any action with respect to any Event of Default
under the Indenture, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Indenture.
The transfer of this LIBOR Rate Note may be registered only
upon surrender hereof to the Indenture Trustee together with an assignment duly
executed by the registered owner or its attorney or legal representative in
such form as shall be satisfactory to the Indenture Trustee. Upon any such
registration of transfer of this LIBOR Rate Note and subject to the payment of
any fees and charges as provided by the Indenture, the Issuer shall execute and
the Indenture Trustee shall authenticate and deliver in exchange for this LIBOR
Rate Note a new LIBOR Rate Note or Notes registered in the name of the
transferee, in any denomination or denominations authorized by the Indenture,
of the same maturity and in an aggregate principal amount equal to the
unredeemed principal amount of this LIBOR Rate Note and bearing the same
interest as this LIBOR Rate Note.
3
<PAGE> 23
In any case where the date fixed for the payment of principal
of or interest on this LIBOR Rate Note shall not be a Business Day, then
payment of such principal or interest need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date fixed for the payment thereof.
It is hereby certified, recited and declared that all acts,
conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this LIBOR Rate Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This LIBOR Rate Note shall not be valid or become obligatory
for any purpose or be entitled to any security or benefit under the Indenture
until the certificate of authentication hereon shall have been manually signed
by the Indenture Trustee.
IN WITNESS WHEREOF, the Issuer has caused this LIBOR Rate
Note to be executed in its name by the manual or facsimile signature of an
Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be
hereto affixed.
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
------------------------------------
4
<PAGE> 24
CERTIFICATE OF AUTHENTICATION
This Note is one of the LIBOR Rate Notes designated in and
issued under the provisions of the within mentioned Indenture.
BANKERS TRUST COMPANY
New York, New York, as
Indenture Trustee
By:
---------------------------
Authorized Representative
Date of Authentication:
- ---------------------------
5
<PAGE> 25
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto _________________________, the within Note and irrevocably
appoints _________________________, attorney-in-fact, to transfer the within
Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
---------------- ------------------------------
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as
it appears upon the face of ------------------------------
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:
------------------------------------
Tax Identification Number or
Social Security Number(s):
---------------------------
6
<PAGE> 26
EXHIBIT A-2
[FORM OF SENIOR FIXED RATE NOTE]
PNC STUDENT LOAN TRUST I, SERIES 1997-2
SENIOR FIXED RATE CLASS [A-2][A-3] [A-4] [A-5] [A-6] [A-7] ASSET BACKED NOTE
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO, FIRST CHICAGO
DELAWARE, INC. OR BANKERS TRUST COMPANY.
THIS NOTE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY GOVERNMENTAL AGENCY.
No. [A-2] [3] [4] [5] [6] [7] $__________
<TABLE>
<CAPTION>
FINAL CLASS
MATURITY DATED INTEREST
Class DATE DATE RATE CUSIP
----- ---- ---- ---- -----
<S> <C> <C> <C> <C>
-----%
[A-2] [A-3]
[A-4] [A-5]
[A-6] [A-7]
REGISTERED NOTEHOLDER: CEDE & CO.
-----------------------------------
PRINCIPAL AMOUNT:
</TABLE>
<PAGE> 27
PNC BANK STUDENT LOAN TRUST I, a Delaware business trust (the
"Issuer"), for value received, promises to pay, from the sources herein
described, to the Registered Noteholder identified above, or registered
assigns, upon presentation and surrender hereof at the Corporate Trust Office
of Bankers Trust Company, as Paying Agent, or at the principal office of any
successor or additional Paying Agent, the Principal Amount identified above on
the Final Maturity Date identified above, and to pay to the registered owner
hereof, interest and principal hereon in lawful money of the United States of
America at the Class Interest Rate on the dates as provided herein. Unless
otherwise defined herein, capitalized terms used herein shall have the
respective meanings given to such terms in the Indenture dated as of March 27,
1997 (the "Indenture"), as supplemented by the Second Terms Supplement dated as
of June __, 1997, (the "Second Terms Supplement" and, together with the
Indenture, the "Indenture") between the Issuer and Bankers Trust Company, as
Indenture Trustee.
This is one of a duly authorized issue of notes of the Issuer
designated as "PNC Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class
[A-2][A-3][A-4][A-5][A-6][A-7] Asset Backed Notes", in the aggregate principal
amount of $_________ (herein referred to as the "Class
[A-2][A-3][A-4][A-5][A-6][A-7] Notes" together with the PNC Student Loan Trust
I, Series 1997-2, Senior Fixed Rate Class [A-2][A-3][A-4][A-5][A-6][A-7] Asset
Backed Notes (the "Class [A-2][A-3][A-4][A-5][A-6][A-7] Notes"), the PNC Student
Loan Trust I, Series 1997-2, Senior Fixed Rate Class
[A-1][A-3][A-4][A-5][A-6][A-7] Asset Backed Notes (the "Class
[A-2][A-3][A-4][A-5][A-6][A-7] Notes"), the PNC Student Loan Trust I, Series
1997-2, Senior Fixed Rate Class [A-2][A-3][A-4][A-5][A-6][A-7] Asset Backed
Notes (the "Class [A-2][A-3][A-4][A-5][A-6][A-7] Notes"), the PNC Student Loan
Trust I, Series 1997-2, Senior Fixed Rate Class [A-2][A-3][A-4][A-5][A-6][A-7]
Asset Backed Notes (the "Class [A-2][A-3][A-4][A-5][A-6][A-7] Note"), the PNC
Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class [A-2] [A-3] [A-4]
[A-5] [A-6] [A-7] Asset Backed Notes (the "Class [A-2] [A-3] [A-4] [A-5] [A-6]
[A-7] Notes") the "Fixed Rate Notes" and together with the LIBOR Rate Notes,
the "Notes")issued under the Indenture. The Notes are issued to finance the
acquisition of Financed Student Loans by the Trust, and to make certain deposits
into the Pledged Accounts.
The Notes are secured under the Indenture which, together
with certain other documents, assigns to the Indenture Trustee for the benefit
of the Noteholders and each Swap Counterparty all the rights and remedies of
the Issuer under certain Financed Student Loans and rights under various
contracts providing for the issuance, guarantee and servicing of such Financed
Student Loans. Reference is hereby made to the Indenture for the provisions,
among others, with respect to the custody and application of the proceeds of
the Notes, the nature and the extent of the liens and security of the
Indenture, the collection and disposition of revenues, the funds charged with
and pledged to the payment of the principal of and the interest on the Notes,
the rights, duties and immunities of the Indenture
1
<PAGE> 28
Trustee, the rights of the registered owners of the Notes, and the rights and
obligations of the Issuer. By the acceptance of this Fixed Rate Note, the
registered owner hereof assents to all of the provisions of the Indenture.
Distributions of principal and interest will made on each
Quarterly Distribution Date to the holders of this Fixed Rate Note in the
manner described in the Transfer and Servicing Agreement until the principal
balance of this Fixed Rate Notes is reduced to zero
If an Event of Default as defined in the Indenture occurs,
the principal of and interest on all Notes issued under the Indenture may be
declared due and payable upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture and the rights and obligations
of the Issuer, the Indenture Trustee and the Noteholder hereof may be modified
or amended in the manner and subject to the conditions set forth in the
Indenture.
If an Event of Default shall have occurred, the Class
Interest Rate on each Class of Notes for the Interest Period commencing on or
immediately after such Event of Default, and for each Interest Period
thereafter, to and including the Interest Period, if any, during which, or
commencing less than two Business Days after, such Event of Default is cured in
accordance with the Indenture, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
The holder of this Fixed Rate Note shall have no right to
enforce the provisions of the Indenture or to institute action to enforce the
covenants therein, or to take any action with respect to any Event of Default
under the Indenture, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Indenture.
The transfer of this Fixed Rate Note may be registered only
upon surrender hereof to the Indenture Trustee together with an assignment duly
executed by the registered owner or its attorney or legal representative in
such form as shall be satisfactory to the Indenture Trustee. Upon any such
registration of transfer of this Fixed Rate Note and subject to the payment of
any fees and charges as provided by the Indenture, the Issuer shall execute and
the Indenture Trustee shall authenticate and deliver in exchange for this Fixed
Rate Note a new Fixed Rate Note or Notes registered in the name of the
transferee, in any denomination or denominations authorized by the Indenture,
of the same maturity and in an aggregate principal amount equal to the
unredeemed principal amount of this Fixed Rate Note and bearing the same
interest as this Fixed Rate Note.
In any case where the date fixed for the payment of principal
of or interest on this Fixed Rate Note shall not be a Business Day, then
payment of such principal or interest need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date fixed for the payment thereof.
2
<PAGE> 29
It is hereby certified, recited and declared that all acts,
conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this Fixed Rate Note have happened, do exist and have been
performed in due time, form and manner as required by law.
This Fixed Rate Note shall not be valid or become obligatory
for any purpose or be entitled to any security or benefit under the Indenture
until the certificate of authentication hereon shall have been manually signed
by the Indenture Trustee.
IN WITNESS WHEREOF, the Issuer has caused this Fixed Rate
Note to be executed in its name by the manual or facsimile signature of an
Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be
hereto affixed.
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
------------------------------------
3
<PAGE> 30
CERTIFICATE OF AUTHENTICATION
This Note is one of the Fixed Rate Notes designated in and
issued under the provisions of the within mentioned Indenture.
BANKERS TRUST COMPANY
New York, New York, as
Indenture Trustee
By:
---------------------------
Authorized Representative
Date of Authentication:
- -----------------------------
4
<PAGE> 31
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto ________________________, the within Note and irrevocably
appoints ________________________, attorney-in-fact, to transfer the within Note
on the books kept for registration thereof, with full power of substitution in
the premises.
Dated:
-------------- ----------------------------
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as
it appears upon the face of ---------------------------
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:
------------------------------------
Tax Identification Number or
Social Security Number(s):
---------------------------
5
<PAGE> 32
EXHIBIT A-3
[FORM OF SUBORDINATE LIBOR RATE NOTE]
PNC STUDENT LOAN TRUST I, SERIES 1997-2
SUBORDINATE LIBOR RATE CLASS B ASSET BACKED NOTE
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE DOES NOT REPRESENT DEPOSITS OR OBLIGATIONS OF OR INTEREST IN PNC
BANK, NATIONAL ASSOCIATION, THE FIRST NATIONAL BANK OF CHICAGO, FIRST CHICAGO
DELAWARE, INC. OR BANKERS TRUST COMPANY.
THIS NOTE IS NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
** 3 No. B-_____
$__________
FINAL CLASS
MATURITY DATED INTEREST
Class DATE DATE RATE CUSIP
----- ---- ---- ---- -----
<S> <C> <C> <C> <C>
B One-Month
LIBOR + ___%
as herein
provided
REGISTERED NOTEHOLDER: CEDE & CO.
-----------------------------------
PRINCIPAL AMOUNT:
</TABLE>
6
<PAGE> 33
PNC BANK STUDENT LOAN TRUST I, a Delaware business trust (the
"Issuer"), for value received, promises to pay, from the sources herein
described, to the Registered Noteholder identified above, or registered
assigns, upon presentation and surrender hereof at the Corporate Trust Office
of Bankers Trust Company, as Paying Agent, or at the principal office of any
successor or additional Paying Agent, the Principal Amount identified above on
the Final Maturity Date identified above, and to pay to the registered owner
hereof, interest and principal hereon in lawful money of the United States of
America at the Class Interest Rate on the dates as provided herein. Unless
otherwise defined herein, capitalized terms used herein shall have the
respective meanings given to such terms in the Indenture dated as of March 27,
1997 (the "Indenture"), as supplemented by the Second Terms Supplement dated as
of June __, 1997, (the "Second Terms Supplement" and, together with the
Indenture, the "Indenture") between the Issuer and Bankers Trust Company, as
Indenture Trustee.
This is one of a duly authorized issue of notes of the Issuer
designated as "PNC Student Loan Trust I, Series 1997-2, Subordinate LIBOR Rate
Class B Asset Backed Notes", in the aggregate principal amount of $_________
(herein referred to as the "Class B Notes" together with the Class A Notes, the
"Notes") issued under the Indenture. The Notes are issued to finance the
acquisition of Financed Student Loans by the Trust, and to make certain
deposits into the Pledged Accounts.
The Notes are secured under the Indenture which, together
with certain other documents, assigns to the Indenture Trustee for the benefit
of the Noteholders and each Swap Counterparty all the rights and remedies of
the Issuer under certain Financed Student Loans and rights under various
contracts providing for the issuance, guarantee and servicing of such Financed
Student Loans. Reference is hereby made to the Indenture for the provisions,
among others, with respect to the custody and application of the proceeds of
the Notes, the nature and the extent of the liens and security of the
Indenture, the collection and disposition of revenues, the funds charged with
and pledged to the payment of the principal of and the interest on the Notes,
the rights, duties and immunities of the Indenture Trustee, the rights of the
registered owners of the Notes, and the rights and obligations of the Issuer.
By the acceptance of this Class B Note, the registered owner hereof assents to
all of the provisions of the Indenture.
7
<PAGE> 34
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE CLASS B NOTES
ARE SUBORDINATED IN PRIORITY OF PAYMENT OF INTEREST AND PRINCIPAL TO
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE CLASS A NOTES AS DESCRIBED IN
THE SECOND TERMS SUPPLEMENT AND THE TRANSFER AND SERVICING AGREEMENT.
**4 Distributions of principal and interest on this Class B Note
will made to the holders of Class B Notes in the manner described in the
Transfer and Servicing Agreement until the principal balance of the Class B
Notes is reduced to zero. If an Event of Default as defined in the Indenture
occurs, the principal of and interest on all Notes issued under the Indenture
may be declared due and payable upon the conditions and in the manner and with
the effect provided in the Indenture. The Indenture and the rights and
obligations of the Issuer, the Indenture Trustee and the Noteholder hereof may
be modified or amended in the manner and subject to the conditions set forth in
the Indenture.
If an Event of Default shall have occurred, the Class
Interest Rate on each Class of Notes for the Interest Period commencing on or
immediately after such Event of Default, and for each Interest Period
thereafter, to and including the Interest Period, if any, during which, or
commencing less than two Business Days after, such Event of Default is cured in
accordance with the Indenture, shall equal the applicable Non-Payment Rate on
the first day of each such Interest Period.
The holder of this Class B Note shall have no right to
enforce the provisions of the Indenture or to institute action to enforce the
covenants therein, or to take any action with respect to any Event of Default
under the Indenture, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Indenture.
The transfer of this Class B Note may be registered only upon
surrender hereof to the Indenture Trustee together with an assignment duly
executed by the registered owner or its
8
<PAGE> 35
attorney or legal representative in such form as shall be satisfactory to the
Indenture Trustee. Upon any such registration of transfer of this Class B Note
and subject to the payment of any fees and charges as provided by the
Indenture, the Issuer shall execute and the Indenture Trustee shall
authenticate and deliver in exchange for this Class B Note a new Class B Note
or Notes registered in the name of the transferee, in any denomination or
denominations authorized by the Indenture, of the same maturity and in an
aggregate principal amount equal to the unredeemed principal amount of this
Class B Note and bearing the same interest as Class B Note.
In any case where the date fixed for the payment of principal
of or interest on this Class B Note shall not be a Business Day, then payment
of such principal or interest need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date fixed for the payment thereof.
It is hereby certified, recited and declared that all acts,
conditions and things required to have happened, to exist and to have been
performed precedent to and in the execution and delivery of the Indenture and
issuance of this Class B Note have happened, do exist and have been performed
in due time, form and manner as required by law.
This Class B Note shall not be valid or become obligatory for
any purpose or be entitled to any security or benefit under the Indenture until
the certificate of authentication hereon shall have been manually signed by the
Indenture Trustee.
9
<PAGE> 36
IN WITNESS WHEREOF, the Issuer has caused this Class B Note
to be executed in its name by the manual or facsimile signature of an
Authorized Officer and the manual or facsimile signature of an Assistant
Secretary, and has caused its corporate seal or a facsimile thereof to be
hereto affixed.
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee
By:
-------------------------------------
10
<PAGE> 37
CERTIFICATE OF AUTHENTICATION
This Note is one of the Class B Notes designated in and
issued under the provisions of the within mentioned Indenture.
BANKERS TRUST COMPANY
New York, New York, as
Indenture Trustee
By:
----------------------------
Authorized Representative
Date of Authentication:
- -------------------------------
11
<PAGE> 38
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto _____________________________, the within Note and irrevocably
appoints ___________________________, attorney-in-fact, to transfer the within
Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
---------------- ------------------------------
NOTICE: The signature to Signature Guaranteed:
this assignment must
correspond with the name as
it appears upon the face of ------------------------------
the within Note in every par-
ticular, without any alter-
ation whatsoever.
Name and Address:
---------------------------------
Tax Identification Number or
Social Security Number(s):
------------------------
12
<PAGE> 1
Exhibit 4.4
TRANSFER AND SERVICING AGREEMENT
among
PNC STUDENT LOAN TRUST I
as Issuer,
PNC BANK, NATIONAL ASSOCIATION
as Transferor, Master Servicer and Administrator
and
THE FIRST NATIONAL BANK OF CHICAGO
not in its individual capacity but solely
as Eligible Lender Trustee
Dated as of June __, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Usage
ARTICLE II
Conveyance of Financed Student Loans
SECTION 2.1 Conveyance of Initial Financed
Student Loans.........................................................
SECTION 2.2 Conveyance of Exchanged Student Loans......................................
SECTION 2.3 Conveyance of Certain Financed Student
Loans by the Eligible Lender Trustee
to or upon Order of the Transferor....................................
SECTION 2.4 Security Agreement.........................................................
ARTICLE III
The Financed Student Loans
SECTION 3.1 Representations and Warranties of
Transferor with Respect to the Financed
Student Loans.........................................................
SECTION 3.2 Repurchase upon Breach;
Reimbursement.........................................................
SECTION 3.3 Custody of Financed Student Loan
Files.................................................................
SECTION 3.4 Duties of Master Servicer as Custodian.....................................
SECTION 3.5 Instructions; Authority to Act.............................................
SECTION 3.6 Custodian's Indemnification................................................
SECTION 3.7 Effective Period and Termination...........................................
SECTION 3.8 Appointment of Subcustodian................................................
ARTICLE IV
Administration and Servicing of Financed Student Loans
SECTION 4.1 Duties of Master Servicer..................................................
SECTION 4.2 Collection of Financed Student Loan
Payments..............................................................
SECTION 4.3 Realization upon Financed Student
Loans.................................................................
SECTION 4.4 No Impairment..............................................................
SECTION 4.5 Purchase of Financed Student Loans;
Reimbursement.........................................................
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.6 Servicing Fee; ............................................................
SECTION 4.7 Administrator's Certificate................................................
SECTION 4.8 Annual Statement as to Compliance;
Notice of Default.....................................................
SECTION 4.9 Annual Independent Certified Public
Accountants' Report...................................................
SECTION 4.10 Access to Certain Documentation and
Information Regarding Financed
Student Loans.........................................................
SECTION 4.11 Master Servicer and Administrator
Expenses................................................................
SECTION 4.12 Appointment of Servicer....................................................
SECTION 4.13 Subservicing Agreements ...................
SECTION 4.14 Incentive Programs ........................................................
ARTICLE V
Distributions; Reserve Account;
Statements to Certificateholders and Noteholders
SECTION 5.1 Establishment of Trust Accounts............................................
SECTION 5.2 Collections................................................................
SECTION 5.3 Application of Collections.................................................
SECTION 5.4 Additional Deposits........................................................
SECTION 5.5 Distributions..............................................................
SECTION 5.6 Reserve Account............................................................
SECTION 5.7 Statements to Certificateholders
and Noteholders.......................................................
SECTION 5.8 Expense Account............................................................
SECTION 5.9 Note Distribution Account and Certificate
Distribution Account..................................................
SECTION 5.10 Monthly Advances...........................................................
SECTION 5.11 Certificate Interest.......................................................
ARTICLE VI
The Transferor and the Master Servicer
SECTION 6.1 Representations of Transferor and Master Service...........................
SECTION 6.2 Existence..................................................................
SECTION 6.3 Liability and Indemnities..................................................
SECTION 6.4 [Reserved].................................................................
SECTION 6.5 Merger or Consolidation of, or Assumption
of the Obligations of, the Transferor, the
Administrator or the Master Servicer..................................
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.6 Limitation on Liability of Transferor,
Master Servicer and Others............................................
SECTION 6.7 Transferor May Own Certificates or
Notes.................................................................
SECTION 6.8 Master Servicer Not to Resign..............................................
ARTICLE VII
The Administrator
SECTION 7.1 Representations of the Administrator.......................................
SECTION 7.2 Liability and Indemnities..................................................
SECTION 7.3 Administrator Not to Resign................................................
ARTICLE VIII
Default
SECTION 8.1 Master Servicer Default; Administrator
Default...............................................................
SECTION 8.2 Appointment of Successor...................................................
SECTION 8.3 Notification to Noteholders and
Certificateholders....................................................
SECTION 8.4 Waiver of Past Defaults....................................................
ARTICLE IX
Termination
SECTION 9.1 Termination................................................................
ARTICLE X
[Reserved]
ARTICLE XI
Miscellaneous
SECTION 11.1 Amendment..................................................................
SECTION 11.2 Protection of Interests in Trust...........................................
SECTION 11.3 Notices....................................................................
SECTION 11.4 Assignment.................................................................
SECTION 11.5 Limitations on Rights of Others............................................
SECTION 11.6 Severability...............................................................
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.7 Separate Counterparts......................................................
SECTION 11.8 Headings...................................................................
SECTION 11.9 Governing Law..............................................................
SECTION 11.10 Assignment to Indenture Trustee............................................
SECTION 11.11 Nonpetition Covenants......................................................
SECTION 11.12 Limitation of Liability of Eligible
Lender Trustee and Indenture
Trustee...............................................................
APPENDIX A Definitions and Usage
SCHEDULE A Schedule of Financed Student Loans
SCHEDULE B Location of Financed Student Loan Files
SCHEDULE C Scheduled Principal Balance Table
EXHIBIT A Form of Report to Noteholders
EXHIBIT B Form of Report to Certificateholders
EXHIBIT C Form of Administrator's Certificate
EXHIBIT D Form of Assignment of Initial Financed
Student Loans
EXHIBIT E Transfer Agreement
</TABLE>
iv
<PAGE> 6
TRANSFER AND SERVICING AGREEMENT (the "Agreement") dated as
of June __, 1997, among PNC STUDENT LOAN TRUST I, a Delaware business trust
(the "Issuer"), PNC Bank, National Association, a national banking association
(the "Transferor," the "Master Servicer" or the "Administrator" in such
respective capacities) and, THE FIRST NATIONAL BANK OF CHICAGO, a national
banking association, solely as eligible lender trustee and not in its
individual capacity (the "Eligible Lender Trustee").
WHEREAS the Issuer desires to acquire student loans
originated or acquired by the Transferor in the ordinary course of business;
WHEREAS the Eligible Lender Trustee is willing to hold legal
title to, and serve as eligible lender trustee with respect to, such student
loans on behalf of the Issuer; and
WHEREAS the Master Servicer and the Administrator are willing
to service such student loans and undertake certain administrative functions
with respect thereto; and
WHEREAS the Issuer is authorizing on the date hereof for
issuance its Series 1997-2 Notes; and
WHEREAS the parties hereto are entering into this Transfer
and Servicing Agreement in connection with such Series 1997-2 Notes.
NOW THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree, intending to be
legally bound hereby, as follows:
ARTICLE I
Definitions and Usage
Capitalized terms used but not defined herein are defined in
Appendix A hereto, which also contains rules as to usage and construction that
shall be applicable herein.
ARTICLE II
Conveyance of Financed Student Loans
SECTION 2.1. Conveyance of Initial Financed Student Loans.
(a) In consideration of the Issuer's delivery to or
<PAGE> 7
upon the order of the Transferor on the Closing Date of $________, the
Transferor agrees to, and the Transferor does hereby, as evidenced by a duly
executed written assignment in the form of Exhibit D, contribute, transfer,
assign, set over and otherwise convey to the Eligible Lender Trustee on behalf
of the Issuer, without recourse (subject to the obligations herein):
(i) all right, title and interest in and to the Financed
Student Loans listed on Schedule A to this Agreement (the "Initial
Financed Student Loans") and all obligations of the Obligors
thereunder, including all moneys paid thereunder(other than Interest
Subsidy Payments and Special Allowance Payments payable through the
Cut-off Date), and all written communications received by the
Transferor with respect thereto and still retained by Transferor in
accordance with its retention policies (including borrower
correspondence, notices of death, disability or bankruptcy and
requests for deferrals or forbearance), after the Cut-off Date;
(ii) all right, title and interest in all funds on deposit from
time to time in the Trust Accounts and in all investments and proceeds
thereof (including all income thereon); and
(iii) the proceeds of any and all of the foregoing.
(b) On the Closing Date, the Transferor shall have delivered
(A) to the Rating Agencies an Opinion of Counsel with respect to the transfer
of the Initial Financed Student Loans and (B) to the Eligible Lender Trustee
and the Indenture Trustee the Opinion of Counsel required by Section
11.2(i)(1).
SECTION 2.2. Conveyance of Exchanged Student Loans. (a)
Subject to the conditions set forth in paragraph (b) below, in consideration of
the Eligible Lender Trustee's conveyance on the related Exchange Date to or
upon the order of the Transferor of Financed Student Loans pursuant to Section
2.3(d), the Transferor shall contribute, transfer, assign, set over and
otherwise convey to the Eligible Lender Trustee on behalf of the Issuer,
without recourse (subject to the obligations herein), all right, title and
interest in and to each Exchanged Student Loan, and all obligations of the
Obligors thereunder, including all moneys paid thereunder (other than Interest
Subsidy Payments and Special Allowance Payments payable through the related
Subsequent Cut-off Date), and all written communications received by the
Transferor with respect thereto and still retained by the Transferor in
accordance with its retention policies (including borrower correspondence,
notices of death, disability or bankruptcy and requests for deferrals or
2
<PAGE> 8
forbearances), on and after the related Subsequent Cut-off Date, and the
proceeds of any and all of the foregoing.
(b) The Transferor shall transfer to the Issuer the Exchanged
Student Loans for a given Exchange Date and the other property and rights
related thereto described in paragraph (a) above only upon the satisfaction of
each of the following conditions on or prior to such Exchange Date:
(i) the Transferor shall have delivered to the Eligible
Lender Trustee and the Indenture Trustee a duly executed written
assignment (including an acceptance by the Eligible Lender Trustee and
the Indenture Trustee) in substantially the form of Exhibit E (each, a
"Transfer Agreement"), which shall include supplements to Schedule A,
listing such Exchanged Student Loans;
(ii) the Transferor shall have delivered, at least two days'
prior to such Exchange Date, notice of such transfer to the Eligible
Lender Trustee, the Indenture Trustee and the Rating Agencies,
including a listing of the aggregate principal balance of such
Exchanged Student Loans;
(iii) the Transferor shall, to the extent required by Section
2.3(d), have deposited in the Collection Account all collections
received in respect of the Exchanged Student Loans on and after each
applicable Subsequent Cut-off Date and all required Exchange
Adjustments;
(iv) as of such Exchange Date, the Transferor was not
insolvent nor will it have been made insolvent by such exchange nor is
it aware of any pending insolvency;
(v) such exchange will not result in a material adverse
Federal or state tax consequence to the Issuer relating to its tax
classification or the Noteholders, considered as a whole, relating to
a change in the characterization of the Notes;
(vi) no Event of Default shall have occurred and be
continuing as of such Exchange Date and no Master Servicer Default or
Administrator Default shall have occurred and be continuing as of such
Exchange Date;
(vii) the Exchange Period shall not have terminated;
(viii) the Transferor shall have delivered to the Indenture
Trustee and the Eligible Lender Trustee an Officers' Certificate
confirming the satisfaction of each condition precedent specified in
this paragraph (b);
3
<PAGE> 9
(ix) the Transferor shall have taken any action required to
maintain the first perfected ownership interest of the Issuer in the
Trust Estate and the first perfected security interest of the
Indenture Trustee in the Financed Student Loans; and
(x) no selection procedures believed by the Transferor to be
adverse to the interests of the Certificateholders or the Noteholders
shall have been utilized in selecting the Exchanged Student Loans;
provided, however, that the Transferor shall not incur any liability as a
result of transferring Exchanged Student Loans on any Exchange Date at a time
when the condition set forth in clause (v) was not satisfied, if at the time of
such transfer the Authorized Officer of the Transferor bearing responsibility
for tax matters was not aware of any fact that would reasonably suggest that
such condition would not be satisfied as of such date.
Upon the satisfaction of the conditions set forth in this
Section 2.2(b), the Eligible Lender Trustee shall execute and deliver to the
Transferor an Assignment, substantially in the form of Annex B to the Transfer
Agreement.
SECTION 2.3. Conveyance of Certain Financed Student Loans by
the Eligible Lender Trustee to or upon Order of the Transferor. (a) Upon
receipt of written notice (or telephonic or facsimile notice promptly followed
by written notice) from the Transferor (or from the Master Servicer on behalf
of the Transferor) by the Eligible Lender Trustee and the Indenture Trustee,
the Eligible Lender Trustee will convey to the Transferor the Financed Student
Loans identified in such notice, which are to be repaid with proceeds of the
consolidation loans to be made by or on behalf of the Transferor.
Simultaneously with each such conveyance by the Eligible Lender Trustee and the
making by the Transferor of each such consolidation loan, the Transferor shall
deposit into the Collection Account an amount equal to the aggregate Purchase
Amount of such Financed Student Loans, as payment for such conveyance.
(b) Upon receipt of written notice (or telephonic or
facsimile notice promptly followed by written notice) from the Transferor (or
from the Master Servicer on behalf of the Transferor) by the Eligible Lender
Trustee and the Indenture Trustee, that a Financed Student Loan that is a
Serial Loan is to be conveyed to the holder of one or more student loans to
which such Financed Student Loan is serial, the Eligible Lender Trustee shall
convey to the order of the Transferor or the Transferor's designee the Financed
Student Loan(s) identified in such notice. Simultaneously with each such
conveyance by the
4
<PAGE> 10
Eligible Lender Trustee, the Transferor shall deposit, or cause the transferee
of such Financed Student Loan(s) to deposit, into the Collection Account an
amount equal to the aggregate Purchase Amount of such Financed Student Loan(s)
in consideration for such conveyance.
(c) Upon receipt of written notice (or telephonic or
facsimile notice followed by written notice) from the Master Servicer by the
Eligible Lender Trustee and the Indenture Trustee, the Eligible Lender Trustee
will convey to the Master Servicer the Financed Student Loans identified in
such notice, which are to be transferred to a Guarantor in consideration of a
related Guarantee Payment. Within one Business Day of its receipt of the
related Guarantee Payment, the Master Servicer shall deposit, or cause to be
deposited, into the Collection Account an amount equal to such Guarantee
Payment, as payment of such conveyance.
(d) (i) Notwithstanding anything else contained in this
Section 2.3 to the contrary, during the Exchange Period, subject to the
conditions set forth in Section 2.2(b), in lieu of depositing into the
Collection Account the Purchase Amount of a Financed Student Loan pursuant to
Section 2.3(a), the Transferor may, at its option, transfer to the Eligible
Lender Trustee on behalf of the Trust, as an Exchanged Student Loan, the
consolidation loan being made by the Transferor relating to the Financed
Student Loan for which it is being exchanged. Any Financed Student Loan being
so transferred to the Transferor shall be deemed transferred prior to the
origination of the related consolidation loan.
(ii) Additionally, during the Exchange Period, subject to the
conditions set forth in Section 2.2(b), in lieu of depositing into the
Collection Account the Purchase Amount of a Financed Student Loan pursuant to
Section 2.3(b), the Transferor may, at its option, transfer to the Eligible
Lender Trustee on behalf of the Trust, as an Exchanged Student Loan, one or
more Serial Loans owned by the Transferor; provided that each such Exchanged
Student Loan satisfies the following criteria: (A) the Exchanged Student Loan
was originated under the same load program as the Financed Student Loan for
which it is being exchanged and entitles the holder thereof to receive interest
based on the same interest rate index as the Financed Student Loan for which it
is being exchanged, (B) the Exchanged Student Loan will not, at any level of
such interest rate index, have an interest rate that is less than the Financed
Student Loan for which it is being exchanged and (C) the average principal
balance per borrower of the Exchanged Serial Loans being transferred into the
Trust on each Exchange Date and the existing Financed Student Loans to which
5
<PAGE> 11
they are serial is within 10% (plus or minus) of the average principal balance
per borrower of the Financed Student Loans being transferred to the Transferor
on such Exchange Date and the existing Federal Loans owned by the Transferor to
which they are serial to a Financed Student Loan owned by the Trust.
(e) If on any Exchange Date the aggregate outstanding
principal balance as of the related Subsequent Cut-off Date of all the
Exchanged Student Loans being exchanged on such Exchange Date is less than that
of all the Financed Student Loans for which they are being exchanged plus any
Issuer Consolidation Payments being made on such Exchange Date, an amount equal
to such difference (the "Exchange Adjustment") shall be deposited by the
Transferor into the Collection Account on the related Exchange Date.
(f) If on any Exchange Date the aggregate outstanding
principal balance as of the related subsequent Cut-off Date of all the
Exchanged Student Loans that are Consolidation Loans being exchanged on such
Exchange Date is greater than that of all the Financed Student Loans for which
they are being exchanged, upon written request of the Transferor an amount up
to the amount of such excess (the "Issuer Consolidation Payments") shall be
remitted by the Indenture Trustee to the Transferor from Consolidation
Prepayments and deposit in the Collection Account.
SECTION 2.4. Security Agreement. Although it is the intent of
the parties to this Agreement that the conveyance of the Transferor's right,
title and interest in and to the Financed Student Loans pursuant to this
Agreement shall constitute a contribution and transfer and not a loan, in the
event that such conveyance is deemed to be a loan, it is the intent of the
parties to this Agreement that the Transferor shall be deemed to have granted
to the Eligible Lender Trustee, on behalf of the Issuer, a first priority
perfected security interest in all of the Transferor's right, title and
interest in, to and under the Financed Student Loans and the proceeds thereof,
and that this Agreement shall constitute a security agreement under applicable
law.
ARTICLE III
The Financed Student Loans
SECTION 3.1. Representations and Warranties of Transferor
with Respect to the Financed Student Loans. The Transferor hereby makes the
following representations and warranties as to the Financed Student Loans on
which the Issuer
6
<PAGE> 12
is deemed to have relied in acquiring (through the Eligible Lender Trustee)
such Financed Student Loans. Such representations and warranties speak as of
the Closing Date, in the case of the Initial Financed Student Loans, and as of
the applicable Exchange Dates in the case of the Exchanged Student Loans, but
shall survive the contribution, transfer and assignment of such Financed
Student Loans to the Eligible Lender Trustee on behalf of the Issuer and the
pledge thereof to the Indenture Trustee pursuant to the Indenture.
(i) Characteristics of Financed Student Loans. Each Financed
Student Loan (A) was originated in the United States of America, its
territories, its possessions or other areas subject to its
jurisdiction to an eligible borrower under applicable law and
agreements and was fully and properly executed by the parties thereto,
(B) was originated or acquired by the Transferor in the ordinary
course of its business, and (C) provides or, when the payment schedule
with respect thereto is determined, will provide for payments on a
periodic basis that fully amortize the principal amount of such
Financed Student Loan by its maturity and yields interest at the rate
applicable thereto (except as otherwise provided in Section 4.14), as
such maturity may be modified in accordance with any applicable
deferral or forbearance periods granted in accordance with applicable
laws and restrictions, including those of the Higher Education Act or
any Guarantee Agreement. Each Financed Student Loan that is a Stafford
Loan qualifies the holder thereof to receive Interest Subsidy Payments
and Special Allowance Payments from the Department. Each Financed
Student Loan that is a Consolidation Loan qualifies the holder thereof
to receive Interest Subsidy Payments and Special Allowance Payments
from the Department to the extent applicable. Each Financed Student
Loan that is a PLUS Loan, a SLS Loan or an Unsubsidized Stafford Loan
qualifies the holder thereof to receive Special Allowance Payments
from the Department to the extent applicable. Each Financed Student
Loan qualifies the holder thereof to receive Guarantee Payments from
the applicable Guarantor in accordance with the applicable Guarantee
Agreement.
(ii) Schedule of Financed Student Loans. The information
concerning the Financed Student Loans set forth in Schedule A to this
Agreement and Schedule A of the related Transfer Agreement is true and
correct in all material respects as of the close of business on the
Cut-off Date (with respect to Schedule A to this Agreement) or each
applicable Subsequent Cut-off Date, as applicable, and no selection
procedures believed to be adverse to the
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Noteholders or the Certificateholders were utilized in selecting the
Financed Student Loans. The computer tape or electronic data
transmission regarding the Initial Financed Student Loans is true and
correct in all material respects as of the Cut-off Date and each
computer tape or electronic data transmission regarding the Subsequent
Student Loans will be true and current in all material respects as of
the related Subsequent Cut-off Date.
(iii) Compliance with Law. Each Financed Student Loan
complied at the time it was originated or made and at the execution of
this Agreement or the applicable Transfer Agreement, as the case may
be, complies, and the Transferor and its agents, with respect to each
such Financed Student Loan, have at all times complied, in all
material respects with all requirements of applicable Federal, State
and local laws and regulations thereunder, including the Higher
Education Act, the Equal Credit Opportunity Act, the Federal Reserve
Board's Regulation B and other applicable consumer credit laws and
equal credit opportunity laws.
(iv) Binding Obligation. Each Financed Student Loan
represents the genuine, legal, valid and binding payment obligation in
writing of the related borrower, enforceable by or on behalf of the
holder thereof against such borrower in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance and similar laws relating to creditors' rights
generally and subject to general principles of equity and no Financed
Student Loan has been satisfied, subordinated or rescinded.
(v) No Defenses. No right of rescission, setoff, counterclaim
or defense has been asserted or, to the Transferor's knowledge,
threatened with respect to any Financed Student Loan.
(vi) No Default. No Initial Financed Student Loan has a
payment that is more than 90 days overdue as of the Cut-off Date, and
no Subsequent Student Loan will have a payment that is more than 90
days overdue as of its related Subsequent Cut-off Date, and, except as
permitted in this paragraph, no default, breach, violation or event
permitting acceleration under the terms of any Financed Student Loan
has occurred; and, except for payment defaults continuing for a period
of not more than 90 days, no continuing condition that with notice or
the lapse of time or both would constitute a default, breach,
violation or event permitting acceleration under the terms of any
Financed Student Loan has arisen; and the Transferor has not waived
and shall
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not waive any of the foregoing other than as permitted by the Basic
Documents.
(vii) Title. It is the intention of the Transferor that the
transfer and assignment herein contemplated constitutes a contribution
of the Financed Student Loans from the Transferor to the Eligible
Lender Trustee on behalf of the Issuer and the beneficial interest in
and title to such Financed Student Loans shall not be part of the
debtor's estate in the event of the appointment of a receiver with
respect to the Transferor. No Financed Student Loan has been
transferred, assigned or pledged by the Transferor to any Person other
than the Eligible Lender Trustee on behalf of the Issuer or any such
assignment or pledge has been released. Immediately prior to the
transfer and assignment herein contemplated, the Transferor had good
title to each Financed Student Loan, free and clear of all Liens and,
immediately upon the transfer thereof, the Eligible Lender Trustee on
behalf of the Issuer shall have good title to each such Financed
Student Loan, free and clear of all Liens, and the transfer to the
Indenture Trustee, shall have been perfected under the UCC. No
Financed Student Loan was subject to a third party's right of first
refusal and the transfer of the Financed Student Loans as contemplated
hereby will not violate in any material respect the terms of any
Subservicing Agreement or any other material agreement or arrangement
to which the Master Servicer is a party.
(viii) Lawful Assignment. No Financed Student Loan has been
originated in, or is subject to the laws of, any jurisdiction under
which the contribution, transfer and assignment of such Financed
Student Loan under this Agreement or any Transfer Agreement is
unlawful, void or voidable.
(ix) All Filings Made. All filings (including UCC filings)
necessary in any jurisdiction to give the Issuer a first perfected
security interest in the Financed Student Loans (if, despite the
express intention of the parties hereto, the transfer of the Financed
Student Loans is deemed a loan), and to give the Indenture Trustee a
first perfected security interest therein, shall have been made.
(x) One Original. There is only one original executed copy of
each promissory note evidencing a Financed Student Loan.
(xi) Principal Balance. The aggregate principal balance of
the Initial Financed Student Loans as of the
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Cut-off Date is $___________. Additionally, as of the Cut-off Date,
the accrued interest on the Initial Financed Student Loans other than
with respect to Interest Subsidy Payments and Special Allowance
Payments is $_________.
(xii) [Reserved]
(xiii) Interest Accruing. Each Financed Student Loan is
accruing interest (whether or not such interest is being paid
currently, by the Obligor or by the Department, or is being
capitalized), except as otherwise expressly permitted by the Basic
Documents.
SECTION 3.2. Repurchase upon Breach; Reimbursement. The Transferor,
the Master Servicer or the Eligible Lender Trustee, as the case may be, shall
inform the other parties to this Agreement and the Indenture Trustee promptly,
in writing, upon the discovery of any breach of the representations and
warranties made pursuant to Section 3.1. Unless any such breach shall have been
cured within 90 days following the discovery thereof by the Transferor or
receipt by the Transferor of written notice from the Eligible Lender Trustee or
the Master Servicer of such breach, the Financed Student Loan in which the
interests of the Noteholders or the Certificateholders are materially and
adversely affected by any such breach shall be retransferred, reassigned,
resetover and otherwise reconveyed to the Transferor (a "repurchase") as of the
first day succeeding the end of such 90-day period that is the last day of a
Collection Period; provided that it is understood that any such breach that
does not adversely affect any Guarantor's obligation to guarantee payment of
such Financed Student Loan to the Eligible Lender Trustee will not be
considered to have a material adverse effect for this purpose. In consideration
of and simultaneously with the repurchase of the Financed Student Loan, the
Transferor shall remit the Purchase Amount, in the manner specified in Section
5.4, and the Issuer shall execute such assignments and other documents
reasonably requested by the Transferor in order to effect such transfer. Upon
any such transfer of a Financed Student Loan, legal title to, and beneficial
ownership and control of, the related Financed Student Loan File will
thereafter belong to the Transferor. In addition, if any such breach does not
trigger such a repurchase obligation but does result in the refusal by a
Guarantor to guarantee the applicable portion of the accrued interest, or the
loss of (including any obligation of the Issuer to repay to the Department)
certain Interest Subsidy Payments and Special Allowance Payments, with respect
to a Financed Student Loan, then, unless such breach, if curable, is cured
within 90 days following the discovery thereof by the Transferor or receipt by
the Transferor of written notice from the Eligible Lender
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Trustee, the Transferor shall, at its option, either repurchase such
Financed Student Loan at the applicable Purchase Amount or reimburse the Issuer
by remitting an amount equal to the sum of all amounts that would have been
payable if not for such breach in the manner specified in Section 5.4 not later
than the last day of the Collection Period in which such 90th day occurs. The
sole remedy of the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the Noteholders or the Certificateholders with respect to a breach of
representations and warranties pursuant to Section 3.1 and the agreement
contained in this Section 3.2 shall be to require the Transferor to repurchase
Financed Student Loans or to reimburse the Issuer as provided above pursuant to
this Section 3.2, subject to the conditions contained herein. The Eligible
Lender Trustee shall have no duty to conduct any affirmative investigation as
to the occurrence of any condition requiring the repurchase of any Financed
Student Loan or the reimbursement for any interest penalty pursuant to this
Section 3.2.
SECTION 3.3. Custody of Financed Student Loan Files. To assure uniform
quality in servicing the Financed Student Loans and to reduce administrative
costs, the Issuer hereby revocably appoints the Master Servicer as custodian of
the following documents or instruments which are hereby constructively
delivered to the Indenture Trustee, as pledgee of the Issuer (or, in the case
of the Exchanged Student Loans, will as of the applicable Exchange Date be
constructively delivered to the Indenture Trustee, as pledgee of the Issuer)
with respect to each Financed Student Loan (such documents are referred to
collectively as the "Financed Student Loan File").
(a) the original fully executed copy of the note evidencing
the Financed Student Loan (which may be included in the application) unless
such note is in the custody of a Guarantor;
(b) the original loan application fully executed by the
related borrower (which may be included in the note evidencing a Financed
Student Loan); and
(c) any and all other documents and computerized records that
any of the Master Servicer, the Administrator or the Transferor shall keep on
file, in accordance with its customary procedures, relating to such Financed
Student Loan or any Obligor with respect thereto.
Notwithstanding the foregoing, each Subcustodian appointed
pursuant to Section 3.8 who enters into a Subservicing Agreement may act as a
custodian of the Related Financed Student Loan Files.
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SECTION 3.4. Duties of Master Servicer as Custodian. (a) Safekeeping.
The Master Servicer, as custodian, shall hold or cause one or more
Subcustodians appointed pursuant to Section 3.8, to (i) hold the Financed
Student Loan Files for the benefit of the Issuer, and (ii) maintain such
accurate and complete accounts, records and computer systems pertaining to each
Financed Student Loan File as shall enable the Issuer to comply with this
Agreement and the other Basic Documents. In performing its duties as custodian,
the Master Servicer shall act with reasonable care and shall ensure that it
complies in all material respects with all applicable Federal and State laws,
including the Higher Education Act, with respect thereto. The Master Servicer
shall conduct, or cause to be conducted, periodic audits of the Financed
Student Loan Files held by it under this Agreement and of the related accounts,
records and computer systems, in such a manner as shall enable the Issuer or
the Indenture Trustee to verify the accuracy of the Master Servicer's record
keeping. The Master Servicer shall promptly report to the Issuer and the
Indenture Trustee any failure on its part to hold the Financed Student Loan
Files and maintain its accounts, records and computer systems as herein
provided and promptly take appropriate action to remedy any such failure.
Nothing herein shall be deemed to require an initial review or any periodic
review by the Issuer, the Eligible Lender Trustee or the Indenture Trustee of
the Financed Student Loan Files.
(b) Maintenance of and Access to Records. The Master Servicer
shall cause each Subcustodian to maintain the Related Financed Student Loan
Files at the office specified opposite such Subcustodian's name in Schedule B
or shall cause the Financed Student Loan Files to be maintained at such other
offices as shall be specified by written notice to the Issuer and the Indenture
Trustee not later than 60 days after any change in location. Upon reasonable
prior notice, the Master Servicer shall make available, or cause each
Subcustodian to make available, to the Issuer and the Indenture Trustee or
their respective duly authorized representatives, attorneys or auditors (i) a
list of locations of the Financed Student Loan Files and (ii) the related
accounts, records and computer systems at the locations identified in the list
provided pursuant to clause (i) of this Section 3.4(b) and at such times during
normal business hours as the Issuer or the Indenture Trustee shall instruct.
SECTION 3.5. Instructions; Authority to Act. The Master Servicer shall
be deemed to have received proper instructions with respect to the Financed
Student Loan Files upon its receipt of written instructions signed by a
Responsible Officer of the Indenture Trustee.
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SECTION 3.6. Custodian's Indemnification. (a) The Master Servicer
shall pay from its own funds for any loss, liability or expense, including
reasonable attorneys' fees, that may be imposed on, incurred by or asserted
against the Issuer, the Eligible Lender Trustee or the Indenture Trustee or any
of their officers, directors, employees and agents to the extent such loss,
liability or expense results from the Master Servicer's failure to perform its
duties as specified in this Article III where the final determination that any
such improper act or omission by the Master Servicer or any Subcustodian
resulted in such loss, liability or expense is established by a court of law,
by an arbitrator or by way of settlement agreed to by the Master Servicer;
provided, however, that the Master Servicer shall not be liable to the Eligible
Lender Trustee for any portion of any such amount resulting from the willful
misfeasance, bad faith or negligence of the Eligible Lender Trustee and the
Master Servicer shall not be liable to the Indenture Trustee for any portion of
any such amount resulting from the willful misfeasance, bad faith or negligence
of the Indenture Trustee. This provision shall not be construed to limit the
Master Servicer's or any other party's rights, obligations, liabilities, claims
or defenses which arise as a matter of law or pursuant to any other provision
of this Agreement; provided, however, the Master Servicer shall not be liable
for any such costs, expenses, losses, claims, damages and liabilities imposed
upon such Person to the extent that they arise out of or result from such
Person's negligence, willful malfeasance or bad faith or a breach of the
representations and warranties of such Person in this Agreement.
Notwithstanding anything to the contrary contained in this Article III, in no
event shall the Master Servicer be liable under any theory of tort, contract,
strict liability or other legal or equitable theory for any lost profits or
exemplary, punitive, special, incidental, indirect or consequential damages,
each of which is hereby excluded by agreement of the parties regardless of
whether or not the Master Servicer has been advised of the possibility of such
damages.
(b) Promptly after receipt by an indemnified party under this
Section 3.6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 3.6, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under Section 3.6, except to the extent the indemnifying party is materially
prejudiced by such failure. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the
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commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party or parties
shall have the right to select separate counsel to assert such legal defenses
and to otherwise participate in the defense of such action on behalf of the
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 3.6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. In no event shall the indemnifying party be liable for
fees and expenses for more than one counsel separate from their own counsel for
all indemnified parties in connection with any one action or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
The indemnified party will not, without the prior written
consent of the indemnifying party, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit
or proceeding in which indemnification may be sought hereunder.
SECTION 3.7. Effective Period and Termination. The Master Servicer's
appointment as custodian of the Financed Student Loans being conveyed hereunder
shall become effective as of the Closing Date and shall continue in full force
and effect for so long as the Master Servicer shall remain the Master Servicer
hereunder. If the Master Servicer or any successor Master Servicer shall resign
as Master Servicer in accordance with the provisions of this Agreement or if
all the rights and
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obligations of the Master Servicer or any such successor Master Servicer shall
have been terminated under Section 8.1 of this Agreement, the appointment of
the Master Servicer or such successor Master Servicer as custodian shall be
terminated simultaneously with the effectiveness of such termination. As soon
as practicable on or after any termination of such appointment (and in any
event within (i) 10 Business Days, with respect to that portion of the Financed
Student Loan Files consisting of electronic records and information, and (ii)
30 Business Days, with respect to the remaining portion of the Financed Student
Loan Files), the Master Servicer shall deliver, to the extent in its
possession, the Financed Student Loan Files to the Indenture Trustee or the
Indenture Trustee's agent at such place or places as the Indenture Trustee may
reasonably designate.
SECTION 3.8. (a) Appointment of Subcustodian. (a) The Master Servicer
may at any time appoint one or more Servicers to act as a subcustodian (each a
"Subcustodian") of the Financed Student Loan Files of the Financed Student
Loans being serviced by such Servicer (the "Related Financed Student Loan
Files") to perform all or any portion of its obligations as custodian
hereunder; provided, however, that the Master Servicer shall remain obligated
and be liable to the Issuer, the Eligible Lender Trustee, the Indenture
Trustee, the Certificateholders and the Noteholders for the custodial services
with respect to the Financed Student Loan Files in accordance with the
provisions hereof without diminution of such obligation and liability by virtue
of the appointment of such Subcustodian and to the same extent and under the
same terms and conditions as if the Master Servicer alone were performing the
custodial services. The fees and expenses of the Subcustodian shall be as
agreed between the Master Servicer and its Subcustodian from time to time and
none of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders or the Noteholders shall have any responsibility therefor.
(b) The appointment of a Subcustodian by the Master Servicer shall
become effective as of the date specified in the related Subservicing Agreement
and shall continue in full force and effect with respect to each such
Subcustodian and its Related Financed Student Loan Files for so long as such
Subcustodian is a Servicer of the Financed Student Loans relating to such
Financed Student Loan Files. As soon as practicable following the occurrence of
an event of default that is continuing under a Subservicing Agreement, the
Master Servicer shall cause each applicable Subcustodian to deliver the
Financed Student Loan Files held by it as directed by the Master Servicer.
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ARTICLE IV
Administration and Servicing of Financed Student Loans
SECTION 4.1. Duties of Master Servicer. The Master Servicer, for the
benefit of the Issuer (to the extent provided herein), shall manage, service,
administer and make collections on the Financed Student Loans with reasonable
care. Without limiting the generality of the foregoing or of any other
provision set forth in this Agreement and notwithstanding any other provision
to the contrary set forth herein, the Master Servicer shall manage, service,
administer and make collections with respect to the Financed Student Loans
(other than collection of any Interest Subsidy Payments and Special Allowance
Payments, which the Eligible Lender Trustee will perform on behalf of the
Trust) in accordance in all material respects with all applicable Federal and
State laws, including all applicable standards, guidelines and requirements of
the Higher Education Act and any Guarantee Agreement, the failure to comply
with which would adversely affect the eligibility of one or more of the
Financed Student Loans for Interest Subsidy Payments, Special Allowance
Payments or Guarantee Payments or would have a material adverse effect on the
Certificateholders or the Noteholders.
The Master Servicer's duties shall include collection and
posting of all payments, responding to inquiries of borrowers on such Financed
Student Loans, monitoring borrowers' status, making required disclosures to
borrowers, investigating delinquencies, sending bills or payment coupons to
borrowers and otherwise establishing repayment terms, reporting tax information
to borrowers, if applicable, accounting for collections and furnishing monthly
and annual statements with respect thereto to the Administrator. Subject to the
provisions of Section 4.2, the Master Servicer shall follow customary
standards, policies and procedures in performing its duties as Master Servicer.
Without limiting the generality of the foregoing, the Master Servicer is
authorized and empowered to execute and deliver, on behalf of itself, the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders and the Noteholders or any of them, instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to such Financed Student Loans;
provided, however, that the Master Servicer agrees that it will not (a) permit
any rescission or cancellation of a Financed Student Loan except as ordered by
a court of competent jurisdiction or governmental authority or as otherwise
consented to in writing by the Eligible Lender Trustee and the Indenture
Trustee or (b) except as otherwise provide in Section 4.14, reschedule, revise,
defer
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or otherwise compromise with respect to payments due on any Financed Student
Loan except pursuant to any applicable deferral or forbearance periods or
otherwise in accordance with all applicable standards, guidelines and
requirements with respect to the servicing of the Financed Student Loans
(notwithstanding the foregoing, the Master Servicer may, in its sole
discretion, without having to obtain the consent or approval of any other
party, waive amounts owing under a Financed Student Loan up to and including
$50.00); provided further, however, that the Master Servicer shall not agree to
any decrease of the interest rate on, or the principal amount payable with
respect to, any Financed Student Loan except as otherwise permitted in
accordance with applicable standards, guidelines and requirements of the Higher
Education Act, any Guarantee Agreement. The Master Servicer also shall be
responsible for advising the Eligible Lender Trustee and the Indenture Trustee
of any action required to be taken to maintain each such Guarantee Agreement.
The Eligible Lender Trustee on behalf of the Issuer hereby grants a power of
attorney and all necessary authorization to the Master Servicer to sign
endorsements of the notes relating to the Financed Student Loans on behalf of
the Eligible Lender Trustee in connection with conveyances pursuant to Section
2.3 hereof and to maintain any and all collection procedures with respect to
the Financed Student Loans, including filing, pursuing and recovering claims
against the Guarantors for Guarantee Payments and taking any steps to enforce
such Financed Student Loan such as commencing a legal proceeding to enforce a
Financed Student Loan in the name of the Issuer, the Eligible Lender Trustee,
the Indenture Trustee, the Certificateholders or the Noteholders. The Eligible
Lender Trustee or the Indenture Trustee shall upon the written request of the
Master Servicer or the Administrator furnish the Master Servicer or the
Administrator with any other powers of attorney and other documents reasonably
necessary or appropriate to enable the Master Servicer or the Administrator to
carry out its servicing and administrative duties hereunder.
SECTION 4.2. Collection of Financed Student Loan Payments. (a) The
Master Servicer shall make reasonable efforts (including all efforts that may
be specified under the Higher Education Act or any Guarantee Agreement) to
collect all payments called for under the terms and provisions of the Financed
Student Loans as and when the same shall become due. The Master Servicer may in
its discretion waive any late payment charge or any other fees in addition to
any fee or waiver permitted under Section 4.1 that may be collected in the
ordinary course of servicing a Financed Student Loan.
(b) The Master Servicer shall make reasonable efforts to
claim, pursue and collect all Guarantee Payments from the
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Guarantors pursuant to the Guarantee Agreements with respect to any of the
Financed Student Loans as and when the same shall become due and payable, shall
comply in all material respects with all applicable laws and agreements with
respect to claiming, pursuing and collecting such payments. In connection
therewith, the Master Servicer is hereby authorized and empowered to convey to
any Guarantor the note and the related Financed Student Loan File representing
any Financed Student Loan in connection with submitting a claim to such
Guarantor for a Guarantee Payment in accordance with the terms of the
applicable Guarantee Agreement whereupon the Lien of the Indenture Trustee
relating to such Financed Student Loan shall be released without any further
action of any kind.
(c) The Eligible Lender Trustee shall, with the assistance of
the Master Servicer and on behalf of the Issuer, make reasonable efforts to
claim, pursue and collect all Interest Subsidy Payments and Special Allowance
Payments from the Department with respect to any of the Financed Student Loans
as and when the same shall become due and payable, shall comply in all material
respects with all applicable laws and agreements with respect to claiming,
pursuing and collecting such payments. All amounts so collected by the Eligible
Lender Trustee shall constitute Available Funds for the applicable Collection
Period or Collection Periods and shall be deposited into the Collection Account
in accordance with Section 5.4. In connection therewith, the Master Servicer
shall prepare and file with the Department on a timely basis all claims, forms
and other documents and filings necessary or appropriate in connection with the
claiming of Interest Subsidy Payments and Special Allowance Payments on behalf
of the Eligible Lender Trustee and shall otherwise assist the Eligible Lender
Trustee in pursuing and collecting such Interest Subsidy Payments and Special
Allowance Payments from the Department. The Eligible Lender Trustee shall, upon
the written request of the Master Servicer, furnish the Master Servicer with
any power of attorney and other documents reasonably necessary or appropriate
to enable the Master Servicer to prepare and file such claims, forms and other
documents and filings.
(d) The Eligible Lender Trustee may permit trusts, other than
the Trust, established by the Transferor to securitize student loans to use the
Department lender identification number applicable to the Trust. In such event,
the Eligible Lender Trustee may claim and collect Interest Subsidy Payments and
Special Allowance Payments with respect to Financed Student Loans in the Trust
and student loans in such other trusts using such common lender identification
number. Notwithstanding anything herein or in the Basic Documents to the
contrary, any amounts assessed against payments (including, but
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not limited to, Interest Subsidy Payments and Special Allowance Payments) due
from the Department or any Guarantor to any such other trust using such common
lender identification number as a result of amounts (including, but not limited
to, consolidation fees) owing to the Department or any Guarantor from the Trust
will be deemed for all purposes hereof and of the Basic Documents (including
for purposes of determining amounts paid by the Department or any Guarantor
with respect to the student loans in the Trust and such other trust) to have
been assessed against the Trust and shall be deducted by the Eligible Lender
Trustee or the Master Servicer and paid to such other trust from any
collections made by them which would otherwise have been payable to the
Collection Account for the Trust. If so specified in the servicing agreement
applicable to any such other trust, any amounts assessed against payments due
from the Department or any Guarantor to the Trust as a result of amounts owing
to the Department or any Guarantor to the Trust from such other trust using
such common lender identification number will be deemed to have been assessed
against such other trust and will be deducted by the Eligible Lender Trustee or
the Master Servicer from any collections made by them which would otherwise be
payable to the collection account for such other trust and paid to the Trust.
SECTION 4.3. Realization upon Financed Student Loans. For the benefit
of the Issuer, the Master Servicer shall use reasonable efforts consistent with
customary servicing practices and procedures and including all efforts that may
be specified under the Higher Education Act or any Guarantee Agreement in its
servicing of any delinquent Financed Student Loans.
SECTION 4.4. No Impairment. The Master Servicer shall not impair in
any material respect the rights of the Issuer, the Eligible Lender Trustee, the
Indenture Trustee, the Certificateholders or the Noteholders in the Financed
Student Loans or in any Guaranty Agreement.
SECTION 4.5. Purchase of Financed Student Loans; Reimbursement. The
Master Servicer or the Eligible Lender Trustee, as the case maybe, shall inform
the other parties to this Agreement and the Indenture Trustee promptly, in
writing, upon the discovery of any breach of an obligation under Section 4.1,
4.2, 4.3 or 4.4 hereof. Unless any such breach shall have been cured within 90
days following the discovery thereof by the Master Servicer or receipt by the
Master Servicer of written notice from the Eligible Lender Trustee or the
Master Servicer of such breach (or, at the Master Servicer's election, the last
day of the first month following such discovery or notice), the Master Servicer
shall purchase any Financed Student Loan in which the interests of the
Noteholders and the
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Certificateholders are materially and adversely affected by such breach as of
the first day succeeding the end of such 90-day period that is the last day of
a Collection Period; provided that it is understood that any such breach that
does not adversely affect any Guarantor's obligation to guarantee payment of
such Financed Student Loan to the Eligible Lender Trustee will not be
considered to have a material adverse effect for this purpose. In consideration
of and simultaneously with the purchase of any such Financed Student Loan
pursuant to either of the two preceding sentences, the Master Servicer shall
remit the Purchase Amount in the manner specified in Section 5.4, and the
Issuer shall execute such assignments and other documents reasonably requested
by the Master Servicer in order to effect such transfer. In addition, if any
such breach by the Master Servicer does not trigger such a purchase obligation
but does result in the refusal by a Guarantor to guarantee the applicable
portion of the accrued interest, or the loss of (including any obligation of
the Issuer to repay to the Department) certain Interest Subsidy Payments and
Special Allowance Payments, with respect to a Financed Student Loan, then,
unless such breach, if curable, is cured within 90 days of discovery or notice,
the Master Servicer shall, at its option, either purchase such Financed Student
Loan at the applicable Purchase Amount or reimburse the Issuer by remitting an
amount equal to the sum of all amounts that would have been payable if not for
such breach in the manner specified in Section 5.4. The sole remedy of the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders or the Noteholders with respect to a breach pursuant to
Section 4.1, 4.2, 4.3 or 4.4 and the agreement contained in this Section 4.5
shall be to require the Master Servicer to purchase Financed Student Loans or
to reimburse the Issuer as provided above pursuant to this Section 4.5, subject
to the conditions contained herein. The Eligible Lender Trustee shall have no
duty to conduct any affirmative investigation as to the occurrence of any
condition requiring the purchase of any Financed Student Loan or the
reimbursement for any interest penalty pursuant to this Section 4.5.
SECTION 4.6. Servicing Fee. For its services hereunder, the Master
Servicer shall be entitled to receive the Servicing Fee in the manner set forth
in Section 5.5.
SECTION 4.7. Administrator's Certificate. (a) On each Determination
Date, the Administrator will advise the Indenture Trustee and the Eligible
Lender Trustee in writing of the applicable Noteholders' Interest Distribution
Amount and Certificateholders' Interest Distribution Amounts. Additionally, on
each Determination Date the Administrator will advise the Indenture Trustee and
the Eligible Lender Trustee in writing of the applicable Noteholders' Principal
Distribution
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Amount (or, after all the Notes have been paid in full, the Certificateholder's
Principal Distribution Amount). Further, on each Determination Date, the
Administrator will advise the Indenture Trustee and the Eligible Lender Trustee
in writing of the estimated Transaction Fees (separately and in the aggregate)
for the three succeeding Collection Periods.
(b) On each Determination Date, the Administrator also shall
deliver to the Eligible Lender Trustee, the Indenture Trustee and the
Transferor (if the Transferor is not also the Administrator), an
Administrator's Certificate containing all information necessary to make the
distributions pursuant to Sections 5.5 and 5.6, if applicable, for the upcoming
Distribution Date. Financed Student Loans to be repurchased by the Transferor
(whether pursuant to Section 2.3 or 3.2), purchased by the Master Servicer or
acquired by any Guarantor shall be identified by the Administrator by type of
loan and borrower social security number with respect to such Financed Student
Loan (as specified in Schedule A).
(c) On or before the 15th day of each month, the
Administrator shall deliver to the Eligible Lender Trustee, the Indenture
Trustee and the Transferor (if the Transferor is not also the Administrator), a
report setting forth by component the Available Funds for the immediately
preceding Collection Period.
SECTION 4.8. Annual Statement as to Compliance; Notice of Default. (a)
Each of the Master Servicer and the Administrator shall deliver to the
Transferor, the Eligible Lender Trustee and the Indenture Trustee, on or before
April 30 of each year beginning April 30, 1998, an Officer's Certificate of the
Master Servicer or the Administrator, as the case may be, dated as of December
31 of the preceding year, stating that (i) a review of the activities of the
Master Servicer or the Administrator, as the case may be, during the preceding
12-month period (or, in the case of the first such certificate, during the
period from the Closing Date to December 31, 1997) and of its performance under
this Agreement has been made under such officers' supervision and (ii) to the
best of such officers' knowledge, based on such review, the Master Servicer or
the Administrator, as the case may be, has fulfilled in all material respects
all its obligations under this Agreement and the Administration Agreement,
respectively, throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. The Eligible Lender Trustee shall
send a copy of each such Officers' Certificate and each report referred to in
Section 4.9 to the Rating Agencies. A copy of each such Officers' Certificate
and each report referred to in Section 4.9 may be obtained by any Noteholder or
Note
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Owner by a request in writing to the Eligible Lender Trustee addressed to its
Corporate Trust Office, together with evidence satisfactory to the Eligible
Lender Trustee that such Person is a Noteholder. Pursuant to the Indenture,
upon the telephone request of the Eligible Lender Trustee, the Indenture
Trustee will promptly furnish the Eligible Lender Trustee a list of Noteholders
as of the date specified by the Eligible Lender Trustee.
(b) The Master Servicer shall deliver to the Eligible Lender
Trustee, the Indenture Trustee, the Transferor and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officer's Certificate of
the Master Servicer of any event which with the giving of notice or lapse of
time, or both, would become a Master Servicer Default under Section 8.1(a).
(c) The Administrator shall deliver to the Eligible Lender
Trustee, the Indenture Trustee, the Master Servicer and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officer's Certificate of
the Administrator of any event which with the giving of notice or lapse of
time, or both, would become an Administrator Default under Section 8.1(b)(1),
(2) or (3).
SECTION 4.9. Annual Independent Certified Public Accountants' Report
or Reports. Each of the Master Servicer and the Administrator shall cause Ernst
& Young LLP, or any other nationally recognized firm of independent certified
public accountants, to deliver to the Transferor, which may also render its
services to the Master Servicer and the Administrator, the Eligible Lender
Trustee, the Indenture Trustee on or before April 30 of each year beginning
April 30, 1998 one or more, a reports addressed to the Master Servicer and to
the Transferor, the Eligible Lender Trustee and the Indenture Trustee, to the
effect that such accountants have relied upon the assertions by the Master
Servicer's and Administrator's management about the Master Servicer's and
Administrator's compliance with Sections 3.3, 3.4, 4.1, 4.2, 4.3, 4.4, 4.6,
4.7, 5.2, 5.5, 5.6, 5.7, and 5.8 of the Transfer and Servicing Agreement and
Sections 1(B), 1(D), 1(G), 1(U), 2 and 3 of the Administration Agreement during
the preceding calendar year (or, in the case of the first such reports, during
the period from the Closing Date to December 31, 1997) and in any such
accountant's opinion, such assertions are fairly stated in all material
respects, except for (i) such exceptions as any such firm shall believe to be
immaterial and (ii) such other exceptions as shall be set forth in such
report(s). In the event any such firm requires the Indenture
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Trustee or the Eligible Lender Trustee to agree to the procedures performed by
such firm, the Master Servicer shall direct the Indenture Trustee in writing to
so agree; it being understood and agreed that the Indenture Trustee or the
Eligible Lender Trustee, as applicable, will deliver such letter of agreement
in conclusive reliance upon the direction of the Master Servicer, and the
Indenture Trustee and the Eligible Lender Trustee make no independent inquiry
or investigation as to and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures.
Such report(s) will also indicate that the firm is
independent of the Master Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
SECTION 4.10. Access to Certain Documentation and Information
Regarding Financed Student Loans. Upon reasonable prior notice, the Master
Servicer shall, or shall cause each Servicer to, provide access to the Financed
Student Loan Files and the related accounts, records and computer systems
maintained by the Master Servicer or such Servicer, as the case may be, to (i)
the Eligible Lender Trustee and (ii) the Indenture Trustee and their respective
duly authorized representatives, attorneys or auditors. Access shall be
afforded without charge (except that the reasonable cost of photocopying shall
be borne by the party requesting copies), but only upon reasonable request and
during the normal business hours at the respective offices of the applicable
Servicer. Nothing in this Section shall affect the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors and the failure of the Master Servicer to provide access
to information as a result of such obligation shall not constitute a breach of
this Section.
SECTION 4.11. Master Servicer and Administrator Expenses. The Master
Servicer and the Administrator shall be severally required to pay all expenses
incurred by them in connection with their respective activities hereunder,
including fees and disbursements of independent accountants, taxes imposed on
the Master Servicer or the Administrator, as the case may be, and expenses
incurred in connection with distributions and reports to the Administrator, the
Noteholders and the Eligible Lender Trustee, as the case may be.
SECTION 4.12. Appointment of Servicer. (a) The Master Servicer may at
any time appoint a Servicer to perform all or any portion of its obligations as
Master Servicer hereunder; provided, however, that the Rating Agency Condition
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shall have been satisfied in connection therewith; provided further, that the
Master Servicer shall remain obligated and be liable to the Issuer, the
Eligible Lender Trustee, the Indenture Trustee, the Certificateholders and the
Noteholders for the servicing and administering of the Financed Student Loans
in accordance with the provisions hereof without diminution of such obligation
and liability by virtue of the appointment of such subservicer and to the same
extent and under the same terms and conditions as if the Master Servicer alone
were servicing and administering the Financed Student Loans. The fees and
expenses of each Servicer shall be as agreed between the Master Servicer and
such Servicer from time to time and none of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee, the Certificateholders and the Noteholders
shall have any responsibility therefor. Notwithstanding the foregoing, AFSA,
USA Group, and PHEAA shall be deemed approved Servicers for all purposes
hereunder.
(b) The Master Servicer may at any time appoint one or more
of its Affiliates to perform all or any portion of its obligations hereunder;
provided, however, that the Master Servicer shall remain obligated and liable
to the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders and the Noteholders for the servicing and administering of
the Financed Student Loans in accordance with the provisions hereof without
diminution of such obligation and liability by virtue of the appointment of
such Affiliate and to the same extent and under the same terms and conditions
as if the Master Servicer alone were servicing and administering the Financed
Student Loans. The fees and expenses of each such Affiliate shall be as
agreed between the Master Servicer and such Affiliate from time to time and
none of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders and the Noteholders shall have any responsibility therefor.
SECTION 4.13. Subservicing Agreements. (a) The Master Servicer hereby
represents and warrants that: (i) as of the Closing Date it has entered into
Subservicing agreements with AFSA, USA Group and PHEAA (each a "Subservicing
Agreement"); (ii) each such Subservicing Agreement requires the Servicer
thereunder to service the Financed Student Loans subject thereto in accordance
in all material respects with all applicable Federal and state laws, including
all applicable standards, guidelines and requirements of the Higher
Education Act.
SECTION 4.14. Incentive Programs. The Servicer shall be permitted to
reduce the applicable interest rate on a PP Loan by 2%, if the Obligor related
to such PP Loan makes the first 48 consecutive monthly payments of such PP Loan
on or prior to the applicable due dates of such PP Loan.
ARTICLE V
Distributions; Reserve Account;
Statements to Certificateholders and Noteholders
SECTION 5.1. Establishment of Trust Accounts. (a) The Indenture
Trustee, for the benefit of the Noteholders, shall establish and maintain in
the name of the Indenture Trustee each of the Collection Account, the Note
Distribution Account, the Reserve Account, the Expense Account and the Monthly
Advance Account. The Eligible Lender Trustee, for the benefit of the
Certificateholders, shall establish and maintain in the name of the Eligible
Lender Trustee the Certificate Distribution Account
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and the Certificate Monthly Advance Account. The foregoing accounts are
referred to collectively as the "Trust Accounts." Each such Trust Account shall
be an Eligible Deposit Account and, except for the Certificate Distribution
Account and the Certificate Monthly Advance Account, shall be entitled as
follows: "[Name of Account] for the benefit of PNC Student Loan Trust I and
Bankers Trust Company, as Indenture Trustee, as their interests may appear."
The Certificate Distribution Account and the Certificate Monthly Advance
Account shall be entitled as follows: "PNC Student Loan Trust I Certificate
Distribution Account" and PNC Student Loan Trust I Certificate Monthly Advance
Account," respectively.
(b) Funds on deposit in the Trust Accounts shall be invested
by the Indenture Trustee and, in the case of the Certificate Distribution
Account and the Certificate Monthly Advance Account, the Eligible Lender
Trustee in Eligible Investments pursuant to written instructions from the
Administrator, on behalf of the Issuer; provided, however, it is understood and
agreed that the Indenture Trustee and the Eligible Lender Trustee shall not be
liable for any loss arising from such investment in Eligible Investments. All
such Eligible Investments shall be held by the Indenture Trustee and the
Eligible Lender Trustee for the benefit of the Issuer; provided that on the
Business Day preceding each Distribution Date all interest and other investment
income (net of losses and investment expenses) on funds on deposit therein
shall be deposited into the Collection Account and shall be deemed to
constitute a portion of the Available Funds for the related Distribution Date.
Funds on deposit in the Trust Accounts shall be invested in Eligible
Investments that will mature so that such funds will be available at the close
of business on the Business Day preceding the day on which funds in the
applicable Trust Account may be required to be withdrawn; provided, however,
that funds on deposit in such Trust Accounts may be invested in Eligible
Investments of the Indenture Trustee or of the Eligible Lender Trustee in the
case of the Certificate Distribution Account and Certificate Monthly Advance
Account which may mature so that such funds will be available on the following
Business Day. Funds deposited in a Trust Account on a Business Day which
immediately precedes a Distribution Date upon the maturity of any Eligible
Investments are not required to be invested overnight unless otherwise directed
by telephone or facsimile and confirmed within 24 hours in writing by the
Administrator.
(c) (i) The Indenture Trustee (or the Eligible Lender Trustee
with respect to the Certificate Distribution Account and the Certificate
Monthly Advance Account) shall possess all right, title and interest in all
funds on
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deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and
income shall be part of the Trust Estate. Subject to the Administrator's power
to give instructions pursuant to paragraph (b) above and paragraph (c)(iii)
below, the Trust Accounts shall be under the sole dominion and control of the
Indenture Trustee (or the Eligible Lender Trustee with respect to the
Certificate Distribution Account and the Certificate Monthly Advance Account)
for the benefit of the Noteholders and Certificateholders. If, at any time, any
of the Trust Accounts ceases to be an Eligible Deposit Account, the
Administrator, on behalf of the Issuer, agrees that it shall within 10 Business
Days (or such longer period, not to exceed 30 calendar days, as to which the
Rating Agencies may consent) establish a new Trust Account as an Eligible
Deposit Account and shall transfer any cash and/or any investments to such new
Trust Account. In connection with the foregoing, the Administrator, on behalf
of the Issuer, agrees that, in the event that any of the Trust Accounts are not
accounts with the Indenture Trustee (or the Eligible Lender Trustee with
respect to the Certificate Distribution Account and the Certificate Monthly
Advance Account), the Administrator shall notify the Indenture Trustee and the
Eligible Lender Trustee in writing promptly upon any of such Trust Accounts
ceasing to be an Eligible Deposit Account.
(ii) With respect to the Trust Account Property, the
Indenture Trustee agrees (or, with respect to the Certificate
Distribution Account and the Certificate Monthly Advance Account, the
Eligible Lender Trustee agrees), by its acceptance thereof, that:
(A) any Trust Account Property that is held in
deposit accounts shall be held solely in Eligible Deposit
Accounts, subject to the last sentence of Section 5.1(c)(i);
and, subject to Section 5.1(b), each such Eligible Deposit
Account shall be subject to the exclusive custody and control
of the Indenture Trustee (or the Eligible Lender Trustee with
respect to the Certificate Distribution Account and the
Certificate Monthly Advance Account), and the Indenture
Trustee (or the Eligible Lender Trustee with respect to the
Certificate Distribution Account and the Certificate Monthly
Advance Account) shall have sole signature authority with
respect thereto;
(B) any Trust Account Property that constitutes
Physical Property shall be Delivered to the Indenture
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Trustee in accordance with paragraph (a) of the definition of
"Delivery" and shall be held, pending maturity or
disposition, solely by the Indenture Trustee or a financial
intermediary (as such term is defined in Article 8 of the
UCC) acting solely for the Indenture Trustee;
(C) any Trust Account Property that is a book-entry
security held through the Federal Reserve System pursuant to
Federal book-entry regulation shall be Delivered in
accordance with paragraph (b) of the definition of "Delivery"
and shall be maintained by the Indenture Trustee, pending
maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in
such paragraph; and
(D) any Trust Account Property that is an
"uncertificated security" under Article VIII of the UCC and
that is not governed by clause (C) above shall be Delivered
to the Indenture Trustee in accordance with paragraph (c) of
the definition of "Delivery" and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through
continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
(iii) The Administrator shall have the power, revocable for
cause or upon the occurrence and during the continuance of an
Administrator Default by the Indenture Trustee or by the Eligible
Lender Trustee with the consent of the Indenture Trustee, to instruct
the Indenture Trustee to make withdrawals and payments from the Trust
Accounts (or the Eligible Lender Trustee with respect to the
Certificate Distribution Account and the Certificate Monthly Advance
Account) for the purpose of permitting the Master Servicer, the
Administrator or the Eligible Lender Trustee to carry out its
respective duties hereunder or under the Trust Agreement or permitting
the Indenture Trustee to carry out its duties under the Indenture.
SECTION 5.2. Collections. The Master Servicer shall remit to the
Collection Account all payments by or on behalf of the Obligors with respect to
the Financed Student Loans for which it, rather than a Servicer, is acting as
Primary Servicer (other than Purchased Student Loans), (i) within two Business
Days after it has received an aggregate of $30,000 during any Collection Period
and (ii) on the last Business Day of each Collection Period, all other
collections received during such Collection Period. The Master Servicer shall
cause each other
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Servicer to remit to the Collection Account, no less frequently
than weekly, all payments by or on behalf of the Obligors with respect to the
Financed Student Loans for which it is acting as Primary Servicer. For purposes
of this Article V, the phrase "payments by or on behalf of obligors" shall mean
payments made with respect to the Financed Student Loans by or on behalf of
borrowers thereof and the Guarantors.
SECTION 5.3. Application of Collections. With respect to each Financed
Student Loan, all collections (including all Guarantee Payments) with respect
thereto shall be applied in accordance with regulations of the Department and
the applicable Guarantor.
SECTION 5.4. Additional Deposits. Within two Business Days after
receipt thereof, the Eligible Lender Trustee (or the Master Servicer on its
behalf) shall deposit in the Collection Account the aggregate amount of
Interest Subsidy Payments and Special Allowance Payments received by it with
respect to the Financed Student Loans, and the Transferor shall deposit in the
Collection Account any amount owed pursuant to Section 3.2 no later than the
last day of the Collection Period during which any such amount is owed. The
Master Servicer shall deposit or cause to be deposited in the Collection
Account the aggregate Purchase Amount with respect to Purchased Student Loans
and all other amounts to be paid by the Master Servicer under Section 4.5 when
such amounts are due, and the Transferor shall deposit or cause to be deposited
therein the aggregate Purchase Amount with respect to Purchased Student Loans
and all other amounts to be paid by the Transferor under Sections 3.2 or 9.1
when such amounts are due. The Transferor, the Master Servicer and the
Administrator also shall deposit in the Collection Account all amounts required
to be deposited therein pursuant to, and within the time periods provided by,
Section 2.3. Notwithstanding the foregoing, the Master Servicer shall deposit,
or cause to be deposited, directly into the Reserve Account any payments of or
with respect to principal relating to a Financed Student Loan for which any
payment on account of a Realized Loss was previously distributed (but only up
to the amount of such Realized Loss), and shall deposit, or cause to be
deposited, directly into the Collection Account any payments of or with respect
to interest relating to a Financed Student Loan for which any payment on
account of a Realized Loss was previously distributed.
The Master Servicer also shall, in its sole discretion,
deposit into the Monthly Advance Account the amount of any Monthly Advances
determined to be made by the Master Servicer pursuant to Section 5.10 no later
than the Determination Date relating to the Distribution Date when such
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amounts are to be applied as a payment of interest. On each Distribution Date,
the Indenture Trustee will transfer from the Monthly Advance Account to the
Eligible Lender Trustee, by wire transfer no later than 11:00 a.m. New York
time, for deposit into the Certificate Monthly Advance Account the portion of
the Monthly Advance, if any, for such Distribution Date allocable to the
Certificates. Pursuant to Section 5.10, if after making a Monthly Advance the
Master Servicer receives the Guarantee Payment, Special Allowance Payment or
Interest Subsidy Payment for which such Monthly Advance was made, the Master
Servicer shall be reimbursed immediately from such Guarantee Payment, Special
Allowance Payment or Interest Subsidy Payment, as the case may be, on deposit
in the Collection Account up to the amount of the related Monthly Advance or,
if such Guarantee Payment, Special Allowance Payment or Interest Subsidy
Payment is not received, the Master Servicer may reimburse itself from any
funds on deposit in the Collection Account up to the amount of the related
Monthly Advance.
SECTION 5.5. Distributions. (a) On each Quarterly Distribution Date,
pursuant to the Administrator's written instructions, the Indenture Trustee
will transfer the Available Funds on deposit in the Collection Account for the
three Collection Periods immediately preceding the month of such Quarterly
Distribution Date (or (x) with respect to the first Quarterly Distribution
Date, from the Closing Date through and Quarterly including the Collection
Period immediately preceding such Distribution Date and (y) with respect to (i)
(y) below with respect to the Monthly Consolidation Fee and with respect to
(ii) and (iii) below, in the case of the Class A-1 Notes the Indenture Trustee
will transfer the requested amount from the Available Funds on deposit in the
Collection Accounts for the Collection Period immediately preceding the month
of each distribution Date for the Class A-1 Notes) and in the case of the
Monthly Consolidation Fee each Distribution Date on each date which would have
been a Distribution Date if the Class A-1 Notes were outstanding, in each case
in the following manner and in the following order of priority:
(i) first, to the Expense Account, an amount up to the sum of
(x) aggregate estimated Transaction Fees for the three immediately succeeding
Collection Periods and all overdue Transaction Fees from prior Collection
Periods (plus (or minus) the difference (or excess) of the actual Transaction
Fees for the three immediately preceding Collection Periods and the Transaction
Fees deposited into the Expense Account on the preceding Distribution Date) and
(y) the Monthly Consolidation Fee immediately preceding Collection Period;
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(ii) second, to the Note Distribution Account, an amount up
to the sum of the aggregate Noteholders' Interest Distribution Amount and the
Trust Swap Payment for such Distribution Date;
(iii) third, to the Note Distribution Account, an amount up
to the Noteholders' Principal Distribution Amount for such Distribution Date;
(iv) fourth, to the Eligible Lender Trustee, for deposit into
the Certificate Distribution Account, an amount up to the Certificateholders'
Interest Distribution Amount for such Distribution Date; and
(v) fifth, if the Outstanding Amount of the Notes has been
paid in full, to the Eligible Lender Trustee, for deposit into the Certificate
Distribution Account, an amount up to the Certificateholders' Principal
Distribution Amount for such Distribution Date.
(b) [Reserved]
(c) On each Quarterly Distribution Date or in the case of (i)
below on each Distribution Date, the Indenture Trustee, pursuant to information
contained in the Administrator's Certificate delivered in accordance with
Section 4.7, will distribute from the Expense Account (in addition to any
amounts transferred from the Reserve Account pursuant to Section 5.6) the
following amounts in the following order of priority: (i)to the Deferment, the
Monthly Consolidation Fee for the immediately preceding Collection Period, (ii)
to the Master Servicer, the estimated Servicing Fee for the three immediately
succeeding Collection Periods and all overdue Servicing Fees, (iii) to the
Administrator, the estimated Administration Fee for the three immediately
succeeding Collection Periods and all overdue Administration Fees (iv) to the
Indenture Trustee, the estimated Indenture Trustee Fee for the three
immediately succeeding Collection Periods and all overdue Indenture Trustee
Fees, and (v) to the Eligible Lender Trustee, the estimated Eligible Lender
Trustee Fee for the three immediately succeeding Collection Periods and all
overdue Eligible Lender Trustee Fees.
(d) On each Distribution Date, the Indenture Trustee will
distribute to the Noteholders as of the related Record Date and the Swap
Counterparty all amounts transferred to the Note Distribution Account pursuant
to Section 5.5(a) (in addition to any amounts transferred from the Reserve
Account, any amounts deposited into the Monthly Advance Account pursuant to
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Section 5.4 and any Parity Percentage Payments transferred from the Collection
Account pursuant to Section 5.5(e)) in the following order of priority:
On each Distribution Date, following the transfer to the Note
Distribution Account described in the second preceding paragraph, the Indenture
Trustee will distribute to the Noteholders as of the related Record Date and
each Swap Counterparty the amounts transferred to the Note Distribution Account
as set forth above (in addition to any amounts transferred from the Reserve
Account and the Monthly Advance Account and any Parity Percentage Payments
transferred from the Collection Account, each as described below) in the
following order of priority:
(i) first, to each Class of Class A Noteholders and each Swap
Counterparty, the Class A Noteholders' Interest Distribution Amount and the
Trust Swap Payment, respectively (pro rata based upon the portion thereof
allocable to each such Class and each such Swap Counterparty);
(ii) second, to the Class B Noteholders, the Class B Noteholders'
Interest Distribution Amount;
(iii) third, to the Class A-1 Noteholders, the Noteholders' Principal
Distribution Amount until the Outstanding Amount of the Class A-1 Notes has
been paid in full;
(iv) fourth, to the Fixed Rate Notes, the Noteholders' Principal
Distribution Amount in the following order:
(A) after the Outstanding Amount of the Class A-1 Notes has
been reduced to zero, commencing with (but no earlier than) the
Distribution Date occurring in October, 1998, to the Class A-2
Noteholders, the remaining Noteholders' Principal Distribution Amount
until the Outstanding Amount of the Class A-2 Notes equals the
percentage of the original Outstanding Amount for such Class that
issued forth for such Class for such Distribution Date on the
Scheduled Principal Balance Table;
(B) after the Outstanding Amount of the Class A-2 Notes has
been reduced to zero, commencing with (but not earlier than) the
Distribution Date occurring in
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October 1999, to the Class A-3 Noteholders, the remaining Noteholders'
Principal Distribution Amount until the Outstanding Amount of the
Class A-3 Notes equals the percentage of the original Outstanding
Amount for such Class that issued forth for such Distribution Date on
the Scheduled Principal Balance Table;
(C) after the Outstanding Amount of the Class A-3 Notes has
been reduced to zero, commencing with (but not earlier than) the
Distribution Date occurring in October 2000, to the Class A-4
Noteholders, the remaining Noteholders' Principal Distribution Amount
until the Outstanding Amount of the Class A-3 Notes equals the
percentage of the original Outstanding Amount for such Class that
issued forth for such Distribution Date on the Scheduled Principal
Balance Table;
(D) after the Outstanding Amount of the Class A-4 Notes has
been reduced to zero, commencing with (but not earlier than) the
Distribution Date occurring in October 2001, to the Class A-5
Noteholders, the remaining Noteholders' Principal Distribution Amount
until the Outstanding Amount of the Class A-5 Notes equals the
percentage of the original Outstanding Amount for such Class that
issued forth for such Distribution Date on the Scheduled Principal
Balance Table;
(E) after the Outstanding Amount of the Class A-5 Notes has
been reduced to zero, commencing with (but not earlier than) the
Distribution Date occurring in October 2002, to the Class A-6
Noteholders, the remaining Noteholders' Principal Distribution Amount
until the Outstanding Amount of the Class A-6 Notes equals the
percentage of the original Outstanding Amount for such Class that
issued forth for such Distribution Date on the Scheduled Principal
Balance Table; and
(F) after the Outstanding Amount of the Class A-6 Notes has
been reduced to zero, commencing with (but not earlier than) the
Distribution Date occurring in October 2003, to the Class A-7
Noteholders, the remaining Noteholders' Principal Distribution Amount
until the Outstanding Amount of the Class A-7 Notes equals the
percentage of the original Outstanding Amount for such Class that
issued forth for such Distribution Date on the Scheduled Principal
Balance Table;
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(v) fifth, after the Outstanding Amount of each Class of Fixed Rate
Notes equals the percentage of the original Outstanding Amount for the
respective Class that is set forth for such Distribution Date on the Scheduled
Principal Balance Table (and on and after each Quarterly Distribution Date
after the Outstanding Amount of the Class A-7 Notes has been paid in full) to
the Class A-8 Noteholders, the remaining Noteholders' Principal Distribution
Amount until the Outstanding Amount of the Class A-8 Notes has been paid in
full;
(vi) sixth, after the Outstanding Amount of the Class A-8 Notes has
been paid in full and after the Outstanding Amount of each Class of Fixed Rate
Notes equals the percentage of the original Outstanding Amount for the
respective Class that is set forth for such Distribution Date on the Scheduled
Principal Balance Table, to the Class A-9 Noteholders, the remaining
Noteholders' Principal Distribution Amount until the Outstanding Amount of the
Class A-9 Notes has been paid in full; and
(vii) seventh, after the Outstanding Amount of the Class A-9 Notes has
been paid in full, to the Class B Noteholders, the remaining Noteholders'
Principal Distribution Amount until the Outstanding Amount of the Class B Notes
has been paid in full. On each Distribution Date, the Eligible Lender Trustee
will distribute to the Certificateholders as of the related Record Date all
amounts transferred to the Certificate Distribution Account pursuant to Section
5.5(a) (in addition to any amounts transferred from the Reserve Account and any
amount deposited into the Certificate Monthly Advance Account pursuant to
Section 5.4) in the following order of priority; (i) first, to the
Certificateholders, the Certificateholders' Interest Distribution Amount and
(ii) second, to the Certificateholders, the Certificateholders' Principal
Distribution Amount. The priority of distributions set forth in this Section
5.5(d) shall be subject to the provisions of Section 5.5(f).
(e) On each Distribution Date, after making any and all
required transfers to the Expense Account, the Note Distribution Account and,
if applicable, the Certificate Distribution Account pursuant to Section 5.5(a),
the Indenture Trustee will transfer any amounts remaining in the Collection
Account (other than amounts representing payments received during the month in
which such Distribution Date occurs) in the following order of priority: (i) to
the Reserve Account, the amount, if any, necessary to increase the balance
thereof to the
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Specified Reserved Account Balance, (ii) to the Note Distribution Account, the
Parity Percentage Payment, if any, for such Distribution Date, (iii) to the
Note Distribution Account, the amount of any outstanding Noteholders' Interest
Carryover and (iv) to the Transferor, any amounts remaining on deposit in the
Collection Account other than amounts representing payments received on or with
respect to the Financed Student Loans during the month of such Distribution
Date (amounts transferred to the Transferor pursuant to this clause (iv) shall
be transferred by the Indenture Trustee to the account specified by the
Transferor).
(f) Notwithstanding the foregoing, if (x) on any Distribution
Date following all distributions to be made on such Distribution Date, the
Outstanding Amount of the Class A Notes would exceed ____% of the sum of the
Pool Balance at the end of the immediately preceding Collection Period plus the
balance of the Reserve Account on such Distribution Date following such
distributions, or (y) an Event of Default has occurred with respect to payment
of the Notes, distributions pursuant to Section 5.5(d) shall be made in the
following priority:
(i) first, to each Class of Class A Noteholders and the Swap
Counterparty, the Noteholders' Interest Distribution Amount applicable to each
such Class and the Trust Swap Payment, respectively, pro rata based upon the
portion thereof allocable to each such Class and the Swap Counterparty;
(ii) second, in the case of clause (x) above, (a) to the Class A-1
Noteholders, the Noteholders' Principal Distribution Amount until the
outstanding principal amount of the Class A-1 Notes has been paid in full and
then (b) to the Class A Noteholders, in the order and priority set forth above
in clauses third through twelfth, inclusive, and in the case of clause (y)
above, to each Class of Class A Noteholders, the Noteholders' Principal
Distribution Amount applicable to such Distribution Date, pro rata based upon
the outstanding principal amount of each Class of Class A Notes until the
outstanding principal amount of each Class of Class A Notes has been paid in
full;
(iii) third, to the Class B Noteholders, the Noteholders' interest
Distribution Amount applicable to the Class B Notes;
(iv) fourth, after the outstanding principal amount of each of the
Class A Notes has been paid in full, to the class B Noteholders, the
Noteholders' Principal Distribution Amount until the outstanding principal
amount of the Class B Notes has been paid in full;
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(v) fifth, to the Class A-1 Noteholders, the Class A-9 Noteholders and
the Class A-10 Noteholders, the Noteholders' Interest Carryover applicable to
the respective Class of Class A Notes, pro rata based upon the portion thereof
allocable to each such Class;
(vi) sixth, to the Class B Noteholders, the Noteholders' Interest
Carryover applicable to the Class B Notes;
(vii) seventh, to the Certificateholders, the Certificateholders'
Interest Distribution Amount; and
(viii) eighth, to the Certificateholders, the Certificateholders'
Principal Distribution Amount.
All distributions made to the Noteholders of a Class or the
Certificateholders on each Distribution Date shall be made on a pro rata basis
among the Noteholders of such Class and Certificateholders of record as of the
related Record Date based upon the Outstanding Amount of such Class (or, with
respect to payments of principal on such Class of Notes, the applicable
Principal Factor with respect to such Class) or percentage interest of
Certificates so owned.
SECTION 5.6. Reserve Account. (a) On the Closing Date, the Transferor
shall deposit the Reserve Account Initial Deposit into the Reserve Account.
(b) If the amount on deposit in the Reserve Account on any
Distribution Date (after giving effect to all deposits or withdrawals therefrom
on such Distribution Date) is greater than the then applicable Specified
Reserve Account Balance, the Administrator shall instruct the Indenture Trustee
in writing (A) to deposit into the Note Distribution Account, an amount equal
to the amount described in Section 5.5(e)(iii) for such Distribution Date (to
the extent not otherwise paid to the Note Distribution Account on such
Distribution Date), (B) to deposit into the Note Distribution Account any
amounts required to be paid by the Transferor or the Master Servicer pursuant
to Section 3.2 or 4.5 as a result of breaches of representations and warranties
made in Section 3.1, 4.1, 4.2, 4.3 or 4.4 to the extent the Transferor or the
Master Servicer has not made such payments within the required time period, and
(C) to distribute the remaining amount of such excess to the Transferor.
Amounts properly distributed pursuant to this paragraph (b) shall be
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deemed released from the Trust Estate and the security interest therein granted
to the Indenture Trustee, and the Transferor shall in no event thereafter be
required to refund any such distributed amounts.
(c) Following the payment in full of the aggregate Outstanding Amount
of the Notes and of all other amounts owing or to be distributed hereunder or
under the Indenture or the Trust Agreement to Noteholders, Certificateholders,
the Master Servicer or the Administrator and the termination of the Trust, any
amount remaining on deposit in the Reserve Account shall be distributed to the
Transferor. The Transferor shall in no event be required to refund any amounts
properly distributed pursuant to this Section 5.6(c).
(d) (i) In the event that on any Distribution Date, any
amounts to be distributed as calculated pursuant to Section
5.5(c)(i)-(iv) exceed the amount on deposit in the Expense Account
available for such purposes, the Administrator shall instruct the
Indenture Trustee to withdraw from the Reserve Account the lesser of
such excess and the amount on deposit in the Reserve Account (after
giving effect to each withdrawal in the order specified in Section
5.5(c)(i)-(iv)) and deposit such withdrawn amount in the Expense
Account for distribution as provided in Section 5.5.
(ii) In the event that the Sum of the Noteholders' Distribution
Amount and the Trust Swap Payment for a Distribution Date exceeds the
amount in the Note Distribution Account for such Distribution Date
available for such purposes, the Administrator shall instruct the
Indenture Trustee to withdraw from the Reserve Account an amount equal
to the lesser of such excess, and the amount on deposit in the Reserve
Account, (after giving effect to paragraph (d)(i) above), and deposit
such withdrawn amount in the Note Distribution Account for
distribution as provided in Section 5.5.
(iii) In the event that the Certificateholders' Distribution
Amount for a Distribution Date exceeds the amount for such
Distribution Date available for such purposes, the Administrator shall
instruct the Indenture Trustee on such Distribution Date to withdraw
from the Reserve Account an amount equal to the lesser of such excess,
and the amount on deposit in the Reserve Account (after giving effect
to paragraphs (d)(i) through (d)(ii) above), and to deposit such
withdrawn amount in the Certificate Distribution Account for
distribution as provided in Section 5.5.
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SECTION 5.7. Statements to Certificateholders and Noteholders. On each
Determination Date preceding a Distribution Date, the Master Servicer or the
Administrator shall provide to the Indenture Trustee with a copy to the Rating
Agencies (for the Indenture Trustee to forward on such succeeding Distribution
Date to each Noteholder of the applicable Class of record and to the Eligible
Lender Trustee for the Eligible Lender Trustee to forward on such succeeding
Distribution Date to each Certificateholder (if such Certificateholder is not
the Transferor) of record, a statement substantially in the form of Exhibits A
and B, respectively, setting forth at least the following information with
respect to such Distribution Date or the preceding Collection Period or
Collection Periods, to the extent applicable:
(i) the Principal Factor for each Class of Notes;
(ii) the amount of the distribution allocable to principal on
each Class of Notes;
(iii) the amount of the distribution allocable to interest on
each Class of Notes and on the Certificates, together with the
interest rates applicable with respect thereto (indicating, in the
case of the Notes, whether such interest rates are based on LIBOR Rate
or One-Month LIBOR, or on the Net Loan Rate, with respect to each
Class of Notes, and specifying what each such interest rate would have
been if it had been calculated using the alternate basis);
(iv) the amount of the distribution, if any, allocable to any
Noteholders' Interest Carryover together with the outstanding amount,
if any, thereof after giving effect to any such distribution;
(v) the Pool Balance as of the close of business on the last
day of the preceding Collection Period;
(vi) the aggregate outstanding principal amount of each Class
of Notes as of such Distribution Date, after giving effect to payments
allocated to principal reported under clause (ii) above;
(vii) the amount of the Servicing Fee, the Administration
Fee, the Indenture Trustee Fee and the Eligible Lender Trustee Fee to
be allocated on the upcoming Distribution Date;
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(viii) the amount of the aggregate Realized Losses, if any,
for each Collection Period since the last Distribution Date and the
aggregate amount, if any, received (stated separately for interest and
principal) received during such Collection Periods relating to
Financed Student Loans for which a Realized Loss was previously
allocated;
(ix) the amount of the distribution attributable to amounts
in the Reserve Account, the amount of any other withdrawals from the
Reserve Account for such Distribution Date, the balance of the Reserve
Account on such Distribution Date, after giving effect to changes
therein on such Distribution Date, the then applicable Parity
Percentage and the amount of the distribution, if any, attributable to
Parity Percentage Payments;
(x) the aggregate amount, if any, paid for Financed Student
Loans purchased from the Trust during each preceding Collection Period
since the last Distribution Date (or since the Closing Date in the
case of the first Distribution Date);
(xi) during the Exchange period only, the aggregate Issue
Consolidation Payments and Exchange Adjustments, stated separately,
for each preceding Collection Period since the last Distribution Date
(or since the Closing Date in the case of the first Distribution
Date); and
(xii) the number and principal amount of Financed Student
Loans, as of the end of each preceding Collection Period since the
last Distribution Date (or since the Closing Date in the case of the
first Distribution Date), that are (i) 30 to 60 days delinquent, (ii)
61 to 90 days delinquent, (iii) 91 to 120 days delinquent, (iv) more
than 120 days delinquent and (v) for which claims have been filed with
the appropriate Guarantor and which are awaiting payment.
5.8. Expense Account. The Administrator shall instruct the Indenture
Trustee to deposit funds into, and withdraw funds from, the Expense Account as
set forth in Sections 5.5 and 5.6. Any funds remaining in the Expense Account
upon termination of the Trust shall be distributed to the Master Servicer as
additional servicing compensation.
5.9. Note Distribution Account and Certificate Distribution Account.
The Administrator shall instruct the Indenture Trustee and the Eligible Lender
Trustee to deposit funds into, and withdraw funds from, the Note Distribution
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Account and the Certificate Distribution Account, as applicable, as set forth
in Sections 5.5, 5.6 and 5.10.
5.10. Monthly Advances. If the Master Servicer has applied for a
Guarantee Payment from a Guarantor or an Interest Subsidy Payment or a Special
Allowance Payment from the Department, and the Master Servicer has not received
the related payment prior to the end of the Collection Period immediately
preceding the Distribution Date on which such amount would be required to be
distributed as a payment of interest, the Master Servicer may, no later than
the Determination Date relating to such Distribution Date, in its sole
discretion, deposit into the Monthly Advance Account an amount up to the amount
of such payments applied for but not received (such deposits by the Master
Servicer are referred to herein as "Monthly Advances"). Such Monthly Advances
are recoverable by the Master Servicer (i) first, from the Guarantee Payment,
Interest Subsidy Payment or Special Allowance Payment, as the case may be, for
which such Monthly Advance was made and (ii) second, from collections received
generally on or with respect to the Financed Student Loans. The Master Servicer
shall have no obligation, legal or otherwise, to make any Monthly Advance, and
the making of or decision to make a particular Monthly Advance shall not create
any obligation on the Master Servicer, legal or otherwise, to make any future
Monthly Advances.
5.11. Certificate Interest. During the initial Interest Period, the
Certificates shall bear interest at the Certificate Initial Rate. Thereafter,
the Certificates shall bear interest during each applicable Interest Period at
the Certificate Rate.
During each Interest Period, interest at the Certificate Rate shall
accrue daily and shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days.
The Master Servicer shall calculate One-Month LIBOR on each Rate
Determination Date and shall notify the Eligible Lender Trustee and the
Indenture Trustee of One-Month LIBOR. The Master Servicer also shall calculate
the T-Bill Rate pursuant to the provisions of the Terms Supplement and shall
notify the Eligible Lender Trustee and the Indenture Trustee of the T-Bill
Rate. The determination by the Master Servicer of One-Month LIBOR and the
T-Bill Rate shall (in the absence of manifest error) be final and binding upon
all parties.
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ARTICLE VI
The Transferor and the Master Servicer
SECTION 6.1. Representations of Transferor and Master Servicer. The
Transferor and Master Servicer make the following representations with respect
to the Transferor and the Master Servicer, respectively, on which the Issuer is
deemed to have relied in acquiring (through the Eligible Lender Trustee) the
Financed Student Loans being conveyed pursuant to this Agreement. The
representations speak as of the Closing Date, in the case of the Initial
Financed Student Loans, and as of the applicable Exchange Date, in the case of
the Exchanged Student Loans, but shall survive the contribution, transfer and
assignment of the Financed Student Loans to the Eligible Lender Trustee on
behalf of the Issuer and the pledge thereof to the Indenture Trustee pursuant
to the Indenture.
(a) Organization and Good Standing. Each of the Transferor and the
Master Servicer is duly organized and validly existing as a national banking
association with the power and authority to own its properties and to conduct
its business as such properties are currently owned and such business is
presently conducted, except for such power and authority the absence of which
would not have a material adverse effect on the Master Servicer or Transferor,
as the case may be, or their ability to consummate the transaction contemplated
by the Basic Documents and the Transferor had at all relevant times, and has,
the power, authority and legal right to originate, acquire and own the Financed
Student Loans and the Master Servicer had at all relevant times, and has the
power, authority and legal right to service the Financed Student Loans.
(b) Due Qualification. The Master Servicer is duly qualified to do
business and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership and lease of property or the conduct of
its business (including the servicing of the Financed Student Loans for which
it acts as Primary Servicer as required by this Agreement) shall require such
qualifications except for such licenses and approvals the absence of which
would not have a material adverse effect on the Master Servicer or its ability
to consummate the transactions contemplated by the Basic Documents.
(c) Power and Authority. Each of the Transferor and the Master
Servicer has the requisite corporate power and authority to execute and deliver
this Agreement and to carry out its terms; the Transferor has requisite
corporate power and authority to transfer and assign the property to be
contributed and assigned to and deposited with the Issuer (or with the Eligible
Lender Trustee on behalf of the Issuer) and the Transferor has duly authorized
such transfer and assignment to the
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Issuer (or to the Eligible Lender Trustee on behalf of the Issuer) by all
necessary corporate action on Transferor's part; and the execution, delivery
and performance of this Agreement have been duly authorized by the Transferor
and the Master Servicer by all necessary corporate action on their respective
parts.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Transferor and the Master Servicer, enforceable
against the Transferor and the Master Servicer in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance and similar laws relating to creditors' rights generally or the
rights of creditors of banks the deposit accounts of which are insured by the
FDIC and subject to general principles of equity.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not violate, result
in any breach of any of the terms and provisions of, nor constitute (with or
without notice or lapse of time or both) a default under, the charter or
by-laws of the Transferor or the Master Servicer, or any material indenture,
agreement or other material instrument to which the Transferor or the Master
Servicer is a party or by which it shall be bound; nor result in the creation
or imposition of any Lien upon any of its properties pursuant to the terms of
any such material indenture, agreement or other material instrument (other than
pursuant to the Basic Documents); nor violate any material law or, to the
knowledge of either the Transferor or the Master Servicer, any material order,
rule or regulation applicable to it of any court or of any Federal or State
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Transferor or the Master Servicer or its
properties.
(f) No Proceedings. There are no proceedings or investigations pending
against the Transferor or the Master Servicer or, to its best knowledge,
threatened against the Transferor or the Master Servicer, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over it or its properties: (i) asserting the invalidity of
this Agreement, the Indenture or any of the other Basic Documents, the Notes or
the Certificates, (ii) seeking to prevent the issuance of the Notes or the
Certificates or the consummation of any of the transactions contemplated by
this Agreement, the Indenture or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by either the Transferor or the
Master
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Servicer of its obligations under, or the validity or enforceability of, this
Agreement, the Indenture, any of the other Basic Documents, the Notes or the
Certificates or (iv) seeking to affect adversely the Federal or State income
tax attributes of the Issuer, the Notes or the Certificates.
(g) All Consents. All authorizations, consents, orders or approvals of
or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by either the Transferor or the Master Servicer in
connection with the execution and delivery by either the Transferor or the
Master Servicer of this Agreement and the performance by either the Transferor
or the Master Servicer of the transactions expressly contemplated by this
Agreement, have been duly obtained, effected or given and are in full force and
effect, except such as may be required by the blue sky laws of any jurisdiction
in connection with the sale and distribution of the Notes and the Certificates
for which no representation or warranty is being given.
(h) No Amendmentor Waiver. Except as provided in Section 4.14, no
provision of a Financed Student Loan has been waived, altered or modified in
any respect, except pursuant to a document, instrument or writing included in
the Financed Student Loan File, and no such amendment, waiver, alteration or
modification causes such Financed Student Loan not to conform in any material
respect to the other warranties contained in this Section or those of the
Transferor contained in Section 3.1.
(i) Location of Financed Student Loan Files. The Financed Student Loan
Files are kept in accordance with Section 3.4(b).
SECTION 6.2. Existence. Except as permitted by Section 6.5, during the
term of this Agreement, each of the Transferor and the Master Servicer will
keep in full force and effect its existence, rights and franchises as a
national banking association under the laws of the jurisdiction of its
organization.
SECTION 6.3. Liability and Indemnities. (a) Each of the Transferor and
the Master Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Transferor and the Master
Servicer, as the case may be, under this Agreement.
(b) The Transferor shall indemnify, defend and hold harmless the
Issuer, the Eligible Lender Trustee and the Indenture Trustee and their
officers, directors, employees and
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agents from and against any taxes that may at any time be asserted against any
such Person with respect to the transactions contemplated herein (except (i)
taxes arising out of fees paid to the Eligible Lender Trustee or the Indenture
Trustee, (ii) arising out of the transfer of the Financed Student Loans to the
Eligible Lender Trustee, (iii) taxes arising out of the issuance and sale of
the Certificates and the Notes, (iv) taxes arising out of the ownership of the
Financed Student Loans (including, without limitation, income taxes), and (v)
taxes arising out of distributions on the Ceterficates and the Notes) and costs
and expenses in defending against the same.
(c) The Transferor shall indemnify, defend and hold harmless the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, and the Noteholders
and the officers, directors, employees and agents of the Issuer, the Eligible
Lender Trustee and the Indenture Trustee from and against any and all costs,
expenses, losses, claims, damages and liabilities arising out of, or imposed
upon such Person through, (i) the Transferor's willful misfeasance, bad faith
or negligence in the performance of its duties under this Agreement, or by
reason of reckless disregard of its obligations and duties under this Agreement
and (ii) the Transferor's or the Issuer's violation of Federal or state
securities laws in connection with the offering and sale of the Notes and the
Certificates; provided, however, the Transferor shall not be liable for any
such costs, expenses, losses, claims, damages and liabilities imposed upon such
Person to the extent that they arise out of or result from such Person's
negligence, willful malfeasance or bad faith or a breach of the representations
and warranties of such Person in this Agreement. Notwithstanding anything to
the contrary contained in this Agreement, in no event shall the Transferor be
liable under any theory of tort, contract, strict liability or other legal or
equitable theory for any lost profits or exemplary, punitive, special,
incidental, indirect or consequential damages, each of which is hereby excluded
by agreement of the parties regardless of whether or not the Transferor has
been advised of the possibility of such damages.
(d) The Transferor shall indemnify, defend and hold harmless the
Eligible Lender Trustee and its officers, directors, employees and agents from
and against, all costs, expenses, losses, claims, damages, obligations and
liabilities arising out of, incurred in connection with or relating to the
Trust Agreement, the other Basic Documents, the Trust Estate,
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the acceptance or performance of the trusts and duties set forth herein and in
the Trust Agreement or the action or the inaction of the Eligible Lender
Trustee hereunder and under the Trust Agreement, except to the extent that such
cost, expense, loss, claim, damage, obligation or liability: (i) shall be due
to the willful misfeasance, bad faith or negligence of the Eligible Lender
Trustee, (ii) shall arise from any breach by the Eligible Lender Trustee of its
covenants under any of the Basic Documents; or (iii) shall arise from the
breach by the Eligible Lender Trustee of any of its representations or
warranties set forth in Section 7.3 of the Trust Agreement. Notwithstanding
anything to the contrary contained in this Agreement, in no event shall the
Transferor be liable under any theory of tort, contract, strict liability or
other legal or equitable theory for any lost profits or exemplary, punitive,
special, incidental, indirect or consequential damages, each of which is hereby
excluded by agreement of the parties regardless of whether or not the
Transferor has been advised of the possibility of such damages.
(e) The Transferor shall pay any and all taxes levied or assessed upon
all or any part of the Trust Estate (other than those taxes expressly excluded
from the Transferor's responsibilities pursuant to the parenthetical in
paragraph (b) above).
(f) Pursuant to Section 6.7 of the Indenture, and subject to the
limitations therein, the Transferor shall pay reasonable compensation to the
Indenture Trustee and shall reimburse the Indenture Trustee for all reasonable
expenses, disbursements and advances, and indemnify, defend and hold harmless
the Indenture Trustee and its officers, directors, employees and agents from
and against all costs, expenses, losses, claims, damages and liabilities, to
the extent and in the manner provided in the Indenture. Notwithstanding
anything to the contrary contained in this Agreement, in no event shall the
Transferor be liable under any theory of tort, contract, strict liability or
other legal or equitable theory for any lost profits or exemplary, punitive,
special, incidental, indirect or consequential damages, each of which is hereby
excluded by agreement of the parties regardless of whether or not the
Transferor has been advised of the possibility of such damages.
(g) The Master Servicer shall indemnify, defend and hold harmless the
Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Certificateholders, and the Noteholders and the officers, directors, employees
and agents of the Issuer, the Eligible Lender Trustee and the Indenture Trustee
from and against any and all costs, expenses, losses, claims, damages and
liabilities arising out of, or imposed upon such Person through,
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the Master Servicer's willful misfeasance, bad faith or negligence in the
performance of its duties under this Agreement, where the final determination
that any such loss, liability or expense arose out of, or was imposed upon any
such Person through, any such negligence, willful misfeasance or bad faith on
the part of the Master Servicer is established by a court of law, by an
arbitrator or by way of settlement agreed to by the Master Servicer; provided,
however, the Master Servicer shall not be liable for any such costs, expenses,
losses, claims, damages and liabilities imposed upon such Person to the extent
that they arise out of or result from such Person's negligence, willful
malfeasance or bad faith or a breach of the representations and warranties of
such Person in this Agreement. Notwithstanding the foregoing, if the Master
Servicer is rendered unable, in whole or in part, by a force outside the
control of the Master Servicer (including acts of God, acts of war, severe
weather, communications failures or failures to receive electronic data or
labor disputes or strikes, fires, earthquakes and other disasters) to satisfy
its obligations under this Agreement, the Master Servicer shall not be deemed
to have breached any such obligation upon delivery of written notice of such
event to the other parties hereto, for so long as the Master Servicer remains
unable to perform such obligation as a result of such event. Notwithstanding
anything to the contrary contained in this Agreement, in no event shall the
Master Servicer be liable under any theory of tort, contract, strict liability
or other legal or equitable theory for any lost profits or exemplary, punitive,
special, incidental, indirect or consequential damages, each of which is hereby
excluded by agreement of the parties regardless of whether or not the Master
Servicer has been advised of the possibility of such damages.
(h) Indemnification under this Section shall survive the resignation
or removal of the Eligible Lender Trustee or the Indenture Trustee and the
termination of this Agreement or the Indenture or the Trust Agreement, as
applicable, and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Transferor or the Master Servicer, as the case
may be, shall have made any indemnity payments pursuant to this Section and the
Person to or on behalf of whom such payments are made thereafter shall collect
any of such amounts from others, such Person shall promptly repay such amounts
to the Transferor or the Master Servicer, as the case may be without interest.
(i) Promptly after receipt by an indemnified party under this Section
6.3 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 6.3, notify the indemnifying party of the commencement
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thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under Section 6.3., except to the extent the indemnifying party is materially
prejudiced by such failure. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party or parties
shall have the right to select separate counsel to assert such legal defenses
and to otherwise participate in the defense of such action on behalf of the
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6.3 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. In no event shall the indemnifying party be liable for
fees and expenses for more than one counsel separate from their own counsel for
all indemnified parties in connection with any one action or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
The indemnified party will not, without the prior written consent of
the indemnifying party, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in which indemnification may be sought hereunder.
SECTION 6.4. [Reserved]
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SECTION 6.5. Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor, the Administrator or the Master Servicer. Any
Person (a) into which the Transferor, the Administrator or the Master Servicer,
as the case may be, may be merged or consolidated, (b) which may result from
any merger or consolidation to which the Transferor, the Administrator or the
Master Servicer, as the case may be, shall be a party or (c) which may succeed
to the properties and assets of the Transferor, the Administrator or the Master
Servicer, as the case may be, substantially as a whole, shall be the successor
to the Transferor, the Administrator or the Master Servicer, as the case may
be, without the execution or filing of any document or any further act by any
of the parties to this Agreement or the Administration Agreement; provided,
however, that each of the Transferor, the Administrator and the Master Servicer
hereby covenants that it will not consummate any of the foregoing transactions
except upon satisfaction of the following: (i) the surviving Transferor,
Administrator or Master Servicer, as the case may be, if other than PNC Bank,
National Association or a PNC Subsidiary or PNC Bank Corp., executes an
agreement of assumption to perform every obligation of the Transferor, the
Administrator or the Master Servicer, as the case may be, under this Agreement
and the Administration Agreement, (ii) immediately after giving effect to such
transaction, no Master Servicer Default (in the case of the Master Servicer) or
no Administrator Default (in the case of the Administrator) shall have occurred
and be continuing, (iii) the Transferor, the Administrator or the Master
Servicer, as the case may be, if other than PNC Bank National Association or a
PNC Subsidiary or PNC Bank Corp. shall have delivered to the Eligible Lender
Trustee and the Indenture Trustee an Officer's Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with, (iv) such transaction will not result in a material
adverse Federal or state tax consequence to the Issuer relating to its tax
classification, or to the Noteholders, considered as a whole, relating to a
change in the characterization of the Notes and (v) unless "PNC Bank, National
Association" is the surviving entity or name, the Transferor, the Administrator
or the Master Servicer, as the case may be, shall have delivered to the
Eligible Lender Trustee and the Indenture Trustee an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all financing statements and
continuation statements and amendments thereto have been executed and filed
that are necessary fully to preserve and protect the interest of the Eligible
Lender Trustee and Indenture Trustee, respectively, in the Financed Student
Loans, or (B) stating that, in the opinion of such counsel, no
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such action shall be necessary to preserve and protect such interests. Nothing
in this Agreement or any other Basic Document shall be deemed to restrict or
prohibit, and no consent of Noteholders or Certificateholders, supplemental
agreement, Officer's Certificate (except to the extent provided in clause (12)
below of this Section 6.5) or Opinion of Counsel (except to the extent provided
in clause (v) above of this Section 6.5) shall be required in the case of, the
merger of a PNC Subsidiary with and into a PNC Subsidiary or PNC Bank Corp., the
consolidation of a PNC Subsidiary and a PNC Subsidiary or PNC Bank Corp., or
the sale or other disposition of all or substantially all of the assets of a
PNC Subsidiary to another PNC Subsidiary or PNC Bank Corp., if, in any such
case in which the surviving, resulting or acquiring entity is not PNC Bank
Corp., PNC Bank Corp. would own, directly or indirectly, at least eighty
percent (80%) of the voting securities of the PNC Subsidiary surviving such
merger, resulting from such consolidation or acquiring such assets. For the
purpose of this Section 6.5, "PNC Subsidiary" means each of (1) PNC Bank,
National Association, (2) PNC Bank, Ohio, National Association, (3) PNC Bank,
Kentucky, Inc., (4) PNC Bank, Indiana, Inc., (5) PNC Bank, Delaware, (6) PNC
National Bank of Delaware, (7) PNC National Bank, (8) PNC Mortgage Bank, N.A.,
(9) PNC Bank, New England, (10) PNC Bank FSB, (11) any other banking
subsidiaries of PNC Bank Corp. the consolidated assets of which constitute
twenty percent (20%) or more of the consolidated assets of PNC Bank Corp. and
its consolidated subsidiaries, (12) any other banking subsidiary of PNC Bank
Corp. designated as a PNC Subsidiary pursuant to a Board Resolution and set
forth in an Officer's Certificate delivered to the Eligible Lender Trustee and
the Indenture Trustee, and (13) any subsidiary of PNC Bank Corp. that owns,
directly or indirectly any voting securities, or options, warrants or rights to
subscribe for or purchase voting securities of any PNC Subsidiary under clauses
(1) through (12), and in the case of each of clauses (1) through (13) their
respected successors (whether by consolidation, merger, conversion, transfer of
substantially all their assets and business or otherwise) so long as any
successor is a banking subsidiary (in the case of clauses 1 through 12)) or a
subsidiary (in the case of clause (13)) of PNC Bank Corp. References to PNC
Bank Corp. include any name change. "Board Resolution" means a copy of a
resolution certified by the Secretary or any Assistant Secretary of PNC Bank
Corp. to have been duly adopted by the Board of Directors of PNC Bank Corp., or
such committee of the Board of Directors or officers of PNC Bank Corp. to which
authority to act on behalf of the Board of Directors has been delegated, and to
be in full force and effect on the date of such certification, and delivered to
the Eligible Lender Trustee and the Indenture Trustee.
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SECTION 6.6. Limitation on Liability of Transferor, Master Servicer
and Others. (a) The Transferor, the Master Servicer and any director or officer
or employee or agent of either may rely in good faith on the advice of counsel
or on any document of any kind, prima facie properly executed and submitted by
any Person respecting any matters arising hereunder.
(b) Neither the Transferor, the Master Servicer nor any of its
directors, officers, employees or agents shall be under any liability to the
Issuer, the Noteholders, the Certificateholders, or the Swap Counterparty the
Indenture Trustee or the Eligible Lender Trustee except as provided under this
Agreement or the Administration Agreement for any action taken or for
refraining from the taking of any action pursuant to this Agreement or for
errors in judgment; provided, however, that this provision shall not protect
the Transferor or Master Servicer or any such person against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of their respective duties under this Agreement
or the Administration Agreement.
Except as provided in this Agreement, the Transferor and the Master
Servicer shall not be under any obligation to appear in, prosecute or defend
any legal action that shall not be incidental to its duties in accordance with
this Agreement, and that in its opinion may involve it in any expense or
liability; provided, however, that the Transferor or the Master Servicer may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the other Basic Documents and the
interests of the Certificateholders under this Agreement or the Administration
Agreement and the Noteholders under the Indenture.
SECTION 6.7. Transferor May Own Certificate or Notes. The Transferor
and any Affiliate thereof may in its individual or any other capacity become
the owner or pledgee of Certificates or Notes with the same rights as it would
have if it were not the Transferor or an Affiliate thereof, except as expressly
provided herein or in any other Basic Document.
SECTION 6.8. Master Servicer Not to Resign. Subject to the provisions
of Section 6.5, PNC Bank, National Association shall not resign from the
obligations and duties imposed on it as Master Servicer under this Agreement
except upon determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law or
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shall violate any final order of a court or administrative agency with
jurisdiction over it or its properties. Notice of any such determination
permitting resignation shall be communicated to the Eligible Lender Trustee and
the Indenture Trustee at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion
of Counsel to such effect delivered to the Eligible Lender Trustee and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until the Indenture Trustee or a successor
Master Servicer shall have assumed the responsibilities and obligations of PNC
Bank, National Association in accordance with Section 8.2.
ARTICLE VII
The Administrator
SECTION 7.1. Representations of the Administrator. The Administrator
makes the following representations on which the Issuer is deemed to have
relied in acquiring (through the Eligible Lender Trustee) the Financed Student
Loans being conveyed pursuant to this Agreement. The representations speak as
of the Closing Date, in the case of the Initial Financed Student Loans, and as
of the applicable Exchange Date, in the case of the Exchanged Student Loans,
but shall survive the contribution, transfer and assignment of the Financed
Student Loans to the Eligible Lender Trustee on behalf of the Issuer and the
pledge thereof to the Indenture Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Administrator is duly
organized and validly existing as a national banking association with the power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted except
for such power and authority the absence of which would not have a material
adverse effect on the Administrator or its ability to consummate the
transactions contemplated by the Basic Documents, and had at all relevant
times, and has, the power, authority and legal right, to administer the
Financed Student Loans.
(b) Power and Authority of the Administrator. The Administrator has
the requisite corporate power and authority to execute and deliver this
Agreement and the Administration Agreement and to carry out their respective
terms; and the execution, delivery and performance of this Agreement and the
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Administration Agreement have been duly authorized by the Administrator by all
necessary corporate action on its part.
(c) Binding Obligation. This Agreement and the Administration
Agreement each constitutes a legal, valid and binding obligation of the
Administrator, enforceable against the Administrator in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance and similar laws relating to creditors' rights generally or the
rights of creditors of banks the deposit accounts of which are insured by the
FDIC or and subject to general principles of equity.
(d) No Violation. The consummation of the transactions contemplated by
this Agreement and the Administration Agreement and the fulfillment of the
terms hereof or thereof do not violate, result in any breach of any of the
terms and provisions of, nor constitute (with or without notice of lapse of
time or both) a default under, the articles of incorporation or by-laws of the
Administrator, or any material indenture, agreement or other instrument to
which the Administrator is a party or by which it shall be bound; nor result in
the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such material indenture, agreement or other material
instrument (other than pursuant to the Basic Documents); nor violate any
material law or, to the knowledge of the Administrator, any material order,
rule or regulation applicable to it of any court or of any Federal or State
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Administrator or its properties.
(e) No Proceedings. There are no proceedings or investigations pending
against the Administrator or, to its best knowledge, threatened against the
Administrator, before any court, regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over it or its
properties: (i) asserting the invalidity of this Agreement or the
Administration Agreement, (ii) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or the Administration Agreement
or (iii) seeking any determination or ruling that could reasonably be expected
to have a material and adverse effect on the performance by the Administrator
of its obligations under, or the validity or enforceability of, this Agreement
or the Administration Agreement.
(f) All Consents. All authorizations, consents, orders or approvals of
or registrations or declarations with any court, regulatory body,
administrative agency or other
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government instrumentality required to be obtained, effected or
given by the Administrator in its capacity as the Administrator in connection
with the execution and delivery by the Administrator of this Agreement or the
Administration Agreement and the performance by the Administrator in its
capacity as the Administrator of the transactions contemplated by this
Agreement or the Administration Agreement, have been duly obtained, effected or
given and are in full force and effect.
SECTION 7.2. Liability and Indemnities. (a) The Administrator shall be
liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Administrator under this Agreement or the
Administration Agreement.
The Administrator and any of its directors, officers, employees or
agents may rely in good faith on the advice of counsel or on any document of
any kind, prima facie properly executed and submitted by any Person.
Except as provided in this Agreement or the Administration Agreement,
the Administrator shall not be under any obligation to appear in, prosecute or
defend any legal action that shall not be incidental to its duties to
administer the Financed Student Loans and the Trust in accordance with this
Agreement and the Administration Agreement, and that in its opinion may involve
it in any expense or liability; provided, however, that the Administrator may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the other Basic Documents and the
interests of the Certificateholders under this Agreement and the Noteholders
under the Indenture.
(b) The Administrator shall indemnify, defend and hold harmless from
its funds, the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Master Servicer, the Noteholders and the Certificateholders and the officers,
directors, employees and agents of the Issuer, the Eligible Lender Trustee,
Indenture Trustee, the Noteholders and the Certificateholders from and against
any and all costs, expenses, losses, claims, damages and liabilities arising
out of, or imposed upon such Person through, the Administrator's willful
misfeasance, bad faith or negligence in the performance of its duties under
this Agreement or the Administration Agreement, or by reason of reckless
disregard of its obligations and duties under this Agreement or the
Administration Agreement, where the final determination that any such loss,
liability or expense arose out of, or was imposed upon any such Person through,
any such negligence, willful misfeasance or bad faith on the part of
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the Administrator is established by a court of law, by an arbitrator or by way
of settlement agreed to by the Administrator. Notwithstanding the foregoing, if
the Administrator is rendered unable, in whole or in part, by a force outside
the control of the Administrator (including acts of God, acts of war, severe
weather, communications failures or failures to receive electronic data or
labor disputes or strikes, fires, earthquakes and other disasters) to satisfy
its obligations under this Agreement, the Administrator shall not be deemed to
have breached any such obligation upon delivery of written notice of such event
to the other parties hereto, for so long as the Administrator remains unable to
perform such obligation as a result of such event; provided, however, the
Administrator shall not be liable for any such costs, expenses, losses, claims,
damages and liabilities imposed upon such Person to the extent that they arise
out of or result from such Person's negligence, willful malfeasance or bad
faith or a breach of the representations and warranties of such Person in this
Agreement or the Administration Agreement. Notwithstanding anything to the
contrary contained in this Agreement or the Administration Agreement, in no
event shall the Administrator be liable under any theory of tort, contract,
strict liability or other legal or equitable theory for any lost profits or
exemplary, punitive, special, incidental, indirect or consequential damages,
each of which is hereby excluded by agreement of the parties regardless of
whether or not the Administrator has been advised of the possibility of such
damages.
(c) Indemnification under this Section shall survive the resignation
or removal of the Eligible Lender Trustee or the Indenture Trustee and the
termination of this Agreement or the Indenture or the Trust Agreement, as
applicable, and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Administrator shall have made any indemnity
payments pursuant to this Section and the Person to or on behalf of whom such
payments are made thereafter shall collect any of such amounts from others,
such Person shall promptly repay such amounts to the Administrator without
interest.
(d) Promptly after receipt by an indemnified party under this Section
7.2 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 7.2, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under Section 7.2., except to the extent the indemnifying party is materially
prejudiced by such failure. In case any such action is brought against any
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indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party or parties
shall have the right to select separate counsel to assert such legal defenses
and to otherwise participate in the defense of such action on behalf of the
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7.2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. In no event shall the indemnifying party be liable for
fees and expenses for more than one counsel separate from their own counsel for
all indemnified parties in connection with any one action or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
The indemnified party may not, without the prior written consent of
the indemnifying party, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in which indemnification may be sought hereunder.
SECTION 7.3. Administrator Not to Resign. Subject to the provisions of
Section 6.5, PNC Bank, National Association shall not resign from the
obligations and duties imposed on it as Administrator under this Agreement
except upon determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law or shall violate
any final order of a court or administrative agency with
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jurisdiction over it or its properties. Notice of any such determination
permitting resignation shall be communicated to the Eligible Lender Trustee and
the Indenture Trustee at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion
of Counsel to such effect delivered to the Eligible Lender Trustee and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until the Indenture Trustee or a successor
Administrator shall have assumed the responsibilities and obligations of PNC
Bank, National Association in accordance with Section 8.2.
ARTICLE VIII
Default
SECTION 8.1. Master Servicer Default; Administrator Default. (a) If
any one of the following events (a "Master Servicer Default") shall occur and
be continuing:
(1) any failure by the Master Servicer (i) to deliver to the
Indenture Trustee for deposit in any of the Trust Accounts any payment
required by the Basic Documents or (ii) in the event that daily
deposits into the Collection Account are not required, to deliver to
the Administrator or the Eligible Lender Trustee any payment required
by the Basic Documents, which failure in case of either clause (i) or
(ii) continues unremedied for three Business Days after written notice
of such failure is received by the Master Servicer from the Eligible
Lender Trustee, the Indenture Trustee or the Administrator or after
discovery of such failure by an officer of the Master Servicer; or
(2) any failure by the Master Servicer duly to observe or to
perform in any material respect any other covenants or agreements of
the Master Servicer set forth in this Agreement or any other Basic
Document, which failure shall (i) materially and adversely affect the
rights of Noteholders and Certificateholders and (ii) continues
unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given (A) to the Master Servicer by the Indenture Trustee, the
Eligible Lender Trustee, or the Administrator or (B) to the Master
Servicer and to the Indenture Trustee and the Eligible Lender Trustee
by the Noteholders, representing not less than 25% of the Outstanding
Amount of the Notes or
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(3) an Insolvency Event occurs with respect to the Master
Servicer; or
(4) any limitation, suspension or termination by the
Department of the Master Servicer's eligibility to service Student
Loans which materially and adversely affects the Master Servicer's
ability to service the Financed Student Loans;
then, and in each and every case, so long as the Master Servicer Default shall
not have been remedied, the Indenture Trustee or the Noteholders of Notes
evidencing not less than 25% of the Outstanding Amount of the Notes, by notice
then given in writing to the Master Servicer (and to the Indenture Trustee and
the Eligible Lender Trustee if given by the Noteholders) may terminate all the
rights and obligations (other than the obligations set forth in Section 6.3
hereof) of the Master Servicer under this Agreement. On or after the receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the Notes, the
Certificates or the Financed Student Loans or otherwise, shall, without further
action, pass to and be vested in the Indenture Trustee or such successor Master
Servicer as may be appointed under Section 8.2, and, without limitation, the
Indenture Trustee and the Eligible Lender Trustee are hereby authorized and
empowered to execute and deliver, for the benefit of the predecessor Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Financed Student Loans and related
documents, or otherwise. The predecessor Master Servicer shall cooperate with
the successor Master Servicer, the Indenture Trustee and the Eligible Lender
Trustee in effecting the termination of the responsibilities and rights of the
predecessor Master Servicer under this Agreement, including the transfer to the
successor Master Servicer for administration by it of all cash amounts that
shall at the time be held by the predecessor Master Servicer for deposit, or
shall thereafter be received by it with respect to a Financed Student Loan. All
reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the Financed Student Loan Files from a current
Master Servicer to the successor Master Servicer and amending this Agreement
and any other Basic Documents to reflect such succession as Master Servicer
pursuant to this Section shall be paid by the predecessor Master Servicer upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice of the occurrence of a Master Servicer
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Default, the Eligible Lender Trustee shall give notice thereof to the
Rating Agencies.
Notwithstanding the termination of the Master Servicer and the
engagement of a successor Master Servicer, each Servicer shall continue to
serve in its capacity as Servicer or subservicer, unless it is in breach of the
related Servicing or Subservicing Agreement.
(b) Administrat or Default. If any one of the following events (an
"Administrator Default") shall occur and be continuing:
(1) any failure by the Administrator to direct the Indenture
Trustee or the Eligible Lender Trustee, as applicable, to make any
required distributions from any of the Trust Accounts, which failure
continues unremedied for three Business Days after written notice of
such failure is received by the Administrator from the Indenture
Trustee or the Eligible Lender Trustee or after discovery of such
failure by an officer of the Administrator; or
(2) any failure by the Administrator duly to observe or to
perform in any material respect any other covenants or agreements of
the Administrator set forth in this Agreement, the Administration
Agreement or any other Basic Document, which failure shall (i)
materially and adversely affect the rights of Noteholders and (ii)
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given (A) to the Administrator by the Indenture
Trustee or the Eligible Lender Trustee or (B) to the Administrator and
to the Indenture Trustee and the Eligible Lender Trustee by the
Noteholders representing not less than 25% of the Outstanding Amount
of the Notes;
(3) an Insolvency Event occurs with respect to the
Administrator;
then, and in each and every case, so long as the Administrator Default shall
not have been remedied, the Indenture Trustee or the Noteholders evidencing not
less than 25% of the Outstanding Amount of the Notes, by notice then given in
writing to the Administrator (and to the Indenture Trustee and the Eligible
Lender Trustee if given by the Noteholders) may terminate all the rights and
obligations (other than the obligations set forth in Sections 6.3 and 7.2
hereof) of the Administrator under this Agreement and the Administration
Agreement. On or after the receipt by the Administrator of such written notice,
all authority and power of the Administrator under this Agreement
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and the Administration Agreement, whether with respect to the Notes, the
Certificates or the Financed Student Loans or otherwise, shall, without further
action, pass to and be vested in the Indenture Trustee or such successor
Administrator as may be appointed under Section 8.2; and, without limitation,
the Indenture Trustee and the Eligible Lender Trustee are hereby authorized and
empowered to execute and deliver, for the benefit of the predecessor
Administrator, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary
or appropriate to effect the purposes of such notice of termination. The
predecessor Administrator shall cooperate with the successor Administrator, the
Indenture Trustee and the Eligible Lender Trustee in effecting the termination
of the responsibilities and rights of the predecessor Administrator under this
Agreement and the Administration Agreement. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with amending this Agreement
and the Administration Agreement to reflect such succession as Administrator
pursuant to this Section shall be paid by the predecessor Administrator upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice of the occurrence of a Administrator Default, the Eligible
Lender Trustee shall give notice thereof to the Rating Agencies.
SECTION 8.2. Appointment of Successor. (a) Upon receipt by the Master
Servicer or the Administrator, as the case may be, of notice of termination
pursuant to Section 8.1, or the resignation by the Master Servicer or the
Administrator, as the case may be, in accordance with the terms of this
Agreement, the predecessor Master Servicer or the Administrator, as the case
may be, shall continue to perform its functions as Master Servicer or
Administrator, as the case may be, under this Agreement and the Administration
Agreement, as the case may be, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
resignation, until the later of (x) the date 120 days from the delivery to the
Eligible Lender Trustee and the Indenture Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (y) the date upon which the predecessor Master
Servicer or Administrator, as the case may be, shall become unable to act as
Master Servicer or Administrator, as the case may be, as specified in the
notice of resignation and accompanying Opinion of Counsel. In the event of the
termination hereunder of the Master Servicer or the Administrator, as the case
may be,
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the Issuer shall appoint a successor Master Servicer or Administrator, as the
case may be, acceptable to the Indenture Trustee, and the successor Master
Servicer or Administrator, as the case may be, shall accept its appointment by
a written assumption in form acceptable to the Indenture Trustee. In the event
that a successor Master Servicer or Administrator, as the case may be, has not
been appointed at the time when the predecessor Master Servicer or
Administrator, as the case may be, has ceased to act as Master Servicer or
Administrator, as the case may be, in accordance with this Section, the
Indenture Trustee without further action shall automatically be appointed the
successor Master Servicer or Administrator, as the case may be, and the
Indenture Trustee shall be entitled to the Master Servicing Fee or the
Administration Fee, as the case may be in accordance with the provisions of the
Basic Documents. Notwithstanding the above, the Indenture Trustee shall, if it
shall be unwilling or legally unable so to act, appoint or petition a court of
competent jurisdiction to appoint, any established institution whose regular
business shall include the servicing of student loans, as the successor to the
Master Servicer or Administrator, as the case may be, under this Agreement;
provided, however, that such right to appoint or to petition for the
appointment of any such successor servicer shall in no event relieve the
Indenture Trustee from any obligations otherwise imposed on it under the Basic
Documents until such successor has in fact assumed such appointment.
(b) Upon appointment, the successor Master Servicer or Administrator,
as the case may be (including the Indenture Trustee acting as successor Master
Servicer or Administrator as the case may be), shall be the successor in all
respects to the predecessor Master Servicer or Administrator, as the case may
be, and shall be subject to all the responsibilities, duties and liabilities
arising thereafter relating thereto placed on the predecessor Master Servicer
or Administrator, as the case may be, and shall be entitled to an amount agreed
to by such successor Master Servicer or Administrator as the case may be, in
accordance with the provisions of the Basic Documents (which shall not exceed
the Master Servicing Fee or Administration Fee, as the case may be, unless such
compensation arrangements will not result in a downgrading of the Notes by any
Rating Agency) and all the rights granted to the predecessor Master Servicer or
Administrator, as the case may be, by the terms and provisions of this
Agreement.
(c) Neither the Master Servicer nor the Administrator may resign
unless it is prohibited from serving as such by law as evidenced by an Opinion
of Counsel to such effect delivered to the Indenture Trustee and the Eligible
Lender Trustee. Notwithstanding the foregoing or anything to the contrary
herein or in the other Basic Documents, the Indenture Trustee, to the
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extent it is acting as successor Master Servicer or Administrator, as the case
may be, pursuant hereto shall be entitled to resign to the extent a qualified
successor Master Servicer or Administrator, as the case may be, has been
appointed and has assumed all the obligations of the Master Servicer or
Administrator, as the case may be, in accordance with the terms of this
Agreement and the other Basic Documents.
(d) Any successor Master Servicer shall assume all the obligations and
responsibilities of the Master Servicer under each Subservicing Agreement with
a Servicer and shall only be able to modify or terminate such Subservicing
Agreements pursuant to the provisions thereof.
SECTION 8.3. Notification to Noteholders and Certificateholders. Upon
any termination of, or appointment of a successor to, the Master Servicer or
Administrator, as the case may be, pursuant to this Article VIII, the Eligible
Lender Trustee shall give prompt written notice thereof to Certificateholders
and the Indenture Trustee shall give prompt written notice thereof to
Noteholders and the Rating Agencies (which, in the case of any such appointment
of a successor, shall consist of prior written notice thereof to the Rating
Agencies).
SECTION 8.4. Waiver of Past Defaults. The Noteholders of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes may, on behalf of
all Noteholders and Certificateholders, waive in writing any default by the
Master Servicer or Administrator, as the case may be, in the performance of its
obligations hereunder and any consequences thereof, except a default in making
any required deposits to or payments from any of the Trust Accounts (or giving
instructions regarding the same) in accordance with this Agreement. Upon any
such waiver of a past default, such default shall cease to exist, and any
Master Servicer Default or Administrator Default, as the case may be, arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto.
ARTICLE IX
Termination
SECTION 9.1. Termination. (a) Optional Purchase of All Financed
Student Loans. As of the last day of any Collection Period immediately
preceding a Distribution Date as of which the then outstanding Pool Balance is
5% or less of
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the Initial Pool Balance and the Outstanding Amount of the Fixed Rate Notes has
been reduced to zero, the Transferor shall have the option to purchase the
Indenture Trust Estate, other than the Trust Accounts; provided, however, that
unless Moody's agrees otherwise, the Transferor may not effect any such
purchase as long as the rating of its unsecured long-term debt obligations is
less than Baa3 by Moody's, unless the Eligible Lender Trustee and the Indenture
Trustee shall have received an Opinion of Counsel to the effect that such
purchase would not constitute a fraudulent conveyance. To exercise such option,
the Transferor shall deposit pursuant to Section 5.4 in the Collection Account
an amount equal to the aggregate Purchase Amount for the Financed Student Loans
and the related rights with respect thereto, plus the appraised value of any
such other property held by the Trust, such value to be determined by an
appraiser mutually agreed upon by the Transferor, the Eligible Lender Trustee
and the Indenture Trustee, and shall succeed to all interests in and to the
Trust; provided, however, that the Transferor may not effect such purchase if
the aggregate Purchase Amount to be so deposited in the Collection Account does
not equal or exceed an amount equal to the sum of (x) the unpaid principal
balance of the Notes plus accrued and unpaid interest thereon at the related
Class Interest Rate to the last day of the Collection Period during which such
purchase occurs and (y) the unpaid Transaction Fees, if any.
(b) Auction of Financial Student Loans. Any Financed Student Loans
remaining in the Trust as of the end of the Collection Period immediately
preceding the 2007 Distribution Date will be offered for sale by the Indenture
Trustee. The Transferor, its affiliates and unrelated third parties may offer
bids to purchase such Financed Student Loans on such Distribution Date. If at
least two bids are received, the Indenture Trustee will accept the highest bid
equal to or in excess of the greater of (x) the aggregate Purchase Amounts of
such Financed Student Loans as of the end of the Collection Period immediately
preceding such Distribution Date or (y) an amount that would be sufficient to
(i) reduce the outstanding principal amount of the Notes on such Distribution
Date to zero and (ii) pay to the Noteholders the Noteholders' Interest
Distribution Amount payable on such Distribution Date and pay to the Swap
Counterparty any Trust Swap Payments payable on such Distribution Date, if any
(the "Minimum Purchase Price"). If at least two bids are not received or the
highest bid is not equal to or in excess of the Minimum Purchase Price, the
Indenture Trustee will not consummate such sale. The proceeds of any such sale
will be used to redeem any outstanding Notes on such Distribution Date. The
proceeds of any sale will be applied in the order of the property set forth in
5.04(b) of the Indenture. If the sale is not consummated in accordance with the
foregoing,
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the Indenture Trustee may, but shall not be under any obligation to, solicit
bids to purchase the Financed Student Loans on future Distribution Dates upon
terms similar to those described above.
(c) Insolvency of Transferor. Upon any sale of the assets of the Trust
pursuant to Section 9.2 of the Trust Agreement, the Master Servicer shall
instruct the Indenture Trustee to deposit the net proceeds from such sale after
all payments and reserves therefrom (including the expenses of such sale) have
been made (the "Insolvency Proceeds") in the Collection Account. On the
applicable Distribution Date, or, if such proceeds are not so deposited on a
Distribution Date, on the first Distribution Date following the date on which
the Insolvency Proceeds are deposited in the Collection Account, the Master
Servicer shall instruct the Indenture Trustee to make the following
distributions (after the application on such Distribution Date of the amount of
Available Funds and amounts on deposit in the Reserve Account pursuant to
Sections 5.5 (other than pursuant to Section 5.5(a)(ii)) and 5.6) from the
Insolvency Proceeds and any funds remaining on deposit in the Reserve Account
(including the proceeds of any sale of investments therein as described in the
following sentence):
(i) to the Indenture Trustee and the Eligible Lender Trustee,
any unpaid Indenture Trustee Fees and any unpaid Eligible Lender
Trustee Fees, respectively, and other amounts owed the Indenture
Trustee or the Eligible Lender Trustee hereunder or under any other
Basic Document and not otherwise paid on such Distribution Date;
(ii) to the Class A Noteholders, pro rata, any portion of the
Noteholders' Interest Distribution Amount applicable to the Class A
Noteholders, not otherwise distributed to the Class A Noteholders on
such Distribution Date;
(iii) to the Class A Noteholders, pro rata the outstanding
principal amount of the Class A Notes (after giving effect to the
reduction in the outstanding principal amount of the Class A Notes to
result from the distributions to Class A Noteholders on such
Distribution Date and on prior Distribution Dates);
(iv) to the Class B Noteholders, any portion of the
Noteholders' Interest Distribution Amount applicable to the Class B
Noteholders not otherwise distributed to the Class B Noteholders on
such Distribution Date;
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(v) to the Class B Noteholders, the outstanding principal
amount of the Class B Notes (after giving effect to the reduction in
the outstanding principal amount of the Notes to result from the
distributions to Noteholders on such Distribution Date and on prior
Distribution Dates);
(vi) to the Master Servicer, any unpaid Servicing Fee and
other amounts owed to the Master Servicer hereunder or under any other
Basic Document and not otherwise paid on such Distribution Date;
(vii) to the Class A Noteholders, any portion of the
Noteholders' Interest Carryover applicable to the Class A Noteholders
not otherwise distributed to the Class A Noteholders on such
Distribution Date;
(viii) to the Class B Noteholders, any portion of the
Noteholders' Interest Carryover applicable to the Class B Noteholders
not otherwise distributed to the Class B Noteholders on such
Distribution Date;
(ix) to the Certificateholders, any portion of the
Certificateholders' Interest Distribution amount not otherwise
distributed to the Certificateholders on such Certificate Distribution
Date;
(x) to the Certificateholders, the Certificate Balance (after
giving effect to the reduction in the Certificate Balance to result
from the distributions to Certificateholders on such Certificate
Distribution Date);
Any investments on deposit in the Reserve Account which will not mature on or
before the Distribution Date when needed shall be sold by the Indenture Trustee
at such time as will result in the Indenture Trustee receiving the proceeds
from such sale not later than the Business Day preceding such Distribution
Date. Any Insolvency Proceeds remaining after the deposits described above
shall be paid to the Transferor.
(d) Notice. As described in Article IX of the Trust Agreement, notice
of any termination of the Trust shall be given by the Administrator to the
Master Servicer, the Eligible Lender Trustee and the Indenture Trustee as soon
as practicable after the Administrator has received notice thereof.
(e) Succession. Following the satisfaction and discharge of the
Indenture and the payment in full of the principal of and interest on the
Notes, the Certificateholders will succeed to the rights of the Noteholders
hereunder other than Section 5.6(b) and the Eligible Lender Trustee will
succeed
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to the rights of, and assume the obligations of, the Indenture Trustee pursuant
to this Agreement and any other Basic Documents.
ARTICLE X
[Reserved]
ARTICLE XI
Miscellaneous
SECTION 11.1. Amendment. (a) This Agreement may be amended by the
Transferor, the Master Servicer and the Eligible Lender Trustee, with the prior
consent of the Indenture Trustee (which consent shall not be unreasonably
withheld) to cure any ambiguity, to correct or supplement any provisions in
this Agreement or for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions in this Agreement or of
modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Eligible Lender Trustee and the
Indenture Trustee, adversely affect in any material respect the interests of
any Noteholder.
(b) This Agreement may also be amended from time to time by the
Transferor, the Master Servicer and the Eligible Lender Trustee, with the prior
consent of the Indenture Trustee, the consent of the Noteholders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes, for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments with
respect to Financed Student Loans or distributions that shall be required to be
made for the benefit of the Noteholders or the Certificateholders or the Swap
Counter Party or (b) reduce the aforesaid percentage of the Outstanding Amount
of the Notes and the Certificate Balance, the Noteholders, the
Certificateholders or the Swap Counterparty of which are required to consent to
any such amendment, without the consent of all outstanding Noteholders and
Certificateholders.
(c) Promptly after the execution of any amendment pursuant to clause
(b) above, the Eligible Lender Trustee shall
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furnish written notification of the substance of such amendment or consent to
each Certificateholder and the Indenture Trustee.
(d) It shall not be necessary for the consent of Certificateholders or
Noteholders pursuant to this Section to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof.
(e) Prior to the execution of any amendment to this Agreement, the
Eligible Lender Trustee and the Indenture Trustee shall be entitled to receive
and rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and the Opinion of
Counsel referred to in Section 11.2(i)(1). The Eligible Lender Trustee and the
Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Eligible Lender Trustee's or the Indenture
Trustee's, as applicable, own rights, duties or immunities under this Agreement
or otherwise.
SECTION 11.2. Protection of Interests in Trust. (a) The Transferor
shall execute and file such financing statements and cause to be executed and
filed such continuation statements, all in such manner and in such places as
may be required by law fully to preserve, maintain, and protect the interest of
the Issuer, the Eligible Lender Trustee and the Indenture Trustee in the
Financed Student Loans and in the proceeds thereof. The Transferor shall
deliver (or cause to be delivered) to the Eligible Lender Trustee and the
Indenture Trustee file-stamped copies of, or filing receipts for, any document
filed as provided above, as soon as available following such filing.
(b) Neither the Transferor nor the Master Servicer shall change its
name, identity or corporate structure in any manner that would, could or might
make any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of ' 9-402(7) of
the UCC, unless it shall have given the Eligible Lender Trustee and the
Indenture Trustee at least five days' prior written notice thereof and shall
have promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) Each of the Transferor and the Master Servicer shall have an
obligation to give the Eligible Lender Trustee and the Indenture Trustee at
least 30 days' prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable provisions
of the UCC would require the filing of any amendment of any previously filed
financing or continuation statement or of any new financing
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statement and shall promptly file any such amendment. The Master Servicer shall
at all times maintain each office from which it shall service Financed Student
Loans, and its principal executive office, within the United States of America.
(d) The Master Servicer shall maintain, or cause the Servicers to
maintain, accounts and records as to each Financed Student Loan for which it is
the Primary Servicer (or provide access to such accounts and records being
serviced by a Servicer) accurately and in sufficient detail to permit (i) the
reader thereof to know at any time the status of such Financed Student Loan,
including payments and recoveries made and payments owing (and the nature of
each) and (ii) reconciliation between payments or recoveries on (or with
respect to) each Financed Student Loan and the amounts from time to time
deposited in the Collection Account in respect of such Financed Student Loan.
(e) The Master Servicer shall cause each Subcustodian to maintain its
computer systems so that, from and after the time of transfer under this
Agreement of the Financed Student Loans, each Subcustodian's master computer
records (including any backup archives) that refer to a Financed Student Loan
shall indicate clearly the interest of the Issuer and the Indenture Trustee in
such Financed Student Loan and that such Financed Student Loan has been
assigned by the Transferor to the Issuer and has been pledged to the Indenture
Trustee. Indication of the Issuer's and the Indenture Trustee's interest in a
Financed Student Loan shall be deleted from or modified on the applicable
Subcustodian's computer systems when, and only when, the related Financed
Student Loan shall have been paid in full or repurchased.
(f) If at any time the Transferor shall propose to contribute, grant a
security interest in, or otherwise transfer any interest in Financed Student
Loans to any prospective purchaser, lender or other transferee, the Master
Servicer shall give notice to such prospective purchaser, lender or other
transferee that such Financed Student Loan has been assigned to the Issuer and
has been pledged to the Indenture Trustee.
(g) Upon reasonable notice, the Master Servicer shall permit the
Indenture Trustee and its agents once each calendar year (unless there is a
Servicer Default, in which case at any time) during normal business hours to
inspect, audit and make copies of and abstracts from the Master Servicer's
records regarding any Financed Student Loan.
(h) Upon request at any time the Eligible Lender Trustee or the
Indenture Trustee shall have reasonable grounds
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to believe that such request would be necessary in connection with its
performance of its duties under the Basic Documents, the Master Servicer shall
furnish to the Eligible Lender Trustee or to the Indenture Trustee, within
twenty Business Days, a list of all Financed Student Loans (by borrower social
security number, type of loan and date of issuance) then held as part of the
Trust, and a comparison of such list to the list of the Initial Financed
Student Loans set forth in Schedule A as of the Closing Date, and, for each
Financed Student Loan that has been added to or removed from the pool of loans
held by the Eligible Lender Trustee on behalf of the Issuer, information as to
the date as of which and circumstances under which each such Financed Student
Loan was so added or removed.
(i) The Transferor shall deliver to the Eligible Lender Trustee and
the Indenture Trustee:
(1) promptly after the execution and delivery of this
Agreement and of each amendment thereto an Opinion of Counsel either
(A) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the
Eligible Lender Trustee and the Indenture Trustee in the Financed
Student Loans, and reciting the details of such filings or referring
to prior Opinions of Counsel in which such details are given, or (B)
stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest; and
(2) within 120 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three
months after the Cut-off Date, an Opinion of Counsel, dated as of a
date during such 120-day period, either (A) stating that, in the
opinion of such counsel, all financing statements and continuation
statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Eligible Lender Trustee and
the Indenture Trustee in the Financed Student Loans, and reciting the
details of such filings or referring to prior Opinions of Counsel in
which such details are given, or (B) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and
protect such interest; provided that a single Opinion of Counsel may
be delivered in satisfaction of the foregoing requirement and that of
Section 3.6 of the Indenture.
Each Opinion of Counsel referred to in clause (1) or (2) above shall
specify (as of the date of such opinion and
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given all applicable laws as in effect on such date) any action necessary to be
taken in the following year to preserve and protect such interest.
(j) The Administrator shall file all reports with respect to the Notes
and the Certificates as may be required by the Commission or state securities
authorities.
SECTION 11.3. Notices. All demands, notices and communications upon or
to the Transferor, the Master Servicer, the Administrator, the Eligible Lender
Trustee or the Indenture Trustee under this Agreement shall be in writing,
personally delivered or mailed by certified mail or overnight courier, return
receipt requested or overnight courier (or in the form of telex or facsimile
notice, followed by written notice delivered as aforesaid) and shall be deemed
to have been duly given upon receipt (a) in the case of the Transferor, the
Master Servicer or Administrator, two copies, one to PNC Bank, National
Association, 2600 Liberty Avenue, Suite 200, Pittsburgh, Pennsylvania 15222,
Attention: John Peters; facsimile: (800) 300-2213, with a copy to PNC Bank,
National Association, One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania
15222, Attention: Helen Pudlin, Esq.; Senior Vice President and General
Counsel; facsimile (412) 762-5920 (b) in the case of the Issuer or the Eligible
Lender Trustee, at the Corporate Trust Office of the Eligible Lender Trustee,
(c) in the case of the Indenture Trustee, at its Corporate Trust Office; (d) in
the case of Moody's, to Moody's Investors Service, Inc., 99 Church Street, New
York, New York 10007, Attention: Structured Finance Department / Student Loans
(telephone: (212) 553 0300; facsimile: (212) 553 4792), and (e) in the case of
Standard & Poor's, to Standard & Poor's Ratings Service, 25 Broadway (20th
Floor), New York, New York 10004, Attention: Asset Backed Surveillance
Department (telephone: (212) 208 8000; facsimile: (212) 412 0225) or, as to
each of the foregoing, at such other address as shall be designated by written
notice to the other parties.
SECTION 11.4. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 4.12 and in Section 6.5 and as
provided in the provisions of this Agreement concerning the resignation of the
Master Servicer, this Agreement may not be assigned by the Transferor or the
Master Servicer. This Agreement may only be assigned by the Eligible Lender
Trustee to its permitted successor pursuant to the Trust Agreement.
SECTION 11.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Transferor, the Master Servicer,
the Issuer and the Eligible
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Lender Trustee and for the benefit of the Certificateholders, the Indenture
Trustee and the Noteholders as third party beneficiaries, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.7. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.8. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.9. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 11.10. Assignment to Indenture Trustee. The Transferor hereby
acknowledges and consents to any mortgage, pledge, assignment and grant by the
Issuer to the Indenture Trustee pursuant to the Indenture for the benefit of
the Noteholders of a security interest in all right, title and interest of the
Issuer in, to and under the Financed Student Loans and/or the assignment of any
or all of the Issuer's rights and obligations hereunder to the Indenture
Trustee.
SECTION 11.11. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement, the Master Servicer, the Administrator and the
Transferor shall not, prior to the date that is one year after the termination
of this Agreement, with respect to the Issuer acquiesce, petition or otherwise
invoke or cause the Issuer to invoke the process of any court or government
authority for the purpose of commencing
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or sustaining a case against the Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Issuer or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer.
SECTION 11.12. Limitation of Liability of Eligible Lender Trustee and
Indenture Trustee. (a) Notwithstanding ee anything contained herein to the
contrary, this Agreement has been signed by The First National Bank of Chicago
not in its individual capacity but solely in its capacity as Eligible Lender
Trustee of the Issuer and in no event shall The First National Bank of Chicago
in its individual capacity or as beneficial owner of the Issuer have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto as to all of which recourse shall be had
solely to the assets of the Issuer.
Notwithstanding any provision in this Agreement or the Basic
Documents, nothing in such Agreement and Basic Documents shall be construed to
limit the Eligible Lender Trustee's responsibility to the U.S. Secretary of
Education or a Guarantor in its capacity as Eligible Lender Trustee for any
violations of statutory or regulatory requirements that may occur with respect
to loans held in the Trust, pursuant to 34 CFR 682.203(b) or any successor
provision thereto.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been accepted by Bankers Trust Company not in its individual
capacity but solely as Indenture Trustee and in no event shall Bankers Trust
Company have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first
above written.
PNC STUDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Eligible Lender Trustee
on behalf of the Trust
By:
----------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
Transferor, Master Servicer and
Administrator
By:
----------------------------------
Name:
Title:
Acknowledged and accepted
as of the day and year
first above written:
BANKERS TRUST COMPANY, not
in its individual capacity
but solely as Indenture Trustee
By:
---------------------------
Name:
Title:
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[DRAFT 6/13/97]
APPENDIX A
TO THE
TRANSFER AND SERVICING AGREEMENT
DEFINITIONS AND USAGE
Usage
The following rules of construction and usage shall be applicable to
any instrument that is governed by this Appendix:
(a) All terms defined in this Appendix shall have the defined meanings
when used in any instrument governed hereby and in any certificate or other
document made or delivered pursuant thereto unless otherwise defined therein.
(b) As used herein, in any instrument governed hereby and in any
certificate or other document made or delivered pursuant thereto, accounting
terms not defined in this Appendix or in any such instrument, certificate or
other document, and accounting terms partly defined in this Appendix or in any
such instrument, certificate or other document to the extent not defined, shall
have the respective meanings given to them under generally accepted accounting
principles as in effect on the date of such instrument. To the extent that the
definitions of accounting terms in this Appendix or in any such instrument,
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Appendix or in any such instrument, certificate or other document shall
control.
(c) The words "hereof", "herein", "hereunder" and words of similar
import when used in an instrument refer to such instrument as a whole and not
to any particular provision or subdivision thereof; references in an instrument
to "Article", "Section" or another subdivision or to an attachment are, unless
the context otherwise requires, to an article, section or subdivision of or an
attachment to such instrument; and the term "including" means "including
without limitation".
(d) The definitions contained in this Appendix are equally applicable
to both the singular and plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
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(e) Any agreement, instrument or statute defined or referred to below
or in any agreement or instrument that is governed by this Appendix means such
agreement or instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein. References to a
Person are also to its permitted successors and assigns.
Definitions
"Act" has the meaning specified in Section 11.3(a) of the Indenture.
"Administration Agreement" means the Administration Agreement dated as
of March 27, 1997, among the Issuer, the Indenture Trustee and the
Administrator, as amended from time to time.
"Administration Fee" has the meaning specified in Section 3 of the
Administration Agreement.
"Administrator" means PNC Bank, National Association, in its capacity
as administrator of the Issuer and the Financed Student Loans, or any successor
as Administrator under the Transfer and Servicing Agreement.
"Administrator Default" has the meaning specified in Section 8.1(b) of
the Transfer and Servicing Agreement.
"Administrator's Certificate" means an Officer's Certificate of the
Administrator delivered pursuant to Section 4.7(b) of the Transfer and
Servicing Agreement, substantially in the form of Exhibit C thereto.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
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"AFSA" means the AFSA Data Corporation.
"Authenticating Agent" means the Person appointed by the Indenture
Trustee at the request of the Issuer as Authenticating Agent for the Notes
pursuant to Section 2.3(8) of the Indenture, and any successor Authenticating
Agent for the Notes.
"Authorized Officer" means (i) with respect to the Issuer,
any officer of the Eligible Lender Trustee who is authorized to act for the
Eligible Lender Trustee in matters relating to the Issuer pursuant to the Basic
Documents and who is identified on the list of Authorized Officers delivered by
the Eligible Lender Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter), (ii)
with respect to the Administrator, any officer of the Administrator who is
authorized to act for the Administrator in matters relating to itself or to the
Issuer and to be acted upon by the Administrator pursuant to the Basic
Documents and who is identified on the list of Authorized Officers delivered by
the Administrator to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter), (iii) with
respect to the Transferor, any officer of the Transferor who is authorized to
act for the Transferor in matters relating to or to be acted upon by the
Transferor pursuant to the Basic Documents and who is identified on the list of
Authorized Officers delivered by the Transferor to the Indenture Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter) and (iv) with respect to a Servicer, any officer of such Servicer
who is authorized to act for such Servicer in matters relating to or to be
acted upon by such Servicer pursuant to the Basic Documents and who is
identified on the list of Authorized Officers delivered by such Servicer to the
Indenture Trustee, on the Closing Date (as such list may be modified or
supplemented from time to time thereafter).
"Available Funds" means, with respect to any Collection Period, the
excess of (A) the sum, without duplication, of the following amounts with
respect to such Collection Period: (i) all collections received by the Master
Servicer or any Servicer on the Financed Student Loans (including any Guarantee
Payments received with respect to the Financed Student Loans) during such
Collection Period; (ii) any payments, including without limitation Interest
Subsidy Payments and Special Allowance Payments, received by the Eligible
Lender Trustee during such Collection Period with respect to Financed Student
Loans; (iii) all proceeds from any sales of Financed Student Loans by the
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Trust during such Collection Period; (iv) any payments of or with respect to
interest received by the Master Servicer or a Servicer during such Collection
Period with respect to a Financed Student Loan for which a Realized Loss was
previously allocated; (v) the aggregate Purchase Amounts received for those
Financed Students Loans purchased by the Transferor or purchased by the Master
Servicer under an obligation which arose during the related Collection Period;
(vi) the aggregate amounts, if any, received from the Transferor or the Master
Servicer, as the case may be, as reimbursement of non-guaranteed interest
amounts, lost Interest Subsidy Payments and Special Allowance Payments, with
respect to the Financed Student Loans pursuant to Section 3.2 or Section 4.5,
respectively, of the Transfer and Servicing Agreement (vii) all Exchange
Adjustments, if any, received from the Transferor during such Collection Period
and (viii) Investments Earnings for such Collection Period over (B) the Issuer
Consolidated Payments for such Collection period; provided, however, that
Available Funds will exclude all payments and proceeds of any Financed Student
Loans the Purchase Amount of which has been included in Available Funds for a
prior Collection Period, which payments and proceeds shall be paid to the
Transferor, and amounts used to reimburse the Master Servicer for Monthly
Advances pursuant to Section 5.4 of the Transfer and Servicing Agreement. For
any Distribution Date the term Available Funds also includes any Counterparty
Swap Payments received with respect to such Distribution Date.
"Basic Documents" means the Trust Agreement, the Master Indenture, the
Terms Supplement, the Transfer and Servicing Agreement, the Administration
Agreement, the Note Depository Agreement, the Guarantee Agreements, the
Underwriting Agreement and other documents and certificates delivered in
connection with any thereof and all amendments and supplements thereto.
"Benefit Plan" means any employee benefit plan, retirement
arrangement, individual retirement account or Keogh Plan subject to either
Title I of ERISA or Section 4975 of the Code, or any entity (including an
insurance company general account) whose underlying assets include plan assets
by reason of a plan's investment in the entity.
"Book-Entry Note" means a beneficial interest in the Notes, ownership
and transfers of which shall be through book entries by a Securities Depository
as described in Section 2.14 of the Indenture.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which national banking associations or banking
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institutions or trust companies in New York are authorized or obligated by law,
regulation or executive order to remain closed.
"Certificate" means a certificate evidencing the beneficial interest
of a Certificateholder in the Trust, substantially in the form of Exhibit A to
the Trust Agreement.
"Certificate Balance" equals, initially, the Initial Certificate
Balance and, thereafter, equals the Initial Certificate Balance reduced by all
amounts previously distributed to Certificateholders as principal. In
determining whether the Certificateholders which hold Certificates representing
the requisite Certificate Balance have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any
other Basic Document, the Certificate Balance shall not include the principal
balance of Certificates owned by the Transferor or any Affiliate of the
Transferor.
"Certificate Distribution Account" means the account designated as
such, established and maintained pursuant to Section 5.1 of the Transfer and
Servicing Agreement.
"Certificate Monthly Advance Account" means the account designated as
such, established and maintained pursuant to Section 5.1 of the Transfer and
Servicing Agreement.
"Certificate Paying Agent" means any paying agent or co-paying agent
appointed pursuant to Section 3.10 of the Trust Agreement, which shall
initially be the Eligible Lender Trustee.
"Certificate Initial Rate" means 7.1875% per annum.
"Certificate Rate" means One-Month LIBOR plus 1.50%.
"Certificate Register" and "Certificate Registrar" means the register
mentioned and the registrar appointed pursuant to Section 3.4 of the Trust
Agreement.
"Certificateholder" means a Person in whose name a Certificate is
registered in the Certificate Register.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the Certificateholders' Interest Distribution Amount for
such Distribution Date plus, for each Distribution Date on and after the Notes
have been paid in full, the Certificateholders' Principal Distribution Amount
for such Distribution Date.
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"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Distribution Date, the excess, if any, of (i) the sum of the related
Certificateholders' Interest Distribution Amount on the preceding Distribution
Date and any outstanding Certificateholders' Interest Carryover Shortfall on
such preceding Distribution Date over (ii) the amount of interest actually
distributed to such Certificateholders on such preceding Distribution Date,
plus interest on the amount of such excess interest due to such
Certificateholders, to the extent permitted by law, at the related Certificate
Rate from such preceding Distribution Date to the current Distribution Date.
"Certificateholders' Interest Distribution Amount" means, with respect
to any Certificate Distribution Date, the sum of (i) the amount of interest
accrued at the Certificate Rate for the related Interest Period on the
outstanding Certificate Balance on the immediately preceding Distribution Date,
after giving effect to all distributions of principal to Certificateholders on
such Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date) and (ii) the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date on or after which the Notes have been paid in
full, the excess, if any, of (i) the sum of the Certificateholders' Principal
Distribution Amount on such Distribution Date and any outstanding
Certificateholders' Principal Carryover Shortfall for the preceding
Distribution Date over (ii) the amount of principal actually distributed to the
Certificateholders on such Distribution Date.
"Certificateholders' Principal Distribution Amount" means, on
each Distribution Date on and after the date when the principal balance of each
Class of Notes has been paid in full, the sum of (a) the Principal Distribution
Amount for the three Collection Periods preceding such Distribution Date and
(b) the Certificateholders' Principal Carryover Shortfall as of the close of
the preceding Distribution Date; provided, however, that the
Certificateholders' Principal Distribution Amount will in no event exceed the
outstanding principal balance of the Certificates. Further, on the first
Distribution Date occurring on or after the Distribution Date on which the
principal balance of the last Outstanding Class of Notes is paid in full, the
Certificateholders' Principal Distribution Amount also will include the excess,
if any, of the amount of principal available to be distributed on such
Distribution Date over the amount of principal paid on the Notes on such date.
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"Class" means any class of Notes.
"Class A Notes" means the Class A-1, Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes, Class A-5 Notes, Class A-6 Notes, Class A-7 Notes, Class A-8
Notes and the Class A-9 Notes.
"Class A-1 Notes" means Notes of the Issuer designated as "PNC Student
Loan Trust I, Series 1997-2, Senior Treasury Rate Class A-1 Asset Backed
Notes."
"Class A-1 Noteholder" means any Noteholder of the Class A-1 Notes.
"Class A-2 Notes" means Notes of the Issuer designated as "PNC Student
Loan Trust I, Series 1997-2, Senior Treasury Rate Class A-2 Asset Backed
Notes."
"Class A-2 Noteholder" means any Noteholder of the Class A-2 Notes.
"Class A-3 Notes" means Notes of the Issuer designated as "PNC Student
Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-3 Asset Backed Notes.
"Class A-3 Noteholder" means any Noteholder of the Class A-3 Notes.
"Class A-4 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior Treasury Rate Class A-4 Asset
Backed Notes.
"Class A-4 Noteholder" means any Noteholder of the Class A-4 Notes.
"Class A-5 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-5 Asset Backed
Notes.
"Class A-5 Noteholder" means any Noteholder of the Class A-5 Notes.
"Class A-6 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-6 Asset Backed
Notes.
"Class A-6 Noteholder" means any Noteholder of the Class A-6 Notes.
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"Class A-7 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior Fixed Rate Class A-7 Asset Backed
Notes.
"Class A-7 Noteholder" means any Noteholder of the Class A-7 Notes.
"Class A-8 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class A-8 Asset Backed
Notes.
"Class A-8 Noteholder" means any Noteholder of the Class A-8 Notes.
"Class A-9 Notes" means Notes of the Issuer designated as "PNC"
Student Loan Trust I, Series 1997-2, Senior LIBOR Rate Class A-9 Asset Backed
Notes.
"Class A-9 Noteholder" means any Noteholder of the Class A-9 Notes.
"Class B Notes" means Notes of the Issuer designated as "PNC Student
Loan Trust I, Series 1997-2, Subordinate LIBOR Rate Class B Asset Backed
Notes."
"Class B Noteholder" means any Noteholder of the Class B Notes.
"Class Initial Rate" means, with respect to any Class of Notes, the
rate identified as such in the Terms Supplement.
"Class Interest Rate" means, with respect to any Class of Notes, the
interest rate determined as set forth in the Terms Supplement.
"Closing Date" means June __, 1997.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"Collection Account" means the account designated as such, established
and maintained pursuant to Section 5.1 of the Transfer and Servicing Agreement.
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"Collection Period" means, initially, the period beginning June __,
1997 and ending on June 30, 1997, inclusive, and thereafter, the Collection
Period means the calendar month immediately following the end of the previous
Collection Period.
"Commission" means the Securities and Exchange Commission.
"Consolidation Loan" means a Financed Student Loan designated as such,
made by the Transferor to an eligible borrower that represents the refinancing
of student loans to such borrower and his or her spouse in accordance with the
applicable terms and provisions of the Higher Education Act.
"Consolidation Prepayments" means, on any Exchange Date, the amount of
principal then on deposit in the Collection Account representing payments
received [from parties other than the Transferor] as a result of Financial
Student Loans being repaid with the proceeds of consolidation loans (provided,
however, if an Exchange Date occurs during the month of a Distribution Date,
Consolidation Prepayments shall not include amounts received during the month
of such Distribution Date).
"Corporate Trust Office" means (i) with respect to the Indenture
Trustee, the principal office of the Indenture Trustee at which at any
particular time its corporate trust business shall be administered, which
office on the Closing Date is located at Four Albany Street, New York, New York
10006 Attention: Corporate Trust and Agency Group, Structured Finance Group
(telephone: (212) 250- 6652; facsimile: (212) 250-6439) or at such other
address as the Indenture Trustee may designate from time to time by notice to
the Noteholders, the Certificateholder and the Transferor, or the principal
corporate trust office of any successor Indenture Trustee (the address of which
the successor Indenture Trustee will notify the Noteholders and the Transferor)
and (ii) with respect to the Eligible Lender Trustee, the principal corporate
trust office of the Eligible Lender Trustee located at One First National
Plaza, Suite 0126, Chicago, Illinois 60670, Attention: [Jeffrey C. Kinney
telephone: (312) 407-1892; facsimile (312) 407-1708;] or at such other address
as the Eligible Lender Trustee may designate by notice to the
Certificateholders and the Transferor, or the principal corporate trust office
of any successor Eligible Lender Trustee (the address of which the successor
Eligible Lender Trustee will notify the Certificateholders and the Transferor).
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"Counterparty Swap Payment" means, as to the Swap Agreement, with
respect to any Quarterly Distribution Date, the excess, if any, of (i) the
aggregate of the amounts accrued during the three Interest Periods immediately
preceding such Quarterly Distribution Date (or, in the case of the first
Quarterly Distribution Date, since the Closing Date) on each portion of the
Notional Amount of the Swap Agreement corresponding to the amount set forth on
the Scheduled Principal Balance Table for each Class of Fixed Rate Notes at a
fixed rate equal to the Class Interest Rate for each such Class (calculated on
the basis of a year consisting of 12 months of 30 days each) over (ii) the
amount payable under the Swap Agreement on such Quarterly Distribution Date by
the Trust to the Swap Counterparty.
"Cut-off Date" means, the close of business on June 6, 1997.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Deferral Phase" means the period during which the related borrower is
in school and for certain authorized periods as described in the Higher
Education Act.
"Definitive Notes" has the meaning specified in Section 2.14 of the
Indenture.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC and are susceptible of physical delivery, transfer thereof to
the Indenture Trustee or its nominee or custodian by physical delivery
to the Indenture Trustee or its nominee or custodian endorsed to, or
registered in the name of, the Indenture Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated
security (as defined in Section 8-102 of the UCC) transfer thereof (i)
by delivery of such certificated security endorsed to, or registered
in the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank to a financial intermediary (as defined in Section
8-313) of the UCC) and the making by such financial intermediary of
entries on its books and records identifying such certificated
securities as belonging to the Indenture Trustee or its nominee or
custodian and the sending by such
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financial intermediary of a confirmation of the purchase of such
certificated security by the Indenture Trustee or its nominee or
custodian, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(3) of the UCC) and the making by such
clearing corporation of appropriate entries on its books reducing the
appropriate securities account of the transferor and increasing the
appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the
clearing corporation of the certificated securities for the sole and
exclusive account of the financial intermediary, the maintenance of
such certificated securities by such clearing corporation or a
"custodian bank" (as defined in Section 8-102(4) of the UCC) or the
nominee of either subject to the clearing corporation's exclusive
control, the sending of a confirmation by the financial intermediary
of the purchase by the Indenture Trustee or its nominee or custodian
of such securities and the making by such financial intermediary of
entries on its books and records identifying such certificated
securities as belonging to the Indenture Trustee or its nominee or
custodian (all of the foregoing, "Physical Property"), and, in any
event, any such Physical Property in registered form shall be in the
name of the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or
the interpretation thereof;
(b) with respect to any securities issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or by the Federal
National Mortgage Association that is a book-entry security held
through the Federal Reserve System pursuant to Federal book-entry
regulations, the following procedures, all in accordance with
applicable law, including applicable Federal regulations and Articles
8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a
Federal Reserve Bank by a financial intermediary which is also a
"depository" pursuant to applicable Federal regulations and issuance
by such financial intermediary of a deposit advice or other written
confirmation of such book-entry registration to the Indenture Trustee
or its nominee or custodian of the purchase by the Indenture Trustee
or its nominee or custodian of such book-entry securities; the making
by such financial intermediary of entries in its
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books and records identifying such book-entry security held through
the Federal Reserve System pursuant to Federal book-entry regulations
as belonging to the Indenture Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property
solely as agent for the Indenture Trustee or its nominee or custodian;
and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust
Account Property to the Indenture Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that
is an uncertificated security under Article 8 of the UCC and that is
not governed by clause (b) above, registration on the books and
records of the issuer thereof in the name of the financial
intermediary, the sending of a confirmation by the financial
intermediary of the purchase by the Indenture Trustee or its nominee
or custodian of such uncertificated security, the making by such
financial intermediary of entries on its books and records identifying
such uncertificated certificates as belonging to the Indenture Trustee
or its nominee or custodian.
"Department" means the United States Department of Education, an
agency of the Federal government.
"Depositor" means PNC Bank, National Association in its capacity as
Depositor under the Trust Agreement.
"Determination Date" means, with respect to any Distribution Date, the
fifth Business Day preceding such Distribution Date.
"Distribution" means, with respect to any Financed Student Loan, the
amount of the monthly remittance payable to the holder of such Financed Student
Loan in accordance with its terms.
"Distribution Date" means the 25th day of each January, April, July
and October, or in the case of the A-1 Notes monthly on the 25th day of each
month or if any such day is not a Business Day, the next succeeding Business
Day.
"DLP Loans" means Stafford Loans and Unsubsidized Stafford Loans
guaranteed by PHEAA and made by the Transferor to Pennsylvania residents
attending Pennsylvania institutions which are part of the DLP Program.
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"Eligible Deposit Account" means either (a) a segregated account with
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the States (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 an entity which is an institution whose
deposits are insured by the FDIC and the unsecured and uncollateralized
long-term debt obligations of which shall be rated "A" or better by Standard &
Poor's and A2 or better by Moody's, or one of the two highest short-term
ratings by Standard & Poor's and the highest short term rating by Moody's, and
which is either (i) a federal savings association duly organized, validly
existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking
laws, or (iv) a principal subsidiary of a bank holding company.
"Eligible Investments" As used herein, Eligible Investments shall
include the following:
(1) Cash (insured at all times by the Federal Deposit Insurance
Corporation);
(2) Direct obligations of (including obligations issued or held in
book entry form on the books of) the Department of the Treasury
of the United States of America;
(3) obligations of any of the following federal agencies which
obligations represent the full faith and credit of the United
States of America, including:
- Export-Import Bank
- Farm Credit System Financial Assistance Corporation
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- Farmers Home Administration
- General Services Administration
- U.S. Maritime Administration
- Small Business Administration
- Government National Mortgage Association (GNMA)
- U.S. Department of Housing & Urban Development (PHA's)
- Federal Housing Administration;
(4) senior debt obligations rated "AAA" by Standard & Poor's and
"Aaa" by Moody's issued by the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation
(5) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a
rating on their short term certificates of deposit on the date
of purchase of "A-1" or "A-1+" by Standard & Poor's and "P-1" by
Moody's and maturing no more than 360 days after the date of
purchase (ratings on holding companies not being considered the
rating of the bank);
(6) commercial paper which is rated at the time of purchase in the
single highest classification, "A-1+" by Standard & Poor's and
"P-1" by Moody's and which matures not more than 270 days after
the date of purchase;
(7) Investments in money market funds (including, but not limited
to, money market mutual funds) rated "AAAm" or "AAAm-G" or
better by Standard & Poor's;
(8) Pre-refunded Municipal Obligations defined as follows: Any bonds
or other obligations of any state of the United States of
America or of any agency, instrumentality or local governmental
unit of any such state which are not callable at the option of
the obligor prior to maturity or as to which irrevocable
instructions have been given by the obligor to call on the date
specified in the notice; and
(A) which are rated, based on an irrevocable escrow account
or fund (the "escrow"), in the highest rating category of
Standard & Poor's and Moody's or any successors thereto; or
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(B) (i) which are fully secured as to principal and interest
and redemption premium, if any, by an escrow consisting only
of cash or obligations described in paragraph (2) above,
which escrow may be applied only to the payment of such
principal of and interest and redemption premium, if any, on
such bonds or other obligations on the maturity date or dates
thereof or the specified redemption date or dates pursuant to
such irrevocable instructions, as appropriate, and (ii) which
escrow is sufficient, as verified by a nationally recognized
independent certified public accountant, to pay principal of
and interest and redemption premium, if any, on the bonds or
other obligations described in this paragraph on the maturity
date or dates specified in the irrevocable instructions
referred to above, as appropriate;
(9) investment agreements acceptable to the Rating Agencies, written
confirmation of which shall be furnished to the Indenture
Trustee prior to any such investment; and
(10) other forms of investments acceptable to the Rating Agencies,
written confirmation of which shall be furnished to the
Indenture Trustee prior to any such investment.
Notwithstanding anything in this Agreement or the Basic Documents to
the contrary, for so long as the Transferor is a Certificateholder, all
investments of the Trust shall be made in investments permissible for a
national bank.
The value of the above investments shall be determined as follows:
a) as to investments the bid and asked prices of which are
published on a regular basis in The Wall Street Journal (or, if
not there, then in The New York Times): the average of the bid
and asked prices for such investments so published on or most
recently prior to such time of determination;
b) as to investments the bid and asked prices of which are not
published on a regular basis in The Wall Street Journal or The
New York Times: the average bid price at such time of
determination for such investments by any
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two nationally recognized government securities dealers
(selected by the Indenture Trustee in its absolute discretion)
at the time making a market in such investments or the bid price
published by a nationally recognized pricing service;
c) as to certificates of deposit and bankers acceptances: the face
amount thereof, plus accrued interest; and
d) as to any investment not specified above: the value thereof
established by prior agreement between the Issuer, the
Administrator and the Indenture Trustee.
"Eligible Lender Trustee" means The First National Bank of Chicago not
in its individual capacity but solely as Eligible Lender Trustee under the
Trust Agreement.
"Eligible Lender Trustee Fee" has the meaning specified in Section 8.1
of the Trust Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 5.1 of the
Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Adjustment" has the meaning set forth in Section 2.3(e) of
the Transfer and Servicing Agreement.
"Exchange Date" means the date specified as such in the related
Transfer Agreement.
"Exchange Period" means the period commencing on the Closing Date and
ending on [June 30, 2002].
"Exchanged Student Loan" means any Financed Student Loan transferred
to the Eligible Lender Trustee on behalf of the Issuer during the Exchange
Period pursuant to Section 2.2 of the Transfer and Servicing Agreement.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
any Executive Vice President, any Senior Vice President, any Vice President,
the
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Secretary, the Controller or the Treasurer of such corporation; and with
respect to any partnership, any general partner thereof.
"Expense Account" means the account designated as such pursuant to
Section 5.1 of the Transfer and Servicing Agreement.
"Expenses" means any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of
any kind and nature whatsoever which may at any time be imposed on, incurred
by, or asserted against the Eligible Lender Trustee or any of its officers,
directors or agents in any way relating to or arising out of the Trust
Agreement, the other Basic Documents, the Trust Estate, the administration of
the Trust Estate or the action or inaction of the Eligible Lender Trustee under
the Trust Agreement or the other Basic Documents.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" means, for any date of determination, the Federal
funds (effective) rate as published on page 118 of the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices) on the immediately preceding
Business Day. If no such rate is published on such page on such day, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Federal Loan" means a Financed Student Loan which is a PLUS Loan, SLS
Loan, Consolidation Loan, Stafford Loan or Unsubsidized Stafford Loan.
"FHLMC" means Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of
the Emergency Home Finance Act of 1970, as amended, or any successor thereto.
"Final Maturity Date" means, with respect to any Note, the date on
which the entire unpaid principal amount of such Note becomes due and payable
as provided in the Terms Supplement.
"Financed Student Loan" means the Federal Loans set forth in Schedule
A to the Transfer and Servicing Agreement and any Transfer Agreement, as
amended from time to time by the
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Issuer to accurately reflect the Financed Student Loans then subject to the
Lien of the Indenture. The Schedule of Financed Student Loans may be in the
form of microfiche or other form of electronic media.
"Financed Student Loan Files" means the documents specified in Section
3.3 of the Transfer and Servicing Agreement.
"Fitch" means Fitch Investors Service, LP.
"Fixed Rate Notes" means the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class A-5 Notes, the Class A-6 Notes and the Class A-7
Notes.
"FNMA" means Federal National Mortgage Association, a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, or any successor thereto.
"Grace Period" means certain grace periods authorized by the Higher
Education Act during which the related borrower's scheduled payments are
deferred.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and
confirm pursuant to the Indenture. A Grant of the Trust Estate or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the Granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
principal and interest payments in respect of the Trust Estate and all other
moneys payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Granting party or otherwise
and generally to do and receive anything that the Granting party is or may be
entitled to do or receive thereunder or with respect thereto.
"Great Lakes" means Great Lakes Higher Education Corporation.
"Guarantee Agreements" means each agreement entered into between the
Eligible Lender Trustee and a Guarantor pursuant to which such Guarantor
guarantees payments on Financed Student Loans.
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"Guarantee Payment" means any payment made by a Guaranty Agency
pursuant to a Guarantee Agreement in respect of a Financed Student Loan.
"Guarantor" means each Guaranty Agency that enters into a Guarantee
Agreement with the Eligible Lender Trustee pursuant to which such Guaranty
Agency guarantees payments on Financed Student Loans. "Guarantor" includes the
Department when it performs as a successor to an insolvent or defunct Guarantor
for purposes of making Guarantee Payments.
"Guaranty Agency" means any agency which has an agreement with the
Department of Education to be a guarantor of Federal Loans.
"Higher Education Act" means the Higher Education Act of 1965, as
amended, together with any rules, regulations and interpretations thereunder.
"Indenture" means the Master Indenture and the Terms Supplement, each
as amended or supplemented from time to time.
"Indenture Trust Estate" means all money, instruments, rights and
other property that are, from time to time, subject or intended to be subject
to the Lien and security interest of the Indenture for the benefit of the
Noteholders (including all property and interests Granted to the Indenture
Trustee), including all proceeds thereof.
"Indenture Trustee" means Bankers Trust Company, not in its individual
capacity but solely as Indenture Trustee under the Indenture.
"Indenture Trustee Fee" has the meaning specified in Section 6.7 of
the Master Indenture, as may be amended pursuant to any amendment to the Terms
Supplement.
"Independent" means, when used with respect to any specified Person,
that the Person (a) is in fact independent of the Issuer, any other obligor
upon the Notes, the Transferor and any Affiliate of any of the foregoing
Persons, (b) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the
Transferor or any Affiliate of any of the foregoing Persons and (c) is not
connected with the Issuer, any such other obligor, the Transferor or any
Affiliate of any of the foregoing Persons as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
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"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1 of the
Master Indenture, made by an Independent appraiser or other expert appointed by
an Issuer Order and approved by the Indenture Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer
has read the definition of "Independent" and that the signer is Independent
within the meaning thereof.
"Individual Note" means a Note of an initial principal amount equal to
$50,000. A Note of an original principal amount in excess thereof shall be
deemed to be a number of Individual Notes equal to the quotient obtained by
dividing such initial principal amount by $50,000.
"Initial Financed Student Loans" has the meaning specified in Section
2.1 of the Transfer and Servicing Agreement.
"Initial Certificate Balance" means $1,000, representing the
Certificate Balance as of the Closing Date
"Initial Period" means the period commencing on the Closing Date and
continuing through and including June __, 1997.
"Initial Pool Balance" means $__________________ representing the Pool
Balance as of the Cut-off Date.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in
an involuntary case under any applicable Federal or State bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (b) the commencement by such Person of a voluntary case
under any applicable Federal or State bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by such Person to the entry of
an order for relief in an involuntary case under any such law, or the consent
by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
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for such Person or for any substantial part of its property, or the making by
such Person of any general assignment for the benefit of creditors, or the
failure by such Person generally to pay its debts as such debts become due, or
the taking of action by such Person in furtherance of any of the foregoing.
"Institution of Higher Education" means an institution of higher
education as defined under the Higher Education Act (20 U.S.C.A. ss. 1085(b)).
"Interest Period" has the meaning set forth in the Terms Supplement.
"Interest Subsidy Payments" means payments, designated as such,
consisting of interest subsidies by the Department in respect of the Financed
Student Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
"Investment Earnings" means, with respect to any Distribution Date,
the investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts to be deposited into the Collection Account on or
prior to such Distribution Date pursuant to Section 5.1(b) of the Transfer and
Servicing Agreement.
"Issuer" means PNC Student Loan Trust I.
"Issuer Consolidation Payments" has the meaning set forth in Section
2.3(f) of the Transfer and Servicing Agreement.
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"LIBOR Determination Date" means, with respect to any Class of Notes
or the Certificates for which One-Month LIBOR is being determined other than
for the Initial Period, the applicable Rate Determination Date, which must be a
Business Day and London Banking Day.
"LIBOR Rate" means, with respect to the LIBOR Rate Notes or the
Certificates, the related Class Interest Rate or Certificate Rate, as the case
may be, that results from a determination based on One-Month LIBOR and is
determined as described in the Terms Supplement, the Transfer and Servicing
Agreement or the Trust Agreement, as the case may be.
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"LIBOR Rate Notes" means the Class A-1 Notes, the Class A-8 Notes, the
Class A-9 Notes and the Class B Notes.
** "LIBOR Rate Determination Date" has the meaning set forth in the
Terms Supplement.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens and any other liens, if any,
which attach to the respective Financed Student Loan by operation of law as a
result of any act or omission by the related Obligor.
"London Banking Day" means any Business Day on which dealings in
deposits in United States dollars are transacted in the London interbank
market.
"Majority Certificateholder" means the holders of more than 50% of the
Certificate Balance of the Certificates without regard to the Certificates held
by the Depositor.
"Master Indenture" means the Indenture dated as of March 27, 1997
between the Issuer and the Indenture Trustee, as amended or supplemented from
time to time.
"Master Servicer" means PNC Bank, National Association, and its
permitted successors and assigns, as Master Servicer of the Financed Student
Loans under the Transfer and Servicing Agreement.
"Master Servicer Default" means an event specified in Section 8.1(a)
of the related Transfer and Servicing Agreement or Supplemental Transfer and
Servicing Agreement.
"Minimum Purchase Price" has the meaning set forth in the Transfer and
Servicing Agreement.
"Monthly Advance" means the amount, if any, advanced by the Master
Servicer pursuant to Section 5.10 of the Transfer and Servicing Agreement with
respect to Guarantee Payments or Interest Subsidy Payments applied for but not
received as of the end of the Collection Period immediately preceding the date
such Monthly Advance is made.
"Monthly Advance Account" means the account designated as such,
established and maintained pursuant to Section 5.1 of the Transfer and
Servicing Agreement.
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"Monthly Consolidation Fee" means for any Distribution Date (including
any date that would have been a Distribution Date if the Class A-1 Notes were
outstanding), the Outstanding Amount of the Consolidation Loans at the
beginning of the immediately proceeding Collection Period multiplied by the
product of one-twelfth times 1.05%.
"Moody's" means Moody's Investor's Service, Inc.
"Net Loan Rate" shall have the meaning set forth in the Terms
Supplement.
"Notes" means the notes issued by the Issuer pursuant to the Master
Indenture and the Terms Supplement.
"Note Depository Agreement" means the agreement dated as of the
Closing Date relating to the Notes among the Issuer, the Indenture Trustee, the
Administrator and the Depository Trust Company, as the initial Securities
Depository.
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 5.1 of the Transfer and
Servicing Agreement.
"Note Owner" means, with respect to a Book Entry Note, the Person who
is the owner of such Book Entry Note, as reflected on the books of the
Securities Depository, or on the books of a Person maintaining an account with
such Securities Depository (directly as Securities Depository Participant or as
an indirect participant, in each case in accordance with the rules of such
Securities Depository).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.6 of the Indenture.
"Noteholder" means the Person in whose name a Note is registered in
the Note Register.
"Noteholders' Distribution Amount" means, as to any Class of Notes,
with respect to any Distribution Date, the sum of the related Noteholders'
Interest Distribution Amount and the Noteholders' Principal Distribution Amount
for such Distribution Date.
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"Noteholders' Interest Carryover" has the meaning set forth in the
Terms Supplement.
"Noteholders' Interest Carryover Shortfall" means, as to any Class of
Notes, with respect to any Distribution Date, the excess of (i) the sum of the
related Noteholders' Interest Distribution Amount on the preceding Distribution
Date and any Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date over (ii) the amount of interest actually allocated to such
Noteholders on such preceding Distribution Date, plus interest on the amount of
such excess interest due to such Noteholders, to the extent permitted by law,
at the related Class Interest Rate from such preceding Note Distribution Date
to the current Distribution Date.
"Noteholders' Interest Distribution Amount" means, as to any Class of
Notes, with respect to any Distribution Date, the sum of (i) the amount of
interest accrued at the respective Class Interest Rate for each related
Interest Period since the last Distribution Date (or in the case of the first
Distribution Date, the Closing Date) on the outstanding principal balance of
such Class of Notes on the immediately preceding Distribution Date relating to
such Notes after giving effect to all principal distributions to holders of
Notes of such Class on such date (or, in the case of the first Distribution
Date, the Closing Date) and (ii) the Noteholders' Interest Carryover Shortfall
for such Class for such Distribution Date; provided, however, that the
Noteholders' Interest Distribution Amount will not include any Noteholders'
Interest Carryover.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of (i) the sum of the Noteholders' Principal
Distribution Amount on such Distribution Date and any outstanding Noteholders'
Principal Carryover Shortfall for the preceding Distribution Date over (ii) the
amount of principal actually allocated to the Noteholders on such Distribution
Date.
"Noteholders' Principal Distribution Amount" means, as to the Class of
Notes entitled to receive payments of principal on each applicable Distribution
Date, the sum of (i) the Principal Distribution Amount for the three Collection
Periods immediately preceding the month of such Distribution Date (or in the
case of the first Distribution Date, for each Collection Period commencing with
the Closing Date through and including the Collection Period immediately
preceding the month of such Distribution Date), (ii) any Parity Percentage
Payments to be made on such Distribution Date and (iii) the Noteholders'
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Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Noteholders' Principal Distribution Amount
allocable to a Class of Notes will not exceed the Outstanding Amount of such
Class of Notes. In addition, with respect to each Class of Notes, on the
related Final Maturity Date the Noteholders' Principal Distribution Amount will
include the amount required to reduce the Outstanding Amount of such Notes to
zero.
"Notional Amount" means as to the Swap Agreement, with respect to any
Quarterly Distribution Date, the sum of the amounts set forth on the Scheduled
Principal Balance Table for each Class of Fixed Rate Notes as of the preceding
Quarterly Distribution Date after giving effect to all principal distributions
to holders of Notes of such Classes.
"Obligor" on a Financed Student Loan means the borrower or
co-borrowers of such Financed Student Loan and any other Person who owes
payments in respect of such Financed Student Loan, including (i) the Guaranty
Agency thereof and (ii) with respect to any Interest Subsidy Payment or Special
Allowance Payment, if any, thereon, the Department.
"Officer's Certificate" means (i) in the case of the Issuer, a
certificate signed by an Authorized Officer of the Issuer, under the
circumstances described in, and otherwise complying with, the applicable
requirements of Section 11.1 of the Indenture, and delivered to the Indenture
Trustee, (ii) in the case of the Transferor, the Master Servicer or the
Administrator, a certificate signed by an Authorized Officer of the Transferor,
the Master Servicer or the Administrator, as appropriate and (iii) in the case
of the Servicer, a certificate signed by an Authorized Officer of the Servicer.
"One-Month LIBOR" means the London interbank offered rate for deposits
in U.S. dollars having a maturity of one month commencing on the related LIBOR
Determination Date (the "Index Maturity") which appears on Telerate Page 3750
as of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate
does not appear on Telerate Page 3750, the rate for that day will be determined
on the basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are
offered at approximately 11:00 a.m., London time, on such LIBOR Determination
Date to prime banks in the London interbank market by the Reference Banks. The
Master Servicer will request the principal London office of each of such
Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that day will be the arithmetic mean of
the quotations. If fewer than two quotations are provided, the rate for that
day
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will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the Master Servicer, at approximately 11:00 a.m., New York
City time, on such LIBOR Determination Date for loans in U.S. dollars to
leading European banks having the Index Maturity and in a principal amount
equal to an amount of not less than U.S. $1,000,000; provided that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, One-Month
LIBOR in effect for the applicable Interest Period will be One-Month LIBOR in
effect for the previous Interest Period.
"Opinion of Counsel" means (i) with respect to the Issuer, one or more
written opinions of counsel who may, except as otherwise expressly provided in
the Master Indenture, be employees of or counsel to the Issuer or Administrator
or any of their Affiliates and who shall be reasonably satisfactory to the
Indenture Trustee, and which opinion or opinions shall be addressed to the
Indenture Trustee as Indenture Trustee, shall comply with any applicable
requirements of Section 11.1 of the Master Indenture, and shall be in form and
substance reasonably satisfactory to the Indenture Trustee and (ii) with
respect to the Transferor, the Administrator or the Master Servicer, one or
more written opinions of counsel who may be an employee of or counsel to the
Transferor, the Administrator or the Master Servicer, which counsel shall be
reasonably acceptable to the Indenture Trustee and the Eligible Lender Trustee.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Noteholders thereof
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to the Indenture); and
(iii) Notes in exchange for or in lieu of other Notes which
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 bona fide purchaser;
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provided that in determining whether the Noteholders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any other Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Transferor or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Indenture Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Notes that a Responsible Officer of the Indenture Trustee either actually knows
to be so owned or has received written notice thereof shall be do disregarded.
Notes so owned that have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Indenture
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes, the Transferor or
any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
Notes, or Class of Notes or Certificates as applicable, Outstanding at the date
of determination.
"Parity Percentage" means, as of any date of determination, the
fraction expressed as a percentage, the numerator of which is the sum of (i)
the then Pool Balance and (ii) all amounts on deposit in the Collection Account
and the Reserve Account and the denominator of which is the sum of the
aggregate Outstanding Amount of the Notes and the Certificates, accrued and
unpaid interest thereon plus accrued and unpaid Transaction Fees.
"Parity Percentage Payment" means, with respect to any Distribution
Date, the amount, if any, to be transferred from the Collection Account to the
Note Distribution Account pursuant to Section 5.5(e) of the Transfer and
Servicing Agreement, up to the amount necessary for the Parity Percentage to
equal 102.5% after giving effect to all distributions to be made on such
Distribution Date.
"Participant" means a Securities Depository Participant.
"Paying Agent" means the Indenture Trustee or any other Person that
meets the eligibility standards for the Indenture Trustee specified in Section
6.11 of the Master Indenture and is authorized by the Issuer to make the
payments to and distributions from the Collection Account and payments of
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principal of and interest and any other amounts owing on the Notes on behalf of
the Issuer.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"PHEAA" means the Pennsylvania Higher Education Assistance Agency.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pledged Account or Fund" means the Collection Account, the Reserve
Account, the Note Distribution Account and the Certificate Distribution
Account.
"PLUS Loan" means a Financed Student Loan made pursuant to the
provisions of the PLUS program established under Section 428B of the Higher
Education Act (or predecessor provisions).
"Pool Balance" means, at any time, the aggregate principal balance of
the Financed Student Loans at the end of the preceding Collection Period
(including accrued interest thereon for such Collection Period to the extent
such interest will be capitalized), after giving effect to the following,
without duplication: (i) all payments in respect of principal received by the
Trust during such Collection Period from or on behalf of borrowers and
Guarantors and, with respect to certain payments on certain Financed Student
Loans, the Department, (ii) the principal portion of all Purchase Amounts
received by the Trust for such Collection Period and (iii) any Exchanged
Student Loans acquired by the Trust and any Financed Student Loans conveyed by
the Trust during such Collection Period, in each case pursuant to Sections 2.2
and 2.3(e).
"PP Loans" means all Stafford Loans and Unsubsidized Stafford Loans
(other than DLP Loans) with a first disbursement made by the Transferor on or
after July 1, 1996.
"PP Program" means the PNC Bank Preferred Payment Program.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and,
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for the purpose of this definition, any Note authenticated and delivered under
Section 2.7 of the Master Indenture and in lieu of a mutilated, lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the mutilated,
lost, destroyed or stolen Note.
"Primary Servicer" means, with respect to any Financed Student Loan,
the entity responsible for the primary servicing of such Financed Student Loan
on a day to day basis, it being understood that where a subservicer appointed
in accordance with the terms of the Transfer and Servicing Agreement has
responsibility for servicing a Financed Student Loan, such subservicer and not
the Master Servicer shall be the Primary Servicer with respect such Financed
Student Loan.
"Principal Factor" means, as of any Distribution Date for each Class
of Notes, a seven-digit decimal figure equal to the Outstanding Amount of such
Class of Notes (after giving effect to any payments of principal made on such
Distribution Date) divided by the original Outstanding Amount of such Class.
The Principal Factor will be 1.0000000 for each Class of Notes as of the
Closing Date; thereafter, the Principal Factor for each Class of Notes will
decline to reflect reductions in the outstanding principal balance of such
Class.
"Principal Distribution Amount" means, with respect to any Collection
Period, the excess of (A) the sum, without duplication, of the following
amounts: (i) that portion of all collections received by the Master Servicer or
any Servicer on the Financed Student Loans that is allocable to principal
(including the portion of any Guarantee Payments received that is allocable to
principal of the Financed Student Loans); (ii) the portion of the proceeds
allocable to principal from the sale of Financed Student Loans by the Trust
during such Collection Period; (iii) all Realized Losses incurred during such
Collection Period; (iv) to the extent attributable to principal, the Purchase
Amount received with respect to each Financed Student Loan repurchased by the
Transferor or purchased by the Master Servicer under an obligation which arose
during the related Collection Period; and (v) the Exchange Adjustments, if any,
received from the Transferor during such Collection Period over (B) the Issuer
Consolidation Payments for such Collection Period; provided, however, that the
Principal Distribution Amount will exclude all payments and proceeds of any
Financed Student Loans the Purchase Amount of which has been included in
Available Funds for a prior Collection Period.
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"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Purchase Amount" means, as to any Financed Student Loan on any date
of determination, the amount required to prepay in full the outstanding
principal balance of such Financed Student Loan as of the last day of the most
recently completed Collection Period, including all accrued but unpaid interest
thereon (including interest to be capitalized) through the last day of the
Collection Period in which such Financed Student Loan is being purchased .
"Purchased Student Loan" means a Financed Student Loan purchased
pursuant to Section 4.5 of the Transfer and Servicing Agreement or repurchased
pursuant to Section 3.2 of the Transfer and Servicing Agreement or Supplemental
Transfer and Servicing Agreement.
"Qualified Letter of Credit" means a letter of credit delivered or to
be delivered to the Indenture Trustee in lieu of a deposit of cash or Eligible
Investments in the Reserve Account for such Class or Series, which letter of
credit shall
(a) be irrevocable and name the Indenture Trustee, in its capacity as
such, as the sole beneficiary thereof;
(b) be issued by a bank whose credit standing is acceptable to each of
the rating agencies which are rating or have rated the Notes of such
Series;
(c) provide that if at any time the then current credit standing of
the issuing bank is such that the continued reliance on such letter of
credit for the purpose or purposes for which it was originally
delivered to the Indenture Trustee would result in a downgrading of
any rating of the Notes of such Class or Series, the Indenture Trustee
may either draw under such letter of credit any amount up to and
including the entire amount then remaining available for drawing
thereunder or terminate such letter of credit;
(d) be transferable to any successor trustee hereunder with respect to
such Class or Series; and
(e) meet such other standards as may be specified in the Terms
Supplement.
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"Qualified Institutional Buyer" has the meaning ascribed to such term
in Rule 144A under the Securities Act.
"Quarterly Distribution Date" means, the 25th day of each January,
April, July, and October or if such day is not a Business Day, the next
succeeding Business Day.
"Rate Determination Date" means for the LIBOR Rate and the
Certificates, the date which is both two Business Days and two London Business
Days preceding the related Rate Adjustment Date.
"Rating Agency" means Moody's, Standard & Poor's and Fitch. If no such
organization or successor is any longer in existence, "Rating Agency" shall be
a nationally recognized statistical rating organization or other comparable
Person designated by the Transferor, notice of which designation shall be given
to the Indenture Trustee, the Eligible Lender Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' prior notice thereof and that each
of the Rating Agencies shall have notified the Transferor, the Master Servicer,
the Eligible Lender Trustee and the Indenture Trustee in writing that such
action will not result in and of itself in a reduction or withdrawal of the
then current ratings of each Class of Notes.
"Realized Loss" means, for each Financed Student Loan submitted to a
Guarantor for a Guarantee Payment, the excess, if any, of (i) the unpaid
principal balance of such Financed Student Loan on the date it was first
submitted to a Guarantor for a Guarantee Payment over (ii) all amounts received
on or with respect to principal on such Financed Student Loan (including
amounts received pursuant to Sections 3.2 and 4.5 of the Transfer and Servicing
Agreement) up through the earlier to occur of (A) the date a related Guarantee
Payment is made or (B) the last day of the Collection Period occurring 12
months after the date the claim for such Guarantee Payment is first denied.
"Record Date" means, with respect to a Distribution Date, the close of
business on the second Business Day preceding such Distribution Date.
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"Reference Bank" means a leading bank (i) engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) not
controlling, controlled by or under common control with the Administrator or
the Transferor and (iii) having an established place of business in London.
"Related Financed Student Loan File" has the meaning specified in
Section 3.8(a) of the Transfer and Servicing Agreement.
"Repayment Phase" means the period during which the related borrower
is required to make payments of principal and interest on the related Financed
Student Loan.
"Requisite Amount" means, with respect to any Series for which a
Reserve Account is required to be maintained, an amount specified in or
determined pursuant to the Terms Supplement.
"Reserve Account" means the account designated as such, established
and maintained pursuant to Section 5.1 of the related Transfer and Servicing
Agreement.
"Reserve Account Initial Deposit" means, $____________.
"Responsible Officer" means, with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee with
direct responsibility for the administration of the Indenture and the other
Basic Documents on behalf of the Indenture Trustee, including any Managing
Director, Vice President, Assistant Vice President, Assistant Treasurer,
Assistant Secretary, or any other officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Schedule of Financed Student Loans" means the listing of the Financed
Student Loans set forth in Schedule A to the Transfer and Servicing Agreement
and to the Indenture (which Schedules may be in the form of microfiche), as
from time to time amended or supplemented. Such Schedule shall list the
Financed Student Loans being conveyed pursuant to the Transfer and Servicing
Agreement and any Transfer Agreement. The Schedule relating to the Indenture
shall be a master list of all Financed Student Loans then subject to the Lien
of the Indenture.
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<PAGE> 109
"Scheduled Principal Balance Table" means the Scheduled Principal
Balance Table set forth on Schedule C to the Transfer and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Securities Depository Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Securities Depository effects book-entry transfers and pledges of securities
deposited with the Securities Depository.
"Senior Notes" means the Notes designated as ranking senior for each
series of notes.
"Senior Noteholder" means the holder of Senior Notes."
"Serial Loan" means a Financed Student Loan that is serial to a
student loan owned by a third party.
"Series" means a separate Series of Notes issued pursuant to the
Master Indenture, which Series may, as provided in the Terms Supplement, be
divided into two or more Classes.
"Series 1997-2 Notes" means the Notes designated as the Issuer's
Asset-Backed Notes, Series 1997-2, issued pursuant to the terms of the Master
Indenture and the Terms Supplement and having an original principal amount
equal to $1,030,000,000.
"Servicer" means AFSA, USA Group, Great Lakes, PHEAA or, subject to
satisfying the Rating Agency Condition, another entity appointed by the Master
Servicer to service the Financed Student Loans, in its capacity as servicer of
the Financed Student Loans.
"Servicer's Report" means any report of the Master Servicer delivered
pursuant to Section 4.8(a) of the Transfer and Servicing Agreement,
substantially in the form acceptable to the Administrator.
33
<PAGE> 110
"Servicing Fee" means a quarterly fee in an amount equal to the
greater of (i) the Unit Amount for the related Distribution Date and (ii) 1/4
of 1.00% of the average Pool Balance as of the last day of each of the three
Collection Periods immediately preceding such Distribution Date.
"SLS Loan" means a Financed Student Loan designated as such that is
made under the Supplemental Loans for Students Program pursuant to the Higher
Education Act.
"Special Allowance Payments" means payments, designated as such,
consisting of effective interest subsidies by the Department in respect of the
Financed Student Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
"Specified Reserve Account Balance" means, $___________
"Stafford Loan" means a Financed Student Loan designated as such that
is made under ss. 428 of the Higher Education Act (excluding Unsubsidized
Stafford Loans).
"Standard & Poor's" means Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc., and its successors and assigns.
"State" means any one of the 50 States of the United States of America
or the District of Columbia.
"Subcustodian" has the meaning specified in Section 3.8 of the
Transfer and Servicing Agreement.
"Subsequent Cut-off Date" means the day as to which principal and
interest accruing with respect to an Exchanged Student Loan are transferred to
the Eligible Lender Trustee on behalf of the Issuer pursuant to Section 2.2 of
the Transfer and Servicing Agreement.
"Subservicing Agreement" has the meaning specified in Section 4.13 of
the Transfer and Servicing Agreement.
"Subordinated Notes" means the notes designated as subordinate to any
class of Senior Notes.
"Subordinated Noteholder" means any Noteholder of Subordinated Notes.
"Successor Administrator" has the meaning specified in Section 3.7(e)
of the Indenture.
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<PAGE> 111
"Successor Master Servicer" has the meaning specified in Section
3.7(e) of the Indenture.
"Swap Agreements" means the Interest Rate Swap Agreement dated as of
June ___, 1997, between the Issuer and [ ] and the Interest Rate Swap Agreement
dated as of June ___, 1997 between the Issuer and [ ].
"Swap Counterparty" means __________________________.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Terms Supplement" means, the Second Terms Supplement to the Indenture
dated as of June __, 1997 between the Issuer and The Indenture Trustee.
"Transaction Fees" means, collectively, the Servicing Fee, the
Administration Fee, Indenture Trustee Fee and the Eligible Lender Trustee Fee.
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<PAGE> 112
"Transfer Agreement" has the meaning set forth in Section 2.2(b) of
the Transfer and Servicing Agreement.
"Transfer and Servicing Agreement" means the Transfer and Servicing
Agreement dated as of June __, 1997, among the Issuer, the Transferor, the
Administrator, the Eligible Lender Trustee and the Master Servicer, as amended
from time to time.
"Transferor" means PNC Bank, National Association.
"Treasury Regulations" means regulations, including proposed or
temporary regulations, promulgated under the Code. References in any document
or instrument to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"Trust" means the Issuer, established pursuant to the Trust Agreement.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, if
any, and all proceeds of the foregoing.
"Trust Accounts" has the meaning specified in Section 5.1 of the
Transfer and Servicing Agreement.
"Trust Agreement" means the Trust Agreement dated as of March 27,
1997, between the Depositor and the Eligible Lender Trustee, as amended and
supplemented from time to time.
"Trust Certificate" means a Certificate.
"Trust Certificateholder" means a person in whose name a Trust
Certificate is registered in the Certificate Register.
"Trust Estate" means all right, title and interest of the Trust (or
the Eligible Lender Trustee on behalf of the Trust) in and to the property and
rights assigned to the Trust pursuant to Article II of the Transfer and
Servicing Agreement, all funds on deposit from time to time in the Trust
Accounts and all other property of the Trust from time to time, including any
rights of the Eligible Lender Trustee and the Trust pursuant to the Transfer
and Servicing Agreement and the Administration Agreement.
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<PAGE> 113
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force on the date hereof, unless otherwise specifically provided.
"Trust Swap Payment" means, as to the Swap Agreement, with respect to
any Quarterly Distribution Date, the excess, of (i) the amount accrued on the
Notional Amount of the Swap Agreement during the Quarterly Distribution Date,
since the Closing Date) at the Variable Swap Rate over (ii) the amount payable
under the Swap Agreement on such Quarterly Distribution Date by the Swap
Counterparty to the Trust.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from
time to time.
"Unit Amount" means, for any Distribution Date, an amount equal to the
average number of loan accounts in the Trust Estate as of the last day of each
of the three Collection Periods immediately preceding such Distribution Date
(or in the case of the first Distribution Date, as of the last day of each
Collection preceding such Distribution Date Period commencing with the Closing
Date).
"Unsubsidized Stafford Loan" means a Financed Student Loan designated
as such that is made under ss. 428H of the Higher Education Act.
"USA Group" means USA Group Loan Services, Inc.
37
<PAGE> 114
SCHEDULE A
TO THE
TRANSFER AND SERVICING AGREEMENT
Schedule of Financed Student Loans
[To be supplied by the Transferor at Closing.]
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<PAGE> 115
SCHEDULE B
TO THE
TRANSFER AND SERVICING AGREEMENT
Location of Financed Student Loan Files
Name of subcustodian Location of Related Financed Student Loan Files
AFSA Data Corporation 2277 East 220 Street
Long Beach, California 90810-1690
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<PAGE> 116
EXHIBIT A
TO THE
TRANSFER AND SERVICING AGREEMENT
Form of Noteholders' Statement
pursuant to Section 5.7(a) of
Transfer and Servicing
Agreement (capitalized terms used
herein are defined in Appendix A thereto)
Distribution Date:_____________________
(i) Principal Factor:
(a) Class A-1: _________
(b) Class A-2: _________
(c) Class B: _________
(ii) Amount of principal being paid or distributed:
(a) Class A-1 Notes: $_________
(b) Class A-2 Notes: $_________
(c) Class B Notes: $_________
(d) Certificates: $_________
(iii) (a) Amount of interest being paid or distributed:
<TABLE>
<S> <C> <C>
(1) Class A-1 Notes: $____ (based on the [T-Bill Rate] [Net Loan Rate])
(2) Class A-2 Notes: $____ (based on the [T-Bill Rate] [Net Loan Rate])
(3) Class B Notes: $____ (based on [One-Month LIBOR] [the Net Loan Rate])
(4) Certificates: $____ (based on One-Month LIBOR)
</TABLE>
(b) Applicable Interest Rate:
(1) Class A-1: _______%
(2) Class A-2: _______%
(3) Classs B: _______%
(4) Certificates _______%
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(iv) Amount of distribution allocable to any Noteholders' Interest
Carryover: (a) Class A-1: $____________
(b) Class A-2: $____________ (c) Class B: $____________
(v) Pool Balance at end of preceding Collection Period:________
(vi) After giving effect to distributions on this Distribution Date:
(a) outstanding principal amount of Class A-1 Notes: $___________
(b) outstanding principal amount of Class A-2 Notes: $___________
(c) outstanding principal amount of Class B Notes: $___________
(d) Certificate Balance: $_____________________
(vii) Amount of Servicing Fee, Administration Fee, Indenture Trustee Fee and
Eligible Lender Trustee Fee to be allocated for the upcoming
Distribution Date:
($_________)
(viii) (a) Aggregate amount of Realized Losses (if any) for each
Collection Period since the last Distribution Date (or since the
Closing Date in the case of the first Ditribution Date):______________
(ix) (a) Amount of distribution attributable to
amounts in the Reserve Account: $_____________
(b) Amount of other withdrawls from the
Reserve Account: $_____________
(c) Reserve Account balance $_____________
(d) Parity percentage _____%
(e) Amount of Parity Percentage Payments $_____________
(x) The aggregate Purchase Amount paid for Financed Student Loans
purchased from the Trust during each preceding Collection Period since
the last Distribution Date (or since the Closing Date in the case of
the first Ditribution Date): _____________
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<PAGE> 118
(xi) During the Exchange Period only, the aggregate Issuer
Consolidation Payments and Exchange Adjustments, stated separately, for
each preceding Collection Period since the last Distribution Date (or
since the Closing Date in the case of the first Distribution Date):
$-------------- $--------------
(xii) (a) Amount of Financed Student Loans:
<TABLE>
<S> <C> <C>
(1) that are 30 to 60 days delinquent: $_______________
(2) that are 61 to 90 days delinquent: $_______________
(3) that are 91 to 120 days delinquent: $_______________
(4) that more than 120 days delinquent: $_______________
(5) for which claims have been filed
with the appropriate Guarantor
and which are awaiting payment: $_______________
</TABLE>
(b) Amount of recoveries
(i) principal $________
(ii) interest $________
3
<PAGE> 119
EXHIBIT B
TO THE
TRANSFER AND SERVICING AGREEMENT
Form of Certificateholders' Statement pursuant to Section 5.7(a) of Transfer
and Servicing Agreement (capitalized terms used herein are defined in Appendix
A thereto)
Certificateholders' Distribution Date:__________________
(i) Principal Factor:
(a) Class A-1: _________
(b) Class A-2: _________
(c) Class B: _________
(ii) Amount of principal being paid or distributed:
(a) Class A-1 Notes: $_________
(b) Class A-2 Notes: $_________
(c) Class B Notes: $_________
(d) Certificates: $_________
(iii) (a) Amount of interest being paid or distributed:
<TABLE>
<S> <C> <C>
(1) Class A-1 Notes: $____ (based on the [T-Bill Rate] [Net Loan Rate])
(2) Class A-2 Notes: $____ (based on the [T-Bill Rate] [Net Loan Rate])
(3) Class B Notes: $____ (based on [One-Month LIBOR] [the Net Loan Rate])
(4) Certificates: $____ (based on One-Month LIBOR)
</TABLE>
(b) Applicable Interest Rate:
(1) Class A-1: _______%
(2) Class A-2: _______%
(3) Classs B: _______%
(4) Certificates _______%
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(iv) Pool Balance at end of preceding Collection Period:________
(v) After giving effect to distributions on this Distribution Date:
(a) outstanding principal amount of Class A-1 Notes: $___________
(b) outstanding principal amount of Class A-2 Notes: $___________
(c) outstanding principal amount of Class B Notes: $___________
(d) Certificate Balance: $_____________________
(vii) Amount of Servicing Fee, Administration Fee, Indenture Trustee Fee and
Eligible Lender Trustee Fee for related Collection Period (each stated
separately): ($_________)
(viii) (a) Aggregate amount of Realized Losses (if any) for each related
Collection Period:______________
(ix) (a) Amount of distribution attributable to
amounts in the Reserve Account: $_____________
(b) Amount of other withdrawls from the
Reserve Account: $_____________
(c) Reserve Account balance $ _______________
(d) Parity percentage _____%
(e) Amount of Parity Percentage Payments $_____________
(x) The aggregate Purchase Amount paid for Financed Student Loans purchased
from the Trust during each related Collection Period: _____________
(xi) During the Exchange Period only, the aggregate Issuer
Consolidation Payments and Exchange Adjustments, stated separately, for
each preceding Collection Period since the last Distribution Date (or
since the Closing Date in the case of the first Distribution Date):
$---------------
$---------------
(xii) (a) Amount of Financed Student Loans:
(1) that are 30 to 60 days delinquent: $_______________
(2) that are 61 to 90 days delinquent: $_______________
(3) that are 91 to 120 days delinquent: $_______________
(4) that more than 120 days delinquent: $_______________
(5) for which claims have been filed
with the appropriate Guarantor
and which are awaiting payment: $_______________
(b) Amount of recoveries
(i) principal $________
(ii) interest $________
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<PAGE> 121
EXHIBIT C
TO THE
TRANSFER AND SERVICING AGREEMENT
Form of Administrator's Certificate
[To be provided by the Administrator pursuant to
Section 4.7 of the Transfer and
Servicing Agreement]
1
<PAGE> 122
EXHIBIT D
TO THE
TRANSFER AND SERVICING AGREEMENT
ASSIGNMENT FOR
FINANCED STUDENT LOANS
For value received, in accordance with the Transfer and
Servicing Agreement (the "Transfer and Servicing Agreement") dated as of June
__, 1997, among the undersigned, as transferor (the "Transferor"), as master
servicer (the "Master Servicer") and as administrator (the "Administrator"),
PNC Student Loan Trust I (the "Trust"), and The First National Bank of Chicago,
not in its individual capacity but solely as Eligible Lender Trustee (the
"Eligible Lender Trustee"), the undersigned does hereby contribute, assign,
transfer and otherwise convey unto the Eligible Lender Trustee on behalf of the
Trust, without recourse (subject to the obligations set forth in the Transfer
and Servicing Agreement), all right, title and interest of the undersigned in
and to (i) the Financed Student Loans and all obligations of the Obligors
thereunder, including all monies paid or payable thereunder (other than
Interest Subsidy Payments and Special Allowance Payments through the Cut-off
Date) after the Cut-off Date, including the right to enforce such Loans in the
same manner and to the same extent as the Transferor would have the power to do
but for the execution and delivery of the Transfer and Servicing Agreement,
(ii) all funds on deposit from time to time in the Trust Accounts and in all
investments and proceeds thereof (including all income thereon) and (iii) the
proceeds of any and all of the foregoing. The foregoing contribution,
assignment, transfer and conveyance does not constitute and is not intended to
result in any assumption by the Eligible Lender Trustee or the Trust of any
obligation of the Transferor to the borrowers of Initial Financed Student Loans
or any other person in connection with the Financed Student Loans or any
agreement or instrument relating to any of them.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Transfer and Servicing Agreement and is to be governed by the
Transfer and Servicing Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in Appendix A to the Transfer and Servicing Agreement,
which also contains rules as to usage that shall be applicable herein.
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<PAGE> 123
IN WITNESS WHEREOF, the undersigned has caused this
Assignment to be duly executed as of June __, 1997.
PNC BANK, NATIONAL ASSOCIATION,
as Transferor
By: _________________________________
Name:
Title:
2
<PAGE> 124
EXHIBIT E
TO THE
TRANSFER AND SERVICING AGREEMENT
TRANSFER AGREEMENT
TRANSFER AGREEMENT No. ____ OF EXCHANGED STUDENT LOANS dated as of _________,
____, among PNC STUDENT LOAN TRUST I, a Delaware business trust (the "Issuer"),
PNC BANK, NATIONAL ASSOCIATION, a national banking association, as transferor
(the "Transferor"), and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, not in its individual capacity but solely as Eligible Lender
Trustee of the Issuer (the "Eligible Lender Trustee").
W I T N E S S E T H:
WHEREAS the Issuer, the Transferor, the Eligible Lender
Trustee, the Administrator and the Master Servicer (as defined in the Appendix
A to the Transfer and Servicing Agreement) are parties to the Transfer and
Servicing Agreement dated as of June __, 1997 (as amended or supplemented, the
"Transfer and Servicing Agreement");
WHEREAS pursuant to the Transfer and Servicing Agreement, the
Transferor wishes to convey the Exchanged Student Loans referred to in Section
2 hereof (the "Exchanged Student Loans") to the Eligible Lender Trustee on
behalf of the Issuer; and
WHEREAS, the Eligible Lender Trustee and the Issuer are
willing to accept such conveyance subject to the terms and conditions hereof.
NOW, THEREFORE, the parties hereto hereby agree, intending to
be legally bound hereby, as follows:
1. Definitions and Usage. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in
Appendix A to the Transfer and Servicing Agreement, which also contains rules
of construction and usage that shall be applicable herein.
In addition, the following terms have the following meanings:
"Exchange Date" means, with respect to the Exchanged Student
Loans, ______________.
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<PAGE> 125
"Subsequent Cut-Off Date" means, with respect to each
Exchanged Student Loan, the date specified as such on Schedule A
hereto.
2. Schedule of Exchanged Student Loans. Attached hereto as
Schedule A is a supplement to Schedule A to the Transfer and Servicing
Agreement listing the Exchanged Student Loans to be conveyed on the Exchange
Date to the Eligible Lender Trustee on behalf of the Issuer pursuant to this
Agreement. Attached hereto as Schedule B is a list of Financed Student Loans
to be conveyed on the Exchange Date to the Transferor by the Eligible Lender
Trustee on behalf of the Issuer in exchange for the Exchanged Student Loans.
3. Conveyance of Exchanged Student Loans. In consideration of
the Issuer's delivery to or upon the order of the Transferor of the Financed
Student Loans listed on Schedule B attached hereto, the Transferor does hereby
contribute, transfer, assign, set over and otherwise convey, without recourse
(subject to the obligations set forth in the Transfer and Servicing Agreement),
to the Eligible Lender Trustee on behalf of the Issuer:
(a) all right, title and interest in and to each Exchanged
Student Loan, and all obligations of the Obligors thereunder,
including all moneys paid thereunder (other than Interest Subsidy
Payments and Special Allowance Payments payable through the related
Subsequent Cut-Off Date), and all written communications received by
the Transferor with respect thereto and still retained by the
Transferor in accordance with its retention policies (including
borrower correspondence, notices of death, disability or bankruptcy
and requests for deferrals or forbearances), on and after the related
Subsequent Cut-Off Date; and
(b) the proceeds of any and all of the foregoing.
4. Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Issuer as of the date of this
Agreement and as of the Exchange Date that:
(a) Organization and Good Standing. The Transferor is duly
organized and validly existing as a national banking association with
the power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted, except for such power and authority the absence
of which would not have a material adverse effect on the Transferor or
its ability to consummate the transactions contemplated by this
Agreement and the Transferor had at all relevant times, and has, the
power, authority and legal right to originate, acquire and own the
Exchanged Student Loans.
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<PAGE> 126
(b) Power and Authority. The Transferor has the requisite
corporate power and authority to execute and deliver this Agreement
and to carry out its terms; the Transferor has requisite corporate
power and authority to transfer and assign the property to be
contributed and assigned to and deposited with the Issuer (or with the
Eligible Lender Trustee on behalf of the Issuer) and the Transferor
has duly authorized such transfer and assignment to the Issuer (or to
the Eligible Lender Trustee on behalf of the Issuer) by all necessary
corporate action on the Transferor's part; and the execution, delivery
and performance of this Agreement have been duly authorized by the
Transferor by all necessary corporate action.
(c) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Transferor enforceable against the
Transferor in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and
similar laws relating to creditors' rights generally or the rights of
creditors of banks the deposit accounts of which are insured by the
FDIC and subject to general principles of equity.
(d) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not violate, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time
or both) a default under, the charter or by-laws of the Transferor, or
any material indenture, agreement or other material instrument to
which the Transferor is a party or by which it shall be bound; nor
result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such material indenture,
agreement or other material instrument (other than pursuant to the
Basic Documents); nor violate any material law or, to the knowledge of
the Transferor, any material order, rule or regulation applicable to
it of any court or of any Federal or State regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Transferor or its properties.
(e) No Proceedings. There are no proceedings or
investigations pending against the Transferor or, to its best
knowledge, threatened against the Transferor, before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over it or its properties: (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement, (iii) seeking any determination or ruling that could
reasonably be expected to have a material and adverse effect on the
performance by the Transferor of its obligations under, or the
validity or enforceability of, this Agreement or (iv) seeking to
affect adversely the Federal or State income tax attributes of the
Issuer, the Notes or the Certificates.
(f) All Consents. All authorizations, consents, orders or
approvals of or registrations or declarations with any court,
regulatory body, administrative
3
<PAGE> 127
agency or other government instrumentality required to be obtained,
effected or given by the Transferor in connection with the execution
and delivery by the Transferor of this Agreement and the performance
by the Transferor of the transactions contemplated by this Agreement
have been duly obtained, effected or given and are in full force and
effect.
(g) Principal Balances. (i) The aggregate principal balance
of the Consolidation Loans and Serial Loans that are Exchanged Student
Loans listed on Schedule A attached hereto and conveyed to the
Eligible Lender Trustee on behalf of the Issuer pursuant to this
Agreement as of their respective Subsequent Cut-Off Dates is
$___________ and $___________, respectively; (ii) the aggregate
principal balance of the Financed Student Loans that are Consolidation
Loans and Serial Loans listed on Schedule B attached hereto and to be
conveyed to the Transferor pursuant to Section 2.3(d) of the Transfer
and Servicing Agreement is $_______ and $________, respectively; (iii)
the Consolidation Prepayments on deposit in the Collection Account is
$_________; (iv) the Issuer Consolidation Payments for the Exchange
Date is $__________; and (v) the Exchange Adjustment for the Exchange
Date is $_________.
5. Conditions Precedent. The obligation of the Issuer to
acquire the Exchanged Student Loans hereunder is subject to the satisfaction,
on or prior to the Exchange Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Transferor in Section 4 of
this Agreement and in Section 3.1 of the Transfer and Servicing
Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Exchange Date.
(b) Transfer and Servicing Agreement Conditions. Each of the
conditions set forth in Section 2.2(b) of the Transfer and Servicing
Agreement shall have been satisfied.
(c) Delivery of Assignment. The Transferor shall have
delivered an Assignment substantially in the form of Annex A hereto.
Upon the satisfaction of the conditions set forth in this
Section 5, the Eligible Lender Trustee shall have executed and delivered to the
Transferor an Assignment, substantially in the form of Annex B hereto.
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6. Ratification of Agreement. As supplemented by this
Agreement, the Transfer and Servicing Agreement is in all respects ratified and
confirmed and the Transfer and Servicing Agreement as so supplemented by this
Agreement shall be read, taken and construed as one and the same instrument.
7. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
8. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
9. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and the year first above written.
PNC STUDENT LOAN TRUST I by THE FIRST
NATIONAL BANK OF CHICAGO, not in its
individual capacity but solely as Eligible
Lender Trustee
By
---------------------------------------
Name:
Title:
5
<PAGE> 129
THE FIRST NATIONAL BANK OF CHICAGO, not in
its individual capacity but solely as
Eligible Lender Trustee
By
---------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
Transferor
By
---------------------------------------
Name:
Title:
Acknowledged and accepted as
of the date first above written:
BANKERS TRUST COMPANY,
not in its individual capacity but solely as
Indenture Trustee
By
---------------------------------------
Name:
Title:
6
<PAGE> 130
ANNEX A
TO THE TRANSFER AGREEMENT
ASSIGNMENT
For value received, in accordance with the Transfer and Servicing
Agreement (the "Transfer and Servicing Agreement") dated as of June __, 1997,
among the undersigned, as transferor (the "Transferor"), as master servicer and
as administrator, PNC Student Loan Trust I (the "Trust"), The First National
Bank of Chicago, not in its individual capacity but solely as Eligible Lender
Trustee (the "Eligible Lender Trustee"), and the Transfer Agreement No. dated
as of , (the "Transfer Agreement") among the Transferor, the Trust and the
Eligible Lender Trustee, the undersigned does hereby contribute, assign,
transfer and otherwise convey unto the Eligible Lender Trustee on behalf of the
Trust, without recourse (subject to the obligations set forth in the Transfer
and Servicing Agreement), all right, title and interest of the undersigned in
and to (i) the Exchanged Student Loans and all obligations of the Obligors
thereunder, including all moneys paid or payable thereunder (other than
Interest Subsidy Payments and Special Allowance Payments through the related
Subsequent Cut-Off Date) after the related Subsequent Cut-Off Date and (ii) the
proceeds of any and all of the foregoing. The foregoing contribution,
assignment, transfer and conveyance does not constitute and is not intended to
result in any assumption by the Eligible Lender Trustee or the Trust of any
obligation of the Transferor to the borrowers of such Exchanged Student Loans
or any other person in connection with the Exchanged Student Loans or any
agreement or instrument relating to any of them.
In addition, the undersigned, by execution of this instrument, hereby
endorses the promissory notes evidencing each Exchanged Student Loan described
in Schedule A to the Transfer Agreement in favor of the Eligible Lender Trustee
on behalf of the Trust, without recourse (subject to the obligations set forth
in the Transfer and Servicing Agreement) against the undersigned. This
endorsement may be effected by attaching a facsimile hereof to each or any of
such promissory notes.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Transfer and Servicing Agreement and the Transfer Agreement
and is to be governed by the Transfer and Servicing Agreement and the Transfer
Agreement.
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Capitalized terms used but not defined herein shall have the
meaning assigned to them in the Transfer Agreement or in Appendix A to the
Transfer and Servicing Agreement.
IN WITNESS WHEREOF, the undersigned has caused this
Assignment to be duly executed as of , .
PNC BANK, NATIONAL ASSOCIATION,
as Transferor
By
--------------------------------
Name:
Title:
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<PAGE> 132
ANNEX B
TO THE TRANSFER AGREEMENT
ASSIGNMENT
For value received, in accordance with the Transfer and Servicing
Agreement (the "Transfer and Servicing Agreement") dated as of June __, 1997,
among the undersigned, (the "Trust"), as master servicer and as administrator
(the "Transferor"), and The First National Bank of Chicago, not in its
individual capacity but solely as Eligible Lender Trustee (the "Eligible Lender
Trustee"), and the Transfer Agreement No. dated as of , (the "Transfer
Agreement") among the Transferor, the Trust and the Eligible Lender Trustee,
the undersigned does hereby contribute, assign, transfer and otherwise convey
unto the Trust, without recourse (subject to the obligations set forth in the
Transfer and Servicing Agreement), all right, title and interest of the
undersigned in and to (i) the Financed Student Loans set forth on Schedule B to
the Transfer Agreement and all obligations of the Obligors thereunder,
including all moneys paid or payable thereunder (other than Interest Subsidy
Payments and Special Allowance Payments through the related Subsequent Cut-off
Date) after the related Subsequent Cut-off Date and (ii) the proceeds of any
and all of the foregoing. The foregoing contribution, assignment, transfer and
conveyance does not constitute and is not intended to result in any assumption
by the Transferor of any obligation of the Eligible Lender Trustee or the Trust
to the borrowers of such Financed Student Loans or any other person in
connection with such Financed Student Loans or any agreement or instrument
relating to any of them.
In addition, the undersigned, by execution of this instrument, hereby
endorses the promissory notes evidencing each Financed Student Loan described
in Schedule B to the Transfer Agreement in favor of the Transferor, without
recourse, against the undersigned. This endorsement may be effected by
attaching a facsimile hereof to each or any of such promissory notes.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the
Transfer and Servicing Agreement and the Transfer Agreement and is to be
governed by the Transfer and Servicing Agreement and the Transfer Agreement.
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Capitalized terms used but not defined herein shall have the
meaning assigned to them in the Transfer Agreement or in Appendix A to the
Transfer and Servicing Agreement.
IN WITNESS WHEREOF, the undersigned has caused this
Assignment to be duly executed as of , .
------------------ ----------
PNC STUNDENT LOAN TRUST I
By: THE FIRST NATIONAL BANK OF
CHICAGO, not in its individual capacity
but soley as Eligible Lender Trustee
on behalf of the Trust
By
---------------------------------------
Name:
Title:
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<PAGE> 134
SCHEDULE A
TO THE TRANSFER AGREEMENT NO. ______
[List of Exchanged Student Loans and
their related Subsequent Cut-Off Dates]
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SCHEDULE B
TO THE
TRANSFER AGREEMENT NO. ____
[List of Financed Student Loans
to be Conveyed to the Transferor]
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<PAGE> 1
Exhibit 4.5
(Multicurrency--Cross Border)
LOGO
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of _____________________
_________________________________ and ______________________________________
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
<PAGE> 2
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the larger
aggregate amount would have been payable to pay to the other party the excess
of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii)
above will not, or will cease to, apply to such Transactions from such date).
This election may be made separately for different groups of Transactions and
will apply separately to each pairing of Offices through which the parties make
and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be deducted
or withheld from any additional amount paid by X or Y under this Section
2(d)) promptly upon the earlier of determining that such deduction or
withholding is required or receiving notice that such amount has been
assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or
other documentation reasonably acceptable to Y, evidencing such payment
to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount actually
received by Y (free and clear of Indemnifiable Taxes, whether assessed
against X or Y) will equal the full amount Y would have received had no
such deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that it would
not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement contained
in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f)
to be accurate and true unless such failure would not have occurred
but for (I) any action taken by a taxing authority, or brought in a
court of competent jurisdiction, on or after the date on which a
Transaction is entered into (regardless of whether such action is
taken or brought with respect to a party to this Agreement) or (II) a
Change in Tax Law.
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<PAGE> 3
(ii) LIABILITY, IF:--
(1) X is required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, to make any deduction or
withholding in respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, as the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into and, in the case of the representations in Section 3(f), at all times
until the termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorize such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
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<PAGE> 4
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment
under this Agreement or any applicable Credit Support Document without
any deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to
be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
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<PAGE> 5
organised, managed and controlled, or considered to have its seat, or in which
a branch or office through which it is acting for the purpose of this Agreement
is located ("Stamp Tax Jurisdiction") and will indemnify the other party
against any Stamp Tax levied or imposed upon the other party or in respect of
the other party's execution or performance of this Agreement by any such Stamp
Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with
or performed by the party in accordance with this Agreement if such
failure is not remedied on or before the thirtieth day after notice of
such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party in
this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated or
deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified Transaction
(or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3)
disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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<PAGE> 6
described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)
which has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or
more payments on the due date thereof in an aggregate amount of not less
than the applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice requirement or
grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2)becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other
similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of
any such proceeding or petition instituted or presented against
it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is
not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5) has
a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or
its predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event
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<PAGE> 7
Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of
any applicable law after such date, it become unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will, or
there is a substantial likelihood that it will, on the next succeeding
Scheduled Payment Date (1) be required to pay to the other party an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii)
or 6(e)) or (2) receive a payment from which an amount is required to be
deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount
is required to be paid in respect of such Tax under Section 2(d)(i)(4)
(other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been
deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an additional
amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either
case as a result of a party consolidating or amalgamating with, or
merging with or into, or transferring all or substantially all its
assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event of Default.
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<PAGE> 8
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(I), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is
the Affected Party, the Affected Party will, as a condition to its right
to designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days
after it gives notice under Section 6(b)(i) all its right and
obligations under this Agreement in respect of the Affected Transactions
to another of its Offices or Affiliates so that such Termination Event
ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject
to and conditional upon the prior written consent of the other party,
which consent will not be withheld if such other party's policies in
effect at such time would permit it to enter into transactions with the
transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or
a Tax Event occurs and there are two Affected Parties, each party will
use all reasonable efforts to reach agreement within 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the case
of a Credit Event Upon Merger or an Additional Termination Event if
there is only one Affected Party may, by not more than 20 days notice to
the other party and provided that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving details
of the relevant account to which any amount payable to it is to be paid.
In the absence of written confirmation from the source of a quotation
obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence
and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, form (and including) the
relevant Early Termination Date to (but excluding) the date such amount
is paid, at the Applicable Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment
method, either the "First Method" or the "Second Method". If the parties fail
to designate a payment measure or payment method in the Schedule, it will be
deemed that "Market Quotation" or the "Section Method", as the case may be,
shall apply. The amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party
will pay it to the Non-defaulting Party; if it is a negative
number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's Loss
in respect of this Agreement. If that amount is a positive number,
the Defaulting Party will pay it to the Non-defaulting Party; if
it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3),
if Market Quotation applies, or Section 6(e)(i)(4), if Loss
applies, except that, in either case, references to the Defaulting
Party and to the Non-defaulting Party will be deemed to be
references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than
all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions,
and an amount will be payable equal to (I) the sum of (a)
one-half of the difference between the Settlement Amount of
the party with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower Settlement
Amount ("Y") and (b) the Termination Currency Equivalent of
the Unpaid Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with the
lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if
it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will
be subject to such adjustments as are appropriate and permitted by law
to reflect any payments or deliveries made by one party to the other
under this Agreement (and retained by such other party) during the
period from the relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security of otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith converting the currency so tendered into the Contractual Currency,
of the full amount in the Contractual Currency of all amounts payable in respect
of this Agreement. If for any reason the amount in the Contractual Currency so
received falls short of the amount in the Contractual Currency payable in
respect of this Agreement, the party required to make the payment will, to the
extent permitted by applicable law, immediately pay such additional amount in
the Contractual Currency as may be necessary to compensate for the shortfall. If
for any reason the amount in the Contractual Currency so received exceeds the
amount in the Contractual Currency payable in respect of this Agreement, the
party receiving the payment will refund promptly the amount of such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results form any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the
party to which any payment is owed and will not be affected by judgment being
obtained or claim or proof being made for any other sums payable in respect of
this Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by
an exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts (including
by facsimile transmission) or be created by an exchange of telexes or by
an exchange of electronic messages on an electronic messaging system,
which in each case will be sufficient for all purposes to evidence a
binding supplement to this Agreement. The parties will specify therein
or through another effective means that any such counterpart, telex or
electronic message constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the laws
of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE INN TAX LAW" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after the
date on which the relevant Transaction is entered into.
"CONSENT" includes a consent, approval, actin, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified
as such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such
recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of such
jurisdiction, or being or having been organised, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority)
and "LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating, liquidating,
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 11. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition
precedent) by the parties under Section 2(a)(i) in respect of such Terminated
Transaction or group of Terminated Transactions that would, but for the
occurrence of the relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
16
<PAGE> 17
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation or
similar tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect to any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the sport exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17
<PAGE> 18
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
- ----------------------------- -------------------------------
(Name of Party) (Name of Party)
By: By:
-------------------------- ----------------------------
Name: Name:
Title: Title:
Date: Date:
18
<PAGE> 19
(MULTICURRENCY--CROSS BORDER)
ISDA(R)
International Swap Dealers Association, Inc.
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of ___________________
between _____________________________ and ______________________________
("Party A") ("Party B")
Part 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:--
Section 5(a)(v), ___________________________________________________
Section 5(a)(vi), __________________________________________________
Section 5(a)(vii), _________________________________________________
Section 5(b)(iv), __________________________________________________
and in relation to Party B for the purpose of:--
Section 5(a)(v), ___________________________________________________
Section 5(a)(vi), __________________________________________________
Section 5(a)(vii), _________________________________________________
Section 5(b)(iv), __________________________________________________
(b) "SPECIFIED TRANSACTION will have the meaning specified in Section 14 of
this Agreement unless another meaning is specified here _____________
_____________________________________________________________________
_____________________________________________________________________
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi)
will/will not * apply to Party A
will/will not * apply to Party B
If such provisions apply:--
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14
of this Agreement unless another meaning is specified here __________
_____________________________________________________________________
_____________________________________________________________________
- -------------
* Delete as applicable.
19
<PAGE> 20
"THRESHOLD AMOUNT" means ____________________________________________
_____________________________________________________________________
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will/will not * apply to Party A
will/will not * apply to Party B
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a)
will/will not * apply to Party A
will/will not * apply to Party B
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:--
(i) Market Quotation/Loss * will apply.
(ii) The First Method/The Second Method * will apply.
(g) "TERMINATION CURRENCY" means _________________________, if such currency
is specified and freely available, and otherwise United States Dollars.
(h) ADDITIONAL TERMINATION EVENT will/will not apply*. The following shall
constitute an Additional Termination Event:-- _______________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
For the purpose of the foregoing Termination Event, the Affected Party
or Affected Parties shall be:-- _____________________________________
_____________________________________________________________________
Part 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e) of this
Agreement, Party A will/will not* make the following representation and
Party B will/will not* make the following representation:--
It is not required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party
under this Agreement. In making this representation, it may rely on (i)
the accuracy of any representations made by the other party pursuant to
Section 3(f) of this Agreement, (ii) the satisfaction of the agreement
contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the other party
pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the
satisfaction of the agreement of the other party contained in Section
4(d) of this Agreement, provided that it shall not be a breach of this
representation where reliance is placed on clause (ii) and the other
party does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this
Agreement, Party A and Party B make the representations specified below,
if any:
(i) The following representation will/will not* apply to Party A and
will/will not* apply to Party B:--
It is fully eligible for the benefits of the "Business Profits" or
"Industrial and Commercial Profits" provision, as the case may be, the
"Interest" provision or the "Other Income" provision (if any) of the
Specified Treaty with respect to any payment described in such
provisions and received or to be received
- -----------
* Delete as applicable
20
<PAGE> 21
by it in connection with this Agreement and no such payment is
attributable to a trade or business carried on by it through a permanent
establishment in the Specified Jurisdiction.
If such representation applies, then:--
"SPECIFIED TREATY" means with respect to Party A ____________________________
"SPECIFIED JURISDICTION" means with respect to Party A ______________________
"SPECIFIED TREATY" means with respect to Party B ____________________________
"SPECIFIED JURISDICTION" means with respect to Party B ______________________
(ii) The following representation will/will not* apply to Party A and
will/will not* apply to Party B:--
Each payment received or to be received by it in connection with this
Agreement will be effectively connected with its conduct of a trade or
business in the Specified Jurisdiction.
If such representation applies, then:--
"SPECIFIED JURISDICTION" means with respect to Party A ______________________
"SPECIFIED JURISDICTION" means with respect to Party B ______________________
(iii) The following representation will/will not* apply to Party A and
will/will not* apply to Party B:--
(A) it is entering into each Transaction in the ordinary course of its
trade as, and is, either (1) a recognised U.K. bank or (2) a recognised
U.K. swaps dealer (in either case (1) or (2), for purposes of the United
Kingdom Inland Revenue extra statutory concession C17 on interest and
currency swaps dated March 14, 1989), and (B) it will bring into account
payments made and received in respect of each Transaction in computing
its income for United Kingdom tax purposes.
(iv) Other Payee Representations:-- ________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
N.B. The above representations may need modification if either party is
a Multibranch Party.
- -----------
* Delete as applicable.
21
<PAGE> 22
Part 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:--
(a) Tax forms, documents or certificates to be delivered are:--
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED
_____________________ _______________________________ ____________________
_____________________ _______________________________ ____________________
_____________________ _______________________________ ____________________
_____________________ _______________________________ ____________________
_____________________ _______________________________ ____________________
(b) Other documents to be delivered are:--
<TABLE>
<CAPTION>
COVERED
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH SECTION 3(d)
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED REPRESENTATION
<S> <C> <C> <C>
_____________________ _______________________________ _________________ Yes/No*
_____________________ _______________________________ _________________ Yes/No*
_____________________ _______________________________ _________________ Yes/No*
_____________________ _______________________________ _________________ Yes/No*
_____________________ _______________________________ _________________ Yes/No*
</TABLE>
Part 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:--
Address for notices or communications to Party A:--
Address: ___________________________________________________________
Attention: _________________________________________________________
Telex No.: __________________________ Answerback: __________________
Facsimile No.: ______________________ Telephone No.: _______________
Electronic Messaging System Details: _______________________________
Address for notices or communications to Party B:--
Address: ___________________________________________________________
Attention: _________________________________________________________
Telex No.: __________________________ Answerback: __________________
- ----------
* Delete as applicable.
22
<PAGE> 23
Facsimile No.: ______________________ Telephone No.: _______________
Electronic Messaging System Details: _______________________________
(b) PROCESS AGENT. For the purposes of Section 13(c) of this Agreement:--
Party A appoints as its Process Agent ______________________________
Party B appoints as its Process Agent ______________________________
(c) OFFICES. The provisions of Section 10(a) will/will not* apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:--
Party A is/is not* a Multibranch Party and, if so, may act through the
following Offices:--
_____________________ _____________________ _________________
_____________________ _____________________ _________________
Party B is/is not* a Multibranch Party and, if so, may act through the
following Offices:--
_____________________ _____________________ _________________
_____________________ _____________________ _________________
(e) CALCULATION AGENT. The Calculation Agent is __________________________
unless otherwise specified in a Confirmation in relation to the relevant
Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:-- __
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to
Party A, ____________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Credit Support Provider means in relation to Party B, _______________
_____________________________________________________________________
_____________________________________________________________________
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with English law/the laws of the State of New York (without
reference to choice of law doctrine)*.
- -------------
* Delete as applicable.
23
<PAGE> 24
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to the following Transactions or groups of Transactions
(in each case starting from the date of this Agreement/in each case
starting from ___________________________*)__________________________
_____________________________________________________________________
_____________________________________________________________________
(j) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement unless another meaning is specified here __________________
_____________________________________________________________________
Part 5. OTHER PROVISIONS.
- ------------
* Delete as applicable.
24
<PAGE> 1
EXHIBIT 4.6
STATE OF CALIFORNIA PETE WILSON, Governor
===============================================================================
CALIFORNIA STUDENT AID COMMISSION
P.O. BOX 510625
SACRAMENTO, CA 94245-0625 [SEAL]
AGREEMENT TO GUARANTEE CLAS PROGRAM LOANS MADE
BY A COMMERCIAL LENDER
THIS AGREEMENT, entered into between the California Student Aid Commission
(hereinafter referred to as "SAC") and
The First National Bank of Chicago as Trustee for the PNC Student Loan Trusts
One First National Plaza, Suite 0126, Chicago, Illinois 60670
- -----------------------------------------------------------------------------
(Name of Institution) (City and State)
(hereinafter referred to as "Lender")
WITNESSETH:
WHEREAS, SAC is a state agency with objectives and purposes that are
solely educational and charitable;
WHEREAS, SAC conducts the California Loans to Assist Students Program
(hereinafter referred to as "CLAS Program") with loans made by participating
lenders to eligible borrowers; and
WHEREAS, the Lender is desirous of participating in the CLAS Program
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration if the initial loan with the Lender
makes hereunder, and in further consideration of the mutual covenants
hereinafter expressed, SAC and the Lender agree as follows:
1. As used herein, the following words shall have the meanings
respectively indicated:
Act: The Higher Education Act of 1965 (Public Law 89-329), as
amended and in effect, or any successor enactment
thereto, and the rules and regulations in effect.
Approved Notes: A Promissory Note and Disclosure Statement
(CLAS 130) or a Repayment Schedule and Disclosure
Statement (CLAS 134) guaranteed by SAC.
Borrower: A student or a parent who is the maker of an
Approved Note.
Default: With respect to an Approved Note, the occurrence of
any event which shall constitute a default under the terms
of such Note.
1
<PAGE> 2
Eligible Educational Institution: Any institution of post-
secondary education which is an "eligible institution"
under the Act and is eligible under the CLAS Program.
Loan Application: The application for a loan on CLAS 110 to
be executed by the borrower, the student, the school, and
the Lender.
Notice of Default: A notice on CLAS 170 that Approved Note is
in default.
Parent: A person who (1) is the dependent undergraduate
student's mother, father, or legal guardian or adoptive
parent,
(2) is a national or a permanent resident of the United
States or is in the United States for other than a
temporary purpose and intends to become a permanent
resident thereof,
(3) is a resident of California and a parent of a
dependent undergraduate student who is enrolled at an
eligible educational institution located either in or
outside of California,
(4) is or is not a resident of California and is the parent
of a dependent undergraduate student who is enrolled at
an eligible educational institution located in California.
Procedural handbook: The manual provided by the SAC for
purposes of describing how the CLAS Program is to be
administered (CLAS 170).
Repayment Schedule and Disclosure Statement: A schedule of
payments on CLAS 134.
Student: A person who (1) is a national or a permanent
resident of the United States or is in the United States
for other than a temporary purpose and intends to
become a permanent resident thereof,
(2) is accepted for enrollment or is enrolled and in
good standing and making satisfactory progress at the
school,
(3) is carrying at least one-half the normal full-time
academic workload as determined by the school, and
(4) is a California resident if enrolled as a graduate,
a professional, or an independent undergraduate student
at an eligible educational institution located outside
of California, or
(5) is or is not a California resident if enrolled as a
graduate, a professional, or an independent undergraduate
student at an eligible educational institution located in
California, or
2
<PAGE> 3
(6) is a California Resident if enrolled as a dependent
undergraduate student at an eligible educational
institution located outside of California unless the
parent borrower is a California resident, or
(7) is or is not a California resident if enrolled as a
dependent undergraduate student at an eligible educational
institution located in California providing the parent
borrower is a California resident.
All documents and instruments referred to above shall be in the current
form as furnished from time to time and approved by SAC.
2. Nothing contained in this Agreement shall obligate the Lender to make
any particular loan or number of loans under the CLAS Program, but
the Lender agrees that it will refinance or extend the maturity of
each Approved Note held by it from time to time, in accordance with
the terms of such Approved Note and this Agreement.
3. The Lender agrees that, in respect of all loans made by it under the
CLAS Program and all Approved Notes held by it from time to time, it
will:
(a) exercise reasonable care and diligence in the making,
servicing and collection thereof,
(b) comply with all procedures and conditions on its part to be
performed as set forth in this Agreement and the Procedural
Handbook,
(c) comply with all Federal and State laws and regulations
applicable thereto, including the Federal Consumer Credit
Protection Act and regulations thereunder, and
(d) provide promptly to SAC such information and reports as
may from time to time be reasonably requested by SAC.
4. Upon payment to SAC of any required insurance premium, SAC will
guarantee each Promissory Note and Disclosure Statement evidencing a
loan made to a student by the Lender pursuant to the CLAS Program
provided, however, that SAC shall not be obligated to guarantee any
such Note if:
(a) such guarantee would cause the aggregate amount of unpaid
principal and interest of all notes guaranteed by SAC to exceed
the maximum dollar amount which may then be supported by its
Guarantee Reserve Fund, as required under paragraph 7 hereof, or
(b) SAC in its sole discretion determines that the procedures and
requirements of applicable law and regulations, the Agreement,
and the procedural Handbook have not been complied with in
respect of such Promissory Note and Disclosure Statement.
5. SAC will guarantee each Payout Note evidencing the refinancing of any
Payout Note or Promissory Note and Disclosure Statement which has
been guaranteed by SAC,
3
<PAGE> 4
or guarantee each extension of the maturity date of an Approved Note
provided, however, that SAC shall not be obligated to guarantee any
such Note or extension if SAC in its sole discretion determines that
the refinancing or extension, as the case may be, is not in
accordance with the terms of the underlying Approved Note or the
procedures and requirements of applicable law and regulations, this
Agreement, and the Procedural Handbook.
6. (a) In the event of a default in respect of any Approved Note, the
Lender shall follow the procedure set forth in the Procedural
Handbook. SAC does not guarantee payment by the borrower of any
delinquency charges imposed for late payment and will not
accept a default claim based solely on nonpayment of such
charges. Upon receipt from the Lender of a Notice of Default
together with the Note (guaranteed by SAC), the Loan
Application, and evidence of collection effort satisfactory to
SAC, SAC will pay to the Lender the full amount of the unpaid
balance of principal and interest due on such Note (other than
any portion of such interest payable by the U.S. Department of
Education under the Act) provided the Lender has complied in
all material respects with the procedures and requirements of
applicable law and regulations, this Agreement, and the
Procedural Handbook in respect of such Note. SAC shall
thereupon succeed to all the rights of the Lender under such
Note.
(b) The liability of SAC as guarantor of any Approved Note in
accordance herewith shall not be affected by the fact that the
borrower was a minor at the time of his execution of the Note.
Upon the death or permanent and total disability of the
borrower, the borrower's liability will be discharged by SAC.
(c) Prior to submitting a default claim, the Lender is obligated to
make reasonable collection efforts against the borrower. For a
loan made with a co-maker, such collection efforts are required
in addition to any collection efforts the Lender may make
against the co-maker of the loan.
7. SAC covenants that it will at all times, so long as the Lender is the
holder of an Approved Note, hold and maintain a Guarantee Reserve
Fund, represented by cash and marketable securities having a market
value of not less than 1% of the aggregate amount of unpaid principal
and interest of all Approved Notes covered by Federal reinsurance
pursuant to an agreement between SAC and the U.S. Secretary of
Education.
8. (a) No change, other than the extension of the maturity date of a
Promissory Note and Disclosure Statement pursuant to paragraph 5
of this Agreement, shall be made in the terms of any Approved
Note, except with the prior written consent of SAC. Any such
change made without such consent shall have the effect, at the
option of SAC, of voiding SAC's guarantee of such Approved Note.
4
<PAGE> 5
(b) If the Lender shall violate or fail to comply with any
applicable law or governmental regulation in respect of any
Approved Note, then the Lender hereby agrees to assume
liability for, and does hereby indemnify, protect and keep
harmless SAC, its successors, assigns, directors, officers,
agents and servants, from and against, any and all liabilities,
losses, damages, penalties, claims, actions, expenses and
disbursements, including legal fees and expenses, imposed on,
incurred by or asserted against them or any of them, in any way
relating to or arising out of such violation or failure to
comply, regardless of whether SAC shall have purchased such
Approved Note from the Lender.
9. SAC shall furnish to the lender from time to time a certificate
as to the names and facsimile signatures of the officers
authorized to execute in its name and on its behalf guarantees
of Notes under this Agreement, and SAC hereby warrants to the
Lender that the authority so certified shall and continue in
full force and effect until SAC shall have delivered to the
Lender written notice of revocation thereof. No recourse under
or upon this Agreement or any Approved Note or Guarantee
thereof, or for any claim based thereon or otherwise in
thereof, shall be had against incorporator, member, officer or
trustee, as such, past, present or future, of SAC or any
successor corporation; either directly or through SAC or any
successor corporation; it being expressly understood that this
Agreement and the guarantees of Approved Notes are solely
corporate obligations and that no personal liability whatever
shall attach to, or is or shall be incurred by, the
incorporators, members, officers, or trustees, as such, of SAC
or of any successor corporation, or any of them, because of
this Agreement or any Approved Note or guarantee thereof.
10. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed to have been duly given if mailed,
first-class postage prepaid, addressed: (1) if to the California
Student Aid Commission, P.O. Box 510625, Sacramento CA 94245-0625
(2) if to the Lender, at the address indicated on page 6, or (3) at
such other address of which the party to be notified shall have
given notice as aforesaid.
11. This Agreement may be terminated by either party upon not less than
60 days written notice to the other party. Such terminations shall
not affect any obligation incurred pursuant to this Agreement prior
to the time that such termination notice becomes effective.
12. This Agreement shall inure to the benefits of and be binding upon
SAC and the Lender and their respective successors and assigns. This
Agreement supersedes all existing agreements between the parties
with respect to the subject matter hereof. This Agreement shall not
be varied by oral agreement, but only by an instrument in writing
duly executed by the parties hereto. Any waiver or modification,
expressed or implied, by SAC of any term or condition contained in
this Agreement shall operate as such only in the specific instance
and shall not be construed as a waiver or modification of any such
condition generally or in any other instance.
5
<PAGE> 6
IN WITNESS THEREOF, The California Student Aid Commission and the
Lender have each caused this instrument to be executed the 24th day of March
1997, by their respective duly authorized officers.
The First National Bank of Chicago
as Trustee for the
PNC Student Loan Trusts CALIFORNIA STUDENT
- ---------------------------------- AID COMMISSION
Lender
/s/ Jeffrey L. Kinney Assistant Vice President /s/
- ---------------------------------------------- --------------------------
Signature Title Authorized Signature
One First National Plaza, Suite 0126
Chicago, Illinois 60670
- ------------------------------------
Street Address
- ------------------------------------
City State Zip
LID 833364
TIN 36-4142114
- -------------------------------------
Federal Identification Number
- --------------------------------------------------------------------------------
FEDERAL REINSURANCE
Loans made pursuant to the Higher Education Act of 1965 and guaranteed by SAC
which go into default are reinsured under an agreement with the U.S. Secretary
of Education. Under that agreement, 100% of the losses from such defaults will
be borne by the U.S. secretary of education through Federal Fiscal Year
1982-83. For federal fiscal year 1983-84 and thereafter, 100% of the losses
from such default will be borne by the U.S. Secretary of Education except that:
(a) if, for any Federal Fiscal Year, the amount of such reimbursement payments
by the U.S. Secretary of Education exceeds 5% of the loans which are guaranteed
by SAC and which were in repayment at the end of the preceding fiscal year, the
amount to be paid SAC as reimbursed for such excess shall be equal to 90% of
the amount of excess, and (b) if, for any Federal Fiscal Year, the amount of
such reimbursement exceeds 9% of such loans, the amount to be paid as
reimbursement for such excess shall be equal to 80% of the amount of such
excess.
- --------------------------------------------------------------------------------
RETURN TWO SIGNED COPIES TO CSAC: ONE SIGNED COPY WILL BE
RETURNED TO THE LENDER
CALIFORNIA STUDENT AID COMMISSION
LENDER SERVICES BRANCH
P.O. BOX 510625
SACRAMENTO, CA 94245-0625
6
<PAGE> 7
[LOGO] CALIFORNIA STUDENT AID COMMISSION
1515 S Street Suite 500, North Building
P.O. Box 510845, Sacramento, CA 94245-0845
(916) 445-0880
AGREEMENT TO GUARANTEE LOANS MADE BY A COMMERCIAL LENDER
THIS AGREEMENT, entered into between the California Student Aid Commission
(hereinafter referred to as "SAC") and
The First National Bank of Chicago as Trustee for the PNC Student Loan Trust
One First National Plaza, Suite 0126, Chicago, Illinois 60670
- ----------------------------------------------------------------------------
(Name of Institution) (City and State)
(hereinafter referred to as "Lender")
WITNESSETH:
WHEREAS, SAC is a state agency with objectives and purposes that are
solely educational and charitable;
WHEREAS, SAC conducts the California Loans to Assist Students Program
(hereinafter referred to as "CGSLP") with loans made by participating
lenders to eligible students attending eligible educational institutions; and
WHEREAS, the Lender is desirous of participating in the CGSLP
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration if the initial loan with the Lender
makes hereunder, and in further consideration of the mutual covenants
hereinafter expressed, SAC and the Lender agree as follows:
1. As used herein, the following words shall have the meanings
respectively indicated:
Act: The Higher Education Act of 1965 (Public Law 89-329), as
amended and in effect, or any successor enactment
thereto, and the rules and regulations in effect.
[LETTER-
Approved Notes: A Promissory Note and Disclosure Statement HEAD]
(CGSLP 130) or A Payout Note and Disclosure statement
(CGSLP 132), or a Repayment Schedule and Disclosure
Statement (CGSLP 134) guaranteed by SAC.
Borrower: A student who is the maker of an Approved Note.
Default: With respect to any Approved Note, the occurrence of
any event which shall constitute a default under the terms
of such Note.
1
<PAGE> 8
Eligible Educational Institution: Any institution of post-
secondary education which is an "eligible institution"
under the Act and is eligible under the CGSLP.
Loan Application: The application for a loan on CGLSP 110 to
be executed by the student, the school, and the Lender.
Notice of Default: A notice on CGLSP 170 that Approved Note is
in default.
Payout Note: A Promissory Note on CGSLP 132.
Procedural Handbook: The manual provided by the SAC for
purposes of describing how the CGSLP is to be
administered (CGSLP 170).
Repayment Schedule and Disclosure Statement: A schedule of
payments on CGSLP 134.
Student: A person who (1) is a national or a permanent
resident of the United States or is in the United States
for other than a temporary purpose and intends to
become a permanent resident thereof,
(2) is accepted for enrollment or is enrolled and in
good standing and making satisfactory progress at the
school,
(3) is carrying at least one-half the normal full-time
academic workload as determined by the school, and
(4) is a California resident if enrolled as a graduate,
a professional, or an independent undergraduate student
at an eligible educational institution located outside
of California, or
All documents and instruments referred to above shall be in the
current form as furnished from time to time and approved by SAC.
2. Nothing contained in this Agreement shall obligate the Lender to make
any particular loan or number of loans under the CGSLP, but the
Lender agrees that it will refinance or extend the maturity of each
Approved Note held by it from time to time, in accordance with the
terms of such Approved Note and this Agreement.
3. The Lender agrees that, in respect of all loans made by it under the
CGSLP and all Approved Notes held by it from time to time, it will:
(a) exercise reasonable care and diligence in the making,
servicing and collection thereof,
(b) comply with all procedures and conditions on its part to be
performed as set forth in this Agreement and the
Procedural Handbook,
2
<PAGE> 9
(c) comply with all Federal and State laws and regulations
applicable thereto, including the Federal Consumer Credit
Protection Act and regulations thereunder, and
(d) provide promptly to SAC such information and reports as
may from time to time be reasonably requested by SAC.
4. Upon payment to SAC of any required insurance premium, SAC will
guarantee each Promissory Note and Disclosure Statement evidencing a
loan made to a student by the Lender pursuant to the CGSLP
provided, however, that SAC shall not be obligated to guarantee any
such Note if:
(a) such guarantee would cause the aggregate amount of unpaid
principal and interest of all notes guaranteed by SAC to exceed
the maximum dollar amount which may then be supported by its
Guarantee Reserve Fund, as required under paragraph 7 hereof, or
(b) SAC in its sole discretion determines that the procedures and
requirements of applicable law and regulations, the Agreement,
and the Procedural Handbook have not been complied with in
respect of such Promissory Note and Disclosure Statement.
5. SAC will guarantee each Payout Note evidencing the refinancing of any
Payout Note or Promissory Note and Disclosure Statement which has
been guaranteed by SAC, or guarantee each extension of the maturity
date of an Approved Note provided, however, that SAC shall not be
obligated to guarantee any such Note or extension if SAC in its sole
discretion determines that the refinancing or extension, as the case
may be, is not in accordance with the terms of the underlying
Approved Note or the procedures and requirements of applicable law
and regulations, this Agreement, and the Procedural Handbook.
6. (a) In the event of a default in respect of any Approved Note, the
Lender shall follow the procedure set forth in the Procedural
Handbook. SAC does not guarantee payment by the borrower of any
delinquency charges imposed for late payment and will not
accept a default claim based solely on nonpayment of such
charges. Upon receipt from the Lender of a Notice of Default
together with the Note (guaranteed by SAC), the Loan
Application, and evidence of collection effort satisfactory to
SAC, SAC will pay to the Lender the full amount of the unpaid
balance of principal and interest due on such Note (other than
any portion of such interest payable by the U.S. Department of
Education under the Act) provided the Lender has complied in
all material respects with the procedures and requirements of
applicable law and regulations, this Agreement, and the
Procedural Handbook in respect of such Note. SAC shall
thereupon succeed to all the rights of the Lender under such
Note.
3
<PAGE> 10
(b) The liability of SAC as guarantor of any Approved Note in
accordance herewith shall not be affected by the fact that the
borrower was a minor at the time of his execution of the Note.
Upon the death or permanent and total disability of the
borrower, the borrower's liability will be discharged by SAC.
(c) Prior to submitting a default claim, the Lender is obligated to
make reasonable collection efforts against the borrower. For a
loan made with a co-maker, such collection efforts are required
in addition to any collection efforts the Lender may make
against the co-maker of the loan.
7. SAC covenants that it will at all times, so long as the Lender is the
holder of an Approved Note, hold and maintain a Guarantee Reserve
Fund, represented by cash and marketable securities having a market
value of not less than 1% of the aggregate amount of unpaid principal
and interest of all Approved Notes covered by Federal reinsurance
pursuant to an agreement between SAC and the U.S. Secretary of
Education.
8. (a) No change, other than the extension of the maturity date of a
Promissory Note and Disclosure Statement pursuant to paragraph 5
of this Agreement, shall be made in the terms of any Approved
Note, except with the prior written consent of SAC. Any such
change made without such consent shall have the effect, at the
option of SAC, of voiding SAC's guarantee of such Approved Note.
(b) If the Lender shall violate or fail to comply with any
applicable law or governmental regulation in respect of any
Approved Note, then the Lender hereby agrees to assume liability
for, and does hereby indemnify, protect and keep harmless SAC,
its successors, assigns, directors, officers, agents and
servants, from and against, any and all liabilities, losses,
damages, penalties, claims, actions, expenses and disbursements,
including legal fees and expenses, imposed on, incurred by or
asserted against them or any of them, in any way relating to or
arising out of such violation or failure to comply, regardless
of whether SAC shall have purchased such Approved Note from the
Lender.
9. SAC shall furnish to the Lender from time to time a certificate
as to the names and facsimile signatures of the officers
authorized to execute in its name and on its behalf guarantees
of Notes under this Agreement, and continue in full force and
effect until SAC shall have delivered to the Lender written
notice of revocation thereof. No recourse under or upon this
Agreement or any Approved Note or Guarantee thereof, shall be
had against incorporator, member, officer or trustee, as such,
past, present or future, of SAC or any successor corporation; it
being expressly understood that this Agreement and the
guarantees of Approved Notes are solely corporate obligations
and that no personal liability whatever shall attach to, or is
or shall be incurred by, the incorporators, members, officers,
or trustees, as such, of SAC or of any successor corporation, or
any of them, because of this Agreement or any Approved Note or
guarantee thereof.
4
<PAGE> 11
10. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed to have been duly given if mailed,
first-class postage prepaid, addressed: (1) if to the California
Student Aid Commission, P.O. Box 510625, Sacramento CA 94245-0625
(2) if to the Lender, at the address indicated on page 6, or (3) at
such other address of which the party to be notified shall have
given notice as aforesaid.
11. This Agreement may be terminated by either party upon not less than
60 days written notice to the other party. Such terminations shall
not affect any obligation incurred pursuant to this Agreement prior
to the time that such termination notice becomes effective.
12. This Agreement shall inure to the benefits of and be binding upon
SAC and the Lender and their respective successors and assigns. This
Agreement supersedes all existing agreements between the parties
with respect to the subject matter hereof. This Agreement shall not
be varied by oral agreement, but only by an instrument in writing
duly executed by the parties hereto. Any waiver or modification,
expressed or implied, by SAC of any term or condition contained in
this Agreement shall operate as such only in the specific instance
and shall not be construed as a waiver or modification of any such
condition generally or in any other instance.
5
<PAGE> 12
IN WITNESS THEREOF, The California Student Aid Commission and the
Lender have each caused this instrument to be executed the 24th day of March
1997, by their respective duly authorized officers.
The First National Bank of Chicago
as Trustee for the
PNC Student Loan Trusts CALIFORNIA STUDENT AID COMMISSION
- ----------------------------------
Lender
/s/ JEFFREY L. KINNEY Assistant Vice President /s/
- ----------------------------------------------- -------------------------
Signature Title Authorized Signature
One First National Plaza, Suite 0126
Chicago, Illinois 60670
- ------------------------------------
Street Address
- ------------------------------------
City State Zip
LID 833364
TIN 36-4142114
- -----------------------------
Federal Identification Number
- --------------------------------------------------------------------------------
FEDERAL REINSURANCE
Loans made pursuant to the Higher Education Act of 1965 and guaranteed by SAC
which go into default are reinsured under an agreement with the U.S. Secretary
of Education. Under that agreement, 100% of the losses from such defaults will
be borne by the U.S. Secretary of Education through Federal Fiscal Year
1982-83. For federal fiscal year 1983-84 and thereafter, 100% of the losses
from such default will be borne by the U.S. Secretary of Education except that:
(a) if, for any Federal Fiscal Year, the amount of such reimbursement payments
by the U.S. Secretary of Education exceeds 5% of the loans which are guaranteed
by SAC and which were in repayment at the end of the preceding fiscal year, the
amount to be paid SAC as reimbursed for such excess shall be equal to 90% of
the amount of excess, and (b) if, for any Federal Fiscal Year, the amount of
such reimbursement exceeds 9% of such loans, the amount to be paid as
reimbursement for such excess shall be equal to 80% of the amount of such
excess.
- --------------------------------------------------------------------------------
RETURN TWO SIGNED COPIES TO CSAC: ONE SIGNED COPY WILL BE
RETURNED TO THE LENDER
CALIFORNIA STUDENT AID COMMISSION
LENDER SERVICES BRANCH
P.O. BOX 510625
SACRAMENTO, CA 94245-0625
CGSLP 820 (12/81)
6
<PAGE> 1
EXHIBIT 4.7
FLORIDA DEPARTMENT OF EDUCATION
OFFICE OF STUDENT FINANCIAL ASSISTANCE
FLORIDA GUARANTEED LOAN PROGRAMS
LENDING INSTITUTION PARTICIPATION AGREEMENT
This Agreement is entered into for the purpose of participation in the
Florida Guaranteed Loan Programs.
WHEREAS, The First National Bank of Chicago as Trustee for the PNC Student Loan
Trusts hereinafter referred to as the "Lender," wishes to be able to secure loan
insurance on loans made to or on behalf of students pursuing programs of
postsecondary education pursuant to Title IV, Part B, of the Higher Education
Act of 1965, as amended, hereinafter referred to as the "Act," and
WHEREAS, the Florida Department of Education, hereinafter referred to as the
"Department," has qualified for reinsurance of such loans and having found that
the Lender qualifies as an eligible lender under the provisions of the Act, the
applicable parts of Title 34 of the Code of Federal Regulations (hereinafter
referred to as "Federal Regulations"), Florida Statutes and the Rules of the
State Board of Education (hereinafter referred to as "SBE Rules"), wishes to
encourage the holding of such loans by the Lender,
NOW, THEREFORE, it is agreed that:
1. Within such limits as may be set by the Act, Federal Regulations, Florida
Statutes and SBE Rules, the Department shall fully guarantee all loans held
by the Lender which are reinsurable under the Act and Federal Regulations.
The Act, the applicable Federal Regulations, the applicable Florida Statutes
and SBE Rules are a part of this Agreement.
2. In making or servicing guaranteed loans to or on behalf of eligible
borrowers, the Lender will assist them in securing such reductions in their
obligations to pay interest on loans made by the Lender as they may be
eligible to receive under the Act and Federal Regulations.
3. Due diligence in making, servicing, and collecting Florida guaranteed loans
will be provided by the Lender as specified by Federal Regulations and SBE
Rules.
<PAGE> 2
Page 2 of 4
4. The Lender will maintain transaction records and reports in such form and
containing such information as the Department requires, and will afford
access thereto as the Department or its authorized representatives may find
necessary to assure correctness and to verify such records and reports.
5. The Department will supply the Lender with all forms and informational
materials as are necessary to perform the requirements set forth by this
Agreement. Any addition, substitution, or alteration of forms provided by
the Department must be approved, in advance of their use, by the Department.
6. The Lender will provide notification to the Department when it acquires a
loan for which the Department has issued a notice of loan guarantee.
Regarding a guaranteed loan already held by the Lender, in order for a loan
account to remain subject to the Department's guarantee obligation, the loan
may be transferred only to another approved lender or eligible holder of
Florida Guaranteed loans.
7. Payment of a note may be extended in whole or in part, and the provisions
of the note may be modified without notice to and without affecting the
liability of the Department, if such extension or modification complies
with the requirements for notes under this Agreement, Federal Regulations
and SBE Rules.
8. The Lender will notify the Department of any servicing or management of the
Lender's guaranteed loan portfolio performed by an agent(s) other than the
holder of record.
9. Whenever any guaranteed note shall be in default, or upon the death or total
and permanent disability of a borrower, or upon adjudication in bankruptcy,
the Department will, upon receipt of a properly documented claim from the
Lender, purchase the total amount of principal and interest then due and
owing to the Lender, in accordance with Federal Regulations and SBE Rules.
10. The Department shall maintain on deposit with the State Treasurer of Florida
or State Board of Administration funds or negotiable securities representing
no less than two percent (2%) of the total unpaid principal amount of all
guarantees issued by the Department or the guaranteed portion of unpaid
principal of all notes previously guaranteed by the Department exclusive of
such portion as
<PAGE> 3
page 3 of 4
may have been reinsured or guaranteed by the United States of America or an
agency, department, or instrumentality thereof. A Statement of such funds
and securities as of the close of the latest state fiscal year shall be
furnished to the Lender upon request.
11. The Lender represents that the Lender is not currently the object of any
directive issued by the U.S. Department of Education or any state or
federal agency which has the potential to limit, suspend or terminate the
Lender's eligibility to participate in the guaranteed loan programs.
Further, the Lender will notify the Department on the same day it receives
any such directives while this Agreement is in effect.
12. The Lender will not enter into any formal or informal agreement with any
school regarding the availability of Florida guaranteed loans, and will not
provide to or accept financial inducements from any school for making
Florida guaranteed loans available to students attending a school.
13. The Lender shall not discriminate nor deny equal opportunity on the basis
of race, religion, sex, creed, national origin, marital status, or veteran
status in any decision material to participation in the Florida Guaranteed
Loan Programs, such as but not limited to, loan eligibility determinations,
or approval of deferments, forbearances, repurchases and loan consolidation
or refinancing.
14. As a condition to the obligation of the Department herein, the Lender
agrees to comply with all laws, rules, and regulations, currently in effect
and as may be amended during the term of this Agreement, that are
applicable to the transactions and loans which are to be guaranteed.
15. This Agreement shall apply only to loans made after the date of execution
by the Department and may be terminated by the Lender by providing written
notice to the Department thirty (30) days in advance of the termination
date. If the Department intends to terminate this Agreement, the Department
will establish the termination date in accordance with the provisions set
forth in Federal Regulations and SBE Rules. The termination of this
agreement shall not affect the coverage of loans guaranteed prior to such
termination.
16. The Lender shall provide to the Department a Secretary's or Cashier's
Certificate and a Certificate of Incumbency and Authenticity of Signatures,
in the formats set out in Attachments 1 and 2, which are incorporated in
and made a part of this Agreement by reference, or in a substantially
equivalent format.
<PAGE> 4
Page 4 of 4
IN WITNESS WHEREOF, the parties have caused this instrument (which
constitutes the entire Agreement of the parties and which shall not be amended
except in writing or as stated herein) to be executed by their duly
authorized officers.
FOR THE LENDER
As an officer of this lending institution, I agree that this institution and
its representatives will comply with all laws, program regulations and rules
under this Agreement.
/s/ JEFFREY L. KINNEY
- --------------------------------------- ---------------------------
Signature of Official Date
JEFFREY L. KINNEY, Asst. Vice President
- ---------------------------------------
Typed name of Official
FOR THE DEPARTMENT
/s/ 3/27/97
- ------------------------------------------- ---------------------------
Administrator, Federal Programs Date
Office of Student Financial Assistance
Florida Department of Education
<PAGE> 1
EXHIBIT 4.8
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
LOAN HOLDER AGREEMENT
FOR LOANS GUARANTEED BY THE CORPORATION
This agreement is executed this __________ day of ________, 19__ by and
between the Georgia Higher Education Assistance Corporation (GHEAC) a public
non-profit Corporation, and _________________________________________________
______________________ (the Holder).
Witnesseth:
WHEREAS, GHEAC has entered into certain agreements with the U.S. Secretary of
Education to serve as a guaranty agency, and;
WHEREAS, GHEAC has guaranteed for an eligible originator, the Federal Stafford
Subsidized (Sub) loan(s), Federal Stafford Unsubsidized (Unsub) loan(s),
Federal Supplemental Loan for Students (SLS) loan(s), Federal Parent Loan to
Undergraduate Students(PLUS) loan(s), or the Federal Consolidation loan(s)
which have been acquired by the Holder; and
WHEREAS, GHEAC wishes to remain the guarantor of a loan(s) previously
guaranteed by GHEAC upon the transfer from the originator to any subsequent
eligible loan holder; and
WHEREAS, GHEAC is obligated to honor the guarantee issued upon a loan(s)
presently held by the Holder, provided the insurance coverage and guarantee has
not be invalidated; and
WHEREAS, the Holder qualifies as eligible to receive reimbursement for claims
on loans upon which GHEAC has issued a loan guarantee; and
WHEREAS, the Holder is the owner of all right, title and interest in and to the
eligible loan(s), and the eligible loan(s) are subject to no prior assignment
or other lien or encumbrance; and
WHEREAS, the Holder has not lost eligibility for reimbursement on the loan(s)
upon which a claim is filed for reimbursement;
NOW THEREFORE, in consideration of mutual covenants herein contained, and of
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement is subject to and incorporates by reference the current
provisions of any subsequent amendments to Title IV, Part B, of the Higher
Education Act of 1965, as amended (20 U.S.C. 1071 et. seq.); Title 34 Code of
Federal Regulations Part 668, Part 682, et. seq.; the Official Code of Georgia
Annotated, 20-3-260 et. seq.; the GHEAC Policies and Procedures Manual; and the
COMMON MANUAL, Unified Student Loan Policy. Nothing in this Agreement is
intended to abrogate, modify, or limit the applicability of the above
citations. The terms and conditions set forth in this Agreement shall be
subject to automatic modification and revision from time to time by the
amendment of the above citations.
2. This agreement is entered into for the purpose of confirming an intent for
GHEAC to remain as the guarantor of a loan(s) where a GHEAC guarantee has been
issued, upon the Holder acquiring right, title and interest in the eligible
loan(s) from a prior eligible holder of the loan(s).
1
<PAGE> 2
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
3. GHEAC promises to reimburse the Holder in an amount not to exceed one hundred
percent (100%) of any proven loss incurred by the Holder due to the default,
death, permanent and total disability, or bankruptcy of the borrower of any loan
held by the eligible holder and guaranteed by GHEAC. Where the maximum allowable
reimbursement percentage is otherwise defined, or reduced by statute or
regulation, that reimbursement percentage shall prevail. If the guarantor's
reinsurance coverage is reduced as provided for by the Secretary, the
reimbursement to the Holder shall be that percentage allowed under the
provision.
4. GHEAC shall apply the standard compliance review on all claims submitted for
reimbursement by GHEAC. Due diligence violations existing prior to the date of
acquisition by the Holder shall not be waived in review of claims filed by the
Holder.
5. Compliance by the Holder with the terms and conditions of this Agreement,
compliance with the terms and conditions pursuant to regulation, and compliance
with Holder's or prior eligible holder's obligations contained in that certain
Single Source Partners Lender Participation Agreement or any other
Participation Agreement between GHEAC and Holder, or Holder's prior originator,
or prior eligible loan holder, shall be a condition of GHEAC's obligation to
reimburse the Holder for loss as noted in section 2. of this Agreement. The
Holder will be responsible for all program requirements.
6. The Holder warrants that all assurances and representations made by the
Holder regarding any transactions made under this Agreement are complete and
accurate statements. Any representations made by the Holder, unless amended,
shall be binding on the Holder for the duration of the period of guarantee
coverage.
7. Any amendments or revisions to the law or regulations applicable to this
section shall be effectuated and considered as part of this Agreement, as
appropriate.
8. The Holder shall permit GHEAC, under its supervision and examination
authority, to examine during normal business hours, any educational records and
files, upon reasonable notice and at reasonable intervals, for the purpose of
conducting a program review.
9. This agreement may be terminated by GHEAC or the Secretary of Education at
any time. This agreement shall terminate immediately upon any determination by
GHEAC or the Secretary of Education that the Holder is ineligible for
reimbursement by the guarantor.
10. Any notice given or required to be given by this Agreement shall be deemed
to have been properly given when deposited in the United States mail, the
postage has been prepaid, the mail has been certified, a return receipt has
been requested, and delivery has been attempted to the other party at the
address designated below, or at such other addresses as the parties may
designate periodically.
2
<PAGE> 3
Georgia Higher Education Assistance Corporation (GHEAC)
Guaranty Agency Loan Holder Agreement
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their respective duly authorized officers, as of the day and date first
written above.
- --------------------------------- Georgia Higher Education
Name of Lending Institution Assistance Corporation
2082 East Exchange Place
Tucker, Georgia 30084
- ---------------------------------
Address
------------------------------------
E. Glenn Newsome, Executive Director
- ---------------------------------
City/State Zip
- ---------------------------------
Federal Tax Identification Number
- ---------------------------------
Federal Code Number
- ---------------------------------
Name/Title of Authorized Officer
(SEAL)
- ---------------------------------
Signature of Authorized Officer
3
<PAGE> 1
EXHIBIT 4.9
(LOGO)
GREAT LAKES HIGHER EDUCATION CORPORATION 2401 INTERNATIONAL LANE,
MADISON, WISCONSIN 53704
STUDENT LOAN GUARANTY
(For Loans to Students and Parents Under Title IV Part B of the
Higher Education Act of 1965 as amended)
DEFINITIONS: The term GUARANTOR used herein shall mean the Great Lakes Higher
Education Corporation. CORPORATION shall mean Great Lakes Higher Education
Corporation. LENDER shall include the undersigned and any eligible lender who
becomes the assignee, pursuant to applicable statutes and regulations, of loans
to students and parents granted under Title IV, Part B of the Higher Education
Act of 1965, as amended (the "Act").
APPLICABILITY. The benefits provided under this guaranty are applicable to any
loan guaranteed under the Act. Within such limits as may be established herein
and/or within such limits as the guarantor shall from time to time establish,
the guarantor agrees to pay, upon proper notice of death, permanent and total
disability or default, the outstanding principal and interest due to the lender
upon any student or parent loan covered by this guaranty.*
LIMITATIONS. This guaranty is subject to all applicable federal statutes and
administrative regulations. This guaranty is further subject to such
limitations and procedures as are, or may be, established by Rules and
Regulations of the Great Lakes Higher Education Corporation (the "Corporation
Rules and Regulations"). All applicable federal statutes and regulations and
Corporation Rules and Regulations as they may from time to time be amended are
made a part of this guaranty and incorporated herein.
The obligations of the lender as set forth in this guaranty shall constitute
conditions precedent to any obligation on the part of the guarantor.
OBLIGATIONS OF THE LENDER:
(a) The lender shall be an eligible lender under the Act and federal
regulations.
(b) The lender shall exercise due diligence as defined under the Act and
federal regulations and within the meaning of the Corporation Rules and
Regulations.
(c) The lender shall comply with all applicable federal statutes and
regulations.
(d) The lender shall notify the Corporation promptly of any change of name by
the lender, or assignment of the lender's interest under this guaranty.
(e) Any assignments of any interest of the lender under this guaranty shall be
only to appropriate eligible lenders and shall be in compliance with all
applicable provisions of federal statutes and regulations and Corporation
Rules and Regulations.
(f) The lender shall cooperate with the Corporation, the department of education
and any other appropriate federal agency in the collection of any defaulted
student or parent loan.
(g) The lender shall assist eligible borrowers in securing reductions on
obligations to pay interest on loans made by, or assigned to, the lender
which reductions the borrowers may be eligible to receive under applicable
federal statutes and regulations and the Corporation Rules and Regulations.
TERMINATION. This guaranty may be terminated by the lender as to any loans made
by the lender following not less than thirty days written notice to the
Corporation. This guaranty may be terminated by the Great Lakes Higher
Education Corporation in the manner provided for by the Corporation Rules and
Regulations. The termination of this guaranty shall not affect the coverage
of any loans subject to this guaranty which were made prior to the date of
termination.
* Notwithstanding the foregoing, default claims with respect to loans first
disbursed on or after October 1, 1993, shall be paid at ninety-eight percent
(98%) of the outstanding principal and interest due to the lender, or such
lesser rate, if any, as may be provided in Section 428(b)(1)(G) of the Higher
Education Act of 1965, as amended. Specifically, and without limitation, this
guaranty shall not apply to any loan which is not eligible for reinsurance as a
result of school based defenses or other defenses to enforceability under state
or federal law. Payment hereunder is expressly limited to monies constituting
the guarantor's Guaranty Reserve Fund as established in accordance with the
regulations governing the Federal Family Education Loan Program as found in
34 CFR 682410(a)(1) or as provided under Title IV, Part B, Section 432(o) of
the Higher Education Act of 1965, as amended.
Great Lakes Higher Education Corporation
By /s/ 3-21-97
----------------------------- ------------
Authorized Officer Date
The above Guaranty is hereby accepted this ____ day of _________________, 19__
Exact Corporate Title: The First National Bank of Chicago as Trustee for the
PNC Student Loan Trusts
By /s/Jeffrey L. Kinney Title of Officer Asst. Vice President
------------------------------ --------------------
Employer
Identification Number 36-4142114 Lender Number 833364
<PAGE> 1
Exhibit 4.10
[ISAC LOGO]
Illinois Student Assistance Commission
1755 Lake Cook Road
Deerfield, Illinois 60015-5209
HOLDER AGREEMENT
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The First National Bank of Chicago as Trustee for the PNC Student Loan Trusts
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HOLDER NAME
One National Plaza, Suite 0126
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STREET ADDRESS
Chicago, Illinois 60670 833364
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CITY/STATE ZIP CODE HOLDER CODE
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Whereas, the above-named Holder wishes to possess student loans guaranteed by
the Illinois Student Assistance Commission (ISAC), and
Whereas, ISAC desires to allow entities other than those that originate loans
to hold them in their portfolios.
Therefore, the Holder and ISAC agree as follows:
(1) ISAC authorizes Holder to possess loans, guaranteed by ISAC, in the
following programs:
o Federal Consolidation Loan Program, as authorized by Section 428C of the
Higher Education Act of 1965, as amended.
o Other Federal Family Education Loan Programs:
Federal Stafford Loans, as authorized by Sections 427 and 428
of the Higher Education Act of 1965, as amended,
Unsubsidized Federal Stafford Loans for Middle-Income Borrowers,
as authorized by Section 428H of the Higher Education Act of
1965, as amended,
Federal PLUS Loans, as authorized by Section 428B of the Higher
Education Act of 1965, as amended, and
Federal Supplemental Loans for Students (SLS), as formerly
authorized by Section 428A of the Higher Education Act of 1965,
for loans made prior to July 1, 1994.
(2) The Holder agrees to comply with all provisions of applicable laws and
regulations, as presently formulated and as hereinafter amended, including:
the Higher Education Act of 1965, as amended, (20 U.S.C. 1071 et seq.); the
Higher Education Student Assistance Act, as amended [110ILCS 947/1 et seq.];
the United States Department of Education Regulations (34 CFR 682); and the
ISAC Rules (23 Ill. Adm. Code 2720).
(3) If ISAC determines that the Holder has violated the aforementioned
authorities, ISAC may modify or terminate this Agreement in accordance with
the procedures outlined in ISAC Rules.
(4) If the Holder no longer wishes to possess the loans identified in
Section (1) of this Agreement, the Holder shall give ISAC 30 days advance
written notice in order to amend or terminate this Agreement. Such amendment
or termination shall not affect the guarantee of any loans made prior to
such amendment.
(5) This Agreement shall be governed in all respects by the laws of the
State of Illinois.
(6) This Agreement supercedes all previous Agreements between ISAC and the
Holder.
(7) The parties hereto have executed this Agreement through their duly
authorized representatives.
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<TABLE>
<S> <C> <C> <C>
/s/ Jeffrey L. Kinney Jeffrey L. Kinney Asst. Vice President
- -------------------------------------------------------------------------------------------------
Authorized Lender Official's Signature Printed Name Title Date
/s/ John P. Jennetten John P. Jennetten Chief Program Officer 3/25/97
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Authorized ISAC Official's Signature Printed Name Title Date
Printed by authority of the State of Illinois
</TABLE>
<PAGE> 1
EXHIBIT 4.11
KHEAA
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1050 U.S. 127 South, Frankfort, KY 40601-4323
Telephone (502) 564-5884
Holder
Contract of Insurance
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The Kentucky Higher Education Assistance Authority does not discriminate on the
basis of race, color, national origin, sex, religion, age, or disability in
employment or services and provides, upon request, reasonable accommodations to
afford individuals with disabilities an equal opportunity to participate in all
programs and activities. For further information, call 1-800-928-8926, extension
4-3963. Printed 10/95 with State Funds KRS 57.375.
<PAGE> 2
KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY
HOLDER
CONTRACT OF INSURANCE
FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAMS
Federal Subsidized Stafford Loans
Federal Unsubsidized Stafford Loans
Federal Supplemental Loans for Students
Federal Parent Loans for Undergraduate Students
Federal Consolidation Loans
The parties to this contract are The First National Bank of Chicago
as Trustee for the PNC Student Loan Trusts (hereinafter known as Holder) and
the Kentucky Higher Education Assistance Authority (hereinafter known as
Authority).
The Holder certifies that it is an Eligible Holder in accordance with
Section 435 (20 U.S.C. Section 1085) of the Federal Act. The Holder and the
Authority hereby agree that the Holder is authorized to participate as an
Eligible Holder in the Authority's Insured Student Loan Program for purposes of
holding the following types of loans:
Federal Subsidized Stafford Loans, Federal Unsubsidized
Stafford Loans, Federal Supplemental Loans for Students,
Federal Parent Loans for Undergraduate Students and
Federal Consolidation Loans.
Nothing contained in this contract shall obligate the Holder to
certify, acquire, or make any particular loan or number of loans under the
Authority Insured Student Loan programs. It is expressly understood and
agreed by the parties that this contract entitles Holder to acquire Authority
Insured Student Loans from other eligible Lenders or Holders, but does not
entitle Holder to make or originate Authority Insured Student Loans.
In consideration of the mutual promises contained herein, the
Authority hereby agrees and covenants to reimburse the Holder in the amount of
one hundred percent of any proven loss incurred by the Holder arising out of or
resulting from default, death, permanent and total disability, closed school,
false certification, or, under specified conditions, filing of a petition in
bankruptcy of a borrower on any loan held by the Holder and insured pursuant to
the terms of this contract. Notwithstanding the foregoing sentence, the
reimbursement rate applicable to default on loans held by the Holder (other than
those originated under a "Lender-of-Last-Resort" arrangement with the Authority
or with respect to an Exceptional Lender designation under the Federal Act), on
which the first disbursement is made on or after October 1, 1993, shall be not
less than ninety-eight percent. The Holder hereby agrees and covenants to abide
by and comply with the terms and conditions of this contract and state and
federal statutes and regulations applicable to the Federal Family Education Loan
Programs. The Authority hereby agrees and covenants to abide by and comply with
the terms and conditions of this contract, and to perform its obligations under
this contract according to terms established in the Act, regulations, and the
Authority's policies and procedures, and in compliance with all other applicable
federal and state laws and regulations.
<PAGE> 3
---------------------- TERMS AND CONDITIONS ----------------------
INCORPORATION OF LAW
This contract is subject to, and hereby incorporates by reference, the
current provisions of, and subsequent amendments to, Title 20 United States
Code (U.S.C.) Section 1071 et seq. (the "Federal Act"); Title 34 Code of
Federal Regulations (CFR) Part 668 and Part 682; Kentucky Revised Statutes
(KRS) Chapter 164.740 et seq.; Title 11 of the Kentucky Administrative
Regulations (KAR) Chapters 3 and 4; and all other federal law applicable to the
Holder under this contract including, but not limited to, Title IX of the
Education Amendments of 1972 (20 U.S.C. 1681-1683); Section 504 of the
Rehabilitation Act of 1973 (29 U.S.C. 794); the Age Discrimination Act (42
U.S.C. 6101 et seq.); the Americans with Disabilities Act of 1990 (42 U.S.C.
12101); and the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq.),
as amended. Unless generalized or discretionary provisions of the above cited
material are made specific by the following paragraphs, including but not
limited to items such as time, amount, rate, place, or manner of performance,
nothing in this contract is intended to abrogate, modify, or limit the
applicability of any of the above cited material. The terms and conditions set
forth in this contract shall be subject to automatic modification and revision
from time to time by the process of amendment and revision of the above cited
laws and regulations.
ELECTRONICALLY TRANSMITTED DATA
To the extent that the Holder participates in the process of
electronically transmitting data to the Authority in order to expedite the
processing of Authority-insured loans, the following shall apply:
1) Equipment
A) The Holder may, at its sole expense, acquire, use, and maintain equipment
(computer hardware) that is suitable for electronic transmission of data
to the Authority. If the Authority purchases and makes available to the
Holder, at the Authority's expense, computer equipment identified herein,
for electronic transmission of data to the Authority, title and ownership
of the equipment shall remain with the Authority, and replacement or
substitution of the equipment shall be at the Authority's sole discretion.
Repair and maintenance of the equipment shall be the responsibility of the
Authority.
B) The Holder shall safeguard all equipment provided by the Authority from
damage and provide adequate security and control to limit the use of the
equipment exclusively to the proper transmission of data for purposes of
the Authority's insured student loan programs by authorized personnel and
to assure that the equipment remains functional.
C) The computer equipment provided by the Authority pursuant to paragraph 1
is listed on Attachment A.
2) Certification of Data
A) The Holder hereby represents and warrants absolutely that any and all data
transmitted electronically to the Authority for each loan is true,
accurate, and complete to the best knowledge of the Holder and the
designated Loan Program Officer.
B) The Holder has and shall retain all documentation necessary to verify the
data transmitted through this procedure and shall provide access to such
documentation by the Authority or its agents.
<PAGE> 4
FEDERAL CONSOLIDATION LOANS
To the extent that the Holder acquires Federal Consolidation Loans
insured under the Authority's program made to eligible borrowers under Title
IV, Part B of the Federal Act, then it is agreed by the parties as follows:
1) The originating Lender shall have properly made and disbursed the
consolidation loan to the borrower, pursuant to the pertinent federal law and
regulations.
2) The Holder shall offer an income-sensitive or graduated repayment schedule,
established by the Holder in accordance with the regulations of the Secretary
of the U.S. Department of Education ("Secretary"), to the borrower of any
Federal Consolidation Loan made by a lender on or after July 1, 1994.
3) The Holder agrees to follow such other published terms and conditions as the
Secretary or the Authority specifically requires to carry out the Federal
Consolidation Loan Program.
CERTIFICATE OF COMPREHENSIVE INSURANCE
For any Federal Consolidation Loans held by the Holder and insured by
the Authority against loss of principal and interest, in accordance with the
Federal Act, as amended, the following provisions apply:
1) That this certificate of comprehensive insurance shall be effective and shall
expire in accordance with the paragraph of this agreement entitled Effective
Date. The Federal Consolidation Loan(s) will be made on or after April 7,
1986, but no later than provided for in the Federal Act, as amended;
2) That the Holder shall establish repayment terms which shall include the
establishment of graduated or income-sensitive repayment schedules in
accordance with the regulations of the Secretary;
3) That the Holder's loan consolidation program practices are subject to the
Authority's Insured Student Loan Program Limitation, Suspension or
Termination procedures. The insurance on any Federal Consolidation Loan(s)
held under this certificate prior to the Authority's imposition of a
limitation, suspension or termination action shall not be affected by such
action; and,
4) That the Holder complies with the Authority's reporting requirements. The
Authority's office at 1050 U.S. 127 South, Frankfort, Kentucky, is designated
as the office which will process claims and perform other related
administrative functions.
FORMS
Where particular forms pertaining to the performance of obligations
imposed by this contract are approved by the Authority or by the Secretary of
the U.S. Department of Education as common forms, only those forms shall be
used by the Holder. Any addition, substitution, or alteration of these forms
without express written permission of the Authority shall be grounds for
avoidance by the Authority of any insurance obligation that would otherwise be
imposed by this contract. Except as otherwise provided herein, the Holder may
use such additional forms as it deems appropriate for its own purposes,
provided that use of said forms does not violate state or federal law, and
further provided that said forms shall be maintained with the borrower's
records in accordance with retention schedules prescribed by applicable law.
PROMISSORY NOTE
Loans insured under this contract shall be evidenced by a promissory
note provided or approved by the Authority or approved by the Secretary of the
U.S. Department of Education. Interest on any loan insured hereunder shall be
charged to the borrower at a rate which does not exceed the maximum applicable
rate per annum prescribed by the Federal Act and/or regulations governing the
Federal Family Education Loan Programs.
<PAGE> 5
INSURABILITY
For all loans, the Holder shall assure, and the Authority shall have
determined to its satisfaction, in accordance with reasonable and prudent
business practices, for each loan that: the loan was properly disbursed by the
originating lender; the loan is a legal, valid, and binding obligation of the
borrower; each such loan was made and serviced in compliance with applicable
laws and regulations; and the insurance on such loan is in full force and
effect.
A Holder shall comply with due diligence requirements established by
the U.S. Department of Education and the Authority in servicing and collecting
loans insured pursuant to this contract. Failure to exercise such due
diligence, with regard to any loan insured hereunder, may, without precluding
other remedies, constitute grounds for avoidance by the Authority of its
insurance obligation on that loan. This Holder warrants that it has and will
continue to maintain itself or by contract, sufficient present capacity to
exercise due diligence in the servicing and collection of student loans and the
maintenance of records pertaining thereto.
Compliance by the Holder with the terms and conditions of this
contract and applicable laws and regulations shall be deemed a condition
precedent to the insurance obligation imposed upon the Authority hereunder.
The Authority agrees that its insurance on any loan disbursed
hereunder will remain in full force and effect if the loan becomes ineligible
for federal reinsurance due to the Authority's acts or omissions in performing
its obligations under this contract. If, at any time, any loan is determined to
be either ineligible for reinsurance or legally unenforceable due to the
Holder's acts or omissions in performing its obligations under the applicable
law or this contract, then the Authority's insurance shall be voided and
revoked and the Authority may require the Holder to repurchase the loan.
RECORDS
The Holder shall keep complete and accurate records of each loan
guaranteed under this contract.
The Holder shall, upon reasonable written request, pursuant to a
program review, make available to the Authority, the Secretary, or their duly
designated representative, for inspection and copying, any and all books,
records, documentation (including, but not limited to, memoranda,
correspondence, and computer printouts) necessary to assure compliance with this
contract and any applicable law. Except as otherwise provided below, such books,
records, and documentation shall be available during regular office hours of any
working day, no later than ten (10) working days after the request for
inspection. The Holder shall provide to the Authority loan records of individual
borrowers necessary to respond to borrower disputes, appeals, or inquiries
within five (5) working days of written request. The material may be made
available in whatever form retained (microfilm, computer data, or print).
Notwithstanding the foregoing, in the event that the Authority or the
Secretary shall have reasonable cause to believe that there exists a potential,
substantial impairment of the interests of the Commonwealth, the Authority, the
United States Government, or any eligible student, then the Authority, acting
through its Executive Director or his designee, and the Secretary reserve the
right, upon demand, of immediate inspection of such books, records,
documentation, or other materials as may pertain or be relevant to the accuracy
and completeness of the Holder's records and reports and the Holder's
compliance with the terms and conditions of this contract.
TERMINATION AND OTHER REMEDIES
Unless otherwise provided herein, this contract may be terminated or
suspended by either party upon not less than twenty (20) days written notice,
although such termination or suspension by the Authority shall be for cause and
in accordance with the Federal Act, regulations promulgated thereunder, and the
Authority's policies and procedures, and shall not become final until the
Holder is afforded adequate notice and an opportunity for hearing on the merits
of the Authority's claims and contentions as provided by the Federal Act and 11
KAR 4:020, the provisions of which regulation shall be deemed to apply to
Holders of loans. However, the Authority shall have the power to take emergency
action in accordance with 11 KAR 4:020 to suspend operation of this contract,
pending the outcome of said hearing, if the Authority determines that such
action is necessary to prevent substantial harm to the interest of the
<PAGE> 6
Commonwealth, the Authority, the United States Government, or any eligible
student. Termination by either party shall not affect the obligations incurred
under this contract prior to the effective date of the termination.
In the event that the Authority shall have probable cause to believe
that any of the assurances or representations made by the Holder are
incomplete, inaccurate, or misleading and deceptive, or that there has been a
failure by the Holder to comply with the terms and conditions of this contract
or applicable laws or regulations, in any material respect, then short of
termination or suspension, the Executive Director of the Authority or his
designee shall have the right to take any reasonable action necessary
including, but not limited to: litigation, withholding of payments, probation,
or limitation of participation, or requiring reimbursement of any funds
expended or obligated to be expended by the Authority as the result of reliance
upon such assurances, representations, or anticipation of compliance. In the
event that the Secretary has assumed the Authority's functions, and if the
Secretary determines that this contract includes an impermissible transfer of
the reserve funds or assets, then the Secretary may terminate this contract
upon 30 days notice.
Unless otherwise provided, any material noncompliance with the terms
and conditions of this contract shall subject the noncomplying party to any and
all forms of remedial action, legal and equitable. No choice of remedies shall
be required of the injured party.
ASSIGNMENT
Except as otherwise specified below, the Holder may, without prior
consent of the Authority, sell, assign, pledge, or otherwise transfer rights,
title, and interests, including specifically the right to receive any insurance
claim payment from the Authority for loans insured pursuant to this contract,
to an Eligible Lender or Holder, as defined in 34 CFR 682.200 and KRS 164.740,
that has in force a Contract of Insurance with the Authority. If the transferee
does not have a Contract of Insurance in place with the Authority, then said
transfer may be made only with the prior written consent of the Authority,
which consent shall not be unreasonably withheld, and in accordance with the
Federal Act and regulations thereunder. If the Holder effects a transfer of
title or of other interests in such loans that include the right to receive
insurance payments from the Authority, the Holder shall give the Authority
written notice of having done not later than the fifteenth (15) day of the
second month of the calendar quarter that begins after said transfer as a
precondition of the Authority's insurance obligation.
Except as specified above, the Holder may transfer or assign rights
accruing under this contract, including particularly the rights to participate
in the Authority's program of Insured Student Loans insurable under this
contract, only to another Eligible Lender, as defined in Section 435 (20 U.S.C.
1085) of the Federal Act, 34 CFR Section 682.200 and KRS 164.740, and only with
the prior written consent of the Authority.
The terms and conditions of this contract shall be binding upon the
heirs and successors in interest of the respective parties as though original
parties to this contract.
WARRANTY
The Holder hereby warrants and covenants that all assurances and
representations, except those specified in applicable regulations on which the
Holder is given the right to rely in good faith, made by the Holder regarding
any transactions including, but not limited to, the servicing of Insured
Student Loans, pursuant to this contract are complete and accurate statements
of fact at the time of making those assurances and representations. Any
assurances or representations made by the Holder, unless amended, shall be
binding upon and against the Holder as a precondition of the insurability of
any Insured Student Loan for the duration of the period of insurance coverage
provided for herein.
DESIGNATED REPRESENTATIVE
Unless otherwise designated at any time over the duration of this
contract, the person(s) signing this contract on behalf of each party shall be
deemed to be the proper person(s) to whom notices and any other communications
shall be directed.
<PAGE> 7
SUBROGATION
Upon filing of a claim for reimbursement, and as a condition precedent
to reimbursement under the terms of this contract, the Holder shall assign to
the Authority all rights and responsibilities accruing to the Holder under the
Insured Student Loan promissory note, and the Authority shall be deemed fully
subrogated to the rights and responsibilities of the Holder pursuant to that
note and to this contract as it pertains to that note.
PROCEDURES
Subject to this contract, the specific procedures for servicing and
collecting loans insured under this contract, as well as filing claims for
insurance reimbursement on such loans, are delineated in 34 CFR Part 682.
PARAGRAPHS AND DEFINED TERMS
The paragraph headings contained in this document are included for the
sole purpose of facilitating the reading of this document, and shall have no
binding, substantive effect.
Capitalized terms herein shall indicate defined terms. The definition
of terms shall have the meaning specified in 20 U.S.C. Section 1085 and Section
1088, 34 CFR Section 668.2 and Section 682.200, KRS 164.740, and 11 KAR 3:001,
unless otherwise specified in this contract.
MODIFICATION
Unless otherwise provided herein, any modification of the terms and
conditions of this contract shall not be effective unless evidenced by a
writing signed by both parties.
SEVERABILITY
Should any provision of this contract be found to be inapplicable or
otherwise not binding on the parties, it is the intention of the parties that
the remainder of the contract shall remain in full force and effect upon the
respective rights and obligations of the parties hereto.
It is hereby stated as the intention of the parties hereto that all
prior contracts, both written and oral, consistent and inconsistent, are
hereinafter superseded, except as specified below. No prior understanding,
agreement, contract, or representation shall be effective against either party
unless henceforth made a part of this contract as evidenced by this writing.
Assurances and representations heretofore warranted by the Holder in any prior
contract of insurance respecting the eligibility of the Holder and the
insurability of any loan heretofore insured under such prior contract of
insurance are consolidated into the terms and conditions of this agreement as
expressed in this document. Any contract of insurance between the parties
hereto outstanding at the time of execution of this agreement is herewith
terminated and simultaneously replaced with this contract so as to allow for
continued participation in the Authority's Insured Student Loan program.
RESTRICTIONS
In accordance with the Federal Act and regulations thereunder, the
Holder shall not accept any financial inducement by any educational institution
to make available Authority insured loans to its students.
<PAGE> 8
------------------- EFFECTIVE DATE AND SIGNATURES ----------------------
This contract shall be effective from the date of execution by the
Authority. Unless otherwise terminated in accordance with the terms and
conditions set forth heretofore, this contract shall remain effective until so
terminated.
The First National Bank of Chicago
as Trustee for the PNC Student
/s/ LONDA L. WALANIN Loan Trusts
- ----------------------------------- -----------------------------------------
Authorized Representative Holder
Kentucky Higher Education
Assistance Authority
03/24/97 /s/ JEFFREY L. KINNEY
- ----------------------------------- -----------------------------------------
Effective Date Authorized Representative
(Type or Print)
/S/ JEFFREY L. KINNEY
-----------------------------------------
Authorized Representative Signature
Assistant Vice President
-----------------------------------------
Title
One First National Plaza Suite 0126
Chicago, IL 60670
-----------------------------------------
Address
LID 833364
TIN 36-4142114
-----------------------------------------
Holder Identification Number
-----------------------------------------
Designated Holder Representative
-----------------------------------------
Title
-----------------------------------------
Other Authorized Signatory
-----------------------------------------
Other Authorized Signatory
-----------------------------------------
Other Authorized Signatory
BRANCH OFFICES INCLUDED IN THIS CONTRACT:
Office Address Designated Holder Representative
- ------------------------------------- ----------------------------------------
- ------------------------------------- ----------------------------------------
<PAGE> 9
ATTACHMENT A
HOLDER CONTRACT OF INSURANCE
The computer equipment provided by the Kentucky Higher Education Assistance
Authority to the Holder is as follows:
None
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
I acknowledge receipt of the above listed equipment from the Authority.
FOR THE HOLDER:
- ------------------------------------
Designated Holder Representative
- ------------------------------------
Holder Name
- ------------------------------------
Holder ID
- ------------------------------------
Effective Date
<PAGE> 10
KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY
HOLDER CONTRACT OF INSURANCE
ADDENDUM
Whereas, the Authority and Holder are parties to a Holder Contract of Insurance
(hereafter known as the "Contract"); and
Whereas, the Authority has heretofore undertaken to issue a Loan Guarantee on
Insured Student Loans held by Holder that were disbursed on or after June 2,
1995; and
Whereas, the Authority and the Alabama Higher Education Commission (ACHE) have
entered into a Document of Understanding dated February 23, 1995, between
themselves and the U.S. Department of Education providing for the transfer of
Guarantee Commitments from ACHE to the Authority; and
Whereas, pursuant to 20 U.S.C. Section 1078(b)(2)(E) and 34 C.F.R.
Section 682.401(b)(18), the Authority and Holder desire to provide for a
transfer of Guarantee Commitments by the ACHE Alabama Guaranteed Student
Loan Program to the Authority;
The Authority and Holder hereby agree to amend the Agreement as follows:
DEFINITIONS
For purposes of this Addendum, the following terms shall have the specified
meanings:
1) "Guarantee Commitments" means the insurance obligation of ACHE on Insured
Student Loans held by Holder pursuant to a Loan Guarantee Agreement between
ACHE and a Holder.
2) "Insured Student Loan" shall have the meaning specified in KRS 164.740(12).
3) "Loan Guarantee" shall have the meaning specified in KRS 164.740(14).
4) "Loan Guarantee Agreement" shall mean Bank Guarantee Agreement executed and
in force as of December 1, 1995, between ACHE's Alabama Guaranteed Student
Loan Program ("AGSLP") and the Holder.
5) "Outstanding Insured Student Loans" shall mean Insured Student Loans on
which:
A) The loans were initially insurable by ACHE under a Loan Guarantee
Agreement(s) and reinsurable by the U.S. Secretary of Education;
B) The borrower owes a balance of principal or interest;
C) An insurance claim has not been paid by the Authority or ACHE, except for
loans on which a previous default has been rehabilitated in accordance
with 34 C.F.R. Section 682.405; and
D) The Guarantee Commitment by ACHE remains in force and reinsurance by the
U.S. Secretary of Education remains in force or may be reinstated in
accordance with procedures prescribed in Appendix D to 34 C.F.R. Part 682.
<PAGE> 11
INSURANCE OF PRIOR INSURED STUDENT LOANS
Notwithstanding the paragraph of the Agreement entitled "Effective
Date", the Authority hereby promises to insure, in accordance with the terms
and conditions of the Agreement, all Insured Student Loans held by Holder upon
which the Authority has issued a Loan Guarantee between June 2, 1995, and the
effective date of the Agreement, if:
A) The loans were disbursed in accordance with the federal act and
applicable regulations;
B) The Lender or Holder has paid to the Authority the Premium
specified in the Agreement pertaining to the Insured Student Loans;
C) The borrower owes a balance of principal or interest;
D) An insurance claim has not been paid by the Authority on the loan,
except for loans on which a previous default has been rehabilitated
in accordance with 34 C.F.R. Section 682.405; and
E) The reinsurance by the U.S. Secretary of Education remains in
force or may be reinstated in accordance with procedures prescribed
in Appendix D to 34 C.F.R. Part 682.
ASSUMPTION BY AUTHORITY OF LOAN GUARANTEE COMMITMENTS OF ACHE
The Authority hereby agrees to assume, as of December 1, 1995, subject
to the terms and conditions of the Agreement and the Federal Act and applicable
regulations, the obligation of the ACHE for Guarantee Commitments issued prior
to December 1, 1995, by ACHE Guaranteed Student Loan Program under the Federal
Act and a Loan Guarantee Agreement(s) on Outstanding Insured Student Loans held
by the Holder. Pursuant to 20 U.S.C. Section 1078(b)(2)(E), the Holder hereby
consents to this transfer of said Guarantee Commitments.
HOLDER:
By:
/s/ Londa L. Wolanin /s/ Jeffrey L. Kinney
- ---------------------------------- ------------------------------------
Authorized Representative Name
Kentucky Higher Education
Assistance Authority
03/24/97 Assistant Vice President
- ---------------------------------- ------------------------------------
Date Title
LID 833364
TIN 36-4142114
------------------------------------
Holder Identification Number
The First National Bank of Chicago
as Trustee for the PNC Student
Loan Trusts
------------------------------------
Holder Name
One First National Plaza, Suite 0126
------------------------------------
Address
Chicago, Illinois 60670
------------------------------------
------------------------------------
<PAGE> 1
EXHIBIT 4.12
AGREEMENT TO GUARANTEE LOANS
Agreement Between
Michigan Higher Education Assistance Authority
Michigan Guaranty Agency
AND
The First National Bank of Chicago
as Trustee for the PNC Student Loan Trusts
Chicago, IL
----------------------------------------------------
(Lender Name and City)
<PAGE> 2
THIS AGREEMENT dated this __________ day of __________________, 19__,
between the Michigan Higher Education Assistance Authority, an autonomous agency
of the Michigan Department of Treasury, with its component unit, the Michigan
Guaranty Agency, both located at 608 West Allegan, Lansing, Michigan 48933
(collectively, the "Authority");
and
The First National Bank of Chicago
as Trustee for the PNC Student Loan Trusts
- ------------------------------------------
Financial Institution
One First National Plaza Ste. 0126
- ------------------------------------------
Address
Chicago, IL 60670
- ------------------------------------------
City, State, Zip (the "Lender")
833364
- ------------------------------------------
Lender Code Number
36-4142114
- ------------------------------------------
EIN (Federal Tax/Employer ID #)
RECITALS
1. One of the purposes of the Authority is to assist persons in
meeting their expenses of post-secondary education or to assist a parent of a
dependent person who meets the requirements for a loan, by guaranteeing in
accordance with Title IV Part B of the Higher Education Act of 1965, as
amended, and any regulations promulgated pursuant thereto (the "Higher
Education Act"), the principal and interest of a loan pursuant to MCL 390.951
et seq; MSA 15.2097 (1) et seq. (the "Act").
2. The Authority is desirous of stimulating the lending of money to
assist students in obtaining a post-secondary school education.
3. The Lender is desirous of participating in the program of the
Authority that establishes the policies and procedures for implementing and
maintaining a loan guaranty under the provisions of the Act and applicable
federal law and regulations (the "Guaranty Loan Program") and, as a result,
obtain a guaranty from the Authority for each qualified loan made under the
Higher Education Act (the "Student Loans").
THEREFORE, in consideration of the Student Loans the Lender makes or
holds under the terms of the Guaranty Loan Program and the guaranty of the
Student Loans provided by the Authority, and in further consideration of the
mutual covenants provided herein, the parties agree as follows:
2
<PAGE> 3
AGREEMENT
1. Guaranty of Student Loans
The Authority agrees to issue a guaranty in accordance with the
Higher Education Act for principal and interest of all promissory notes
evidencing loans to be made or acquired under the Guaranty Loan Program by the
Lender, provided that the guaranty would not cause the aggregate amount of the
unpaid principal of all notes guaranteed by the Authority under the Guaranty
Loan Program to exceed the maximum dollar amount which may be supported by its
guaranty reserve, as required by paragraph 4 of this Agreement.
Nothing contained in this Agreement shall obligate the Lender
to make or acquire any particular loan or number of loans under the Guaranty
Loan Program.
2. Lender Representations and Warranties
A. The Lender agrees that it will accelerate or extend the
maturity of each note evidencing a loan made by it in accordance with the terms
of such note, this Agreement, and the Guaranty Loan Program.
B. The Lender will pay any required guaranty fee authorized by
the Act or the regulations promulgated under the Act, as determined by the
Authority or the applicable federal agency, of each Student Loan issued under
the Guaranty Loan Program.
C. The Lender will exercise reasonable care and diligence in
the making or acquiring, servicing and collection of Student Loans.
D. The Lender will not only comply with all provisions of the
Agreement but also with the Loan Procedures Manual issued by the Authority and
incorporated herein by reference.
E. The Lender shall make its books, records, and other written
materials with respect to each Student Loan guaranteed under this Agreement
available for inspection by the Authority, including but not limited to, all
loan applications, payment history, promissory notes, evidence of guaranty,
evidence of timely disbursement, Disclosure Statements, and any other loan
documents available for inspection by the Authority and shall cooperate with
any reasonable monitoring, audit, or investigation related to the Agreement.
F. The Lender will comply with all applicable federal and
state laws and regulations, including, but not limited to, the "due diligence"
requirements or other requirements of any of those laws and regulations
pertaining to the origination, disbursement, servicing, accounting, reporting
and collecting of each Student Loan.
G. The Lender shall not alter the terms of any promissory note
guaranteed under this Agreement, except as otherwise provided in paragraph 2(A)
of this
3
<PAGE> 4
Agreement and the Guaranty Loan Program.
H. The Lender is an eligible lender as that term is defined in
the Higher Education Act.
I. Each Student Loan which is to be guaranteed is an "Eligible
Loan" incurred by an "Eligible Student" for attendance at an "Eligible
Institution" as those terms are defined in the Higher Education Act.
J. The Lender does not discriminate on the basis of race,
creed, sex, color or national origin, or against any particular class or
category of borrowers by requiring that, as a condition for receipt of a loan,
the student or his or her family maintain a business relationship with the
Lender.
K. This Agreement constitutes a valid and binding obligation
of the Lender enforceable in accordance with its terms.
3. Guaranty
A. In the event of a default of payment with respect to any
promissory note guaranteed under this Agreement, and upon the Authority's
receipt from the Lender of a notice of default and request for reimbursement,
the Authority will promptly pay to the Lender the percentage required by the
Higher Education Act of the unpaid balance of principal and interest due
thereon.
B. In the event that a borrower on a note guaranteed under
this Agreement shall file a petition in bankruptcy or have a petition filed
against him or her, or the borrower shall die or become totally and permanently
disabled, the Authority will promptly pay to the Lender the percentage required
by the Higher Education Act of the unpaid balance of principal and interest due
thereon.
C. The Lender shall make diligent collection efforts (as
required by the Higher Education Act) before demanding payment by the Authority.
D. The Authority agrees that it will comply with all
applicable federal and state laws and regulations, and the Authority's rules
and regulations, in performing its obligations under this Agreement.
E. This Agreement constitutes a valid and binding obligation
of the Authority enforceable in accordance with its terms.
4. Reserve Requirements
The Authority will hold and maintain as a capital reserve cash
or marketable securities at an amount no less than two percent (2%) of the
aggregate amount of unpaid principal of all notes guaranteed under the
Authority's Guaranty Loan Program, as long as the Lender is the holder of any
note evidencing a loan made under the Guaranty Loan Program.
4
<PAGE> 5
5. Remedies
A. The Lender and the Authority agree that if either shall
violate or fail to comply with any of the terms of this Agreement, the other
party may recover all damages for the violation or failure to comply sustained
by the non-breaching party.
B. In addition to the remedies set forth in paragraph 5(A),
the parties shall have all remedies available at law or in equity including,
but not limited to, immediate termination of this Agreement, equitable relief
by way of injunction (mandatory or prohibitory), prevention of the breach or
threatened breach of any provisions of this Agreement, or enforcement of
performance thereof. All of the remedies provided by paragraph 5 shall be
cumulative, and the exercise by the parties of any one or more of them shall
not in any way alter or diminish the rights of the parties to any other remedy
provided by this or other agreements or by law. In the event of any default or
breach of this Agreement, the non-breaching party shall be entitled to
reimbursement of all the costs for enforcing any of such terms, including any
reasonable or necessary attorney's fees.
6. Termination
This Agreement may be terminated by either party upon not less
than sixty (60) days written notice to the other party; provided, however, that
any termination of this Agreement shall comply with the Higher Education Act.
Obligations incurred under this Agreement shall not be affected by such
termination prior to its effective date.
7. Compliance with Federal Regulations
If the Lender fails to comply with the Act and is limited,
suspended or terminated by the Secretary of the U.S. Department of Education
from participating as an Eligible Lender under the Higher Education Act, then
this Agreement and the Lender's participation with the Authority under the
Guaranty Loan Program will likewise be immediately limited, suspended, or
terminated. The sixty (60) day written termination notice is not applicable
under this provision.
8. Loans to Minors
The parties agree that any person otherwise qualifying for a
loan shall not be disqualified to receive a loan guaranteed by the Authority by
reason of his or her being a minor. For the purpose of applying for, receiving
and repaying a loan, any minor shall be deemed to have full legal capacity to
act and shall have all the rights, powers, privileges and obligations of a
person of full age with respect thereto, pursuant to Section 8 of the Act.
9. Not a State Obligation
Obligations incurred under this Agreement by the Authority are
not obligations of the State of Michigan.
5
<PAGE> 6
10. Unenforceable Provisions
Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or effecting the validity, enforceability or legality of such
provisions in any other jurisdiction.
11. Notices
Any notices required or authorized by this Agreement shall be
sent by regular mail to the following address:
IF TO LENDER: The First National Bank of Chicago
as Trustee for the PNC Student Loan Trusts
------------------------------------------
One First National Plaza Ste. 0126
------------------------------------------
Chicago, IL 60670
------------------------------------------
IF TO AUTHORITY: Michigan Higher Education Assistance
Authority
P.O. Box 30047
Lansing MI 48909
12. Amendment to Agreement
This Agreement can only be amended by a formal amendment made
in writing and executed by the parties hereto.
13. Governing Law
The Agreement shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
14. No Personal Liability
No officer or employee of the Authority or the State of
Michigan, including any person executing the Agreement, shall be liable
personally under the Agreement or subject to any personal liability for any
reason relating to the execution of the Agreement. Likewise, no officer or
employee of the Lender, including any person executing the Agreement, shall be
liable personally under the Agreement or subject to any personal liability for
any reason relating to the execution of the Agreement.
6
<PAGE> 7
15. Indemnification
If the Lender shall violate or fail to comply with any
applicable law or governmental regulation with respect to a Student Loan or
participation in the Guaranty Loan Program, then the Lender shall indemnify and
hold the Authority, including any member, officer or employee, harmless against
any and all claims asserted, including any liability, cost or expense,
including reasonable counsel fees, incurred in any action or proceeding brought
by reason of any claim arising or resulting from, or in any way connected with,
this Agreement, except if the claim results from the willful misconduct or sole
negligence of the Authority.
The parties have executed the Agreement by their duly authorized
officers as of March 21, 1997.
FOR THE LENDER
By /s/ Jeffrey L. Kinney
------------------------------
Its Assistant Vice President
------------------------
Title
FOR THE MICHIGAN HIGHER EDUCATION
ASSISTANCE AUTHORITY
By /s/ H. Jack Nelson
------------------------------
Its Executive Director
------------------------
Title
7
<PAGE> 1
EXHIBIT 4.13
NEW JERSEY HIGHER EDUCATION ASSISTANCE AUTHORITY
GUARANTY LOAN AGREEMENT
(SECONDARY MARKET)
This AGREEMENT is made this 21 day of March, 1997, by and between NEW
JERSEY HIGHER EDUCATION ASSISTANCE AUTHORITY, a body corporate and politic with
corporate succession, created by N.J.S.A. 18A:72-1 et seq., as amended, whose
office is located at 4 QUAKERBRIDGE PLAZA, CN 540, TRENTON, NEW JERSEY 08625
("Authority") and The First National Bank of Chicago as Trustee for the PNC
Student Loan Trusts with its principal office at One National Plaza, Suite 0126,
Chicago, Illinois 60670 ("Lender").
WHEREAS, Lender wishes to be able to secure guarantee of loans held by
Lender that have been made to or on behalf of students pursuing programs of
postsecondary education at eligible institutions pursuant to Title IV of the
Higher Education Act of 1965, as amended (the "Act"), regulations thereunder,
and applicable state law; and
WHEREAS, the Authority, which exists for the purpose of providing
assistance to students pursuing programs of postsecondary education at eligible
institutions as defined by the Act, regulations thereunder, and N.J.S.A. 18A:
72-1 et seq., is authorized to guarantee loans; and
WHEREAS, the Authority desires that Lender shall hold loans that have
been made to or on behalf of students, at Lender's option in each instance, the
Authority to guarantee the payment thereof upon the terms, conditions and
agreements herein contained;
NOW, THEREFORE, it is mutually agreed that:
1. Within such limits as may be set by the Act, regulations thereunder, New
Jersey statutes, regulations thereunder, and this AGREEMENT, the Authority
(i) shall guarantee loans with a first disbursement prior to October 1, 1993
no less than 100 percent of full amount of such loans, including principal
and interest, held by the lender, and (ii) shall guarantee loans with a
first disbursement on or after October 1, 1993 no less than 98 percent of
the full amount of all loans, including principal and interest, made by the
Lender, except that all loans continue to be 100 percent guaranteed in the
event of death, disability or bankruptcy, situations covered by Section
428(j) or Section 439(q) of the Act or other non-default claim (e.g., closed
school or false certification) regardless of disbursement date.
2. Whenever any guaranteed loan shall be in default (as defined by the Act,
regulations thereunder, New Jersey statutes, and regulations thereunder), or
upon the death or total and permanent disability of a borrower, or upon
bankruptcy, situations covered by Section 428(j) or Section 439(q) of the
Act or other non-default claim, the Authority shall purchase the loan,
provided that the loan was made in accordance with the Act, regulations
thereunder, New Jersey statutes, regulations thereunder; Lender has
exercised due diligence in the making, servicing, and collection of such
loan; Lender has subrogated title to the loan note to the Authority; and
Lender has otherwise performed its obligations under this AGREEMENT.
3. The Authority shall guarantee loans without regard to sex, age, race, color,
religion, handicapped status, income, national origin or any other basis
prohibited by applicable law and Lender shall not discriminate in the making
of loans to eligible borrowers, as defined by the Act and New Jersey
statutes, or in the treatment of such borrowers on any prohibited basis.
4. Lender shall provide notification to the Authority when it acquires a loan
for which the Authority has issued a notice of loan guarantee. Regarding a
guaranteed loan already held by Lender, in order for a loan account to
remain subject to the Authority guarantee obligation, the loan may be
transferred only to another approved lender or eligible holder of New Jersey
guaranteed loans.
<PAGE> 2
PNC Bank, Education Loan Center Page 2
Secondary Market Loan Agreement
5. Lender shall notify the Authority of any servicing or management of
Lender's guaranteed loan portfolio performed by an agent(s) other than the
holder of record.
6. Payment of a loan may be extended in whole or in part, and the provisions
of the loan may be modified without notice to and without affecting the
liability of the Authority, if such extension or modification complies with
the requirements for loans under this AGREEMENT, the Act, regulations
thereunder, New Jersey Statutes, and regulations thereunder.
7. In holding or servicing guaranteed loans for or on behalf of eligible
borrowers, Lender shall assist them in securing such reductions in their
obligations to pay interest on loans held by the Lender as they may be
eligible to receive under the Act and regulations thereunder.
8. Lender shall maintain for all loans guaranteed a system of records and
accounts, shall afford access thereto, and shall furnish such periodic and
separate reports as may reasonably be required by the U.S. Department of
Education and the Authority, under the Act, regulations thereunder, New
Jersey statutes, and regulations thereunder. For loans paid in full or
otherwise discharged, Lender shall also maintain records as required by the
Act, regulations thereunder, New Jersey statutes, and regulations
thereunder. For example, Lender shall retain the records required for each
loan for not less than five years following the date the loan is repaid in
full by the borrower.
9. The Authority shall maintain at all times reserve levels which comply with
the Act, regulations thereunder N.J.S.A. 18A:71-1 et seq., and regulations
thereunder.
10. Failure of Lender to comply with the terms of this AGREEMENT with respect
to an individual loan or loans shall not invalidate the guarantee of the
Authority to Lender with respect to other loans held in compliance with the
terms of this AGREEMENT.
11. Lender agrees to comply with all applicable Federal and State statutes,
rules, and regulations, whether applicable presently or hereafter.
12. This AGREEMENT may be terminated by either party by giving thirty (30) days
notice in writing to the other party by certified mail. All rights and
obligations hereunder shall immediately cease upon termination, except the
rights and obligations of the parties which existed prior to the date of
such termination.
13. The Authority and Lender each represents to the other that it has the full
and unencumbered right to enter into this AGREEMENT and to fully perform
its obligations hereunder.
14. This AGREEMENT sets forth the entire agreement of the parties with respect
to any and all loans which may be made hereunder.
<PAGE> 3
PNC Bank Education Loan Center Page 3
Secondary Market Loan Agreement
15. If any provision of this AGREEMENT is invalid under the Act, regulations
thereunder, New Jersey statutes, or regulations thereunder, and the
invalidity shall not affect other provisions of this AGREEMENT which can be
given effect without the invalid provisions, then to this end, the
provisions of this AGREEMENT are severable.
16. This AGREEMENT is to be interpreted under the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed
by their duly authorized representatives, and their respective seals to be
affixed, as of the dates indicated below.
Date: March 21, 1997 NEW JERSEY HIGHER EDUCATION
---------------------------- ASSISTANCE AUTHORITY
By: /s/ Marguerite Beardsley
------------------------
Marguerite Beardsley
Title: Secretary/Treasurer
Date: _____________________________ The First National Bank of Chicago, as
Trustee for the PNC Student Loan Trusts
By: /s/ Jeffrey L. Kinney
------------------------
Title: Assistant Vice President
O.E. Code: 833364
------------------
EIN Code: 36-4142114
------------------
<PAGE> 1
EXHIBIT 4.14
LENDER PARTICIPATION AGREEMENT
GUARANTEED STUDENT LOAN PROGRAM
The New Mexico Student Loan Guarantee Corporation ("Guarantor"), a New Mexico
nonprofit corporation having an office at 3900 Osuna, N.E. in Albuquerque, New
Mexico and The First National Bank of Chicago as Trustee for the PNC Student
Loan Trusts ("Secondary Market") having an office at One First National Plaza,
Ste. 0126, Chicago, IL 60670 agree:
PARTIES
The Guarantor is established as a nonprofit corporation to insure educational
loans in accordance with the New Mexico Educational Assistance Act, New Mexico
Laws 1981, chapter 319, as amended, and for the purposes of Title IV, Part B of
the federal Higher Education Act of 1965, as amended (the "Act"). The Guarantor
is qualified as a Guarantee Agency as defined by the Act.
The Secondary Market is an institution qualified under the Act to purchase
educational loans of residents of New Mexico.
GUARANTOR POLICIES PART OF AGREEMENT
The written policies of the Guarantor, as they may be amended from time to time
(the "Guarantor Policies"), are incorporated into this agreement by reference
and will govern the eligibility of educational loans for insurance under this
agreement and the payment of claims by Guarantor. The Lender acknowledges
receipt of a copy of the Guarantor Policies.
COMPLIANCE WITH THE ACT
The Guarantor Policies will at all times comply with the Act and its
implementing regulations, Title 34, Parts 682 and 683 of the Code of Federal
Regulations (the "Regulations") as amended, supplemented or superseded. The
provisions of the Act and Regulations are incorporated into this agreement by
reference and supersede any part of the Guarantor Policies not in compliance
with the Act and Regulations.
LENDER COMPLIANCE
The Secondary Market will comply with Guarantor Policies and the Act and
Regulations with respect to all servicing the loans that are insured under this
agreement.
INSURANCE OF LOANS
Guarantor will insure all loans purchased by secondary markets that qualify for
insurance under this agreement including: 100% of the amount of the unpaid
principal balance or 98% of the unpaid principal balance for loans first
disbursed after September 30, 1993, plus that part of the accrued interest
which is not collectible as interest benefits from the federal government and
accrues during such time as the Guarantor Policies provide.
INSURANCE RESERVES
Guarantor will at all times maintain a fund balance as defined in the Guarantor
Policies restricted for the payment of claims in an amount not less than 1.5% of
total outstanding loans insured by the Guarantor. For the purposes of this
agreement, "fund balance" is defined to include the restricted portion of the
Guarantee Corporation's fund balance together with all deferred guaranty fees
and federal advances, as appears in the Guarantee Corporation's financial
statements.
TERMINATION
This agreement may be terminated by either party upon 90 days written notice to
the other party, or as otherwise provided by the Guarantor Policies.
Termination of this agreement will not affect any obligations incurred prior to
the time such termination becomes effective.
Date 3-24-97 The First National Bank of Chicago as
Trustee for the PNC Student Loan Trusts
---------------------------------------
Secondary Market
833364
---------------------------------------
Lender Federal I.D. Number
by /s/ Jeffrey L. Kinney
---------------------------------------
Title Assistant Vice President
---------------------------------------
New Mexico Student Loan
Guarantee Corporation
by /s/ Sarah S. Branch
---------------------------------------
Title Executive Vice President
<PAGE> 1
EXHIBIT 4.15
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
ELIGIBLE HOLDER AGREEMENT
THIS AGREEMENT is made this 25th day of March, 1997, by and between the
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, a public corporation organized
under the laws of the Commonwealth of Pennsylvania with its principal office at
1200 North Seventh Street, Harrisburg, Pennsylvania 17102-1444 (herein called
"Agency") and The First National Bank of Chicago as Trustee for the PNC Student
Loan Trusts
(herein called the "Holder")
W I T N E S S E T H:
--------------------
WHEREAS, the Agency was created by the Act of August 7, 1963, P.L. 549
(herein called the "Act") for the purpose of improving higher educational
opportunities and to that end the Agency is empowered to guarantee loans of
money.
WHEREAS, the Holder wishes to become an approved holder of loans which
are guaranteed by the Agency and were transferred, conveyed, sold or assigned
to the Holder by an eligible lender in the Agency's program.
NOW THEREFORE, the parties hereto, in consideration of the mutual
promises hereinafter set forth, do covenant and agree as follows:
1. Within such limits as may be set by it, the Agency shall guarantee
the full amount of all loans held by the Holder which are eligible
for such guarantee under the Act, the regulations issued under the
Act and the Rules and Regulations and policies of the Agency, which
Act, regulations, Rules and Regulations and policies as they may be
from time to time amended are made part of this Agreement.
2. The Agency agrees to purchase eligible loans held by the Holder
provided such loans are in default (as defined by the Act,
regulations, Rules and Regulations and policies identified above);
the loan was made in accordance with the Act, regulations, Rules
and Regulations and policies identified above; the Holder has
otherwise exercised due diligence in the servicing and collection
of such loans; and, title to the loan note has been subrogated to
the Agency.
3. The Holder shall maintain for all loans guaranteed a system of
records and accounts, shall afford access thereto, and shall
furnish such periodic and separate
-1-
<PAGE> 2
reports as may reasonably be required by the U.S. Secretary of
Education and the Agency, under the Act, regulations, Rules and
Regulations and policies identified above. For loans paid in full
or otherwise discharged the records shall be retained by the Holder
as required by the Act, regulations, Rules and Regulations, and
policies identified above.
4. The Holder agrees to comply with all applicable Federal and
State laws.
5. The Agency shall guarantee loans without regard to sex, age, race,
color, religion, handicapped status, income, national origin or any
other basis prohibited by applicable law and the Holder shall not
discriminate in the treatment of any eligible borrower on any
prohibited basis.
6. This Agreement shall apply to any and all loans held by the Holder
which are (i) guaranteed by the Agency and (ii) were transferred,
conveyed, sold or assigned to the Holder by an eligible lender in
the Agency's program.
7. This Agreement may be terminated by the Agency in the manner
provided for by the Agency's Rules and Regulations or by the Holder
upon thirty (30) days written notice to the Agency. The Agency may
suspend or limit this Agreement in the manner provided for by the
Agency's Rules and Regulations. Termination, limitation or
suspension of this Agreement shall not affect the coverage of loans
previously guaranteed.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and shall be deemed to have executed such on the day, month and year first
above written.
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY
ATTEST: /s/ DONNA J. BEFE BY: /s/ MICHAEL H. HERSHOCK
---------------------------- --------------------------
Michael H. Hershock
President & CEO
--------------------------
Title
The First National Bank of Chicago
as Trustee for the PNC Student
Loan Trusts
ATTEST: /s/ D. FANNING BY: /s/ JEFFREY L. KINNEY
---------------------------- --------------------------
D. Fanning Federal Tax ID# 36-4142114
Assistant Vice President --------------
Assistant Vice President
--------------------------
Title
Approved as to form and legality Approved as to form and legality
this 25th day of March, 1997. this day of , 199 .
THE ATTACHED AGREEMENT HAS BEEN
PRE-APPROVED BY THE OFFICE OF
THE ATTORNEY GENERAL.
/s/ Sheila Dow Land DOC. NO. 970325-02
- --------------------------------- ---------------------------------
PHEAA Legal Counsel Deputy Attorney General
-3-
<PAGE> 1
EXHIBIT 4.16
AGREEMENT TO GUARANTEE LOANS
This Agreement is entered into as of the 24th day of March, 1997 by
and between UNITED STUDENT AID FUNDS, INC., a private, nonprofit corporation
organized under the General Corporation Law of the State of Delaware
(hereinafter "USA Funds") and
- -----------------------------------------------------------------------------
The First National Bank of Chicago as Trustee for the PNC Student Loan Trusts
- -----------------------------------------------------------------------------
(hereinafter the "Lender").
WITNESSETH:
WHEREAS, USA Funds, a nonprofit corporation with objectives and purposes which
are exclusively educational and charitable, has entered into agreements with the
U.S. Secretary of Education pursuant to the Act (as hereinafter defined); and
WHEREAS, USA Funds provides guarantee services with respect to approved
education loans made to or for the benefit of eligible students who are
attending or planning to attend an approved educational institution; and
WHEREAS, the Lender is desirous of lending money to encourage education through
the Loan Program (as hereinafter defined) of USA Funds in the manner described
in this Agreement; and
WHEREAS, the Lender has full legal power and authority to contract for the
performance of such guarantee services, qualifies as an "eligible lender" under
the Act and is prepared to engage in the transactions contemplated by this
Agreement; and
WHEREAS, USA Funds is desirous of making its Loan Program and related services
available to the Lender, subject to the terms and conditions set forth
hereinafter;
NOW, THEREFORE, in consideration of the initial loan which the Lender makes,
causes to be made or acquires, and in further consideration of the foregoing
premises and the mutual covenants contained in this Agreement, and of other
good and valuable consideration, the receipt of which is hereby acknowledged,
USA Funds and the Lender hereto mutually agree as follows:
ARTICLE I DEFINITIONS AND INTERPRETATION
A. As used herein, the following words have the meanings respectively
indicated:
"Act" means Part B of Title IV of the Higher Education Act of 1965
(20 U.S.C. 1071 et seq.) as amended and in effect from time to time, or any
successor enactment thereto, and the effective regulations promulgated
thereunder and any binding directives issued by the U.S. Department of
Education.
"Agreement" means this Agreement to Guarantee loans between USA Funds
and the Lender and any schedules or amendments thereto.
"Borrower" means an individual who is the maker of a Note and who
obtains a Loan from the Lender in accordance with the Act and the Loan Program.
"Default" means with respect to any Note, the occurrence of any event
which constitutes a default under the terms of the Act.
"Educational Institution" means any institution of postsecondary
education which is an "eligible institution" under the Act and is eligible
under the Loan Program.
"Federal Reinsurance" means the obligation assumed by the Federal
government as set forth in the Act and contracts between USA Funds and the U.S.
Department of Education.
1
<PAGE> 2
"Guarantee" means a commitment by USA Funds to pay the Lender the
unpaid principal balance plus accrued unpaid interest of a Loan, as provided by
the Act and the Policies and Procedures Manual, upon submission by the Lender
of a valid Default, death, disability, or bankruptcy claim and supporting
documentation in accordance with the Act and the Loan Program.
"Guarantee Fee" means a change based upon the principal Loan amount
which charge is collected from the Lender by USA Funds. The Lender may cause
this charge to be passed on to the Borrower.
"Guarantee Reserve" means an account maintained by USA Funds for the
Guarantee of Loans and payment of claims in accordance with the terms of this
Agreement.
"Limitation" means an action taken by USA Funds which restricts the
Lender's participation in the Loan Program.
"Loan" means a disbursement of money, contingent upon an agreement to
repay, made by an "eligible lender" to or on behalf of a Student pursuant to
the Act and the Loan Program in accordance with the Policies and Procedures
Manual and this Agreement.
"Loan Application" means the application for a Loan on a form approved
by USA Funds for that purpose which form must be executed by a Borrower,
certified by an Educational Institution and accepted by a Lender in accordance
with the Policies and Procedures Manual.
"Loan Program" means the procedures and policies for implementing and
maintaining a Loan Guarantee under the provisions of the Act, applicable law,
and regulations, and as otherwise agreed to by and between the Lender and USA
Funds.
"Note" means a promissory note of a Borrower for a Loan set forth upon
the appropriate form approved by USA Funds which note meets the criteria set
forth by the Policies and Procedures Manual and the Act.
"Policies and Procedures Manual" means a handbook of USA Funds
describing the administration of the Loan Program including any subsequently
issued written notices and "Operations Bulletins."
"Special Allowance" means those sums which are payable by the U.S.
Department of Education to the Lender under the Act.
"Student" means a person who (1) is a citizen of the United States or a
permanent resident thereof, (2) is accepted for enrollment or is enrolled and in
good standing and making satisfactory progress as defined by the Educational
Institution, (3) is carrying at least the academic workload required by the Act
and as determined by such Educational Institution, (4) is free from any
obligation to repay a defaulted education loan or to repay any overpayment of an
education grant (or has made arrangements satisfactory to USA Funds to repay
such loan or grant overpayment), and (5) is otherwise eligible under the Act and
the Loan Program.
"Suspension" means the temporary ineligibility of the Lender from
participation in the Loan Program.
"Termination" means the removal of the Lender from participation in the
Loan Program.
B. In this Agreement, unless the context otherwise requires:
1. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and
any similar terms refer to this Agreement, and the term "heretofore"
means before, and the term "hereafter" means after, the effective
date of this Agreement;
2. Words of the masculine gender mean and include correlative words of
the feminine and neuter genders and words importing the singular
number mean and include the plural number and vice versa;
3. Words importing persons shall include firms, associations,
partnerships (including limited partnerships), trusts, corporations,
and other legal entities, including public bodies, as well as
natural persons; and
4. Any headings preceding the text of the several articles and sections
of this Agreement, and any table of contents or marginal notes
appending to copies hereof, shall be solely for convenience of
reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction, or effect.
2
<PAGE> 3
ARTICLE II PROGRAM ADMINISTRATION
A. By this Agreement USA Funds and the Lender hereby agree to participate
in the Loan Program as follows:
1. The Lender agrees to make Loans or cause Loans to be made to
eligible Borrowers pursuant to the terms of the Loan Program;
2. USA Funds agrees to Guarantee Loans originated and maintained in
accordance with the terms of the Loan Program; and
3. USA Funds agrees to provide certain administrative services in
connection with each Loan Guarantee as required by the Loan Program
and the Act.
B. Loans may be originated only on behalf of Students attending approved
Educational Institutions.
C. Administrative services which USA Funds shall provide for the Lender
under the Loan Program in accordance with this Agreement and the Policies and
Procedures Manual are as follows:
1. Processing Loan Applications to determine if such Loan Applications
are eligible for Guarantee;
2. Recording Borrower status from time to time as reported by the
Lender and Educational Institutions;
3. Providing certain management and information reports for the Lender
and Educational Institutions; and
4. Providing preclaims assistance and claims processing for delinquent
and defaulted Loans.
D. The Lender agrees that, in respect of all Loans made by it under the
Loans Program of USA Funds and all Notes held or acquired by the Lender from
time to time, it will:
1. Comply with the Act;
2. Cause reasonable care and diligence to be exercised in the making,
servicing and collection of Loans, as prescribed in the Policies and
Procedures Manual;
3. Use the Loan Application, Note and such other forms developed or
otherwise approved by USA Funds;
4. Cause a Guarantee Fee to be paid to USA Funds in accordance with the
requirements of the Loan Program and Article IV of this Agreement;
5. Comply with all procedures, policies and conditions on its part to
be performed as set forth in this Agreement and the Policies and
Procedures Manual; except when the provisions of this Agreement or
the Policies and Procedures Manual are inconsistent with the Act as
a result of changes to the Act, in which case the Act is
controlling;
6. Comply with all Federal and state laws and regulations applicable to
the Loan Program, including but not limited to applicable portions
of the Federal Consumer Credit Protection Act and the Equal Credit
Opportunity Act; and
7. Provide promptly to USA Funds such information and reports as may
from time to time be reasonably requested by USA Funds.
E. The Lender shall cause all Loan disbursements to be made by check or
draft requiring the personal endorsement of the Borrower or by electronic funds
transfer. Except as expressly provided in the Act, the Lender will not accept
authorization of anyone, even by power of attorney, to endorse a check or draft
on behalf of the Borrower. The Lender shall cause the Loan to be disbursed
jointly to the Borrower and the Educational Institution if so required by the
terms of the Loan Program.
F. USA Funds will in accordance with the Act continue its Guarantee of a
Loan if an extension of the maturity date is required as a result of the
Borrower's eligibility under the Act for a deferment or forbearance; provided,
however, that such continuance of USA Funds' Guarantee of a Loan shall be only
for so long as an extension of the maturity date is in accordance with the Act
and the Loan Program.
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<PAGE> 4
G. The Lender will pursuant to the direction of USA Funds repay or cause
the repayment of any Special Allowance received by the Lender under the Act to
which the Lender is not rightfully entitled.
H. Subject to the prior written approval of the Lender, which approval
shall not be unreasonably withheld, USA Funds may transfer the Guarantee of
Loans to any other guarantor which has given to USA Funds its prior written
approval of such transfer.
I. By this Agreement, USA Funds and the Lender agree that upon the filing
of a claim by the Lender, such claim will be processed in the following manner:
1. In the event of a Default in respect of a Loan, the Lender will
follow (or cause to be followed) the procedure set forth in the
Policies and Procedures Manual. USA Funds does not guarantee payment
by the Borrower of any delinquency charges imposed for late payments
and will not accept a Default claim based solely on non-payment of
such charges. Upon receipt by USA Funds from the Lender (or
servicer) of a Default notice together with the Note (assigned to
USA Funds), the Loan Application, and evidence satisfactory to USA
Funds that the Loan evidenced by such Note was originated and
serviced, and collection efforts were made, in accordance with
applicable laws and regulations and with the Policies and Procedures
Manual, USA Funds will pay to the Lender the full amount of the
unpaid balance of principal and interest due on such Note under the
terms of the Act and the Policies and Procedures Manual (other than
any portion of such interest payable by the U.S. Department of
Education under the Act), provided the Lender has complied in all
material respects with the requirements of the Loan Program, this
Agreement, and the Policies and Procedures Manual in respect of such
Note. USA Funds will thereupon succeed to all the rights of the
Lender under such Note. No claim submitted to USA Funds by the
Lender with respect to a Loan which has been Guaranteed will be paid
by USA Funds unless USA Funds has received from the Lender (or
Servicer) the appropriate documentation. All loss and risk of loss
occasioned by USA Funds' nonpayment of a claim in accordance with
this section shall be borne by the Lender.
2. Upon bankruptcy, death, or permanent and total disability, as
defined in the Act, of the Borrower USA Funds will pay to the Lender the full
amount of the unpaid balance of principal and interest due on such Loan (other
than any portion of such interest payable by the U.S. Department of Education
under the Act), provided the Lender has complied in all material respects with
the requirements of the Loan Program, this Agreement and the applicable
Policies and Procedures Manual in respect of such Loan.
J. Nothing contained in this Agreement shall obligate the Lender to
certify, cause to certify or acquire any particular Loan or number of Loans
under this Loan Program.
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE LENDER
The Lender represents and warrants to, and covenants with, USA Funds that:
A. The Lender is a duly authorized "eligible lender" under the Act in
every state in which it is originating Loans under the Act as well as the state
in which it is organized and incorporated and has authorized the execution and
delivery of this Agreement.
B. The Lender is and will continue to qualify at all times during the term
of this Agreement as an "eligible lender" under the Act.
C. The Lender will, at all times, conform its actions, policies and
procedures to the Act, this Agreement and all applicable Federal and state laws
and regulations.
ARTICLE IV GUARANTEE FEE AND GUARANTEE RESERVE
A. As partial payment for the administrative services provided by USA
Funds for the Lender and in order for USA Funds to maintain a Guarantee Reserve
sufficient to Guarantee Loans in accordance with this Agreement USA Funds will
charge to the Lender and the Lender may charge each Borrower a Guarantee Fee
which fee shall not exceed the amount allowable under the Loan Program.
B. The Lender shall be billed monthly by USA Funds with an itemized
statement listing each Loan Application Guaranteed and the Guarantee Fee. USA
Funds will automatically place the Lender on the Guarantee Fee billing
4
<PAGE> 5
system. the Lender must pay any Guarantee Fee due within twenty (20) business
days of billing. The Lender will be charged interest at the rate of one percent
(1%) per month, twelve percent (12%) per annum, for past due Guarantee Fee
bills. If the Guarantee Fee for a loan is not paid within one hundred twenty
(120) calendar days the Guarantee on that Loan will be canceled.
C. So long as the Lender is current in its payment of Guarantee Fee billings,
USA Funds will Guarantee each new Loan made to a Borrower by the Lender
pursuant to this Agreement; provided, however, that USA Funds shall not be
obligated to Guarantee any such Loan if:
1. Such Guarantee would cause the aggregate amount of unpaid principal
and interest of all Notes to exceed the Guarantee capacity of USA
Funds for the Loan Program or the Educational Institution
allocation for which the Guarantee is to be issued, or
2. USA Funds in its sole discretion determines that the procedures and
requirements of the Act and other applicable law and regulations,
this Agreement, or the Policies and Procedures Manual have not been
complied with in respect to such Loan.
D. The Guarantee Reserve of USA Funds will be held, maintained, and invested
solely in accordance with the prevailing standards of prudent management in the
disposition of funds required of fiduciaries by Title 12, Section 3302 of the
Delaware Code of 1953, as amended. By execution hereof, Lender consents to the
management of said funds pursuant to the investment policies and procedures
adopted by USA Funds from time to time.
ARTICLE V MISCELLANEOUS
A. This Agreement will inure to the benefit of and be binding upon USA Funds,
the Lender and their respective successors; provided, however, that:
1. The Agreement may not be assigned in whole or in part by USA Funds
without the prior express written consent of Lender, which consent
will not be unreasonably withheld; provided, however, that USA
Funds shall have the right without the consent of Lender to assign
its rights hereunder to any USA Funds affiliated entity which
contracts with the U.S. Department of Education (or its successors)
under the Act or to subcontract its obligations to any USA Funds
affiliated entity.
2. Lender shall not assign any rights or obligations under the
Agreement in whole or in part without the prior express written
consent of USA Funds, which consent will not be unreasonably
withheld.
B. This Agreement will not be varied by oral agreement, but only by an
instrument in writing executed by both parties and communicated in accordance
with Paragraph E of this Article V, regarding notice, and as otherwise provided
in this Agreement.
C. No failure by any party to exercise, or any delay in exercising, and no
course of dealing with respect to any right of such party or any obligation of
any other party under this Agreement will operate as a waiver thereof, unless,
and only to the extent, agreed to in writing by all parties hereto. Any single
or partial exercise by any party of its rights will not preclude such party
from any other or further exercise of such right or the exercise of any other
right. Any single or partial waiver by any party of any obligation of any other
party under this Agreement will constitute a waiver of such obligation only as
specified in such waiver and will not constitute a waiver of any other
obligation.
D. Except with respect to Loans which have been Guaranteed by USA Funds and
continue to be outstanding under this Agreement, this Agreement may be
terminated by either party with or without cause upon not less than ninety (90)
calendar days written notice to the other party. Such termination will not
affect any Notes which are outstanding or duties arising hereunder prior to the
effective date of the termination notice.
E. Any notice required or permitted by this Agreement shall be in writing and
shall be deemed to have been given, if sent by overnight carrier, personal
delivery, or first class mail, addressed (i) if to USA Funds to the Legal
Division, at 11100 USA Parkway, Fishers, Indiana 46038-9213; (ii) if to Lender,
at the address indicated in this Agreement; or (iii) at such other address as
the party to be notified has designated upon reasonable notice. Notices made
pursuant to this paragraph by overnight carrier will be deemed to be effective
on the next business day after such notice is sent. Notices made pursuant to
this paragraph by personal delivery will be deemed to be effective upon
delivery. Notices made pursuant to this paragraph by first class mail will be
deemed to be effective on the fifth business day following the mailing of
such notice.
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<PAGE> 6
F. Any provision of this Agreement which is prohibited, unenforceable, or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, unenforceability, or non-authorization
without invalidating the remaining provisions hereof or affecting the validity,
enforceability, or legality of such provision in any other jurisdiction.
G. All materials, procedures, written instruments, files and records developed
by either party specifically for use in the Loan Program are and shall be
treated as proprietary in nature. Each party to this Agreement has developed or
may develop materials, procedures, written instruments, files, or records which
may be similar to those involved in the Loan Program. Neither party to this
Agreement shall have or acquire any proprietary or any other right whatsoever in
any such materials, procedures, written instruments, files, or records developed
by the other party. Neither party to this Agreement may benefit from, deal in,
sell, license, publish, use, or otherwise exploit for any purpose those
materials, procedures, written instruments, files, or records developed by the
other party except as expressly provided in this Agreement. This Agreement shall
not in any way restrict the right of each party, for its own exclusive benefit,
to deal in, sell, license, publish, use, or otherwise exploit for all purposes
those materials, procedures, written instruments, files or records developed by
it.
H. No recourse under or upon this Agreement or any claim based thereon or in
respect thereof shall be had against any incorporator, member, officer,
employee, or trustee, as such, past, present, or future, of the Lender or of
USA Funds or of any successor organizations, either directly or through the
Lender or USA Funds or any successor organizations. This Agreement is solely a
corporate obligation and no personal liability against any incorporator,
member, officer, employee, or trustee, past, present, or future of the parties
shall attach through the Lender or USA Funds or any successor corporations,
because of this Agreement or any Note or Guarantee thereof.
I. If the Lender violates or fails to comply with any applicable law or
governmental regulations in respect of a Loan or participation in the Loan
Program, then the Lender hereby agrees to assume liability for, and does hereby
indemnify, protect, and keep harmless USA Funds, its successors and assigns,
from and against, any and all liabilities, losses, and claims, imposed on,
incurred by, or asserted against USA Funds, relating to or arising out of such
violation or failure by the Lender to comply, regardless of whether USA Funds
purchased such Loan from the Lender.
J. The Lender will permit the U.S. Secretary of Education or USA Funds or both
to examine during normal business hours all Loan records and files, upon
reasonable notice and at reasonable intervals, for the purpose of verifying the
accuracy of information provided by the Lender under the Act and in order to
conduct an audit and compliance review.
K. If the Lender sells, transfers, or otherwise assigns any Notes guaranteed
by USA Funds (under this Agreement or any other agreement), it must notify USA
Funds within forty-five (45) calendar days of such transaction.
L. If USA Funds determines that the Lender has violated the terms of this
Agreement or the Loan Program, USA Funds shall take such action as is necessary
to protect its interests. This action may include but not be limited to
implementation of the Limitation, Suspension, or Termination procedures set out
in the Policies and Procedures Manual.
M. In the event that the Lender is unable to perform any obligations arising
under this Agreement, the Lender will exercise its best efforts to mitigate and
remedy any and all injury sustained by USA Funds.
N. In the event of any dispute or disagreement between the parties hereto,
either with respect to the interpretation of any provision of this Agreement or
with respect to the performance hereunder by the Lender or by USA Funds, each of
the parties will appoint a designated officer or agent to meet for the purpose
of endeavoring to resolve such dispute or to negotiate for an adjustment to such
provision. No proceedings for the judicial resolution of such dispute may be
commenced until the designated officers or agents conclude in good faith that
resolution of the matter in issue does not appear likely.
O. No remedy by the terms of this Agreement conferred upon or reserved to the
Lender or to USA Funds is intended to be exclusive of any other remedy, but
each and every such remedy is cumulative and in addition to every other remedy
given under this Agreement or existing at law or in equity or by statute on or
after the date of this Agreement including, without limitation, the right to
such equitable relief by way of injunction, mandatory or prohibitory, to
prevent the breach or threatened breach of any of the provisions of this
Agreement or to enforce the performance thereof.
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<PAGE> 7
P. This Agreement is governed by the laws of the State of Indiana, and
constitutes the entire agreement between the parties with respect to the
subject matter. This Agreement supersedes any and all prior agreements to
guarantee or endorse loans between USA Funds and the Lender. All prior
writings, correspondence, memoranda, agreements, representations, statements,
warranties, covenants, negotiations, and undertakings, express or implied, of
any kind or character whatsoever with respect to the subject matter of this
Agreement are superseded hereby. In the event of an inconsistency between the
terms and conditions of any Schedule attached hereto and the provisions of this
Agreement, this Agreement will prevail.
Q. This Agreement will not be binding on either party until it has been
executed and delivered by both the Lender and USA Funds.
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this instrument to be executed by their respective authorized officers
and to take effect on the date first above written.
The First National Bank of Chicago as UNITED STUDENT AID FUNDS, INC.
Trustee for the PNC Student Loan Trusts
- ---------------------------------------
Lender
/s/ JEFFREY L. KINNEY /s/ MARY LYNN ROSS
- --------------------------------------- -------------------------------
Authorized Signature Authorized Signature
Assistant Vice President Senior Vice President
- --------------------------------------- -------------------------------
Title Title
One First National Plaza, Suite 0126 3-24-97
- --------------------------------------- -------------------------------
Address Date
Chicago, Illinois 60670
- ---------------------------------------
City State ZIP Code
833364
- ---------------------------------------
ED Lender Code Number
36-4142114
- ---------------------------------------
Federal Identification Number
(312) 407-1892
- ---------------------------------------
Telephone Number
- ---------------------------------------
Date
7
<PAGE> 8
CONSOLIDATION LOAN PROGRAM
AGREEMENT TO GUARANTEE CONSOLIDATION LOANS
THIS AGREEMENT is entered into as of the 24 day of March, 1997, by and between
UNITED STUDENT AID FUNDS, INC., a private, nonprofit corporation organized
under the General Corporation Law of the State of Delaware ("USA Funds") and
The First National Bank of Chicago as Trustee for the PNC Student
Loan Trusts ("Lender").
WITNESSETH
WHEREAS, USA Funds, a nonprofit corporation with objectives and purposes which
are exclusively educational and charitable, has entered into a reinsurance
agreement with U.S. Secretary of Education pursuant to the Act: and
WHEREAS, USA funds maintains facilities for the provision of guarantee services
with respect to approved loans made to Eligible Borrowers for the consolidation
of their obligations with respect to Eligible Student Loans; and
WHEREAS, USA Funds is desirous of making its consolidation loan guarantee
program and related services available to the Lender, subject to the terms and
conditions set forth herein; and
WHEREAS, the Lender is desirous of using its facilities in order to arrange for
the lending and borrowing of money for the purpose of enabling Eligible
Borrowers to consolidate their obligations with respect to Eligible Student
Loans through the Consolidation Loan Program of USA Funds in the manner
described in this Agreement; and
WHEREAS, the Lender has full power and authority to contract for the
performance of such guarantee services, qualifies as an "eligible lender" under
the Act for the making of Consolidation Loans and is prepared to engage in the
transactions contemplated by this Agreement;
NOW, THEREFORE, in consideration of the initial Consolidation Loan which the
Lender makes hereunder, and in further consideration of the foregoing premises
and the mutual covenants contained in this Agreement, and of other good and
valuable consideration, the receipt of which is hereby acknowledged, the USA
Funds and the Lender agree as follows:
ARTICLE I DEFINITIONS
As used herein, the following words will have the meanings
respectively indicated:
"Act" means Part B of Title IV of the Higher Education Act of 1965 (20
U.S.C. Section 1071 et seq.) as amended and in effect from time to time,
or any successor enactment thereto, and the effective regulations
promulgated thereunder and any binding directives issued by the U.S.
Department of Education.
"Agreement" means this Agreement to Guarantee Consolidation Loans
between USA Funds and the Lender and any amendments thereto.
"Borrower" means an Eligible Borrower who is the maker of a Note and
who obtains a Consolidation Loan from the Lender in accordance with the
Act, the Certificate, and this Agreement.
"Certificate" means the instrument of comprehensive insurance coverage
issued by USA Funds in accordance with the Act and executed by the
Lender.
"Consolidation Loan" means a disbursement of money, contingent upon an
agreement to repay, made by the Lender pursuant to the Act, the
Policies, and this Agreement.
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Consolidation Loan Program page 1
Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 9
"Consolidation Loan Program" means the procedures and policies for
implementing and maintaining each Consolidation Loan guaranteed under
the provisions of the Act, applicable law and regulations, the
Policies, and as otherwise agreed to by and between the Lender and
USA Funds in accordance with this Agreement.
"Default" means with respect to any Note, the occurrence of any
event which shall constitute a default under the terms of the Act.
"Eligible Borrower" means an "eligible borrower" of a Consolidation
Loan as described in the Act and the Policies.
"Eligible Student Loan" means an education loan eligible for
consolidation as described in the Act.
"Federal Reinsurance" means the risk assumed by the Federal government
as set forth in the Act.
"Guarantee" means a commitment by USA Funds to pay the Lender a
percentage of the unpaid principal balance plus accrued unpaid interest
of a Consolidation Loan, as provided by the Act and the Policies, upon
submission by the Lender of a valid claim and supporting documentation
in accordance with the Act, the Consolidation Loan Program, the
Certificate, and the Policies.
"Limitation" means an action taken by USA Funds which restricts the
Lender's participation in the Consolidation Loan Program.
"Note" means a promissory note of a Borrower for a Consolidation Loan
set forth upon the appropriate form approved by USA Funds which note
meets the criteria set forth in the Policies and the Act.
"Policies" mean the policies adopted and issued by USA Funds describing
the administration of the Consolidation Loan Program, including any
subsequently issued official written notices.
"Suspension" means the temporary ineligibility of the Lender from
participation in the Consolidation Loan Program.
"Termination" means the removal of the Lender from participation in the
Consolidation Loan Program.
ARTICLE II PROGRAM ADMINISTRATION
A. By this Agreement USA Funds and the Lender agree to participate in the Loan
Consolidation Program as follows:
1. The Lender agrees to make Consolidation Loans or cause Consolidation
Loans to be made only to Eligible Borrowers pursuant to the terms of the
Consolidation Loan Program:
2. USA Funds agrees to provide for the Guarantee of Consolidation Loans
which have been processed in accordance with the terms of the
Consolidation Loan Program; and
3. USA Funds agrees to provide administrative services for the
continued maintenance of each Consolidation Loan Guaranteed as
required by the Consolidation Loan Program and the Act.
B. A Consolidation Loan may be originated and Guaranteed only if the Lender
fully complies with the Policies and the terms and conditions for Consolidation
Loans as set forth in the Act.
C. Administrative services that USA Funds will provide for the Lender under the
Consolidation Loan Program are as follows:
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Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 10
1. The provision of management and information reports for the Lender;
2. The provision of preclaims assistance and claims processing; and
3. The provision of all other services and duties required to
be performed by a guarantor under the Act with respect to Consolidation
Loans under the Consolidation Loan Program. Such services and duties
will be performed by USA Funds until the Consolidation Loans are paid
in full, settled, written off, or subrogated.
D. The Lender agrees that, with respect to all Consolidation Loans made or
acquired under the Consolidation Loan Program of USA Funds and all Notes held
or acquired by the Lender from time to time:
1. It will exercise or cause to be exercised reasonable care
and diligence in the making, servicing, and collection thereof, as
prescribed in this Agreement, the Certificate, and the Policies;
2. It will originate a Consolidation Loan to an Eligible
Borrower (on request of that Borrower) only if the Eligible Borrower
certifies that he or she has no other application pending for a
Consolidation Loan and (i) it holds an outstanding Eligible Student
Loan of that Eligible Borrower that has been selected by the Eligible
Borrower for consolidation, or (ii) the Eligible Borrower certifies that
he or she has sought and has been unable to obtain a Consolidation Loan
with income-sensitive repayment terms acceptable to the Eligible
Borrower from the holders of the Eligible Student Loans (which are so
selected for consolidation) of that Eligible Borrower.
3. It will make use of the Note and such other forms approved by
USA Funds;
4. It will cause each Consolidation Loan originated by it to
bear interest on the unpaid principal balance of such loan at an
annual rate that is less than or equal to the rate specified by the
Act;
5. It will cause each Consolidation Loan originate by it to be
subject to repayment in accordance with the terms of the Certificate
and the Act;
6. It will cause each Consolidation Loan originated by it to be
made in an amount which is equal to the sum of the unpaid principal,
accrued unpaid interest, collection charges, and late charges of all
Eligible Student Loans received by the Borrower and selected for
consolidation, and which is not less than the minimum amount required
for the eligibility of the Borrower under the Act;
7. It will cause the proceeds of each Consolidation Loan
originated by the Lender to be paid by the Lender to the holder or
holders of the Eligible Student Loans received by the Borrower and
selected for consolidation in order to discharge the liability of the
Borrower on such Eligible Student Loans;
8. It will offer a choice of repayment schedules, established
by the Lender in accordance with the Act, to the Borrower;
9. It will comply with all Federal and state laws and regulations, and
the Policies, applicable thereto, including but not limited to the
Federal Fair Credit Reporting Act and the Equal Credit Opportunity Act;
and
10. It will provide promptly to USA Funds such information and
reports as may from time to time be reasonably requested by USA Funds.
E. The Lender will, pursuant to the direction of USA Funds, repay or cause the
repayment to the US Department of Education of any special allowance (as
described in the Act) received by the Lender under the Act to which the
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Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 11
Lender is not rightfully entitled.
F. By this Agreement, USA Funds and the Lender agree that upon the filing of a
claim by the Lender, such claim shall be processed in the following manner:
1. In the event of a Default, the Lender will follow (or cause to be
followed) the procedure set forth in the Policies and the Act. USA
Funds does not Guarantee payment by the Borrower of any delinquency
charges imposed for late payments and will not pay the Lender any such
delinquency charges. Upon receipt by USA Funds from the Lender (or
servicer) of a request for claim reimbursement form together with the
Note (assigned to USA Funds) and evidence satisfactory to USA Funds
that the Consolidation Loan evidenced by such Note was originated and
serviced, and collection efforts were made, in accordance with
applicable laws, regulations and with the Policies, USA Funds will pay
to the Lender the percentage of the amount of the unpaid balance of
principal and interest due on such Note under the terms of the Act and
the Policies (other than any portion of such interest payable by the
U.S. Department of Education under the Act) provided the Lender has
complied in all material respects with the requirements of the
Consolidation Loan Program, the Certificate, this Agreement, and the
Policies. USA Funds will succeed to all the rights of the Lender under
such Note.
2. Upon the filing of a valid claim, other than a Default claim, as
defined in the Act and the Policies, USA Funds will pay to the Lender
the percentage of the amount of the unpaid balance of principal and
interest due on such Note under the terms of the Act and the Policies
(other than any portion of such interest payable by the U.S. Department
of Education under the Act) provided the Lender has complied in all
material respects with the requirements of the Consolidation Loan
Program, the Certificate, this Agreement, and the Policies.
G. USA Funds reserves the right, upon ninety (90) calendar days written notice,
to charge to the Lender a fee, or increase any fee charged the Lender, to cover
the costs to USA Funds of guaranteeing new Consolidation Loans pursuant to this
Agreement and the Certificate.
H. Nothing contained in this Agreement will obligate the Lender to certify,
cause to certify or acquire any particular Consolidation Loan or number of
Consolidation Loans under the Consolidation Loan Program.
I. The Lender will permit the U.S. Secretary of Education or USA Funds or both
to examine during normal business hours all Loan records and files, upon
reasonable notice and at reasonable intervals, for the purpose of verifying the
accuracy of information provided by the Lender under the Act and in order to
conduct an audit and compliance review.
J. If USA Funds determines that the Lender has violated the terms of this
Agreement or the Consolidation Loan Program, USA Funds may take such action as
is necessary to protect its interests. This action may include but not be
limited to implementation of the Limitation, Suspension, or Termination
procedures set out in the Policies.
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS
BY THE LENDER
The Lender represents and warrants to, and covenants with, USA Funds that:
A. The Lender is a duly authorized "eligible lender" under the Act in every
state in which it is originating Consolidation Loans under the Act as well as
the state in which it is organized and incorporated and has authorized the
execution and delivery of this Agreement.
B. The Lender is and will continue to qualify at all times during the term of
this Agreement as an "eligible lender" under the Act.
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United Student Aid Funds, Inc.
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Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 12
C. The Lender will, at all times, conform its actions, policies and procedures
to the Act, this Agreement, all applicable Federal and state laws and
regulations, and the Policies.
ARTICLE IV TERMINATION
Except with respect to Loans which have been Guaranteed by USA Funds
and continue to be outstanding under this Agreement, this Agreement may be
terminated by either party with or without cause upon not less than ninety (90)
calendar days written notice to the other party. Such termination will not
affect any Notes that are outstanding or duties arising prior to the effective
date of the termination.
ARTICLE V LIMITATION OF LIABILITY AND INDEMNIFICATION
A. If the Lender violates or fails to comply with any applicable law or
governmental regulations in respect of a Loan or participation in the
Consolidation Loan Program, then the Lender agrees to assume liability for, and
does hereby indemnify, protect, and keep harmless USA Funds, its successors and
assigns, from and against, any and all liabilities, losses, and claims, imposed
on, incurred by, or asserted against USA Funds, relating to or arising out of
such violation or failure by the Lender to comply, regardless of whether USA
Funds purchased such Consolidation Loan from the Lender.
B. The liability of USA Funds under this Agreement shall be limited to payment
of the Guarantee under Paragraph F of Article II of this Agreement and this
shall constitute its sole liability under this Agreement. USA Funds shall not be
liable for any indirect, incidental or consequential damages (including but not
limited to lost profits, lost revenue, or failure to realize expected savings)
regardless of the form of the action and whether such damages are foreseeable.
ARTICLE VI MISCELLANEOUS
A. ASSIGNMENT/SUBCONTRACT. This Agreement will inure to the benefit of
and be binding upon the parties and their respective successors and assigns;
provided, however, that:
1. The Agreement may not be assigned in whole or in part by USA Funds
without the prior express written consent of Lender, which consent
will not be unreasonably withheld;
2. Lender shall not assign any rights or obligations under the
Agreement in whole or in part without the prior express written
consent of USA Funds, which consent will not be unreasonably
withheld.
B. AMENDMENT. Except as otherwise provided in this Agreement, this
Agreement may not be varied by oral agreement, but only by an instrument in
writing executed by both parties.
C. WAIVER OF RIGHTS. No failure by any party to exercise, or any delay in
exercising, and no course of dealing with respect to any right of such party or
any obligation of any other party under this Agreement will operate as a waiver
thereof, unless, and only to the extent, agreed to in writing by all parties
hereto. Any single or partial exercise by any party of its rights shall not
preclude such party from any other or further exercise of such right or the
exercise of any other right. Any single or partial waiver by any party of any
obligation of any other party under this Agreement will constitute a waiver of
such obligation only as specified in such waiver and will not constitute a
waiver of any other obligation.
D. CUMULATIVE REMEDIES. Except as otherwise provided in this Agreement,
no remedy by the terms of this Agreement conferred upon or reserved to a party
is intended to be exclusive of any other remedy, but each and every such remedy
shall be cumulative and in addition to every other remedy given under this
Agreement or existing at law or in equity or by statute on or after the date of
this Agreement including, without limitation, the right to such equitable
relief by way of injunction, mandatory or prohibitory, to prevent the breach or
threatened breach of any
- --------------------------------------------------------------------------------
United Student Aid Funds, Inc.
Consolidation Loan Program page 5 S:\STDFORMS\PRODUCT\CONSGUAR.FM2
Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 13
of the provisions of this Agreement or to enforce the performance hereof.
E. RESOLUTION OF DISPUTES. In the event of any dispute or disagreement
between the parties hereto, either with respect to the interpretation of any
provision of this Agreement or with respect to performance hereunder, each of
the parties will appoint a designated officer or agent to meet for the
purpose of endeavoring to resolve such dispute or to negotiate for a
modification to such provision. No formal proceedings for the judicial
resolution of such dispute may be commenced until the designated officers or
agents have reasonably discussed the provision or performance in question and a
party has concluded in good faith that amicable resolution through continued
negotiation of the matter at issue does not appear likely. Notwithstanding the
above, formal proceedings for judicial resolution may be commenced if required
to preserve a claim under the applicable statute of limitations.
F. SEVERABILITY. Any provision of this Agreement which is held to be
prohibited, unenforceable, or not authorized by any court of competent
jurisdiction will, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability, or non-authorization without invalidating
the remaining provisions hereof or affecting the validity, enforceability, or
legality of such provision in any other jurisdiction.
G. GOVERNING LAW; VENUE; ENTIRE AGREEMENT. Except to the extent that this
Agreement may be governed by Federal law, this Agreement is governed by,
interpreted, construed and enforced in accordance with the laws of the State of
Indiana, without reference to its principles of conflict of laws. A lawsuit
under this Agreement shall only be brought in a court of competent jurisdiction
located within the State of Indiana.
This Agreement constitutes the entire agreement between the parties and
supersedes any and all prior agreements, written or oral, not incorporated
herein, with respect to the subject matter of this Agreement. All prior
writings, correspondence, memoranda, agreements, representations, statements,
warranties, covenants, negotiations, and undertakings, express or implied, of
any kind or character whatsoever with respect to the subject matter of this
Agreement are superseded hereby.
H. NOTICES. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed to have been given if sent by first class mail,
overnight carrier, facsimile, or personal delivery, addressed (i) if to USA
Funds, to the attention of General Counsel, Legal Division, at 11100 USA
Parkway, Fishers, Indiana 46038-9213, (ii) if to the Lender, at the address
indicated in this Agreement, or (iii) at such other address as the party to be
notified has designated upon reasonable notice. Notices made pursuant to this
paragraph by facsimile, overnight carrier, or personal delivery will be deemed
to be effective upon receipt. Notices made pursuant to this paragraph by first
class mail will be deemed to be effective no later than the fifth business day
following the mailing of such notice.
I. CONFIDENTIAL/PROPRIETARY MATERIALS. The terms and conditions of
this Agreement shall be considered confidential. All materials, procedures,
written instruments, files, and records developed by either party specifically
pursuant to this Agreement are and shall be treated as proprietary in nature.
Each party to this Agreement has developed or may develop materials,
procedures, written instruments, files, or records which may be similar to
those involved in this Agreement. Neither party to this Agreement shall have or
acquire any proprietary or any other right whatsoever in any such materials,
procedures, written instruments, files, or records developed by the other
party. Neither party to this Agreement may benefit from, deal in, sell,
license, publish, use, or otherwise exploit for any purpose those materials,
procedures, written instruments, files or records developed by the other party
except as expressly provided in this Agreement. This Agreement shall not in any
way restrict the right of each party, for its own exclusive benefit, to deal
in, sell, license, publish, use, or otherwise exploit for all purposes those
materials, procedures, written instruments, files, or records developed by it.
J. NO RECOURSE. No recourse under or upon this Agreement or any claim based
thereon or in respect thereof shall be had against any incorporator, member,
officer, employee, or trustee, as such, past, present, or future, of a party or
of any successor organizations, either directly or through a party or any
successor organizations. This Agreement is solely a corporate obligation and no
personal liability against any incorporator, member, officer,
- --------------------------------------------------------------------------------
United Student Aid Funds, Inc.
Consolidation Loan Program page 6 S:\STDFORMS\PRODUCT\CONSGUAR.FM2
Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 14
employee, or trustee, past, present, or future of the parties shall attach
through a party or any successor corporations, because of this Agreement.
K. EXECUTION. This Agreement will not be binding on either party until it
has been executed and delivered by both parties. This Agreement may be executed
in any number of counterparts, each of which shall be an original, but which
together constitute one and the same instrument.
L. INTERPRETATION/CONSTRUCTION. In this Agreement unless the context
otherwise requires:
1. Any headings preceding the texts of the several articles and
sections of this Agreement, and any table of contents or marginal
notes appending to copies hereof, shall be solely for convenience
of reference and shall not constitute a part of this Agreement,
nor shall they affect its meaning, construction or effect.
2. In the event of any inconsistency between the terms and conditions
of any amendment and the provisions of this Agreement, the
amendment will prevail.
The parties agree that each party and its counsel reviewed this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules, exhibits,
or addendums thereto.
M. AUTHORITY. The parties represent that the undersigned are duly
authorized representatives of the parties.
N. INDEPENDENT PARTIES. The parties agree that no legal relationship of any
kind exists as a result of this Agreement, other than the covenants expressly
contained herein. This Agreement shall not constitute, create, give effect to
or otherwise imply a joint venture, partnership or business organization of any
kind. The parties to this Agreement are independent parties and the personnel
of one party shall not be deemed the personnel of the other. Each party shall
be solely responsible for payment of all compensation owed to its personnel,
including payment of any taxes related to employment and workers' compensation
insurance. Nothing in this Agreement shall grant to either party any right to
make commitments of any kind or to create any obligation for or on behalf of
the other without the prior written consent of the other party, except to the
extent stated herein.
O. FORCE MAJEURE. If a party is delayed from completing performance of any
or all of its obligations under this Agreement by an act of God or any other
occurrence beyond its reasonable control, then performance shall be excused for
as long as it is reasonably necessary to complete performance.
P. LITIGATION COSTS AND ATTORNEY FEES. If any action, at law or equity,
including an action for declaratory relief, is brought to enforce or interpret
this Agreement, then the prevailing party shall be entitled to recover its
reasonable costs, expenses, and attorney fees from the other party, in addition
to any other relief that may be awarded.
- -------------------------------------------------------------------------------
United Student Aid Funds, Inc.
Consolidation Loan Program page 7 S:\STDFORMS\PRODUCT\CONSGUAR.FM2
Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 15
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Agreement to Guarantee Consolidation Loans to be executed by their
respective authorized officers and to take effect on the date first above
written.
The First National Bank of Chicago UNITED STUDENT AID FUNDS, INC.
as Trustee for the PNC Student Loan Trusts
__________________________________________
Lender /s/ Mary Lynn Ross
_______________________________
Authorized Signature
/s/ Jeffrey L. Kinney
__________________________________________ LYNN ROSS
Authorized signature SENIOR VICE PRESIDENT
_______________________________
Printed Name and Title
Jeffrey L. Kinney, Asst. Vice President
__________________________________________
Printed Name and Title
One National Plaza, Suite 0126
__________________________________________
Address
Chicago, Illinois 60670
__________________________________________
City, State, Zip
36-4142114/833364
__________________________________________
Federal Identification/ED Lender Code
_______________________________________________________________________________
United Student Aid Funds, Inc.
Consolidation Loan Program page 8 S:\STDFORMS\PRODUCT\CONSGUAR.FM2
Agreement to Guarantee Consolidation Loans May 22, 1996
<PAGE> 16
CONSOLIDATION LOAN PROGRAM
CERTIFICATE OF COMPREHENSIVE GUARANTEE COVERAGE
THIS CERTIFICATE is entered into as of the 24 day of March, 1997, by and between
UNITED STUDENT AID FUNDS, INC., a private, nonprofit corporation organized under
the General Corporation Law of the State of Delaware ("USA Funds") and The First
National Bank of Chicago as Trustee for the PNC Student Loan Trusts ("Lender")
for certain Consolidation Loans made pursuant to Part B of Title IV of the
Higher Education Act of 1965 (20 U.S.C. Section 1071 et seq.) as amended and in
effect from time to time. USA Funds and the Lender agree and certify as follows:
1. As used herein, the following words will have the meanings
respectively indicated:
"Agreement" means the Agreement to Guarantee Consolidation Loans between
USA Funds and the Lender, and any amendments thereto.
"Certificate" means this Certificate of Comprehensive Guarantee Coverage
issued by USA Funds to the Lender in accordance with the Act.
2. In this Certificate, unless the context or this Certificate
otherwise requires, all definitions and other provisions of the Agreement are
controlling. This Certificate is hereby incorporated into the Agreement and
made a part thereof.
3. If the Lender complies with the requirements of the Act, the
Policies, the Agreement, and this Certificate, USA Funds will make its
Guarantee available to the Lender to partially insure the Lender against loss
of principal and interest on Consolidation Loans originated by the Lender. The
aggregate amount of such Guarantee shall at no time exceed $1,000,000; provided,
however, that upon receipt of a written request of the Lender, USA Funds may
increase the aggregate amount of such Guarantee.
4. The issuance by USA Funds of Guarantees for Consolidation Loans
originated by the Lender under the Consolidation Loan Program is made in
reliance on the representations of the Lender contained in this Certificate and
the Agreement. The continuance of Guarantees issued by USA Funds for
Consolidation Loans is conditioned upon continued compliance by each and every
holder of such Consolidation Loan with applicable laws and regulations, and the
Policies. The delegation of one or more functions to a servicing agency or
another party does not relieve the Lender of its responsibilities in
administering Consolidation Loans.
5. No Consolidation Loan originated by the Lender will be covered by
USA Funds' Guarantee unless and until the Lender has determined, in accordance
with reasonable and prudent business practice, with respect to each Eligible
Student Loan being consolidated (i) that each such Eligible Student Loan is a
legal, valid, and binding obligation; (ii) that each such Eligible Student Loan
was originated and serviced in compliance with applicable laws and regulations;
and (iii) with respect to all Eligible Student Loans made, insured, or
guaranteed under the Act, that the insurance or guarantee on each such Eligible
Student Loan is in full force and effect.
6. The Lender will at all times be subject to the reporting
requirements identified in the Policies and the Limitation, Suspension, and
Termination procedures set out in the Policies (provided, however, that any
such Limitation, Suspension, or Termination shall not affect the Guarantee of
any Consolidation Loan originated by the Lender prior to the initiation of such
Limitation, Suspension, or Termination).
7. All claims on Consolidated Loans Guaranteed pursuant to this
Certificate and all related administrative functions to be performed by USA
Funds pursuant to this Certificate, the Agreement, or the Policies shall be
processed or performed by USA Funds or its contractors at offices located in
Fishers, Indiana or at such other office of USA Funds or its contractors as may
be designated by USA Funds.
- --------------------------------------------------------------------------------
United States Aid Funds, Inc.
Consolidated Loan Program page 1 S:\STDFORMS\PRODUCT\CONSCERT.FM2
Certificate of Comprehensive Guarantee Coverage June 11, 1996
<PAGE> 17
8. The Lender may offer to the Eligible Borrower and establish such
alternative repayment terms on a Consolidation Loan as will promote the
objectives of the Consolidation Loan Program; provided, however, that such
alternative repayment terms are in accordance with the Act, the Policies, and
the Agreement.
9. This Certificate shall be in effect, subject to the Act, the
Agreement, and the Policies, from the date first above written until expiration
of the authority in the Act to make or Guarantee Consolidation Loans, but no
later than December 31, 2005. Termination of the Agreement terminates this
Certificate.
10. Except with respect to Consolidation Loans that have been Guaranteed
by USA Funds and continue to be outstanding under this Certificate, this
Certificate may be terminated by either party with or without cause upon not
less than ninety (90) calendar days prior express written notice to the other
party. Such termination will not affect any Notes which are outstanding or
duties undertaken prior to the effective date of the termination.
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Certificate of Comprehensive Guarantee Coverage to be executed by
their respective authorized officers and to take effect on the date first above
written.
The First National Bank of Chicago as
Trustee for the PNC Student Loan Trusts UNITED STUDENT AID FUNDS, INC.
- ---------------------------------------
Lender
/s/ Jeffrey L. Kinney /s/ Mary Lynn Ross
- --------------------------------------- ------------------------------
Authorized Signature Authorized Signature
LYNN ROSS
Jeffrey L. Kinney, Asst. Vice President SENIOR VICE PRESIDENT
- --------------------------------------- ------------------------------
Printed Name and Title Printed Name and Title
One National Plaza, Suite 0126
- ---------------------------------------
Address
Chicago, Illinois 60670
- ---------------------------------------
City, State, Zip
36-4142114/833364
- ---------------------------------------
Federal Identification/ED Lender Code
- --------------------------------------------------------------------------------
United Student Aid Funds, Inc.
Consolidated Loan Program page 2 S:\STDFORMS\PRODUCT\CONSCERT.FM2
Certificate of Comprehensive Guarantee Coverage June 11, 1996
<PAGE> 18
CONSOLIDATION LOAN PROGRAM
COMPREHENSIVE GUARANTEE COVERAGE
LETTER OF UNDERSTANDING
THIS LETTER OF UNDERSTANDING is entered into as of the 24 day of March, 1997,
by and between UNITED STUDENT AID FUNDS, INC., a nonprofit corporation
organized under the General Corporation Law of the State of Delaware ("USA
Funds"), and The First National Bank of Chicago as Trustee for the PNC Student
Loan Trusts ("Lender").
WHEREAS, on March 24, 1997, a Certificate of Comprehensive Guarantee Coverage
("Certificate") was made and entered into by USA Funds and the Lender; and
WHEREAS, Lender has determined that the continued services to be rendered by
itself and USA Funds as therein specified are both necessary and desirable; and
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained in this Letter of Understanding and of other good and
valuable consideration, the receipt of which is acknowledged, the terms of
this Letter of Understanding are as follows:
1. In accordance with the provisions of Paragraph 3 of the Certificate, USA
Funds will continue to make its Guarantee available to the Lender to
partially insure the Lender against loss of principal and interest on
Consolidation Loans originated by the Lender in an aggregate amount not
to exceed $1,000,000.
2. This Letter of Understanding shall be binding upon USA Funds and the
Lender or their successors; and
3. This Letter of Understanding represents the entire agreement of USA
Funds and the Lender with respect to the subject matter, and in no way
modifies or abrogates the existing Certificate or Agreement except as
expressly provided.
IN WITNESS WHEREOF, United Student Aid Funds, Inc. and the Lender have each
caused this Letter of Understanding to be executed by their respective
authorized officers and to take effect on the date first above written.
The First National Bank of Chicago as
Trustee for the PNC Student Loan Trusts UNITED STUDENT AID FUNDS, INC.
- ---------------------------------------
Lender
/s/ Jeffrey L. Kinney /s/ Mary Lynn Ross
- --------------------------------------- ------------------------------
Authorized Signature Authorized Signature
LYNN ROSS
Jeffrey L. Kinney, Asst. Vice President SENIOR VICE PRESIDENT
- --------------------------------------- ------------------------------
Printed Name and Title Printed Name and Title
One National Plaza, Suite 0126
- ---------------------------------------
Address
Chicago, Illinois 60670
- ---------------------------------------
City, State, Zip
36-4142114/833364
- ---------------------------------------
Federal Identification/ED Lender Code
- --------------------------------------------------------------------------------
United Student Aid Funds, Inc.
Consolidated Loan Program S:\STDFORMS\PRODUCT\CONSLTR.FM2
Letter of Understanding May 23, 1996
<PAGE> 1
Exhibit 5.1
[MAYER, BROWN & PLATT LETTERHEAD]
June 16, 1997
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Re: PNC Bank, National Association
Registration Statement on Form S-3 (No. 333-25433)
Ladies and Gentlemen:
We have acted as special counsel to PNC Bank, National Association (the
"Bank"), in connection with the above-referenced Registration Statement
(together with the exhibits and any amendments thereto, the "Registration
Statement"), filed by the Bank with the Securities and Exchange Commission in
connection with the registration by the Bank of the PNC Student Loan Trust I,
Student Loan Asset Backed Notes, Series 1997-2 (the "Notes") in amounts set
forth in the Prospectus (the "Prospectus") included in the Registration
Statement.
As described in the Registration Statement, the Notes will be issued by
PNC Student Loan Trust I, a Delaware business trust (the "Trust"), pursuant to
an Indenture and the Second Terms Supplement thereto (collectively the
"Indenture"), each between the Trust and Bankers Trust Company in its capacity
as Indenture Trustee (the "Indenture Trustee").
We are familiar with the proceedings taken in connection with the
proposed authorization, issuance and sale of the Notes, and in order to express
the opinion hereinafter stated, we have examined copies of the Registration
Statement, including the Trust Agreement, the Indenture, the forms of Notes, and
the form of Underwriting Agreement included as an exhibits to the Registration
Statement. We have examined such other documents and such matters of law, and we
have satisfied ourselves as to such matters of fact, as we have considered
relevant for purposes of this opinion.
<PAGE> 2
PNC Bank, National Association
June 16, 1997
Page 2
On the basis of the foregoing and on the basis of our examination of
the Bank's Articles of Association and By-Laws and resolutions of the Executive
Committee of the Bank's Board of Directors adopted on March 24, 1997 (and
affirmed by the Bank's Board of Directors on April 8, 1997) and June 11, 1997,
it is our opinion that, with respect to the Notes, when, as and if (i) the
Registration Statement becomes effective pursuant to the provisions of the
Securities Act of 1933, as amended, and (ii) the Notes have been duly issued by
the Trust and authenticated by the Indenture Trustee all in accordance with the
terms and conditions of the Indenture and sold by the Trust in the manner
described in the Registration Statement, the Notes will have been duly
authorized by all necessary action on behalf of the Trust and will have been
legally issued and will be binding obligations enforceable in accordance with
their terms and entitled to the benefits of the Indenture except as the same may
be limited by bankruptcy, insolvency, reorganization, moratorium, or similar
laws affecting the enforcement of creditors' rights generally or the relief of
debtors, as may be in effect from time to time, or by general principles of
equity.
We wish to advise you that we are members of the bar of the State of
New York and the opinions expressed herein are limited to the laws of the State
of New York and the Federal laws of the United States.
We hereby consent to the filing of this opinion. In giving such
consent, we do not admit that we are "experts" within the meaning of the term
used in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Sincerely,
/s/ MAYER, BROWN & PLATT
------------------------
MAYER, BROWN & PLATT
<PAGE> 1
EXHIBIT 8.1
[MAYER, BROWN & PLATT LETTERHEAD]
June 16, 1997
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
RE: PNC BANK, NATIONAL ASSOCIATION
PNC STUDENT LOAN TRUST I
STUDENT LOAN ASSET BACKED NOTES, SERIES 1997-2
REGISTRATION STATEMENT ON FORM S-3 (No. 333-25433)
Ladies and Gentlemen:
We have acted as special tax counsel for PNC Bank, National
Association (the "Transferor"), in connection with the above-referenced
Registration Statement (together with the exhibits and any amendments thereto,
the "Registration Statement"), filed by the Transferor and the PNC Student
Loan Trust I (the "Trust") with the Securities and Exchange Commission in
connection with the registration by the Transferor and the Trust of the
Student Loan Asset Backed Notes, Series 1997-2 (the "Notes") to be issued
by the Trust.
We are familiar with the proceedings to date in connection with the
proposed issuance and sale of the Notes and in order to express our opinion
hereinafter stated, (a) we have examined copies of the form of the Transfer and
Servicing Agreement, the Second Terms Supplement and the Notes, the Trust
Agreement and the Indenture filed as exhibits to the Registration Statement
(collectively the "Operative Documents"), (b) we have examined the Registration
Statement and the Prospectus contained therein (the "Prospectus"), and (c) we
have examined such other records and documents and such matters of law, and we
have satisfied ourselves as to such matters of fact, as we have considered
relevant for purposes of this opinion.
The opinion set forth in this letter is based upon the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings and
Revenue Procedures, current administrative positions of the IRS and existing
judicial decisions. No tax rulings will be sought from the IRS with respect to
any of the matters discussed herein.
Based on the foregoing and assuming that the Operative Documents are
executed and delivered in substantially the form we have examined, we are of
the opinion that the statements
<PAGE> 2
PNC Bank, National Association
June 16, 1997
Page 2
set forth in the Prospectus under the headings "Summary of Terms -- Tax
Considerations," "Summary of Terms -- ERISA Considerations," "Federal Tax
Consequences" and "ERISA Considerations" are a fair and accurate summary of the
material federal tax consequences and ERISA consequences of the issuance and
holding of the Notes, that the Notes will be treated as debt for federal income
tax purposes, and that the Trust will not be classified as an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, and because the Trust has not elected (and assuming it will not elect)
under Treasury Regulation 301-7701-3 to be classified as an association, the
Trust will not be so classified for federal income tax purposes. There can be no
assurance, however, that the tax conclusions presented therein will not be
successfully challenged by the IRS, or significantly altered by new legislation,
changes in IRS positions or judicial decisions, any of which challenges or
alterations may be applied retroactively with respect to completed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Federal Tax Consequences" and "Legal Matters". In giving such
consent, we do not admit that we are "experts" within the meaning of the term
used in the Act or the rules and regulations of the Securities and Exchange
Commission issued thereunder, with respect to any part of the Registration
Statement, including this opinion as an exhibit or otherwise.
Very truly yours,
/s/ MAYER, BROWN & PLATT
--------------------
MAYER, BROWN & PLATT
